DocketNumber: 03-14-00771-CV
Filed Date: 5/26/2015
Status: Precedential
Modified Date: 9/29/2016
ACCEPTED 03-14-00771-CV 5422011 THIRD COURT OF APPEALS AUSTIN, TEXAS 5/26/2015 4:15:15 PM JEFFREY D. KYLE CLERK NO. 03-14-00771-CV In the Court of Appeals FILED IN 3rd COURT OF APPEALS for the Third Judicial District AUSTIN, TEXAS Austin, Texas 5/26/2015 4:15:15 PM JEFFREY D. KYLE Clerk SANADCO INC., MAHMOUD A. ISBA, BROADWAY GROCERY, INC., SHARIZ, INC. RUBY & SONS STORE, INC., AND RUBINA NOORANI, Appellants, v. THE OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS; GLENN HEGAR, IN HIS OFFICIAL CAPACITY AS COMPTROLLER OF PUBLIC ACCOUNTS OF THE STATE OF TEXAS; AND KEN PAXTON IN HIS OFFICIAL CAPACITY AS ATTORNEY GENERAL OF THE STATE OF TEXAS, ET AL., Appellees. On Appeal from Cause No. D-1-GN-13-004352 The 200th Judicial District Court of Travis County, Texas The Honorable Charles Ramsay, Judge Presiding APPELLEES’ RESPONSIVE BRIEF KEN PAXTON ROBERT O’KEEFE Attorney General of Texas Chief, Financial and Tax Litigation Division CHARLES E. ROY JACK HOHENGARTEN First Assistant Attorney General State Bar No. 09812200 Assistant Attorney General JAMES E. DAVIS Financial Litigation, Tax, and Deputy Attorney General for Defense Charitable Trusts Division Litigation P.O. Box 12548 Austin, Texas 78711 2548 TEL: (512) 475-3503 FAX: (512) 477 2348 jack.hohengarten@texasattorneygeneral.gov Attorneys for Appellees TO THE HONORABLE THIRD COURT OF APPEALS: Appellees, Office of the Comptroller, Glenn Hegar, in his Official Capacity as Comptroller of Public Accounts of the State of Texas (“Comptroller”), and Ken Paxton, in his Official Capacity as Attorney General of Texas, pursuant to Tex. R. App. P. 28 and 38, file this response: This accelerated appeal is governed by Sanadco, Inc. v. Office of the Comptroller,2015 WL 1478200
(Tex. App.—Austin March 25, 2015, no pet.) (mem. op.)—indeed, this accelerated appeal is Sanadco v. Office of the Comptroller. While Sanadco I was pending before this court, and after it had denied their appellate motion for emergency relief, the taxpayers Sanadco and Mahmoud Isba turned around and filed a second, identical lawsuit in district court, challenging the Comptroller’s tax determination, and asserting claims under the APA and UDJA. The Honorable Judge Charles Ramsey denied Mahmoud Isba’s application for temporary injunction and Isba appeals that order. But, as shown below, Isba’s second suit—and this accelerated appeal of Judge Ramsey’s order—raises no new issues. As such, it is governed by this court’s opinion in Sanadco I. Appellees’ Responsive Brief page ii Sanadco v. Glenn Hegar, et al., 03-14-00771-CV TABLE OF CONTENTS Table of Contents .......................................................................................................3 Index of Authorities ...................................................................................................4 Statement of the Case.................................................................................................6 Issue Presented ...........................................................................................................7 Statement of Facts ......................................................................................................8 Summary of the Argument.........................................................................................9 Argument..................................................................................................................10 A. Appellant Isba failed to pay or make arrangements to pay for the reporter’s record, and the absence of that record is dispositive ............... 10 B. Even assuming arguendo that Isba presented an issue not requiring review of the reporter’s record, Sanadco I fully disposes of his appeal on jurisdictional grounds. .............................................................15 C. The waiver of immunity in APA section 2001.171 does not apply, because the legislature has set out a specialized procedure for tax protest suits. .............................................................................................17 D. Isba’s filing suit for judicial review does not and cannot vacate the Comptroller’s tax determination. .............................................................20 Prayer .......................................................................................................................19 Certificate of Compliance ........................................................................................20 Certificate of Service ...............................................................................................20 Appendix ..................................................................................................................21 Appellees’ Responsive Brief page iii Sanadco v. Glenn Hegar, et al., 03-14-00771-CV INDEX OF AUTHORITES Cases Bryant v. United Shortline Inc. Assur. Services, N.A.,972 S.W.2d 26
(Tex.1998)..............................................................................12, 13 Central Power & Light Co. v. Sharp,919 S.W.2d 485
(Tex. App.–Austin 1996, writ denied) .......................................17 City of El Paso v. Heinrich,284 S.W.3d 366
(Tex.2009) ..................................................................................15 Combs v. Chevron,319 S.W.3d 836
(Tex. App.–Austin 2010, pet. denied) .......................................17 CRC–Evans Pipeline Int'l, Inc. v. Myers,927 S.W.2d 259
(Tex. App.—Houston [1st Dist.] 1996, no writ) .......................11 Garth v. Staktek Corp.,876 S.W.2d 545
, 548 (Tex.App.—Austin 1994, writ dism’d w.o.j.) ................... 11 Miller Paper Co. v. Roberts Paper Co.,901 S.W.2d 593
(Tex.App.—Amarillo 1995, no writ)...................................11, 12 Millwrights Local Union No. 2484 v. Rust Engineering Co.,433 S.W.2d 683
(Tex.1968) ..................................................................................12 In re: Nestle USA, Inc.,359 S.W.3d 211
(Tex. 2012)...........................................................................15, 17 Rodriguez v. State,970 S.W.2d 133
(Tex.App.—Amarillo 1998, pet. ref'd) ......................................13 Rogers v. Howell,592 S.W.2d 402
(Tex.Civ.App.—Dallas 1979, writ ref'd n.r.e.) ..........................12 Schafer v. Conner,813 S.W.2d 154
(Tex.1991) ..................................................................................13 Tex. Dep't of Protective & Regulatory Servs. v. Mega Child Care,145 S.W.3d 170
(Tex. 2004).................................................................................16 Texas Indus. Gas v. Phoenix Metallurgical Corp.,828 S.W.2d 529
(Tex.App.—Houston [1st Dist.] 1992, no writ) ........................11 Texas Logos, L.P. v. Texas Dept. of Transp.,241 S.W.3d 105
(Tex.App.–Austin 2007, no pet.) ...............................................14 Texas Natural Res. Conservation Comm'n v. IT–Davy,74 S.W.3d 849
(Tex.2002)....................................................................................14 Walling v. Metcalfe,863 S.W.2d 56
(Tex.1993)....................................................................................10 Appellees’ Responsive Brief page iv Sanadco v. Glenn Hegar, et al., 03-14-00771-CV Statutes Tex. Gov’t Code § 2001.171........................................................................14, 15, 16 Tex. Gov’t Code § 2001.173....................................................................................18 Tex. Gov’t Code § 2001.038....................................................................................15 Tex. Civ. Prac. & Rem. Code § 37.001 ...................................................................15 Tex. Tax Code 111.0611(a) .......................................................................................8 Tex. Tax Code 112.054 ............................................................................................18 Tex. Tax Code 112.051-.156 ...................................................................................16 Appellate Rules Tex. R. App. P 37.3(c) .........................................................................................9, 14 Tex. R. App. P. 35.3(b)(1)-(3) .................................................................................13 Tex. R. App. P. 50(d) ...............................................................................................13 Appellees’ Responsive Brief page v Sanadco v. Glenn Hegar, et al., 03-14-00771-CV STATEMENT OF THE CASE Nature of the Case: This is a suit brought (again) by the Sanadco taxpayers under the Administrative Procedure Act and the UDJA, alleging two internal agency memos were APA “rules,” which the Comptroller failed to adopt in accordance with APA requirements. See Tex. Gov’t Code §§ 2001.021-.033 (West 2008). The taxpayers also sought declaratory relief, alleging the Comptroller had engaged in ultra vires acts, and challenged the constitutionality of several statutes in the Tax Code. Finally, they sought to enjoin the Comptroller’s administrative enforcement and collection activities. Trial Court: 200th Judicial District Court of Travis County, Texas, The Honorable Charles Ramsey, Judge Presiding Course of Proceedings: While Sanadco, Inc. v. Office of the Comptroller, No. 03-11- 000462-CV (“Sanadco I”)1 was pending before this Court—and after it had denied their motion for emergency relief2—Sanadco and Isba brought a second, identical suit in district court. As before, they asserted claims under the Administrative Procedure Act and the UDJA, challenging the Comptroller’s final determination of tax liability. 3 1 See Appendix, Tab A. 2 See Appendix, Tab B. 3 See Appendix, Tab C Appellees’ Responsive Brief page vi Sanadco v. Glenn Hegar, et al., 03-14-00771-CV Trial Court Disposition: Isba applied for temporary injunctive relief enjoining all administrative enforcement and collection activities relating to his tax liability. After an evidentiary hearing on October 14, 2014, 4 the district court denied Isba’s application for temporary injunction. 5 Appendix, Tab D. ISSUES PRESENTED 1. Is Isba’s failure to pay or make arrangements to pay for preparation of the reporter’s record dispositive of this appeal of the order denying temporary injunction? 2. In view of this court’s March 25, 2015, opinion in Sanadco I, did the district court have subject-matter jurisdiction over Isba’s APA and UDJA claims? 3. Did the suit for judicial review filed by Sanadco and Isba automatically vacate the Comptroller’s final determination, so as to preclude the agency from undertaking administrative enforcement activities? 4 As shown by this court’s file, Isba failed to pay or make arrangements to pay for the court reporter’s record of the October 14, 2014 evidentiary hearing before the district court. See Tex. R. App. P. 37.3(c); Appendix, Tab D. 5 See Appendix, Tab E. Appellees’ Responsive Brief page vii Sanadco v. Glenn Hegar, et al., 03-14-00771-CV STATEMENT OF FACTS The background and facts are correctly stated in this Court’s March 25, 2015 opinion in Sanadco I. The only distinction in this appeal is that it involves the personal tax liability of Sanadco’s principal Isba.6 Although appellant’s statement of facts includes assertions relating to Broadway Grocery, Inc., Shariz, Inc., and Rubi & Sons Store, Inc., none of those taxpayers are before this Court: The October 14, 2014 hearing and the district court’s November 13, 2014 order denying temporary injunctive relief related only to Isba.7 SUMMARY OF ARGUMENT The district court’s order denying Isba’s application for temporary injunction should be affirmed, because: First, given the standard of review for orders denying temporary injunctive relief, the absence of a reporter's record is dispositive. Whether Isba was entitled to a temporary injunction depended upon the evidence presented in support of his application for relief. See Tex. R. App. P 37.3(c). Without a reporter's record, this Court cannot know what legal arguments were made and what, if any, evidence was presented to the trial court in support of those arguments. Nor can it assess 6 See Appendix, Tab F (F of F Nos. 19-27, C of L Nos. 11, 12, 15-17); Tex. Tax Code § 111.0611(a)(personal liability of corporate officers for fraudulent tax evasion). . 7 See Appendix, Tab E. whether Isba satisfied the elements for establishing his right to temporary relief— particularly, the element of irreparable harm. Second, even assuming there remained an issue that did not require the reporter’s record, this Court’s opinion in Sanadco I has already addressed and disposed of Isba’s legal arguments—by concluding that the district court lacked subject-matter jurisdiction over the taxpayer’s APA and UDJA claims. Third, as this Court observed in Sanadco I, where a taxpayer who is challenging the Comptroller’s assessment of taxes and penalties has not complied with Chapter 112, the APA does not and cannot provide an alternate jurisdictional basis for such claims. To hold otherwise would effectively read out of the Tax Code the statutory prerequisites for bringing a tax-protest or refund suits in district court. The APA procedure for judicial review would swallow and render meaningless those prerequisites—an outcome the legislature could not have intended. Appellees’ Responsive Brief page 2 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV ARGUMENT A. Appellant Isba failed to pay or make arrangements to pay for the reporter’s record, and the absence of that record is dispositive. The purpose of a temporary injunction is to preserve the status quo pending a trial on the merits. See Walling v. Metcalfe,863 S.W.2d 56
, 58 (Tex.1993). In an appeal from an order granting or denying a request for a temporary injunction, appellate review is confined to the validity of the order that grants or denies the injunctive relief. Seeid. The decision
to grant or deny the injunction lies within the sound discretion of the trial court, and will not be disturbed absent a clear abuse of discretion. Seeid. This Court
may neither substitute its judgment for that of the trial court nor consider the merits of the lawsuit. See id.; Texas Indus. Gas v. Phoenix Metallurgical Corp.,828 S.W.2d 529
