dupont-photomasks-inc-v-carole-keeton-strayhorn-comptroller-of-public ( 2006 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-04-00822-CV
DuPont Photomasks, Inc., Appellant
v.
Carole Keeton Strayhorn, Comptroller of Public Accounts of the State of Texas and Greg
Abbott, Attorney General of the State of Texas, Appellees
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 126TH JUDICIAL DISTRICT
NO. GN303695, HONORABLE DARLENE BYRNE, JUDGE PRESIDING
OPINION
In order to manufacture sensitive electronic equipment, DuPont Photomasks, Inc.
(“DuPont”) entered into an agreement for the construction of a sterile, controlled chamber
(“cleanroom”) and a building to house the chamber. After the building was constructed, DuPont
leased the building and the cleanroom to another company. DuPont did not pay sales tax on the
parts purchased for the construction of the cleanroom and claimed that, because it purchased the
items with the intent of ultimately leasing the cleanroom, it was entitled to the sale-for-resale
exemption from the payment of sales tax. See Tex. Tax Code Ann. § 151.006 (West 2002). The
Comptroller disagreed and concluded that, under the relevant statutes and administrative rule,
DuPont was not entitled to the exemption. See 34 Tex. Admin. Code § 3.294(k) (2006). DuPont
paid the amount in question under protest and initiated an administrative hearing. After the hearing,
the Comptroller issued an order stating that DuPont did not qualify for the exemption. DuPont
appealed to the district court, contending that it was entitled to a refund and seeking a declaration
that the Comptroller’s administrative rule was invalid and inconsistent with the relevant statutory
authority. The district court declared that the rule was valid and granted summary judgment in favor
of the Comptroller. DuPont appeals the judgment of the district court, and we will affirm the court’s
judgment.
BACKGROUND
DuPont manufactures photomasks, which are quartz or glass plates impressed with
a metal layer that are used in the production of semiconductors. To properly manufacture a
photomask, DuPont must produce the masks in a “cleanroom,” which is a sterile, controlled
environment in which potentially contaminating materials are filtered out.
In 1996, DuPont entered into a joint venture with three semiconductor
manufacturers—Micron Technologies, Inc.; Motorola, Inc.; and Advanced Micro Devices, Inc.—to
create the DuPont Photomasks, Inc. Reticle Technology Center, L.L.C. (the “Center”) for the purpose
of developing technologies for the fabrication of leading-edge photomasks. The joint venture was
created by an “operating agreement” between the companies. Under the terms of the agreement,
each member of the Center was entitled to an equal amount of the Center’s production and was able
to purchase, at cost, the photomasks manufactured on its behalf.
The agreement specified that DuPont would construct and operate a “Facility” for the
purpose of satisfying the objectives of the joint venture. The agreement further defined the
“Facility” as “the development and manufacturing facility to be constructed . . . and leased by
[DuPont] to the [Center] and dedicated to the [Center’s] business.”
2
Shortly after the agreement was finalized, DuPont entered into contracts for the
construction of two buildings. The first building was approximately 17,000 square feet and was
designed to house a 5,500 square foot cleanroom. The cleanroom was assembled using various items
including a raised floor; moveable anti-static inner walls, partitions, outer walls, and air-handling
equipment for air circulation; a moveable ceiling; special electrical wiring; and climate control
equipment. The remainder of the first building contained more traditional business spaces including
offices for the Center’s employees. The second building was designed to contain a deionized water
plant and other equipment necessary for the operation of the cleanroom. Both buildings were
constructed on land owned by DuPont. The construction of the cleanroom cost $7.3 million, and the
construction of the remainder of the buildings cost $2.09 million.
After the buildings were constructed, DuPont rented the buildings, including the
cleanroom, to the Center in one lease.1 Under the lease, DuPont agreed to rent the following to the
Center:
[T]he premises (the “Premises”) consisting of
(I) all of [DuPont’s] right, title and interest in the land (the “Land”)
...,
(ii) all right, title and interest of [DuPont] in and to all buildings and
other structures and fixtures now or hereafter located on the
Land (the “Improvements”), and
1
Both the lease and the operating agreement were reviewed in camera by the district court.
Although neither exhibit was included in the appellate record, neither party contests the descriptions
of and quotations from these documents found in the briefs. Accordingly, we will accept the briefs’
characterizations of these documents as true. See Tex. R. App. P. 38.1-38.2.