, 532 (Tex.App.—Houston [1st Dist.] 1992, no writ). Rather, it must view the evidence in the light most favorable to the trial court's order, indulging every reasonable inference in its favor, and determine whether the order was so arbitrary as to exceed the bounds of reasonable discretion. See CRC–Evans Pipeline Int'l, Inc. v. Myers,927 S.W.2d 259
, 262 (Tex. App.—Houston [1st Dist.] 1996, no writ). The Court cannot reverse a trial Appellees’ Responsive Brief page 3 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV court's order if the trial court was presented with conflicting evidence and the record includes evidence that reasonably supports the trial court's decision. Seeid. Next, the
purpose of a temporary injunction is to preserve the status quo until a final hearing on the merits. Miller Paper Co. v. Roberts Paper Co.,901 S.W.2d 593
, 597 (Tex.App.—Amarillo 1995, no writ). Furthermore, the applicant is not entitled to temporary relief until he demonstrates a probable injury and a probable right of recovery. Garth v. Staktek Corp.,876 S.W.2d 545
, 548 (Tex. App.— Austin 1994, writ dism’d w.o.j.). A probable right of recovery is proven by alleging the existence of a right and presenting evidence tending to illustrate that the right is being denied. Miller Paper Co. v. Roberts PaperCo., 901 S.W.2d at 597
. Probable injury is proven through evidence of imminent harm, irreparable injury, and the lack of an adequate legal remedy.Id. Both prongs
require the presentation of evidence and, unlike temporary restraining orders, cannot be based upon sworn pleadings or affidavits unless the parties so agree. Millwrights Local Union No. 2484 v. Rust Engineering Co.,433 S.W.2d 683
, 685–87 (Tex.1968); Rogers v. Howell,592 S.W.2d 402
, 403 (Tex.Civ.App.—Dallas 1979, writ ref'd n.r.e.). Given the standard of review for orders denying temporary injunctive relief, the absence of a reporter's record is dispositive. Whether Isba was entitled to a Appellees’ Responsive Brief page 4 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV temporary injunction depended upon the evidence presented in support of his application for relief. Without a reporter’s record, this Court cannot know what, if any, evidence was presented to the trial court. Nor can it assess whether Isba satisfied the elements considered by Miller Paper as prerequisites to obtaining such relief. Indeed, the reporter’s record is so pivotal to this Court’s review that its absence necessitates the presumption that the missing evidence actually supported the trial court's ruling. See Bryant v. United Shortline Inc. Assur. Services, N.A.,972 S.W.2d 26
, 31 (Tex.1998) (Court stating that: “We indulge every presumption in favor of the trial court’s findings in the absence of a statement of facts.”) True, Bryant and its predecessors are based on the appellant’s having the burden of providing the appeals court with a record sufficient to prove error under the appellate rules in existence before September 1, 1997. See Tex. R. App. P. 50(d) (repealed September 1, 1997); Schafer v. Conner,813 S.W.2d 154
, 155 (Tex.1991). But while the current appellate rules state that the court reporter is responsible for preparing, certifying, and timely filing the reporter’s record, that responsibility is expressly conditioned upon the appellant’s filing the notice of appeal, requesting that the reporter's record be prepared, and paying for or making arrangements to Appellees’ Responsive Brief page 5 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV pay for the reporter's record. Tex. R. App. P. 35.3(b)(1)-(3); Rodriguez v. State,970 S.W.2d 133
, 135 (Tex.App.—Amarillo 1998, pet. ref'd) (involving the clerk's record). Accordingly, if the appellant’s failure to complete the steps required under rule 35.3(b)(1), (2), and (3) denies the appellate court a sufficient record with which to review his appeal, Bryant controls. Simply put, this Court cannot determine what evidence was before the trial court, cannot determine whether the trial court abused its discretion, cannot determine whether Isba proved the existence of a right, cannot determine whether the Comptroller’s activities resulted in or threatened a denial of that right—and, in particular, cannot determine whether Isba was threatened with imminent harm and irreparable injury, and lacked an adequate legal remedy. Accordingly, this court should presume that the missing record supports the trial court's determination and forego further review of this dispute as authorized under appellate rule 37.3(c). B. Even assuming arguendo that Isba presented an issue not requiring review of the reporter’s record, Sanadco I fully disposes of his appeal on jurisdictional grounds. Although Rule 37.3(c) affords this Court the discretion to decide issues that do not depend on the reporter's record, that authorization does not and cannot extend to review of the order denying Isba’s application—as that determination is clearly dependent upon the presence of the reporter’s record. Appellees’ Responsive Brief page 6 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV In addition, Isba’s legal arguments have already been rejected by this Court in Sanadco I. Isba contends that APA section 2001.171, which authorizes judicial review of final administrative decisions, provides an alternative jurisdictional basis for challenging Comptroller tax determinations. But the opinion in Sanadco I has already addressed and disposed of this argument: Sovereign immunity protects the State of Texas, its agencies, and its officials from lawsuits unless the legislature expressly gives its consent to the suit. Texas Natural Res. Conservation Comm'n v. IT– Davy,74 S.W.3d 849
, 853 (Tex.2002). Absent the State's consent to suit, a trial court lacks subject-matter jurisdiction.Id. at 855.
Sovereign immunity not only bars suits for money damages but also protects the State against suits to “control state action.” Texas Logos, L.P. v. Texas Dept. of Transp.,241 S.W.3d 105
, 118 (Tex.App.– Austin 2007, no pet.). Therefore, absent an express waiver of sovereign immunity, Sanadco's counterclaims are barred. Sanadco I,2015 WL 1478200
at * 4. After citing the well-established case law governing sovereign immunity, the court addressed Sanadco’s jurisdictional arguments: Sanadco cites two statutes providing limited waivers of immunity— the Administrative Procedure Act, see Tex. Gov't Code § 2001.038, and the Uniform Declaratory Judgments Act, see Tex. Civ. Prac. & Rem.Code § 37.001 et seq.—as well as an exception to waiver, the doctrine of ultra vires, see City of El Paso v. Heinrich,284 S.W.3d 366
, 372–73, 380 (Tex.2009), as conferring jurisdiction on the district court over its counterclaims. However, as discussed below, we conclude that all of these grounds for jurisdiction are preempted by Appellees’ Responsive Brief page 7 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV Chapter 112 of the Tax Code, which the supreme court has held provides exclusive remedies for relief from assessed taxes on any basis. SeeNestle, 359 S.W.3d at 211
. Because Sanadco did not comply with the mandatory Chapter 112 requirements, the district court has no jurisdiction over any of its counterclaims.Id. Although the
language quoted above specifically addresses APA section 2001.038, which authorizes challenges to agency rules, the court’s holding and rationale necessarily extend to APA section 2001.171, as well. Both statutes are preempted by Tax Code Chapter 112, which specifically waives immunity for certain taxpayer actions, conditioning the waiver on prerequisites to the taxpayer’s bringing suit under that chapter. Sanadco I at * 5. Moreover, this precise issue— the availability of APA section 2001.171 to a taxpayer challenging state taxes— was addressed in post-submission briefing in Sanadco I.8 C. The waiver of immunity in APA section 2001.171 does not apply, because the legislature has set out a specialized procedure for tax protest suits. As the Comptroller pointed out in its post-submission briefing in Sanadco I, APA section 2001.171 does not apply to the Tax Code. The APA provides an independent right to judicial review only where the agency’s enabling statute neither specifically authorizes nor prohibits judicial review of the decision. Tex. 8 See Appendix, Tab G, at p. 3; and Tab H, at p. 4-7. Appellees’ Responsive Brief page 8 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV Dep't of Protective & Regulatory Servs. v. Mega Child Care,145 S.W.3d 170
(Tex. 2004). Here, in clear contrast to Mega Child Care, the Chapter 112 of the Tax Code specifically sets out the statutory prerequisites for challenging the Comptroller’s determination of tax liability in district court. The legislature has created a limited waiver of sovereign immunity for tax refund and protest suits, and for tax injunction suits, but mandated specific prerequisites which must be satisfied prior to filing suit against these specifically enumerated claims. See Tex. Tax Code Ann. §§112.051-.156 (West 2015). The undisputed jurisdictional facts, as shown by Isba’s pleading, are that neither he nor Sanadco has met the statutory prerequisites in Chapter 112.9 Compliance with the procedural requirements of the tax-protest law is a jurisdictional prerequisite to suit. Sanadco I at * 5; In re: Nestle USA,Inc. 359 S.W.3d at 211
; see also Central Power & Light Co. v. Sharp,919 S.W.2d 485
, 491 (Tex. App.–Austin 1996, writ denied); Combs v. Chevron,319 S.W.3d 836
, 844-45 (Tex. App.–Austin 2010, pet. denied). Most importantly, Isba’s argument, if accepted by this court, would effectively read out of the Tax Code the statutory prerequisites for bringing a tax- 9 See Appendix Tab C, at pp. 3-4. Appellees’ Responsive Brief page 9 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV protest suit in district court. The APA procedure for judicial review would swallow and render meaningless those prerequisites—an outcome the legislature could not have intended. SeeNestle, 359 S.W.3d at 211
-12 (Tex. 2012) (holding that statutory prerequisites for taxpayer suits are conditions on the legislative waiver of immunity and dismissing original proceeding for want of jurisdiction). D. Isba’s filing suit for judicial review does not and cannot vacate the Comptroller’s tax determination. In addition, Isba argues that his filing suit under the APA automatically vacated the Comptroller’s final tax determination. Therefore, he reasons, Sanadco I does not control, because this court emphasized that its holding applied only to cases in which the taxpayer seeks relief from a tax assessment that has become a final liability. See Sanadco I at *6, n.9. In so arguing, Isba is attempting to selectively read and blend provisions in the Tax Code with the APA to achieve a procedural result that the legislature did not intend. First, he points to the Tax Code section 112.054, which provides that trial of the issues in “suits under this subchapter are de novo.” He then attempts to blend that section with APA section 2001.173, which provides that if the manner of review of the agency decision is trial de novo “the reviewing court shall try each Appellees’ Responsive Brief page 10 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV issue of fact and law . . . as though there has not been an intervening agency action.” But this argument requires Isba to skip over the fact that he has not complied with the pre-payment and notice requirements of Subchapter B of Chapter 112, but rather, is attempting to evade those very prerequisites. Accordingly, his suit cannot be a “suit[] brought under this subchapter” and perforce cannot be a suit entitled to de novo review. In short, Isba cannot have it both ways. He cannot argue that he does not have to comply with the statutory prerequisites of Chapter 112, but that its de novo standard of review nonetheless governs his challenge to the Comptroller’s tax assessment. Appellees’ Responsive Brief page 11 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV PRAYER In view of the foregoing, the state officials request that this court affirm the trial court’s order, tax all costs to appellant Isba, and grant such other and further relief to which the state officials may show themselves entitled. Respectfully submitted, KEN PAXTON Attorney General of Texas CHARLES E. ROY First Assistant Attorney General JAMES E. DAVIS Deputy Attorney General for Defense Litigation ROBERT O’KEEFE Chief, Financial and Tax Litigation Division /s / Jack Hohengarten JACK HOHENGARTEN State Bar No. 09812200 Assistant Attorney General Financial Litigation, Tax, and Charitable Trusts Division P.O. Box 12548 Austin, Texas 78711 2548 TEL: (512) 475-3503 FAX: (512) 477 2348 jack.hohengarten@texasattorneygeneral.gov Attorneys for Appellees, Glen Hegar, Comptroller of Public Accounts of the State of Texas and Ken Paxton, Attorney General of the State of Texas Appellees’ Responsive Brief page 12 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV CERTIFICATE OF COMPLIANCE In compliance with Texas Rule of Appellate Procedure 9.4(i)(2), this brief contains 2,271 words, excluding the portions of the brief exempted by Rule 9.4(i)(1). CERTIFICATE OF SERVICE I certify that on this 22nd day of May, 2015, a true and correct copy of the foregoing document, Appellees’ Responsive Brief, has been sent to the attorney for appellants via e-service and/ or electronic mail, as follows: Samuel T. Jackson Law Office of Samuel T. Jackson P.O. Box 170633 Arlington, TX 76003-0633 jacksonlaw@hotmail.com /s / Jack Hohengarten Jack Hohengarten Appellees’ Responsive Brief page 13 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV APPENDIX Tab A Memorandum Opinion on Motion for Rehearing in Sanadco I, No. 03-11-00462-CV, in the Third Court of Appeals. Tab B Order and Motion for Emergency Relief to Lift the Automatic Stay for a Limited Purpose in Sanadco I, No. 03-11-00462-CV, in the Third Court of Appeals. Tab C Plaintiff’s Original Petition for Judicial Review, Declaratory Judgment, Temporary Injunction and Request for Disclosure, No. D-1-GN-13-004352, Sanadco