3
(iii) all right, title and interest of [DuPont] in and to the easements,
rights and appurtenances relating to the Land and the
Improvements . . . .
The lease required the Center to make monthly payments but did not specify what portions of the
rent were attributable to use of the cleanroom or any other individual portion of the buildings; on the
contrary, the lease only specified one single rent payment for the lease of the entire structure.
DuPont did not pay sales tax on the purchase of the items used to construct the
cleanroom. Rather, it asserted that its purchase of the cleanroom qualified for the sale-for-resale
exemption from sales tax provided in the tax code because the items used to construct the cleanroom
were purchased with the intention that the cleanroom would be leased to the Center. See Tex. Tax
Code Ann. § 151.006. However, DuPont did not provide resale certificates to the companies that
it purchased the items from. See id. § 151.151 (West 2002) (rather than paying tax, purchaser may
give resale certificate when acquiring taxable item if purchaser intends to sell or lease item in regular
course of business).
The Comptroller performed an audit on DuPont to determine what amount if any
DuPont owed as sales tax for the period between January 1, 1996, and October 31, 1997. During
the audit, the Comptroller concluded that, under the relevant provision of the administrative code
interpreting the sale-for-resale exemption, DuPont’s purchase of the items used to construct the
cleanroom did not qualify for the exemption. See 34 Tex. Admin. Code § 3.294(k)(1). Accordingly,
the Comptroller notified DuPont that it owed sales and use taxes in the amount of $558,389.51 and
issued a penalty of $230,894.99. See Tex. Tax Code Ann. §§ 111.008 (West 2002) (if Comptroller
4
is not satisfied with tax report, Comptroller may determine amount of tax to be paid), .061
(authorizing imposition of penalty).
DuPont contested the amount of taxes and penalty owed, and an administrative
hearing was conducted. An administrative law judge issued a proposal for decision concluding that
the cleanroom qualified under the sale-for-resale exemption. However, after the hearing, the
Comptroller issued a decision in which she concluded that the leasing of the cleanroom did not
qualify for the exemption. The Comptroller reasoned that the sale-for-resale exemption does not
apply to tangible personal property purchased for lease in conjunction with the lease of real property.
Further, the Comptroller concluded that, because the cleanroom was leased along with the remainder
of the two buildings, DuPont could not invoke the sale-for-resale exemption. After the
Comptroller’s opinion was issued, DuPont paid, under protest, the taxes, penalties, and accrued
interest assessed. See id. § 112.051 (West 2002) (if person required to pay taxes contends amount
imposed is improper, person must pay fee and submit protest with fee).
DuPont then filed suit against the Comptroller and the Attorney General. See id.
§§ 112.052 (person who paid under protest may file suit), 112.053 (West 2002) (suit must be against
Comptroller and Attorney General). In its suit, DuPont sought recovery of the taxes, penalty, and
interest it had previously paid and asked the district court to declare that rule 3.294(k) is invalid and
that the lease of the cleanroom qualified for the sale-for-resale exemption. Both parties moved for
summary judgment. The district court declared that rule 3.294(k) is valid and granted summary
judgment in favor of the Comptroller. DuPont appeals the decision of the district court.
5
STANDARD OF REVIEW
The standards for obtaining a traditional summary judgment are well established: the
movant must show that there is no genuine issue of material fact and that it is entitled to judgment
as a matter of law; in deciding whether there is a disputed material fact issue precluding summary
judgment, the court must take evidence favorable to the nonmovant as true, must indulge every
reasonable inference in favor of the nonmovant, and resolve any doubts in the nonmovant’s favor.
Sergeant Enters., Inc. v. Strayhorn, 112 S.W.3d 241, 245 (Tex. App.—Austin 2003, no pet.) (citing
Cathey v. Booth, 900 S.W.2d 339, 341 (Tex. 1995); Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546,
548-49 (Tex. 1985)). We review the trial court’s decision to grant summary judgment de novo. Id.
(citing Natividad v. Alexsis, Inc., 875 S.W.2d 695, 699 (Tex. 1994)).
Generally, a party cannot appeal the denial of a motion for summary judgment
because it is an interlocutory order and, thus, not appealable. Id. (citing Cincinnati Life Ins. Co. v.