Inc. v. Hegar, in the 200th Judicial District Court, Travis County (“Sanadco II). Tab D Letter regarding payment for Reporter’s Record in Sanadco II, No. 03-14-00771-CV, in the Third Court of Appeals. Tab E Order Denying Plaintiff’s Declaratory Judgment and Application for Temporary Injunction Plaintiffs’ Third Amended Petition for Judicial Review, Declaratory Judgment, Temporary Injunction and Request for Disclosure, in Sanadco II, No. D-1-GN-13-004352, in the 200th Judicial District Court of Tab F Certification of Public Records for Order Denying Motion for Rehearing on Comptroller’s Decision on Hearing Nos. 106,815 and 107,006 Certification of Public Records for Comptroller’s Decision on Hearing Nos. 106815 and 107006 with Attachments A – Texas Notification of Hearing Results Tab G Appellants’ Post-Submission Letter Brief in Sanadco I, No. 03-11-00462- CV, in the Third Court of Appeals. Tab H State Officials’ Response to Appellants’ Post-Submission Brief in Sanadco I, No. 03-11-00462-CV, in the Third Court of Appeals. Appellees’ Responsive Brief page 14 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV Tab A Memorandum Opinion On Motion for Rehearing Sanadco I, No. 03-11-00462-CV Third Court of Appeals. Appellees’ Responsive Brief page 1 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN ON MOTION FOR REHEARING NO. 03-11-00462-CV Sanadco Inc., a Texas Corporation; Mahmoud A. Isba, a/k/a Mahmoud Ahmed Abuisba, a/k/a Mike Isba; \Malid Abderrahman; Majic Investments,Inc.; Faisal Kahn; Isra Enterprises,Inc.; Hattab Al-Shudifat; Haifa Enterprises,Inc.; EID corp.; Mohammed s. Al Hajeid; Majdi Rafe Okla Nsairat; and Omar Unlimited,Inc. Individually, Appellants v The Office of the Comptroller of Public Accounts of the State of Texas; Glenn Hegar, Individually and in his Official Capacity as Comptroller of Public Accounts of the State of Texas; and Ken Paxton in his Official Capacity as Attorney General for the State of Texas, Appellees FROM THE DISTRICT COURT OF TRAVIS COUNTY, 9STH JUDICIAL DISTRICT NO. D-1-GV-10-000902, HONORABLE TIM SULAK, JUDGE PR_ESIDING MEMORANI) UM OPINION We grant the Comptroller's motion for rehearing, withdraw our prior opinion and judgrnent issued on Septernber 26,2013, and substitute in their place this opinion and judgment affirming the district court's disrnissal of Sanadco, Inc.'s counterclaims. After the Comptroller of Public Accounts performed an audit on a convenience store owned by Sanadco, the Comptroller and the Attorney General (cumulatively the "Comptroller") filed suit against Sanadco to recover delinquent taxes. In response, Sanadco filed various counterclaims against the Comptroller arguing that the manner in which he calculated the amount of taxes due was under the terms of an unauth orized.rule, that many of the actions that he engaged in while conducting his audits were ultra vires, and that the provision of the Tax Code authorizing audits by sampling and projecting was unconstitutional. After Sanadco filed its counterclaims, the Comptroller filed a plea to the jurisdiction contending that the district court did not have jurisdiction over the counterclaims. Subsequent to reviewing the plea and convening a hearing, the district court granted the Comptroller's plea and dismissed Sanadco's counterclaims for lack ofjurisdiction. On appeal, Sanadco challenges the dismissal of its counterclaims. We aff,rrm the district court's order granting the Comptroller's plea to the jurisdiction. RELEVANT STATUTORY SCHEME AND AUDITING MEMOS Before delving into the background and issues in this case, a brief overview of the governing framework for this case as well as a brief sytopsis of the actions by the Comptroller that form the subject of this case is helpful. Under the Tax Code, convenience stores are required to maintain their sales records for tax purposes, Tex. Tax Code $ I51.025, and the Comptroller is authorized to examine and audit the records of convenience-store owners,id. $$ I
I 1.004, 151.025. In addition, the Comptroller may use sampling and projection methods for estimating the amount oftaxes owed if"the taxpayer's records are inadequate or insufficient."Id. ç 11
1.0042(b). Moreover, if the Cornptroller "is not satisfied" with the calculated tax owed based on the taxpayer's records, the Comptroller may determine the amount of tax owed from "other information available to the comptroller;'Id. ç I
11.008(a). In addition to requiring convenience stores to maintain sales records, the Tax Code also requires brewers, manufacturers, wholesalers, and distributors of alcoholic beverages to file 2 reports clironiclingtheirsales to stores and listingthe storesbyname. Id l5l.46l-.462. Similarly, $$ the Tax Code authorizes the Comptroller to request wholesalers and distributors of tobacco productstofilethesametypeofreports. Id $$ 154.021(addressingcigarettesales), 155.105 (covering non-cigarette tobacco products). The type of information required in these repofts is commonly referred to as H.B. I 1 information because the reporting requirernents were enacted by House Bill 11 (H.8.11) of the 80th legislattxe. see Act of May 3,2007,80th Leg., R.s., ch. 129, g$ l-3,2007 Tex. Gen. Laws 159, 159-62. Once an audit has been performed, the store owner may request a rcdetermination from the Comptroller within 30 days of receiving notice of the Comptroller's assessment. Tex. Tax Code $ 1 I 1.009(a), (b). In addition, the owner may also request a hearing on the redetermination,id. $ 11
1.009(c), before the State Office of Administrative Hearings, id $ 11 1.00455. If no request for a redetermination is filed within 30 days, "the determination is final on the expiration of the period."Id. ç 11
1.009(b). As an alternative to requesting a redetermination, an individual may pay the assessed taxes and penalties and file a claim for a refund with the Comptroller or pay the taxes and penalties underprotestandfilesuitseekingtheirrecovery.t Seerd $$111.104(b),(c), 112.051,.052;seealso In re Nestle USA, lnc.,359 S.W.3d 207,21I (Tex. 2012) (protest, refund, and injunction suits I There is one more additional, limited remedy in the form of an action for a restraining order or injunction to prohibit the assessment or collection of a state tax, which action also requires prepayment of the taxes due or the posting of a bond as well as a pre-suit "statement of the grounds on which the order or injunction is sought" filed with the attorney general. Tex. Tax Code $ lI2.I0l. This remedy additionally requires a showing that (1) irreparable injury will result to the applicant if tlre injunction is not granted , (2) no other adequate remedy is available to the applicant, and (3) the applicant has a reasonable possibility of prevailing on the merits of the claim.Id. ç 11
2.10fi. J provide only means to seek relief from taxes assessed under Chapter 112). A tax-refund claim proceeds to an administrative hearing, after which the Comptroller will issue a decision that becomes final twenty days after service on the taxpayer. Id $ 1 I 1.105. A tax-refund claimant who is dissatisfîed with the decision may file a motion for rehearin g,id. (c), and
then if still dissatisfied may file a suit in district court seeking to recover the amount paid within 30 days after the motion for rehearing is denied, id g I l2.I5I(a), (b), (c). If pursuing a protest-payment suit, a taxpayer must f,rle a written protest detailing each reason for recovering the payment and submit such protest with payment of the assessed taxes and penalties within six months (or other applicable limitations period) after the deficiency determination becomes finalId. $g 111.104(c)(3),
112.051(b), (c). Prior to the passage of H.B. 11, the Comptroller issued a meÍto entitled AP 92, which provided guidance to auditors performing audits of convenience stores. In the memo, the Comptroller explained that there had been a "lack of uniformity in estimated convenience store audits" and tliat "mark-up percentages and product mix percentages" were developed to be used in audits o'when necessitated by lack of reliable records" or if a store's "records are unavailable, inadequate or unreliable." After H.B. 11 passed, the Comptroller issued another memo to audit personnel entitled AP 122. The new memo updated AP 92 and required auditors to use H.B. I I information "to produce the most accurate audit results." Sanadco's counterclaims arise from the issuance of these two memos along with various actions taken by the Comptroller when performing his audit of Sanadco. 4 BACKGROUND Turning to the facts of this case, Sanadco owns a convenience store, and Mahmoud Isba operates the store and is designated as a responsible person for Sanadco. The Comptroller audited Sanadco and determined that Sanadco had underreported its taxable sales for alcohol and tobacco products. The amount of the deficit was determined using H.B. I I d,ata. After making his determination, the Comptroller sent a bill for the estimated amount owed and for interest on that amount as well as a penalty. After receiving notice of the amount due, Sanadco did not seek redetermination of the assessment, see Tex. Tax Code $ 111.009, or pay any portion of the assessed taxes and penaltiesandseekstatutoryreliefvia ataxpayer refundorprotest slit,seeid. $$ 111.104, lI2.I5l. Accordingly, the Attorney General filed suit to collect the delinquent taxes. In response, Sanadco filed an answer and raised several counterclaims seeking declaratory and injunctive relief against the Cornptroller's collection of the taxes, compensatory damages, and attorney's fees. Those counterclaims were made against thc Off,rce of the Comptroller, Susan Combs2 in her official capacity as Comptroller, and Greg AbbotC in his official capacity as the Attorney General. Sanadco later amended its answer and counterclaims, adding as counter-plaintiffs several other individuals and companies who had been assessed similar taxes.a Unlike Sanadco, the other named counter- 'Since the events giving rise to this appeal, Glenn Hegar was elected Comptroller. Accordingly, our references to the Comptroller are to him. 3 Since the events giving rise to this appeal, Ken Paxton was elected Attorney General. Accordingly, our references to the Attorney General are to him. a For ease of reading, we will generally refer to all of the counter-plaintifß as Sanadco. 5 plaintiffs all sought redeterminations of their assessed taxes through administrative review, but none of the administrative proceedings had been completed by the time that the individuals were added to the lawsuit.s Regarding its counterclaims, Sanadco alleged eight complaints relevant to this appeal. In its first counterclaim, Sanadco asserted that AP 92 and AP I22 are administrative rules that were not promulgated in compliance with the requirements of the Administrative Procedure Act. SeeTex.Gov'tCode$2001.038. Accordingly,sanadcosoughtadeclarationthatthosememosare invalid administrative rules. In its second counterclaim, Sanadco alleged that the Comptroller engaged in ultra vires actions when he issued AP 92 and AP 122 andthereby authorized auditors to estimate taxes owed by convenience-store owners without "first ascertaining whether adequate records are available" from the taxpayer to perform an audit. For those reasons, Sanadco sought declarations assefting that "the Comptroller is not authorized to estimate convenience store audits using the rnethods described in AP 92 or AP I22 until their proper adoption, and/or that the authorization of their use is a non-discretionary ultra vires act committed without legal authority." In its third counterclaim, Sanadco contended that the Comptroller acted without legal authority when he improperly instructed auditors to use H.B. 11 information for convenience store audits "without s Despite their participation in the administrative redetennination process, the additional counter-plaintiffs later added as parties to the suit do not impact our consideration of whether the trial court had subject-matter jurisdiction over Sanadco's counterclaims, because subject-matter jurisdiction is determined at the time a suit is filed. See TJFA, L.P. v. Texas Comm'n on Envtl. Quality,368 S.W.3d 727,733 (Tex. App.-Austin 2012,pet. denied); Bellv. Moores,832 S.V/.2d 749,753-54 (Tex. App.-Houston [14th Dist.] 1992,writ denied) (at time suit is filed, court either has jurisdiction or it does not, and jurisdiction cannot subsequently be acquired while suit is pending); seealsoAetnaCas.&Sur.Co.v.Hillman,796F.2d770,774,776(5thCir. 1986)(federal rule of civil procedure 15, pertaining to amendment of pleadings, does not permit plaintiff to amend complaint to substitute new plaintiff in order to cure lack of subject-matter jurisdiction). 6 first ascertaining whether the determination can be made from the taxpayer's records." Accordingly, Sanadco insisted that the Comptroller's decision to require the use of H.B. 11 data is an ultra vires act and, therefore, sought declarations that the use of H.B. 1 1 information was improper and that the governing statutes do not allow "the Comptroller to give conclusive effect to the HB 1 I data." In its fourth counterclaim, Sanadco alleged that the Comptroller improperly authorized auditors to'ouse an abbreviated procedure which bypassed examination of the taxpayer's records and authorized an estimation of his tax liability based solely on the invalid H.B. l l data, without first determining the adequacy of the taxpayer's records." For that reason, Sanadco insisted that the Comptroller was acting ultra vires and sought a declaration that the governing Tax Code provisions do not authorize the abbreviated procedure. In its fifth counterclaim, Sanadco alleged that the Comptroller acted ultra vires by authorizing the imposition of aS\o/openalty without proof of fraud or of an intent to avoid the tax as required by the Tax Code. SeeTex. Tax Code $ I I 1.061(b). In its sixth counterclaim, Sanadco sought a declaration that the provision of the Tax Code authorizing sample and projection audits for estimating taxes owed is unconstitutionally vague and is, "by its nature, a denial of substantive and procedural due process." Seeid. ç 111.0042.