Cates, 927 S.W.2d 623, 625 (Tex. 1996)). However, when both parties move for summary judgment
and the district court grants one motion and denies the other, the unsuccessful party may appeal both
the grant of the prevailing party’s motion and the denial of its own. Id. (citing Holmes v. Morales,
924 S.W.2d 920, 922 (Tex. 1996)). In such a case, we will review the summary judgment evidence
offered by both sides, determine all questions presented, and render the judgment the trial court
should have rendered. Id. (citing FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872
(Tex. 2000); Commissioners Court v. Agan, 940 S.W.2d 77, 81 (Tex. 1997)).
DISCUSSION
DuPont raises four issues on appeal. First, it asserts that rule 3.294(k)(1) exceeds the
Comptroller’s rulemaking authority and is, therefore, invalid. Next, it contends that its purchase of
6
the items used in the construction of the cleanroom qualified for the sale-for-resale exemption.
Third, it argues that the district court erred by excluding certain evidence attached to DuPont’s
motion for summary judgment. Finally, it asserts that a legislative rider, which prohibits a tax refund
over $250,000 without legislative approval, improperly restricts its ability to obtain the refund, is
contrary to the directives of the tax code, and violates the Texas and federal constitutions.
Rule 3.294(k)(1) is Valid
In its first issue on appeal, DuPont asserts that rule 3.294(k)(1) is invalid because it
exceeds the Comptroller’s rulemaking authority and is contradictory to subsection 151.006(2) of the
tax code. DuPont argues that subsection 151.006(2) requires a subjective determination when
ascertaining whether a taxpayer is entitled to the sale-for-resale exemption but that rule 3.294(k)(1)
improperly imposes an objective standard. Specifically, DuPont insists that, when a taxpayer
attempts to invoke the sale-for-resale exemption for personal property purchased for the purpose of
leasing it under an agreement that leases both real property and the personal property purchased,
subsection 151.006(2) mandates that an assessment of the relative importance of the leasing of the
two types of properties be undertaken: if leasing the personal property is of greater importance than
leasing the real property, the taxpayer may invoke the sale-for-resale exemption and not pay sales
tax on the purchase of the personal property. Further, it contends that the Comptroller’s
interpretation does not allow for this comparison and impermissibly forbids the invocation of the
exemption in connection with the purchase of personal property if the personal property is leased in
conjunction with real property, no matter how insignificant the leasing of the real property is to the
overall agreement.
7
Under the tax code, the lease of tangible personal property is a sale that is subject to
taxation. See Tex. Tax Code Ann. §§ 151.005 (West Supp. 2006) (definition of “sale”), .009 (West
2002) (definition of “tangible personal property”), .010 (tangible personal property is a “taxable
item”), .051 (imposing sales tax on “taxable items”). However, if certain requirements are satisfied,
the lease of tangible personal property may be exempt from taxation under the sale-for-resale
exemption. The purpose of the sale-for-resale exemption is to prevent double taxation. Strayhorn
v. Raytheon E-Sys., Inc., 101 S.W.3d 558, 572 (Tex. App.—Austin 2003, pet. denied). Under the
relevant portions of the tax code, a “sale for resale” means a sale of
(1) tangible personal property or a taxable service to a purchaser who acquires the
property or service for the purpose of reselling it . . . in the normal course of
business in the form or condition in which it is acquired or as an attachment to
or integral part of other tangible personal property or taxable service; [or]
(2) tangible personal property to a purchaser for the sole purpose of the purchaser’s
leasing or renting it in the United States of America . . . to another person, but
not if incidental to the leasing or renting of real estate; . . .
Tex. Tax Code Ann. § 151.006 (1)-(2). The tax code further provides that the “sale for resale of a
taxable item is exempted from” sales and use taxes. Id. § 151.302(a) (West 2002).
The Comptroller’s rule interpreting the sale-for-resale exemption reads, in relevant
part, as follows:
(k) Lease of real property with tangible personal property.
(1) If a contract for the lease or rental of real property includes the
lease or rental of tangible personal property (such as furniture)
as part of the agreement, no sales tax is due on the amount
charged the tenant for the lease or rental of the tangible personal
property. A resale certificate may not be issued and sales or use
8
tax must be paid at the time the tangible personal property is
purchased.
34 Tex. Admin. Code § 3.294(k)(1); see also Tex. Tax Code Ann. § 111.002 (West 2001)
(Comptroller may adopt rules that do not conflict with laws of this State).
Relying on a previous case issued by this Court and referring to definitions of the
phrase “incidental to” found in various dictionaries, DuPont contends that the phrase “incidental to”
found in section 151.006 means subordinate to or a minor accompaniment. See Sharp v. Park ‘N
Fly of Tex., 969 S.W.2d 572, 574 (Tex. App.—Austin 1998, pet. denied); see, e.g., Black’s Law
Dictionary 523 (abridged 6th ed. 1983) (incidental means “[d]epending upon or appertaining to
something else as primary; something necessary, appertaining to, or depending upon another which
is termed the principal . . . ”). Therefore, DuPont insists that section 151.006 allows a taxpayer to
invoke the sale-for-resale exemption for the purchase of personal property to be leased under an
agreement also leasing real property if the leasing of the personal property is of greater importance
than the leasing of the real property. Based on this reading of section 151.006, it argues that, because
rule 3.294(k) does not include the phrase “incidental to” or allow for an assessment of the relative
importance of the personal and real property leased under one instrument, rule 3.294(k) improperly
prohibits the invocation of the exemption for the lease of real and personal property when the lease
of the personal property is of paramount importance to the agreement. Accordingly, DuPont insists
that the rule runs afoul of the plain language of the statute and, therefore, exceeds the rulemaking
authority of the Comptroller. See Tex. Gov’t Code Ann. § 311.011 (West 2005) (words and phrases
shall be construed according to rules of grammar and common usage).
9
We disagree with DuPont. In determining whether a rule is valid, we are limited to
ascertaining whether the rule is contrary to the relevant statute. State v. Public Util. Comm’n, 131
S.W.3d 314, 321 (Tex. App.—Austin 2004, pet. denied). While an agency’s rules must comport
with the agency’s authorizing statute, the legislature is not required to include every specific detail
or anticipate all unforeseen circumstances. Id. Further, when making our determination, an agency
rule is presumed valid, and the challenging party bears the burden to demonstrate its invalidity.
Office of Pub. Util. Counsel. v. Public Util. Comm’n, 104 S.W.3d 225, 232 (Tex. App.—Austin
2003, no pet.). We will defer to an agency’s interpretation as long as it is reasonable and does not
contradict the plain meaning of the statute. Perry Homes v. Strayhorn, 108 S.W.3d 444, 448 (Tex.
App.—Austin 2003, no pet.); see also Tarrant Appraisal Dist. v. Moore, 845 S.W.2d 820, 823 (Tex.
1993) (agency’s construction is entitled to serious consideration); Quorum Sales, Inc. v. Sharp, 910
S.W.2d 59, 64 (Tex. App.—Austin 1995, writ denied) (court bound to accept Comptroller’s
interpretation of exemption if interpretation is reasonable, in that it harmonizes with relevant statute).
First, we note that, contrary to DuPont’s assertions, the meaning of “incidental to”
found in the second portion of the sale-for-resale exemption is unclear. Various definitions for the
phrase “incidental to” indicate that the phrase can have the same meaning as the phrase “incident to.”
The entry for “incidental to” found in A Dictionary of Modern Legal Usage defines “incidental to”
as meaning “happening by chance and subordinate to some other thing; peripheral.” Bryan A.
Garner, A Dictionary of Modern Legal Usage 430 (2d ed. 1995). However, the entry also specifies
that the phrase “incidental to” has historically been used interchangeably with the phrase “incident
to,” which is defined as meaning “closely related to; naturally appearing with.” Id. The
interchangeability of these phrases is also acknowledged in another authority cited by DuPont. See
10
Oxford Universal Dictionary on Historic Principles 1523 (3d ed. 1955) (“incident” can be defined
as “incidental”); see also Webster’s Seventh New Collegiate Dictionary 580 (1971) (one definition
for “incident” specifies that it can mean “something dependent on or subordinate to something else
of greater or principal importance”). Because the meaning of the language of the statute is unclear
and because the statute is a tax exemption statute, we construe the statute in favor of the taxing
authority and against the taxpayer. See Upjohn v. Rylander, 38 S.W.3d 600, 606 (Tex. App.—Austin
2000, pet. denied).
DuPont asserts that, in Park ‘N Fly, we previously adopted a definition of the phrase
“incidental to” as meaning subordinate to something else. In Park ‘N Fly, this Court had occasion
to consider whether a business that offered parking and airport transportation services could refuse
to collect sales tax on the price it allocated for its transportation services. 969 S.W.2d at 574. Park
‘N Fly provided parking for airport passengers wishing to leave their cars near the airport. In
addition, Park ‘N Fly would transport its customers to and from the airport via a shuttle bus.