In its seventh counterclaim, Sanadco alleged that the Comptroller engaged in an unconstitutional taking when he improperly collected sales anduse taxes. Lastly, Sanadco challengedthe constitutionality ofthe Tax Code provision authorizing the Comptroller to impose a ten-percent penalty if he believes that the ooamount due for a tax period is jeopardized by delay." See id $ I fi .022. After Sanadco fìled its counterclaims, the Comptroller filed a motion for summary judgment and a plea to the jurisdiction. After reviewing the pleadings, the plea, and Sanadco's response to the plea, the district court signed an order granting the Comptroller's plea dismissing 7 all of Sanadco's counterclaims. The trial court also granted the Comptroller summary judgment on two of Sanadco's eight counterclaims. On appeal, Sanadco contests both the district court's order granting the Comptroller's plea and its order granting the Comptroller summary judgment. STANDARD OF REVIEW "A plea to the jurisdiction is a dilatory plea, the purpose of which is to defeat a cause of action without regard to whether the claims asserted have merit." Bland Indep. Sch. Dist. v. Blue,34 S.W.3d 547
,554 (Tex. 2000). A party to a lawsuit may challenge a trial court's subject-matter jurisdiction over a case by filing a plea . Houston Mun. Emps. Pensiondys. v. Ferrell,248 S.W.3d 151, 156 (Tex. 2007). Determinations regarding whether a trial court has jurisdiction over a case are questionsoflaw,whichwereviewdenovo. TexasDep'tofParl74 S.W.3d 849, 853 (Tex. 2002). Absent the State's consent to suit, atrial court lacks subject-matter jurisdiction.Id. at 855.Sovereign imrnunity not only bars suits for money damages but also protects the State against suits to "control state action." Texes Logos, L.P. v. Texas Dept. of Transp.,241 S.W.3d 105, 118 (Tex. App.-Austin2007, no pet.). Therefore, absent an express waiver of sovereign immunity, Sanadco's counterclaims are barred.6 6 The fact that Sanadco is a counter-plaintiff rather than a plaintiff does not affect our analysis when reviewing the trial court's ruling on a plea to the jurisdiction, as such determination 8 Sanadco cites two statutes providing limited waivers of immunity-the Administrative Procedure Act, see Tex. Gov't Code $ 2001.038, and the Uniforrn Declaratory Judgments Act, see Tex. Civ. Prac. & Rem. Code $ 37.001 et seq.-aswell as an exception to waiver, the doctrine of ultra vires, see City of El Paso v. Heinrich,284 S.W.3d 366,372-73, 380 (Tex. 2009),as conferring jurisdiction on the district court over its counterclaims. However, as discussed below, we conclude that all of these grounds for jurisdiction are preempted by Chapter 112 of the Tax Code, which the supreme court has held provides exclusive remedies for relief from assessed taxes on any basis. See Nestle,359 S.W.3d atZII. Because Sanadco did not comply with the mandatory Chapter 112 requirements, the district court has no jurisdiction over any of its counterclaims. Statutory prerequisites to taxpayer suits The Tax Code waives the State's immunity from suit, but only for specif,rcally enumerated taxpayer actions, each conditiorring waiver on certain administrative or other prerequisites to a taxpayer's bringing a suit or claim thereunder. See Tex. Tax Code $$ 1 12.052 (protest suit),.101 (inyunction suit),.151 (refuüd suit); Nestle,359 S.W.3d at211 (dismissing mandamus cause for want ofjurisdiction, where taxpayer sought declaration of constifutionality of franchise tax, injunction prohibiting its collection, and mandamus relief compelling refund of taxes already paid, because taxpayer had not complied with statutory prerequisites of Chapter Ll2 for considers whether the non-moyant's pleadings affirmatively demonstrate the trial court's jurisdiction over tlre challenged causes. See Texas Dep't of Parks & Wildlife v. Miranda,133 S.W.3d 2I7 ,226 (Tex. 2004). Counter-plaintiffs are the functional equivalents of plairitiffs with respect to whether their claims confèr subject-matter jurisdiction on the trial çotrt. See, e.g., Smith v. Clary Corp.,917 S.W.2d 796, 798 n.l (Tex. 1996) (court must not only have jurisdiction over amount in controversy but also must have subject-rnatter jurisdiction over counterclaim). 9 refund, protest, or injunction suit). Regardless of the taxpayer's claims ,the only permitted taxpayer actions cliallenging state taxes areo'a suit after payment under protest, suit for injunction after payment or posting of a bond, and a suit for a refund." Nestle,359 s.w.3d af 2rl. In Nestle, the supreme court held that these three statutorily provided taxpayer suits (along with their respective prerequisites to suit) are the only rneans by which a taxpayer may challenge "the applicability, assessment, collection, or constitutionality" of a state tax. kJ. at209. "The only exception is that prepayment of the tax as a prerequisite to suit is excused when it 'would constitute an unreasonable restraint on the party's right of access to the courts."'1d. (quoting Tex. Tax Code $ I 12.108); see also In re Allcat Claitns Serv., L.P.,356 S.W.3d 455,479 (Tex. 2011) ("[S]ection I 12.108 explicitly prohibits any court from granting injunctive or declaratory relief or issuing any writ of mandamus or any other legal or equitable relief not already allowed elsewhere in Chapter 112."). Besides these three avenues for relief, Chapter I 12 "allows no other actions to challenge or seek refunds of the taxes to wliich it applies," including declaratory-judgment actions. Nestle,359 S.W.3d at209-10; see also Strayhorn t¡. Raytheon E-Sys., Inc.,10I S.W.3d 558,572 (Tex. App.-Austin 2003, pet. denied) (when statute provides avenue for attacking agency order, declaratory-judgment action will not lie to provide redundant remedies). It is undisputed that Sanadco did not engage in an administrative redetermination proceeding or meet any of the statutory requirements for a refund claim or protest suit. Sanadco may not attempt to avoid those administrative and procedural requirements by merely filing counterclaims to a collection suit brought by tlie Comptroller. If Sanadco were able to pursue its counterclaims "free of Chapter 112's restrictions," the State's o'entire tax collection scheme" would be disrupted. 10 Nestle,359 S.W.3d at 2Il ("If a taxpayer were not required to lodge its complaints first by protest or refund claim, the Comptroller would lack notice of the assertion of illegality, perhaps-as this case illustrates-for years."). Sanadco had two adequate, available remedies upon the Comptroller's deficiency determination: (1) a redetermination proceeding or (2) payment of the taxes and pursuit of the Chapter 1 12 refund or protest procedures. However, Sanadco elected not to pursue either remedy.T It may not now attempt to circumvent the statutory prerequisites to taxpayer suits by casting its various challenges to the assessed taxes and penalties as counterclaims seeking declaratory and injunctive reliefto the Comptroller's collection actions when Sanadco could and should have availed itself of the exclusive statutory taxpayer-suit procedures. While Sanadco frames its declaratory requests in terms of the validity or constitutionality of "rules," statutes, and alleged ultra vires actions, it is not merely seeking to obtain such declarations but to be relieved, thereby, of its tax assessment and penalty. Chapter 112 of the Tax Code provides an exclusive remedy therefor, and Nestle explicitly prohibits any attempt at relief from assessed state taxes on any basis except as provided in the chapter.s 7 The third Chapter l12 remedy, an action for injunction, is not available to Sanadco under the circumstances alleged in its pleadings because Sanadco had two other adequate remedies at law in tlre form of a protest suit and a refirnd suit. ,S¿e Berry v. McDonald,l23 S.W.2d 388, 389 (Tex. Civ. App.-San Antonio 1938, no writ) (holding taxpayer had adequate and complete legal remedy under former version of statute providing for protest suit and, therefore, claim seeking relief in form of enjoining Commissioner of Agriculture from collecting citrus sales tax was improper). However, even if the injunction remedy under section 1 12. 101 were available to Sanadco, it is undisputed that Sanadco did not fulfil any of the statutory prerequisites to suit thereunder, including prepayment of the tax or posting of a bond and filing a pre-suit statement with the Attorney General. I Further, the Comptroller's claim to collect from Sanadco the delinquent taxes did not waive immunity for all purposes but only narrowly waived it for counterclaims that both ( 1) were "germane ll Because Sanadco did not comply with the jurisdictional prerequisites of Chap ter IIZ, we hold that the trial court did not have jurisdiction over any of Sanadco's eight counterclaims, and the trial court did not err in granting the Comptroller's plea to the jurisdiction.e We need not reach Sanadco's issues about the trial court's surnmary judgment because the Comptroller's plea to the jurisdiction was directed to all eight of Sanadco's counterclaims, and our jurisdictional deterrnination is dispositive of all issues on appeal. seeTex. R. App. p. 47 .l. CONCLUSION Having overruled each of Sanadco's issues, we affirm the district court's order dismissing all of Sanadco's counterclaims on jurisdictional grounds. to, connected to, and properly defensive to claims asserted by" the Comptroller and (2) operated as damageoffsetsagainstthemonetaryreliefsoughtbytheComptroller. SeeManbeckv.Austinlndep. Sch. Dist.,381 S.W.3d 528,533 (Tex.2012). It is without question that the later-joined counter- plaintiffs' counterclaims did not meet either of these requirements. Also, because the Comptroller's action sought collection of a particular, final amount of taxes, penalties, and interest-and Sanadco did not challenge that final amount via any of the available adrninistrative and statutory procedures already discussed-Sanadco's counterclaims cannot be considered "properly defensive" or offsets thereto. e We limit our holding to cases in which a taxpayer seeks relief from a tax assessment that has become a final liability and is no longer subject to review through administrative procedures; we do not hold that Chapter 112 preempts every suit challenging a Comptroller rule or tax statute's constitutionality. C.f.,Texas Entm'tAss'n,Inc.v. Combs,431 S.W.3d 790,795 (Tex. App.-Austin 2014, pet. denied) (citing Combs v. Texas Entm't Ass'n, Inc.,287 S.W.3d 852, 864-65 (Tex. App.-Austin,2009), rev'd on other grounds,347 S.W.3d 277 (Tex.201 1)) (on remand, citing with approval its previous opinion holding that declaratory-judgment action challenging constitutionality and implementation of new tax statute was not preempted by Chapter 112 of Tax Code); Combs v. EntertainmentPubl'ns Lnc.,292 S.W.3d 712,723 (Tex. App.-Austin2009, nopet.) (affrrmingtrial court's denial ofplea to jurisdiction in suit in which taxpayer sought declaratory and injunctive relief to prevent Comptroller from implementing allegedly invalid rule). Because Sanadco sought injunctive relief from liability for the tax long after completion ofthe administrative process and the deficiency assessment had become final, the facts here are distinguishable fiom those cases in which the taxpayers sought declarations of the validity or constitutionality of rules and statutes and their threatened enforcement prior to finality of an agency determination. T2 David Puryear, Justice Before Justices Puryear, Henson, and Goodwin Justice Henson not participating Affirmed on Motion for Rehearing Filed: March 25,2015 13 Tab B Order and Motion for Emergency Relief to Lift the Automatic Stay for a Limited Purpose Sanadco I, No. 03-11-00462-CV Third Court of Appeals. Appellees’ Responsive Brief page 2 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN NO. 03-11-00462-CV Sanadco Inc., a'Iexas Corporation, and Mahmoud A. Isba, a/k/a Mahmoud Ahmed Abuisba, aikla Mike Isba,Individually, Appellants v Susan Combs,Individually, and in her Offïcial Capacity as Comptroller of Public Accounts of the State of Texas, and Greg Abbott in his Official Capacity as Attorney General of the State of Texas, et al., Appellees FROM THE DISTRICT COURT OF TRAVIS COUNTY, 9STH JUDICIAL DISTRICT NO. D-1-GV-10-OOO9O2, HONORABLE TIM SULAK, JUDGE PRESIDING ORDER PER CURIAM On April 16,2012, the appellants filed a motion for emergency relief related to their appeal in cause number 03-11-00462-CV, and the appellees fìled a response on April 18,2012. Having reviewed the motion and the response, we deny the motion for emergency relief. It is ordered }l4ay 3,2012. Before Justices Puryear, Henson and Goodwin ProDoc FaxService Page 2 of 103 NO, 03-11- 00462 lln U,llt 0[birù 6nu$ nt H.frenld AT TÐ'(AS Sanadco Inc,, Mahmoud A, Isba, Walid Abderrahman, Maiic Investments Inc,, Faisal Khan, Isra Enterprises, Inc,, Hattab Al-Shudifat, Haifa Enterprises, Inc., EID Corp,, Mohammed S, Al Haieid, Maidi Rafe 0kla Nsairat, Omar Unlimited, [nc., and All Others Similarly Situated, APPELLANTS VS. The Office of the Comptroller of Public Accounts; Susan Combs, Ín her individual and official capacities as Comptroller of Public Accounts for the State of Texas; and Greg Abbott in his official capacity as Attorney General of the State of Texas APPEttEES Appeal From Cause No D-1-GV-10-000902 The 98th Dlstrlct Court 0f Travls Counfy, Texas The Honorable Tim Sulak, Presiding MOTION FOR EMERGENCY RELIEF TO LIFT THE AUTOMATIC STAY FOR A TIMITED PURPOSE SAMUET T, IACKSON sBN 10495700 P.O, BOX 670L33 ARTINGTON, TX 76003.0133 TEL: [817) 751-71ss FAX: [866) 37+-oL64 COUNSET FOR APPELLANTS ProDoc Faxservice Page 3 of 103 IDENTITY OF PARTIES AND COUNSEL APPETLANTS: Sa¡¡nnco Intc., MauuAuD A. Isne, WeuD ABDERRAnMAN, Mn¡tc h.rvrs'rurl¡Ts INC,, Fnlsnl KuRtrl, Isnn ErrlrrRpRlsps, INc,, HATTng AL-SHUDIFAT, Hnlrn ErurrRpnlsrs, In¡c,, EID CoRp,, Mognuprup S, Al HRInn, Mn¡u Rere 0xln NsRlnet, Ounn Un¡unarrEo, INc., Rn¡n Au Ornrns Slrrtunlv S¡ruRrEp COUNSEL FOR APPELLANTS: tAW OFFICE OF SAMUET T. IACKSON P.O, Box 170633 Arlington, Texas 76003-063 3 TEL; [817) 75I'7Iïs FAX: [866) 374-0164 Email: jacksonlaw(ôhotmail.cont REAL PARTIES IN INTEREST: Tun Orncn oF THB CouprnollrR oF Punuc Accouxrs; Susnr¡ Coltns, INDTvTDUALLv, AND rN HER oFFICIAL cApAcrry es CouprnoLLER or PunLrc Accout¡rs 0F THESrnru on TExRs; AND GREG A¡Borr, IN Hrs oFFIcrAr cApAcrry Rs ArroR¡¡Ey GEruERel oF THE Srnrr or TExRs COUNSET FOR REAL PARTIES IN INTEREST: TACK HOHENGARTEN Assistant Attorney General FINANCIAL LITIGATiO N DIVISION P.0. Box )"2548 Austin, TXTBTLI-2548 TEL; (stz) 475-3503 FAX: (s12) 477 -23+Bl 480-8327 211:' t q rt Motion for Ernergency Relief to Lift Autom¿ic Stay for Limited Purpose ProDoc FaxService Page 4 of 103 TABTE OF CONTENTS IDENTITY OF PARTIES AND COUNSEL ',2 I TABLE OF CONTENTS ..J TABLE OF AUTHORITIES 5 STATEMENT OF JURISDICTION B STATEMENT OF THE CASE 9 ISSUES PRESENTED 10 L Did the Comptroller engage in ultra vires çonduct when she persisted in pursuing the cancellation of Appellants' sales tax permit after her decision to cancel the permit had been timely appealto the district court? .,,,..,...10 ll. Was the Comptroller's attempt to collect alleged sales tax liabilitìes while the underlying claims were subject to an interlocutory appeal in violation of the automatic stay provisions?,,,,.,,,. ,.,,,...,,,, 10 lll. Did the Comptroller engage in ultra vires conduct in excess of her statutory authority when she engaged in enforcement procedures to collect sales tax assessments while they were pending judicial review?.,,,. ..,... 10 lV. When Appellants' administrative procedures were exhausted, did the Comptroller's decision become a nullity when Appellants requested de novo judicial review? 10 STATEMENT OF FACTS .,..,11 ARGUMENT AND AUTHORIT]8S,.,,,,,.., ....,,r4 I. The Comptroller's Suspension of Appellants' Sales Tax Permit Violated Appellants' Right to Appeal from the Order Suspending the Permit.........,, 15 il. Tlie Cornptroller's Enforcernont Actions Violated the Automatic Stay Provisions of an Interlocutory Appeal ..... I7 III. The Comptroller's Enforcement Actions are Ultra l/ires 18 and Exceed Her Statr.itory Aulhority 18 3li;'nqi; Motion for Emergency Relief to Lift Automatic Stay for Limitecl Purpose ProDoc FaxService Page 5 of 103 CONCLUSION 22 PRAYER 22 CERTIFICATE OF SERVICE Error! Bookmark not defined. INDEX TO APPENDIX Error! Bookmark not defined, 4l |'ne.c Motion for Ernergency Relief to Lift Automatic Stay for Limited Purpose ProDoc FaxService Page 6 of 103 TABTE OF AUTHORITIES CASES Amrhein v. La Madeleine, lnc., 206 S.W,3d 173, (Tex.App.-Dallas 2006, no pet.),,,,.,... 15 Bunhus v, M & S Macñ. & Supply Co,, lnc., 897 S.W,2d 871 (Tex.App,-San Antonio 1995, no pet,) i5 Çity of San Antonio v. City of Boerne, 1 11 S.W.3d 22(Tex.2003)18 Greene v. Sfafe,324 S.W.3d 276(Tex.App,-Austin 201 0, no pet,) 18 Herrera v. Sfafe, No. 03-0'1-0010'l -CV,2002 WL 185476 17 ln Re TASO, 03-1 1 -00269-CV (Tex.App.-Austin s-6-201 1 ) Key Western Life /ns. Co. y, Sfafe Bd, of lns., 350 S.W,2d 839 (Tex, 1961),., ,.,.,,, 19 Logal v. Unlted Sfafes, 195 F,3d 229, (Sth Cir. 1999) 17, 18 Southern Canal Ç0. v. Sfafe Bd. of Water Engineers, 31 8 S,W.2d 61 9; 159 Tex, 227 (Tex, 1958) 19 State Bd. of lns. v. Republic Nat'l lns. Ço., 384 S.W,2d 3€9 (Tex,Civ,App, Austin 1964, writ refld n,r,e,),,,,, 19 - Sfafe v. Crawford, 262 S.W,3d 532 (Tex.App.-Austin 2008, no pet.) 17, 18 Subaru of America v. David McDavid Nissan, 84 S,W.3d 212 (Tex.2002), I7 fexas Dept. of Public Safety v. Banks Transp. Ço., 427 S.W,2d 593, (Tex.Sup, 1968) 5lPnqe Motion for Eurergency Relief to Lift Automatic Stay for Limite324 S.W.3d 276 ,288 (Tex.App,-Austin 2010, no pet.) (111,010 allows for a de novo review of the party's tax liabllity), Herrera v. .9fafe, No, 03-01- 00101-CV,2002 WL 185476, at *1 n.4,2002 Tex.App,.-Austin Feb,7,2OO2, no pet,) (not designated for publication) (identifying suit under section 111,010 as "de novo action by the State to collect delinquent tax"), The Administrative Procedure Act (APA) provides that when "the manner of review authorized by law for the decision in a contested case .,, is by trial de novo, the reviewing couft shall try each lssue of fact and law ,,. as though there had not been an interuening agency action or decision," T€x. Gov't Code Ann, $ 2001,173(a) frVest 2000), A de novo hearing has been defined as "a new and lndependent action in whlch the whole case is gone into as if no trial whatever had been had in the court below," Trial de novo is not an "appeal", but is a nBW and independent action, Key Wastern Life lns, Co. v. Sfafe Bd. of /ns,, 350 S,W.2d 839,846 (Tex. 1961). Tex. Tax Code Ann. $ 111.0049, and Tex. Tax Code Ann, $ 151.205 authorize a taxpayer to appeal the revocation or suspension of a tax permit "in the same manner that appeals are made from a final deficiency determination", They are therefore accorded a trial de novo and there is no final order upon which the State can proceed to enforce the order until o g t t t Ot OZ TAX Surt Challcngrng Collection Action Venue for anrì jurisdiction of a suit that challenges or is fff the purpose olavoiding a comptoller colleclion action or statc tær ìien in any manner is exclusively confened on the clistrict courts o[ Travis Coun¡r. ' $ 1 11 0049 TAX Appeats A taxpayer may appeal the revocation or suspension of a permit or license under Section I I 1 0046 and i i i.0047 of this code in the same rnanner that appeals are rnacle from a fnal deficiency cletermuratuon ó tst zos TAX Appeats g A taxpayer may appeal the revocation or suspension of a tax permit in the same manner that appeals are macle lrom a ftnal rleficiency determr¡ration. i6 | 1r' I r.,l Motion for Emergency Relief to Lift Automatic Stay for Limited Purpose ProDoc FaxService Page 18 of 103 a final decision is reached in the appeal, Accordingly, they should be precluded from pursulng the suspension of the sales tax permit until this cause is concluded. Appellants therefore request this couri to lift the automatic stay for the limited purpose of staying the execution of the suspension order pending a final hearing on the appealfrom such judgment, II. The Comptroller's Enforcement Actlons Vlolated the Automatlc Stay Provlslons of an Interlocutory Appeal The Texas Civil Practice and Remedies Code expressly provides for an interlocutory appeal from an order granting or denying a plea to the jurisdiction by a govêrnmental unit, Tex. Civ, Prac. & Rem, Code Ann, S 51,01a(a)(8) (West 2008). When a notice of interlocutory appaal under this section is filed, all proceedings in the trial court are automatically stayed pending resolution of the appeal, /d. $ 51,014 (b). ln RE TASO, 03-11-00269-CV (Tex,App.- Austin 5-6-201 1),That appeal is currently pending in this Court as Case No, 03-1 1-00462-CV. Appellants filed its notice of interlocutory appeal on July 25, 2011, Each of the enforcement actions taken by the Comptroller commenced after the filing of the notlce. The Notice of Bond and subsequant enforcement activi$ against ISBA Enterprises, lnc, was commenced on September 20, 2011. 1'he Notice of Hearing to Cancel was commenced by letterto Majic lnvestments, lnc. dated January 13,2012,'lhe hearing was held telephonically on February 24,2012 and the Comptroller ordered the permit suspended effactive March 5, 2012, When Appeilants commenced this interlocutory appeal by filing its notice of appeal, "all other proceedings in the trial courf' were stayed pending resolution of the appeal, Tex, Civ, Prac.&Rem.CodeAnn$51,014(b).Anordersignedduringastayisa"legal nullity," Amrhein v. La Madeleine, 1nc.,206 S,W,3d 173, 174-75 (Tex.App,-Dallas 2006, no pet,)', Burrhus v. M & S Mach. & Supply Co., |nc.,897 S.W,zd 871,873 (Tex.App.-San Antonio 1995, no pet.) (holding that appellate deadlines are stayed during pendency of automatic stay imposed by insurance code). Accordingly, the enforcement actions sought by the Comptroller are void, and any further enforcement activity would be in violation of the automatic stay order and must be enloinad pending resolution of the interlocutory appeal, 17l1:';:qe It4otion for Emergency Relief to Lift Autouratic Stay for Lilnited Purpose ProDoc Faxservice Page 19 of 103 IIL The Cornptroller's Enforcement Actions are Ultra Vires and Exceed Her Statutory Authorlty The Request for Bond is Premature The Comptroller is not authorized to collect delinquent sales taxes untll they become final, The tax code provides "[t]he amount of a determination made under this code is due and payable 20 days after a comptroller's decision in a redetermination hearing becomes flnal". Tex, Tax Code Ann, $ 111,0081 (c),7 The request for bond is pursuant to Tex, Tax Code Ann, $ 111.012 (a) (1)B which permits the comptroller io require a taxpayer to provide security for the payment of taxes only if the comptroller finds that a fax imposed by this title is insecure. 34 Tex Admin. Code g 3.327 (d), the regulation interpreting this provision provides: lf the comptroller determines at any time that the amount of the bond on file is inadequate or if a permitted retailer is dalinquent in the payment of any state or local sa/es or {/.re faxe.s, the comptroller may require a new or additional bond to be posted. Relator maintains that the request for bond prior to the establishment of any delinquency is unlawful pursuant to the provisions of Tex, Tax Code Ann, $ 1 11 .0081(c) which provides: The amount of a determination made under this code is due and payable 20 days after a comptroller's decision in a redetermination hearing becomes final. lf the amount of the determination is not paid within 20 days after the day the decision became final, a penalty of '10 percent of the amount of the determination, exclusive of penalties and interest, shall be added. The Comptroller's decision becomes "final" (and ihus a party has exhausted administrative remedies) for purposes of a party's pursuing damages in a trial court for Code- t 5 t t t OOa t TAX When Payment is Re qurecl (a) Except as providecl in Subsections þ) and (c) ol this sectiorr thc amor.urt of a determination made under this code is due ancl payable 10 days after it becomes frîal. If the amorurt olthe determination is not paid within 10 days after the clay it became final, a penally ol 10 percent of the amount of the determination, exclusive ol penalties and nterest, shall be added. þ) This section does not apply to a determination uncler Section ^lll",8??, (c) The ârnount ol a cletermination made uncler this code is due a¡ld payable 20 days after a comptrolle/s clecision Ln a recleterminalion hearing becomes ftnal Il lhe amou¡rt ol lhe cìetermination is not paicl wrthin 20 days alt¿r the day the decision became f-tnal, a penalty ol l0 percent ol the amount of the determi¡ation, exclusive of penalties and interest, shall be added. I ç t t t.Ot Z Secunly lor the Payment of Taxes (a) If the compboller fr¡rds lhat a fax imposed by this title is lflsecure, the compfolìer mây requlro a tâxpayer tro: (1) provide se curity lor the payment of taxes: 18 | Ir'n r. r: Motioli for Ernergency Relief to LifÌ Automatic Stay for Lilnited Purpose ProDoc FaxService Page 20 of 103 based claims: (1) atter the time to seek substantial-evidence review of the agency decision expires, if no affected person seeks such review, see Tex. Rev. Civ, Stat. art.4413(36), $ 7,01(a)-(b); or (2) after an affected person who seeks judicial review exhausts the substantial- evidence review avenues. Subaru of America v. David McDavid JVlssan, 84 S.W,3d 212 (Tex. 2002). ln the absence of the Gomptroller's finaldecision in the redetermination hearing, no tax has yet been imposed and no tax is "due and payable" upon which a delinquency may be for provision of security prior to a final decision and predicated. Accordingly, the request subsequent delinquency is void as ultra vires and in excess of the Comptroller's statutory authority, Sfafe y, Çravvford,262 S,W,3d 532,546 (Tex,App,.Austin 2008, no pet.) (evidence was insufficient io conclusively establish that [Taxpayers] "willfully fail[ed] to pay or cause to be paid the tax," because the tax amount had not yet become due); see also Logalv. United Sfafes, 195 F,3d 229,232 (Sth Cir, 1999), Accordingly the requirement for the payment of bond is void and ISBA should be reimbursed for the full cost of the bond, and the settlement agreement reached during the pendency of the lnterlocutory appeal should be nullified. The Notice to Cancel is Premature The Notice of Hearing to Cancel Permit is issued pursuant to Tex, Tax Code Ann. g 111.0047s which authorizes tho Comptroller, after notice and hearing, to revoke or suspend any permit or llcense issued to the pÉrson only if the comptroller finds that a person fails to complywith any provìsion of this title orwith a rule of the comptrolleradopted underthistitle. The Comptroller alleges that the notice is being issued due to Relator's "for failure to pay the amount due of $73,600,67 for the (audit) periods September 1, 2005 to April 30, 2009. Relator maintains that the request for payment prior to the establishment of its debt is unlawful pursuant to the provisions of Tex. Tax Code Ann. S 111,0081 (c) (See fn. 1). n $ I t t OOqZ Srxpension and Revocfltion of Pennit or License (a) If a person fails to comply with any provision of this title or with a rule of the complroller adopted under this title. the compholler, afler a hearing, m ay revoke or suspend any perm it or license issued to the person. þ) A person whose pemil or lioense the comptrolìer proposes io revoke or suspend under thls seclion is entltlcd to 20 days' wrilten notice of the tjme and place of the hearing on the revocation or suspension. At the hearng the person must show cause why each permit or license should not be suspended or revoked, (c) The compfoller shall give written notice of the revocation or suspension of a permit or license to the holcler of the permit or license . (d) Notrces under this seclion may be servecl on the holder of the permit o¡ license personally or may be mailed ,c the hoklerrs acldress as shown in thc records of the comphoììer. 