Although it charged only one price for its services, Park ‘N Fly allocated 30% of its charge to its
parking services and 70% to its shuttle services. The relevant statute governing sales taxes specified
that “sales price” is the total amount for which a taxable item is sold without a deduction for the cost
of “transportation incident to the performance of a taxable service.” Tex. Tax Code Ann.
§ 151.007(a)(4) (West 2002). In 1995, a rule was adopted clarifying that the shuttle service
component would be taxable. See 34 Tex. Admin. Code § 3.315 (2006). This Court ultimately
concluded that the phrase “incident to,” as it is used in subsection 151.007(a)(4) of the tax code,
means “closely related to” and that the Comptroller’s rule was, therefore, consistent with the
governing statute. Park ‘N Fly, 969 S.W.2d at 575.
11
DuPont’s reliance on this case is misplaced for several reasons. First, the tax statute
and administrative rules at issue in Park ‘N Fly are inapplicable to the present case. Further, in Park
‘N Fly, we were asked to interpret the phrase “incident to,” not “incidental to.” In making our
ultimate determination that the Comptroller’s rule is consistent with the governing statute, we did
reference the same definitions for “incident to” and “incidental to” found in A Dictionary of Modern
Legal Usage that were discussed previously; however, we also mentioned the fact that the two
phrases have been used interchangeably. Moreover, we expressly limited our holding that the two
phrases are not interchangeable to the facts and statute at issue in that case. See id. (incident and
incidental “are not interchangeable here”).
Given that the phrase “incidental to” has historically been used interchangeably with
“incident to,” the Comptroller’s interpretation of the sale-for-resale exemption is reasonable. Rule
3.294(k)(1) prohibits the invocation of the exemption for tangible personal property if the property
is leased as part of an agreement leasing real property. See Tex. Admin. Code § 3.294(k)(1). This
interpretation comports with the definition of “incidental to” as meaning “closely related to.”
Second, we note that the Comptroller’s interpretation of the sale-for-resale exemption
is longstanding. Because the meaning of the statute is unclear, we give serious consideration to the
contemporaneous construction of the statute made by the Comptroller. See Rylander v. Fisher
Controls Int’l, Inc., 45 S.W.3d 291, 302 (Tex. App.—Austin 2001, no pet.). When a statute has been
given a longstanding construction by an administrative officer and the statute is re-enacted without
substantial change, “the Legislature is presumed to have been familiar with that interpretation and
to have adopted it.” Texas Dep’t of Protective & Regulatory Servs. v. Mega Child Care, Inc., 145
S.W.3d 170, 176 (Tex. 2004). The sale-for-resale exemption was first enacted in 1941. See Act of
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April 28, 1941, 47th Leg., R.S., ch. 184, art. X, § 1, 1941 Tex. Gen. Laws 269, 292 (not requiring
tax be levied more than once on sale of same article of merchandise). In 1981, the exemption was
codified into the tax code with language nearly identical to the current version and has been amended
several times since then without substantial change. See Act of May 29, 1981, 67th Leg., R.S., ch.
389, § 105.006, 1981 Tex. Gen. Laws 1490, 1546; Act of July 3, 1984, 68th Leg., 2nd C.S., ch. 31,
art. VII, § 7, 1984 Tex. Gen. Laws 193, 223 (adding phrase “or taxable service”); Act of May 19,
1995, 74th Leg., R.S., ch. 350, § 1, sec. 151.006, 1995 Tex. Gen. Laws 2881, 2882 (adding phrase
“or in the United Mexican States”). In 1977, the Comptroller amended a prior rule specifying that
tangible personal property leased in conjunction with real property is not eligible for the sale-for-
resale exemption. See 2 Tex. Reg. 700 (1977) (amending rule 026.02.20.014) (if contract for lease
of real property includes lease of tangible personal property, sales tax is due when personal property
is purchased). This interpretation has remained consistent through the current interpretation of the
exemption. See 34 Tex. Admin. Code § 3.294(k).
Third, we note that the Comptroller’s rule provides a bright-line rule, which benefits
both taxpayers and auditors. See Perry Homes, 108 S.W.3d at 448. Given the numerous possible
reasons for entering into contracts involving the leasing of real and personal property and the
countless combinations of real and personal property, requiring the Comptroller to determine
whether the lease of the real property is subordinate to the lease of the personal property seems an
overly onerous task. See id. (Comptroller should not be required to engage in subjective analysis of
each contract to determine parties’ intent with regard to payment of taxes).