191 lr'irqe Motion for Emergency Relief to Lift Automatic Stay for Limitecl Purpose ProDoc FaxService Page 2L of. 103 ln the absence of a final decision in the redetermination hearing, no tax has yet been imposed and no tax is "due and payable" upon which a delinquency may be predicated. Accordingly, the requast for payment prior to a final decision and subsequent delinquency is ultra vires and in excess of the Comptroller's statutory authority, Sfafe v. Crawford, 262 S.W,3d 532, 540 (Tex.App.-Austin 2008, no pet.) (evidence was insufficlent to conclusively establiEh that [Taxpayers] "willfully fail[ed] to pay or cause to be paid th6 tax," because tha tax amount had not yet become due); see a/so Loga/ v. United Sfafes, 195 F,3d 229,232 (Sth Cir, 1 99s). The Comptroller's Decísion Has Been Vdcated Appellants have filed a petition for judicial review pursuant to Tex, Gov't Code g$ 2001,7310 and Tex, Gov't Code S 2001 .17411 in CausE No, D-1-GV-10-000902 in the gSth District Court of Travis County, Texas for a de novo hearing to determine the validity of the deficiency assessments sought to be collected by the Comptroller in the contested proceeding. More importantly, because the only question before the District Courl concerns a matter of statutory construction, the review of the court's construction of the relevant statutes is de novo. See Clfy of ,San Antonio v. City of Boerne, 11 1 S,W,3d 22,25 (Tex. 2003). Further, in suits filed pursuantto Tex, Tax Code Ann, $111.010, officers and directors are entitled to a fuli and complete hearing on their tax liability in district court. See Tex, Tax Code Ann, $ 111.010 lWest 2008) (authorizing attorney general to file suit to recover taxes). The case is tried de novo. Greene v. Sfafe, 324 S,W,3d 276,288 (Tex,App.-Austin 2010, no pet,) (1'11,010 allows for a de novo review of the party's tax liability),Herrera y. ,Sfafe, N0.03- 01-00101-CV,2002 WL 185470, at *1 n. 4,2002 Tex.App,,-Austin Feb.7,2002, no pet,) (not to g 200i173 Gov'T. Triol De Novo Rçview (u) If the mrrnner of ¡eview nuftorized by law for the decision in n contested cuse thnt is the subject of complnint is by trinl de novo, the revierving court shnll try ench issue of fnct and lew in the ln€rnner that npplies to othe¡ civil suits rr this state as though there hacl not been an intervening agency action or decision but may not aclmit in eviclence the lact of prior state agency action or the nature of that action 0x00pt io the limitecl cxtent necessâry to show cornpliance with stâtutory provisions that vest jwiscliction in the cou¡t, t' GOV'T Review Under Substantial Eviclence Rule or Undefned Scope of Review $ 2001 174 Il the law authorizes revie"v of a cle cision r-n a contcsted case under the substântial evidence rule or ilthe law does not deline the scope of .ludrcral revier,v, a cowl may not substitute its.ludgment lor the judgment of the statÉ agenc)¡ on the werght of the eviclence on questions committed hr agency cliscretion but: (1) may affirm the agency decrsion ul whole or lr partl and (2) shaìl reverse or remand the case for fwlher proceeclurgs ilsubstantial rights ol the Relator have been preludrccd because the aclminislratrvc furclings, inferences, conclusions, or rlecisions are: (A) rn vioìation of a constrtutional or statutory provision; @) in excess of the agencyrs stafulory authority; (C) rnacle tluough unlawful proceclurel (D) aflected by other error of law; @) not reasonably suppofted by substantial eviclence considering the ¡e liable and probative evidence ln the record as a whole: or (F) arbrrary or capricious or characænzecl by abuse of dlscretron or clearly unwar¡anted exercise of cìiscretlon. 2011'nee Motion for Ernergency Relief to Lift Automatic Stay for Limited Purpose ProDoc Faxservice PagÊ 22 of 103 designated for publication) (identifying suit under section 111,010 as "de novo action by the State to collect delinquent tax"). The Administrative Procedure Act (APA) provides that when "the manner of review authorized by law for the decision in a contested case .., ls by trial de novo, the reviewlng court shall try each issue of fact and law ,,. as though there had not been an intervening agency action or decision," Tex, Gov't Code Ann, $ 2001,173(a) (West 2000). A de novo hearing has been defined as "a new and independent action in which the whole case is gone into as if no trial whatever had been had in the court below," Trial de novo is not an "appeal", but is a new and independent action. Key Western LifE lns. Co. v. Sfafe Ed. of /ns,, 350 S,W,2d 839,846 (Tex. 1961), The sine qua non of a de novo trial is the nullification of the judgment or order of the first tribunal and a retrial of the issues on which the judgment or order was founded, When jurisdiction of the second triþunal attaches, the judgment or order of the first tribunal is not fexas Dept. of Public Safirfy v. Banks Trensp, Co,, 427 merely suspended, but is nullified. S.W.zd 593, (Tex.Sup. 1968); Southern Cenel Co. v. Stafe Bd. of Weter Engineers,318 S,W,2d 619; 159 Tex.227 (Tex. 1958). Accordingly, "res judicata" and "final judgment" are ínapplicable in de novo proceedings because the original administraiive order that is the subject of appeal is nullified in a de novo procÉeding. Sfafe Bd. of lns. v. Republic Nat'l lns, Co., 384 S,W,2d 369, 372 (Tex,Civ,App, Austin 1964, writ ref'd n,r.e.), - The filing of this Petition operates to vacata the Comptroller's Decision pursuant to Tex, Gov't Çode $ 2001.176 (b)(3)'2, because trial de novo is the manner of review authorized by law for suspension of limlted sales, excise and use tax permits,ls Accordlngly, the t' I ZOO1 . 1 76 GOV'T, Petition Initiating Judicial Rev iew (a) A person ultiates ludrciaì review in a conte sted case by liling a petition not latcr than the 30th clay after the date on which the clecision that is the sublecl ol complaint is linal ancl appealable. (b) Unless otherwise providcd by statute r (1) the petitton must be frled in a Travis CoLurly clistrrct court; (2) a copy of the petition must be served on lhe stale agoncy and each party of record tr the proceedings belorc the agency; and (3) the fiìing oi lhe pettlion vacates a stâte agency clecision for which lrial de novo is the manner ol review authorizecl by law but does not af,lect the enforcement of an agency decision for which another manner olreview is aulhorized. tl g t OZ OOZ TAX Enlorcement ol License Cance llatron, Suspension, or Relusal (c) An appeal lrom an orcler of the comptroller cancelurg or suspending or refusing the issuance or reissuance of a Iicense may be taken lo a clisfict cou¡t ol Travis Courity by the aggrieved license holder or applicant The trial shall be cìe novo u¡rder the same rules as ordinary clvil suits, except that: (l) an appeat must be perlected and fited within 30 clays altrr the elfective dat¿ of the order, decision, or rulurg of the complroller; (2) lhe trial of the case 2llìr'lqe Motion for Ernergency Relief to Lift Autornatic Stay for Limited Purpose ProDoc FaxService Page 23 oî. 103 Comptroller's Decision has not become final and can therefore not form the basis for the collection of the tax deficiencles sought to be recovered by the show cause order. CONCTUSION The Notice of Hearing to Cancel Relator's sales tax permit or to require the posting of bond are in violation of autornatic stay imposed by the interlocutory appeal pending before this Court in Case No. 03-11-00462, Further, there is no final order upon which io request payment of the alleged tax assessment, because the Cornptroller's decision has been vacated byvirtue of the putative class action suit pending before the 98rh Judicial District Court in Travis County Texas, seeking de novo review of the Comptroller's decision. Finally, the Notice of Hearing to Cancel, prior to entry of a final judgment, is ultra vires and in excess of the Comptroller's statutory authority, because she cannot collect on delinquent taxes until 20 days after her decision becomes fínal, Her decision cannot become final until the issues relating to the judiciai review or finally determined. PRAYER WHEREFORE, PREMISES CONSIDERED, Appellants request this Court of Appeals to lift the automatic stay imposed in this case for the limited purpose of reviewing the issues raised by this motion under lts authorlty pursuant to Tex, R. App, P, 29,6, and declare the Appellants rights pending the appeal of the Comptroller's order suspending Appellants' sales tax permlt and to enjoin Susan Combs, in her official capacity as Comptroller of Public Accounts, from engaging in further enforcement activities pending resolution of the underlying Motion for Declaratory Judgment and Temporary lnjunction and the pending interlocutory a ppea l. Alternatively, to lift the automatic appeal for the limited purpose of authorizing the trial court to declare the Appellants rights pending the appeal of the Comptroller's order suspendlng Appellants'sales tax permit and to enjoln Susan Combs, in herofficialcapacity as Compirollar of Public Accounts,from engaging in further enforcemant activities pending shall begtn rvithul 10 ciays after tts filt-trg; ancl (3) the order, decísion, or rulng of the comptroller may be suspencled or modifie d by th-e cowt pending a t¡ial on the rnents 22:l:'nr.¿ Motion for Emergency Relief to Lift Autonlalic Stay for Limited Purpose ProDoc FaxService Page 24 o-f 103 r€solution ôf the underlying Motion for Declaratory Judgmsni and Temporary lnjunction and the pending interlocutory tppÊât. Respectfulfy su þmÌtted, f,a.w Offie of Samueft tøcft¡on PO Box 170030 Arlingtorr, TX 76003-063s Tel: (817) 751-71s5 Fax. 866-374-0164 ATTORN FOR T. Jackson Texas Bar No. 1049570 CERTJFICATE OF C OMPI,IAN C-E Irr compliance with Texas Rules of Appeliate Procedure 51,10, Appellanu cetiff by the sþature above, that they have notified or made ¿ clìligent efff,brt to notify the parties or thei¡ representatrves, by expedited mean$, to advi¡e them that a motion for temporary relief has been or wif be fiIed with Relators' Petitiorr for Writ of Mandamus. tg_ Sunu¿tt Jací¡sn SAMUBL T. JACKSON TE F In compliance withTex. R. App.P. 10.1 (a) (5), counsel fut the Appellanh certifies by his sþature above, that he hæ confer¡ed with counsel for the real parties ín inerest, and was advised that the real partiæ fur interest oppose the relieflrequested in thís motron. tst_ Samuetl. Jøcfr¿on SA]VTIIEL T. JACKS OI.\T 23 lPage Motiori for Emergency Relief to Lift Automatic Stay for Limited Purpose ProDoc FaxService Page 25 of 103 CERTIFICATE OF SERVICE I hereby certi$' by my signahue above that a true and ccrrect copy of the above and foregoing instrument wâs served on the parties or their attorneys via facsimjl€, certi-fi.ed mail, rerutn receiptrequested, and/ar hand delivery onAprü 1,5,2012, in accorda"Ece with the Texas Rules of Appellate Procedure, to the following: JACK HO}TENGATTEN istant Attorney GenEral ,Ass FD{AN CTA], LITIGATTON ÐTViSION P.O. Box 12548 Austin, TX787tt-2548 13L; (512) 475-3503 FAX: (512) 47 t -2348 / 480-8327 Email: j ack,hohelgprten@oag,state,ü,¡s ATTORNEY F OR RTSPONDEI\TS 24lPuge Mofion for EmergencyRelief to Lift Autom¿tic Stay for Lirnif¿d Purpose Tab C Plaintiff’s Original Petition for Judicial Review, Declaratory Judgment, Temporary Injunction and Request for Disclosure, No. D-1-GN-13-004352, Sanadco Inc. v. Hegar, in the 200th Judicial District Court, Travis County (“Sanadco II”). Appellees’ Responsive Brief page 3 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV 1212712013 6:02:24 PM Amalia Rodriguez-Mendoza District Clerk fravis Gounty D-1-GN-13-004352 D-1-GN-13-004352 CAUSE NO, SANADCO INC, A TEXAS CORPORATION, S IN THE DISTRICT COURT AND MAHMOUD AHMED ISBA s PIointffi, s s s VS s s SUSAN COMBS, IN HER INDIVIDUAT s TRAVIS COUNTY, TEXAS AND OFFICIAT CAPACITY s AS COMPTROTLER OF PUBLIC ACCOUNTS, s s OFFICE OF COMPTROTTER OF PUBLIC s ACCOUNTS FOR THE STATE OF TEXAS, s s AND GREGGABBOTT IN HIS OFFICIAT s CAPACITYAS ATTORNEY GENERAL OF s THE STATE OF TEXAS s 2OOTH Defendants s luDrcrAt DISTRTcT PTAINTIFFS' ORIGINAT PETITION FOR JUDICIAL REVIEW, DECTARATORY IUDGMENT, TEMPORARY INJUNCTION AND REQUEST FOR DISCLOSURE COME NOW SANADCO INC. and MAHMOUD AHMED ISBA, Plaintiffs, who file this Original Petition for judicial Review, Declaratory f udgment and Temporary Injunction from a pending Comptroller's Decision in a contested case proceeding before the State Office of Administrative Hearings, complaining of SUSAN COMBS, in her individual and official capacity as Texas Comptroller of Public Accounts, and GREG ABBOTT, in his ofïicial capacity as Texas Attorney General f"Defendants"), and for cause would respectfully show the following: I. DISCOVERY CONTROL PT-AN 1,. Plaintiffs desìgnate this case as a Level 3 case requiring a discovery control plan tailored to the circumstances of this particular suit pursuant to Texas Rule of Civil Procedure 190,4 II. REQUEST FOR DISCLOSURE 2. Pursuant to Texas Rules of Procedure 194, Plaintiffs request that Defendants disclose, within 50 days of service of this request, all of the information or material described in Rule 794.2. III. PARTIES 3. Sanadco Inc., Plaintiff, is a private Texas Corporation, duly organized and existing under the laws ofthe State ofTexas, engaged in the operation ofa convenience store whose principal place of business is located at 3801 East Rosedale St., Fort Worth, Texas 761,05-1,732,and whose Taxpayer No. is 4. Mahmoud A. Isba, Plaintiff, is an individual who resides in Arlington, Tarrant County TX and operates the convenience store owned by Sanadco Inc.,located at 3801 East Rosedale St., Fort Worth, Texas 76105-7732, and whose Taxpayer No. is 5. Defendant, Susan Combs [hereinafter referred to as ["Comptroller"), joined herein as a necessary party in her and official capacity as Texas Comptroller of Public Accounts, and in her individual capacity for purposes of certain of Plaintiffs' claims that certain described actions as set forth below are ultra vires and she was acting beyond the scope of her lawful authority. Susan Combs is a public official who is charged with the collection of Limited Sales, Excise and Use Taxes pursuant to the Texas Tax Code and may be served by personal service aT 1,1,L East l-7th Street, Austin, Texas 7877 4. 6. Defendant, Gregg Abbott in his official capacily as the Attorney General of Texas, joined herein as a necessary party in his official capacity, is a state agency as defined by Tnx, Gov'r, Conn Aruru. g2_t01!03 [7), having statewide jurisdiction which makes rules and determines contested cases and may be served by personalservice ar.209 West 14th Street, Bth Floor, Austin, Texas 7870L. -2-ll':r¡1rl tv. JURISDICTION AND VENUE 7. This is an action seeking declaratory and injunctive relief from a contested case proceeding pending issuance of the Comptroller's Decision before the State Office of Administrative Hearings (SOAH) against Sanadco, Inc,, and Mahmoud Ahmed Isba in SOAH DOCKET NO. XXX-XX-XXXX.26, TCPA HRG No. 1,04,445, and SOAH DOCKET N0. 304-13 -4212.26, TCPA HRG No, 707,006, respectively, and joined for the sake of efficiency, [Exhibit A) B, This court has subject matter jurisdiction to determine the validity of AP 92 and AP I22, and enter declaratory relief pursuant to TEX, GOV'T. CODE ANN, [2.00L03B, wherein sovereign immunity has been waived when it is alleged that a rule or its threatened application interferes with or impairs, or threatens to interfere with or impair, a legal right or privilege of the plaintiff, 9. This Court has subject matter jurisdiction pursuant to the Uniform Declaratory Judgments Act, TEX, CIV, PRAC. & REM. CODE ANN, S 37.00L et seq,, by which sovereign immunity has been waived and authorizes Plaintiffs to obtain a declaration ofrights, status, or other legal relations affected by a statute; and against a state official who engages in ultra vires acts without legal or statutory authority, or refuses to perform a purely ministerial act. City of EI Paso v. Heinrich, ¿84 SJ ¿.3d 366 370 [Tex. 2009). 10, This Court has subject matter jurisdiction pursuant to TEX. GOV'T CODE ANN. SS T\ALLI1, ZOfl_UZ3 and 20t1.J74, seeking judicial review from a pending final decision in a contested case before the State Office of Administrative Hearings. Seq Lindig v, !ohnson Cit"v. 03-08-00574-CV (Tex. App.-Austin 70-21"-2009). (a premature petition for judicial review may be cured if there is a claim over which the court obtained juriscliction under its general jurisdictional authority,) 11. This Court has subject matter jurisdiction pursuant to TEX. CONST. AßIJ-S-I=!.. V, SUMMARY OF FACTS 72. On August 17 , 2004, after the Comptroller became aware of lack of uniformity in convenience store audits, she issued a policy memorandum implementing new procedures for convenience store audits entitled Audit Policy 92lAP92 )[Exhibit B), -3-lí):r¡1r: directing all auditors, inter alia, to conduct a shelf test during convenience store audits if the taxpayer is still in business, and use the percentages designated in AP92 as the mark-up for beer and tobacco products if the records of a convenience store are "unavailable, inadequate, or unreliable" and if the actual mark-up percentage could not be ascertained by other means. 13. Effective September l, 2007, the Texas Legislature enacted legislation directing each wholesaler or distributor of beer, wine, malt liquor or tobacco products to file a report with the Comptroller detailing the monthly net sales made to the retailer by the wholesaler or distributor, including the quantity and units of beer, wine, malt liquorand tobacco products sold to the retailer. [Tex. Tax Code S 151.433 [b) [4)t and Tex. Tax Code S 155.105.2 The data provided as a result of the legislation is commonly referred to as HB 1,1, data, but no directives regarding its use accompanied the legislation. The first reports became available on January 1, 2008. L4, After HB 11 became effective, the Comptroller revised APg2 with APL 22 (Exhibit C), effective luly 22,2009, by revising the audit procedures and determination of mark- up percentages and incorporating H811, instructing that this data must be the starting point for all convenience store audits whether used as internal control verification or as data used to estimate the audit, r t S t.+ll. Reports by Wholesalels and f)istr'ibutors of Beer, Wiue, and Malt Liqrrcr ç (b) The comptroller may, when considered necessary by the cornptroller tbr the adrninistration of a tax under this clrapter, require each wholesaler or clistributor of beer, wine, ol rnalt liqnol to file with the cornptroller a report each nronth997 S.W.2d 248 , 255 [Tex. 1,999). These procedures include providing notice, publication, and public comment on the proposed rule, 1d. [citing Tex. Gov't Code Ann. SS 2001,.023-.030). The process assures notice to the public and affected persons and an opportunity to be heard on matters that affect them.Id. 31.Unless arule is promulgated and adopted in accordance with the requirements of the APA, it is invalÍd and unenforceable. Tex. Gov't, Code Ann. SS 2-0f11-Q35,s aq01.0!46 and Z0û1.,0057, Neither AP 92 nor AP I22 as it reìates to HB 1,7,were 5$ 2001.035. Substantial Compliance Requilernent; Tirne Lirnit on Pl'ocedulal Cìhallenge (a) A rule is voidable unless a state agency ado¡rts it in substantial cornpliance with Seotions 2001.0225 tlirough 2001.034. 6S Adopt Rnles of Plactice and Index Rnles, Orders, and Decisions 2001 .004 Requilernent to In addition to other leqniternents under'law, a state agency shall: (l) adopt rules of practice stating the nature antl requircments of all available formal antl inft¡r'rnal ploocdules; (2) index, cross-index to statntc, and rn¿rke available for public ir:rspection all lule s anId. 34. Suits to require state officials to comply with statutory or constitutional provisions are not prohibited by sovereign immunity. Heinrich, ZB4-5l4lJd at372. To fall within the ultra vires exception to sovereign immunity, a suit "must allege, and ultimately prove, that the officer acted without legal authority or failed to perform a purely ministerial act." ld. [citations omitted). "Thus, ultra vires suits do not attempt to exert control over the state - they altempt to reassert the control of the state. Stated another way, these suits do not seek to alter government policy but (a) A statc agcncy rulc, ordcL, or dccision rnadc or issucd on or aflcr Janttary I, 197 6, is not valid or cffcctivc against a pcrsol'r or party, and rnay not bc invokcd by an agcncy, until thc agcncy has iudcxcd thc lulc, orId. Thus, for a statute not to be unconstitutionally vague, it must be sufficiently clear in at least three respects: [1) a person of ordinary intelligence must be given a reasonable opportunity to know what is prohibited; (2) the law must establish determinate guidelines for law enforcement; and [3) if First Amendment freedoms are implicated, the law must be sufficiently definite to avoid chiìling protected expression.Id. at 108-09;Long v. State, 931, S,W.2d 285, 287 [Tex.Crim.App. L996). 66. A court will find a rule unconstitutionally vague, in violation of due process, if it does not give fair notice of what conduct may be punished, and invites arbitrary and discriminatory enforcement by its lack of guidance for those charged with its enforcement. U.S,C.A, Const.Amend. L4. Vista Healthcare V. Texas,03-09-001"7B-CV [Tex.App,-Austin B-26-2010). This statute fails to establish guidelines for its application and does not give fair notice to the taxpayer of the prohibited conduct, -16-lij;i¡.1 r' lending itself to discriminatory enforcement. It is therefore unconstitutionally vague and must be stricken. 67. Plaintiffs seek a declaratory judgment against the Office of the Comptroller of Public Accounts, Susan Combs, in her official capacity as Comptroller of Public Accounts for the State of Texas and Gregg Abbott, in his official capacity as the Attorney General for the State of Texas, pursuant to the Uniform Declaratory Judgments Act, Tex. Civ. Prac, & Rem. Code Aruru. S 37.004 et seq., construing Tex. Tax Code $ 717.0042, declaring that this statute is unconstitutional on its face and as applied to Plaintiffs because it is, by its nature, a denial of substantive and procedural due process and is constitutionally vague because it permits the audit to be made merely on undefined subjective criteria, and without providing any guidelines for the administration thereof. COMPTAINT VII Tex. Tax Code S111.022, authorizing a feopardy Determination without guidelines, is Unconstitutional on its face and as applied. 68. Defendant, Cross-Plaintiffs ("Plaintiffs") incorporates the preceding paragraphs by reference as if the same were set forth fully and verbatim herein. 69. Tex. Tax Code $ 111.022e authorizes the Comptroller to impose an additional 10% jeopardy determination penalty against a deficiency determination, which comes due immediately, if she "believes" that the collection of a tax required to be paid to the state or the amount due for a tax period is jeopardized by delay. 70. The statute is purely discretionary because it establishes no parameters by which the Comptroller is to make this determination except for her undefined e 5 t t t.OZZ TAX. Jeopaldy Deterrnination (a) IlÌthe cornptroller believes that the collection ofa tax lequiled to be paid to the state ol the arnount due Ior a tax period is jeopardized by delay, the compholler shall issue a detelrnination stating the amotuìt and that the tax collection is in jeopardy. The amor¡nt lequired to be paid to the state or due for the tax peliod is due and payable irnmediately. (b) A408 U.S. 104 , 1.08,92 S.Ct. 2294,33 L.Ed,zd 222 (7972). "Second, if arbitrary and discriminatory enforcement is to be prevented, Iaws must provide explicit standarcls for those who apply [hem." /d, Thus, for a statute not to be unconstitutionally vague, it must be sufficiently clear in at least three respects: [1) a person of ordinary intelligence must be given a reasonable opportunity to know what is prohibited; [2) the law must establish determinate guidelines for law enforcement; and [3) if First Amendment freedoms are implicated, the law must be sufficiently definite to avoid chilling protected expression.Id. at 108-09;Long v, State, 931 S.W,zd 285, 287 [Tex.Crim,App. 1996). 