For all the reasons given, we conclude that the rule does not exceed the Comptroller’s
rulemaking authority and, accordingly, overrule DuPont’s first issue on appeal.
13
DuPont is Not Entitled to the Sale-for-resale Exemption
In its second issue on appeal, DuPont asserts that its purchase of the cleanroom
qualified for the sale-for-resale exemption. Specifically, it contends that the purpose of forming the
Center was to build a facility for the production of photomasks and that, therefore, it purchased the
items necessary for the construction of the cleanroom for the “sole purpose of” leasing the
cleanroom. See Tex. Tax Code Ann. § 151.006(2). It also argues that the lease of the cleanroom was
not “incidental to” to the lease of the two buildings; on the contrary, it insists that the lease of the
cleanroom was of primary importance. In support of these arguments, DuPont compares the cost
of the construction of the cleanroom with the cost of the construction of the remainder of the
buildings and, based on that comparison, argues that 78% of the rent due under the lease
corresponded to the use of the cleanroom and 22% to use of the remainder of the buildings. It also
states that it would not have constructed the two buildings had it not intended to lease the cleanroom.
We have already concluded that rule 3.294(k) is a reasonable interpretation and is
consistent with the relevant portions of the tax code. The rule prohibits the invocation of the
exemption if an agreement includes the lease of real property and tangible personal property. See
Tex. Admin. Code § 3.294(k)(1). It is undisputed that the lease between DuPont and the Center
included the lease of the buildings along with the cleanroom. Accordingly, DuPont was not entitled
to claim a sale-for-resale exemption.2
Moreover, even if the rule were invalid, DuPont would not have qualified for the
exemption under the tax code. Subection 151.006(2) allows an individual to claim the exemption
2
In its brief, DuPont concedes that if the rule is valid on its face, DuPont loses on its claim
that it is entitled to the exemption.
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for the sale of “tangible personal property to a purchaser for the sole purpose of the purchaser’s
leasing or renting it.” Tex. Tax Code Ann. § 151.006(2) (emphasis added). DuPont did not
purchase a cleanroom; on the contrary, it purchased various items that were assembled to make a
cleanroom. Because it did not purchase a cleanroom for the sole purpose of subsequently leasing
it, DuPont’s purchase of the items necessary for the construction of the cleanroom does not qualify
for the exemption.
This conclusion is also supported by language found in the first provision of section
151.006. Jones v. Fowler, 969 S.W.2d 429, 432 (Tex. 1998) (when determining legislative intent,
entire act, not isolated portions, must be considered). Subsection 151.006(1) allows an individual
to claim the exemption for the purchase of tangible personal property acquired for the sole purpose
of reselling the property “in the normal course of business in the form or condition in which it is
acquired or as an attachment to or integral part of other tangible personal property.” Tex. Tax
Code Ann. § 151.006(1) (emphasis added). There is no such comparable language found in
subsection (2) that would allow for a claim of the sale-for-resale exemption when the item purchased
for lease has been attached to or combined with other tangible personal property. When determining
the meaning of a statute, we must presume that every word in the statute has been deliberately
included and that exclusions from the statute were made purposefully. See Gables Realty Ltd. P’ship
v. Travis Cent. Appraisal Dist., 81 S.W.3d 869, 873 (Tex. App.—Austin 2002, pet. denied).
For all the reasons discussed, we conclude that DuPont was not entitled to the sale-
for-resale exemption and overrule its second issue. Cf. Upjohn v. Rylander, 38 S.W.3d 600, 606
(Tex. App.—Austin 2000, pet. denied) (tax exemption claims are construed in favor of taxing
authority and strictly construed against taxpayer); see also Op. Tex. Att’y Gen. No. WW-1435
15
(1962) (interpreting prior version of sale-for-resale exemption and concluding that purchase of items
to be installed into house with intention of selling house later does not qualify for exemption because
items are not later sold as personal property).
Summary Judgment Evidence
In its third issue on appeal, DuPont contends that the district court erred when it
excluded certain evidence in response to an objection by the Comptroller. The Comptroller objected
to DuPont’s inclusion of the administrative law judge’s proposal for decision and the Comptroller’s
final decision in its motion for summary judgment and objected to portions of the motion discussing
the administrative hearing. Specifically, the Comptroller asserted that, because an appeal from a
final decision by the Comptroller is tried de novo in the district court, see Tex. Tax Code Ann.
§ 112.054 (West 2001), the inclusion of the documents was not permitted under government code
subsection 2001.173(a), which specifies that in a trial de novo
the reviewing court shall try each issue of fact and law in the manner that applies to
other civil suits in this state as though there had not been an intervening agency
action or decision but may not admit in evidence the fact of prior state agency action
or the nature of that action except to the limited extent necessary to show compliance
with statutory provisions that vest jurisdiction in the court.
Tex. Gov’t Code Ann. § 2001.173(a) (West 2000). The Comptroller asserted that, because there was
no dispute over whether the district court had jurisdiction over the case, the evidence of the prior
agency action was inadmissible. The district court sustained these objections in its judgment.
DuPont contends that the trial court erred because, in addition to its tax appeal,
DuPont was also asking for a declaration from the district court that rule 3.294(k)(1) was invalid and
16
for a declaration that a legislative rider was unconstitutional. It argues that these claims are broader
than the tax assessment claim and that, therefore, there is no legal basis for excluding the documents
from consideration in the declaratory judgment action.
After the Comptroller objected to the inclusion of the disputed documents, DuPont
made no attempt to offer the evidence for the limited purpose of consideration in its declaratory
judgment action. Accordingly, DuPont may not complain about the exclusion of evidence on appeal.
See Tex. R. Evid. 105 (party may not complain about exclusion of evidence for one purpose, even
if admissible for another purpose, if party does not expressly offer evidence for its “limited,
admissible purpose”); see also Tex. R. App. P. 33.1 (preservation of error). Moreover, DuPont has
not shown how the district court’s error, if any, “probably caused the rendition of an improper
judgment” or “probably prevented [it] from properly presenting the case.” See Tex. R. App. P. 44.1
(standard for reversible error in civil cases). In a declaratory judgment action regarding the validity
of an administrative rule, the district court does not defer to the Comptroller’s or an administrative
law judge’s determination of the validity of a rule; on the contrary, the district court engages in its
own review of the rule and the relevant statutes to determine if the rule comports with the
requirements and directives of those statutes. Therefore, the exclusion of the documents in question
did not prevent DuPont from making its case or lead to an improper verdict. Accordingly, for all the
reasons previously stated, we overrule this issue.
Rider 11
In its fourth and final issue, DuPont asserts that rider 11 to House Bill 1 of the 78th
legislative session violates the Texas and federal constitutions and the tax code. See Act of June 1,
17
2003, 78th Leg., R.S., ch. 1330, art. I, 2003 Tex. Gen. Laws 5023, 5074-75. Specifically, it claims
that, because the rider prevents the Comptroller from paying a tax refund of more than $250,000
without approval by the legislature, the rider is an improper enactment of general legislation within
an appropriations bill in violation of article III, section 35 of the Texas Constitution. See id.; see also
Tex. Const. art. III, § 35 (no bill shall contain more than one subject). Further, it argues that the rider
impermissibly attempts to alter a provision of the tax code that requires the Comptroller to issue a
refund if a taxpayer suit results in a determination that the money paid under protest belongs to the
taxpayer. See Tex. Tax Code Ann. § 112.060(a) (West 2001). Finally, DuPont contends that the
rider also violates the Texas and federal constitutions because it deprives DuPont of property, is an
unlawful taking, denies DuPont’s right of access to the remedies provided by courts by imposing an
unreasonable financial barrier, and denies DuPont due process and equal protection. See U.S. Const.
amend. XIV (Due Process Clause); Tex. Const. art. I, §§ 13 (access to courts), 17 (takings clause),
19 (due course of law).
Because we have concluded that DuPont is not entitled to a tax refund, we need not
address whether rider 11 would unconstitutionally impair its ability to obtain a refund. Moreover,
rider 11 applied only to appropriations occurring in the 2004-2005 biennium. This time has expired.
Moreover, the current appropriation does not contain the provision requiring legislative approval for
refunds over $250,000. See Act of May 29, 2005, 79th Leg., R.S., ch. 1369, art. I, 2005 Tex. Gen.
Laws 4324, 4366-67. Accordingly, we conclude that DuPont’s claim is moot and, therefore, overrule
this issue on appeal.
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CONCLUSION
Having overruled all of DuPont’s issues on appeal, we affirm the judgment of the
district court.
David Puryear, Justice
Before Justices B. A. Smith, Patterson and Puryear
Affirmed
Filed: December 20, 2006
19