72 A court will find a rule unconstitutionally vague, in violation of due process, if it does not give fair notice of what conduct may be punished, and invites arbitrary and discriminatory enforcement by its lack of guidance for those charged with its enforcement. U,S.C,A, Const.Amend.14, Vista Healthcare V. Texas,03-09-00178-CV (Tex.App,-Ausrin 8-26-2010). This statute fails to establish guidelines for its application and does not give fair notice to the taxpayer of the prohibited conduct, lending itself to discriminatory enforcement. It is therefore unconstitutionally vague and must be stricken. 73. Plaintiffs seek a declaratory judgment against the Office of the Comptroller of Public Accounts, Susan Combs, in her official capacity as Comptroller of Public Accounts for the State of Texas and Gregg Abbott, in his official capacity as the Attorney General for the State of Texas, pursuant to the Uniform Declaratory Judgments Act, Tex, Civ. Prac. & Rem. Code A¡¡n. S 37,004 et seq., construing Tex. Tax Code $ IIL022 and declaring that the statute is unconstitutional on its face and as applied to Plaintiffs because it is, by its nature, a denial of substantive and procedural due process and unconstitutionally vague because it permits the feopardy Determination to be made merely on undefined subjective criteria, and without providing any guidelines for the administration thereof. COMPTAINT VIII The Comptroller has taken Plaintiffs' property for public use without just compensation by collecting the foregoing illegal, unenforceable or invalid taxes pursuant to her official duties under Tex, Tax Code Ann. S 111,001. -18-li';ty.r: 74 Plaintiff incorporates the preceding paragraphs by reference as if the same were set forth fully and verbatim herein. 75. Pursuant to her authority under Tex, Tax Code Ann. S--1.L1-0-0ato the Comptroller collected illegal, invalid and unenforceable sales and use taxes from Plaintiffs without their consent, and deposited such collections into the State's general revenue fund pursuant to Tex. Tax Code Ann. S 101.009[a),11 thereby intentionaìly engaging in authorized conduct constituting a taking of Plaintiffs' properry for public use without adequate compensation. 76 The Texas Constitution waives sovereign immunity from suit for an unconstitutional takings claim. Tex, Const. art, I, S 1,7.Lz ; See Steelev. Cíty of Houston, 603 S.W,zd 786,797 (Tex, 1980). To establish a takings claim, the complainant must prove 1) that the State intentionally performed certain acts, 2) that the acts resulted in a "taking" of property, and 3) that the property was taken for public use. General Servs. Comm'n v. Little-Tex Insulation Co.,39 S,W.3d 591, 598 [Tex. 2001-). Plaintiffs maintain they have satisfied that burden by the foregoing pleadings. 77 Plaintiffs seek a declaratory judgment against the Office of the Comptroller of Public Accounts, Susan Combs, in her official capacity as Comptroller of Public Accounts for the State of Texas and Gregg Abbott, in his official capacity as the Attorney General for the State of Texas, pursuant to Tex. Const. art, I, S 17 and the Uniform Declaratory fudgments Act, Tex. Civ, Prac. & Rem, Code Ann. S 37,004 ef seq,, declaring that the Comptroller's collection of these taxes was an intentional act 10 ç 1 I 1.001 Cìomptloller to Collect Taxes The comptroller shall collect the taxes in.rpose<1 by this title except as othelwise plovided try this title r1 10i.009(zr) Allocation and Tlansfel clf Net Revenuçs $ (a) E,xcept as provicled by Sul:rsection (b) of this section, all revenues collected florn the taxes irnposed by the chaptels of this titlc and by Clhapter 8, Title 132, Revised Civil Statutes of Texas, 1925, as atnended, af-tel deiluction of the portion allocatcd ttrr collection, enfbrccrnent, and adrninistration purposes, shall flrst be deposited in the general re\¡cnue lund. After thc initial deposit, translèr's fl'orn the genelal revenue fund to other ftuds shall be rnade at the time, in the rnanner, and in the amorìnts provided by law. 12 of Sec, 17 Taking, damaging or destloying property for pulllic use; special privileges and imrnunities; control lrlivileges an284 S.W.3d 366 (Tex, 2009);306*S.\V.3d 256 [Tex. 2010) [respectively). The Supreme Court determined that "while governmental immunity generally bars suits for retrospective money relief, it does not preclude prospective injunctive remedies in official-capacity suits against government actors who violate statutory or constitutional provisions." Heinrí.ch,284 S.W.3d at 368-69, ln Heinrich, the supreme court confirmed that "suits to require state officials to comply with statutory or constitutional provisions are not prohibited by sovereign immunity, even if a declaration to that effect compels the payment of money." Heinrich,2B4 S.W,3d at 372. Reconveyance,306 S.W.3d at 434. Further, if valid challenges to the Department's rules under the APA are raised, then it is not necessary to determine whether the Appellees have properly alleged ultra vires claims because the trial court's subject-matter jurisdiction is established by section 2001,038 of the APA. See Tex. Gov't Code Ann. S 2001,038. Section 2001,038 allows a party to bring a declaratory-judgment action challenging the validity or applicability of an agency rule if it is alleged that the rule or its threatened application interferes with or impairs a legal right or privilege of the plaintiff. Seeid. Section 2001.038is considered a legislative grant of subject-matter jurisdiction, so that valid claims raised pursuant to that provision are not barred by sovereign immunity. See Combs v. Entertainment Publ'ns, |nc.,292 S.W.3d 7L2,720 [Tex.App.-Austin 2009, no pet,) [collecting cases). Tex. Dept. of Pub. Safety v. Salazar, 304 S,W,3d 896 [Tex.App. [3rd] 2010). -20-lllii¡1 i' VtL Exhaustion Of Administrative Remedies Not Required 79. The general rule in Texas is that courts do not interfere with the statutorily conferred duties and functions of an administrative agenry. Westheimer lndep. Sch. Dist. v. Brockette,567 S,W.zd 7B0,7BS [Tex. 1978). However, courts may intervene in administratíve proceedings when an agency exercises authority beyond its statutorily conferred powers.ld. This exception to the exhaustion of administrative remedies doctrine is a variation of the rule that where the administrative agency lacks jurisdiction, a trial court may intercede before administrative remedies are exhausted. See City of Houston v. Williams, 99 J.W.3cl 209, 777 (Tex.App.-Houston [14th Dist.] 2003, no pet.). "ln such a case, the purposes underlying the exhaustion of remedies rule are not applicable, judicial and administrative efficacies are not served, and agency polices and expertise is irrelevant if the agency's final action will be a nullity ." MAG-T, L.P.,1,67 S.W,3d at 625. BO "ln order to maintain an action against the Comptroller for a refund of taxes, a party must meet the procedural requirements of the tax protest law. Compliance with these procedures is a jurisdictional prerequisite for the trial court to hear and decidethemeritsofataxrefundsuit." CentralPower&LightCo.v.Sharp,919S.W.zd 485,491. [Tex,App.-Austin 1996, writ denied) (citations omitted). Combs v. Chevron, 1nc., 3 19, 5.W"3d€36 [Tex.App, [3rd] 2010), B1 However, when an agency promulgates a rule without complying with the statutory rule-making procedures, the rule is invalid,.Tee APA S 2001.035 (a); El Paso Hosp. Dist,,247 tw.3d at7L5. The APA allows a person to challenge the validity or applicability of an agency rule pursuant to a declaratory judgment action if it is allegecl that the rule or its threatened application interferes with or impairs a legal right or privilege of the plaintiff. APA $ 2001,038[a). Thus Counter-Plaintiffs do not seek declaratory relief regarding the tax refund itself, but regarding the validity of the rule promulgated by the Comptroller in violation of the APA, for which the Iegislature has expressly permitted suit by a declaratory-judgment action. See APA S 2001.038 . Combs v. Entertainment Publ'ns, lnc., ¿g?lJ ¿,3d U2,720. Since this is not a suit for a refund pursuant to Tex, Tax Code Ann, $ 111-:l-04 its requirements are not relevant to Plaintiffs' right to seek injunctive relief. VlIL Attorney's Fees Pursuant to Tex Gov't Code Ann $ 2006,01,313 and Tex, Civ. Prac. & Rem, Code Ann, S 37.009, request is made for all costs and reasonable and necessary attorney's fees 13 5 zooe .ol: GOV'T. Iì.cquilcmcnts f997 S.W.2d 248 ,255 [Tex. 1999). These procedures include providing notice, publication, and public comment on the proposed rule.Id. (citing Tex.Gov't Code Ann. SS 2001.023- .030), The process assures notice to the public and affected persons and an opportunity to be heard on matters that affect them.Id. Unless arule is promulgated and adopted in accordance with the requirements of the APA, it is invalid and unenforceable, Tex. Gov't, Code Ann. $$ 2001.035,1 200L.0042 and 2001.0053. Neither AP92nor AP1,22 as it relates to HB 11, tg ZOOt.O:S, Substarrtial Cìompliance Rec¡rirement; Tirne Lirnit on Procedural fìhallenge (a) A rnle is voidable unless a state agcncy adopts it in substantial compliauce with Sections 2001.0225 through 2001.034. '5 ZOOt.OO+ Rcquircmcnt to Arlopt Rulcs of Plactioc and Indcx Rulcs, Ordcrs, and Dccisions In aId. CONFIDENTIAL Punu¡nt<) www.soah.state.tx.us Pursurnt to Tex. t Code soAH DOCKET NO. 304'13-42rr'26 TCPA HEARING NO. 106'815 TAXPAYER NO. s BEFORE TIIE STATE OFFICE SANADCO,INC.' Petitioner $ $ oN' v s s TEXAS COMPTROLLER OF PUBLIC s ACCOUNTS, $ s ADMINISTRATIVE ITEARING S ResPoudent soAH DOCKET NO. 304-ß4212.26 TCPA IIEARING NO. 107'OOó TAXPAYER NO. BEF'ORE TI{E STATE OFFICE MAHMOUD AHMED ISBA' $ Petitioner s s $ OF v $ TEXÄS COMPTROLLER OF' PTIBLIC s ACCOUNTS, $ ResPondent $ ADMINISTRATIVE HEARINGS PROPOSAL FOR DECTSION Sanadco, Inc. (Petitioner SI) was audited for sales and use tax compliance by the Texas assessed tax, a l0% penalty' an additional Comptroller of Public Accounts (Comptroller) and personal liability against 50% penalty, atrd, accrued interest. The Comptroller also assessed Code $ 111'0611 as the president of Mahmoud Ahmed Isba (Petitioner Isba) under Tax petitioner sI. Petitioners contest their audit assessments on the same grounds, including the unenforceable because the estimate was based contentions that the audit assessment is void and the present audit overlaps a previous on audít procedures that constituted invalid rules, and that contentions' In this final audit assessment. comptroller stâtr (stafî) rejects the Petitioners' (ALJ) recornmends that the Proposal for Decision (PFD), the Administrative Law Judge be affirmed, except that the markup percentâge corporate assessment against Petitioner sI should CONFIDENTIAL Pur.cunnt to 2003.104 soAH DocKET NOS. 304-13.121 1.26 PROPOSAL FOR DECISION PAGE 2 & 30,1-13-{2r2,26.26 TCPA DOCKET NOS loó,E15 & 107,006 used in calculating the estimated tobacco sales should be adjusted and that the additional fraud penalty should be applied only to the report periods February 1, 2007 through April 30, 2008. The ALJ also recommends that the personal liability assessment against Petitioner Isba should be limited to the re¡rort periods May 1, 2007, through April 30, 2008. I. PROCEDUR.A.L HISTORY, NOTICE AND JURISDICTION On May 10, 2013, Staff referred the cases to the State Office of Administative Hearings (SOAH) for oral hearings. ALJ Peter Brooks ordered the cases joined because the cases involve related parties, and common facts and issues of law. Staff was xepresented by Assistant General Counsel Isreal Miller and Petitionsrs were represented by Attorney Samuel T. Jackson. The case convened on September 9, 2013. "fhe ALJ closed the record on November 12,2Q13. There are no contested issues of notice or jurisdiction. Therefore, these matters are set out in the Findings of Fact and Conclusions of Law. II. REASONS F'OR DECISION A. Evidence Presented Staffsubmitted the following exhibits in SOAH Docket No. 304-13 -4211.26 I Sixty-Day Letter; ,) Texas Notification of Audit Results; J. Penalty and Interest Waiver lü/orksheet; 4. Audit Report; and 5. Audit Plan, which includes Audit Refenal Report for Additional Penalty I CONFIDENTTAL Pursuant to Tex. Govtt 2003.104 PROPOSAL FOR DECISION PAGE 3 soAH DOCKET NOS. 30+13-4211.26 & XXX-XX-XXXX.26.26 TCPÀ DOCKET NOS 10ó,815 & 107'006 Staffsubmitæd the foltowing exhibits in SOAH DocketNo. 304'13-4212'26 Texas Notification of Personal Liability for Fraudulent Tax Eva^sion; 2 Audit Exam, including correspondence and e-mail communications from the Revenue Accounting Division; the calculated Message, Adjustnent, and Allocation Reports; Íax Summary, Status, Balance, Audit, and Tax Allocation Basis Inquiriei; and Personal Liability Fraudulent Tax Evasion Worksheeq J sales and use tax Returns for report periods April 2007, May 2008, December 2008, February 2008, and January 2009; and 4. State Filings (Statement of Change of Registered Offrce/Agent, dated May 5,2006; and Texas Franchise Tax Public lnforrnation Reports sigrred May 10,2006, March 13, 2008, and February 26,2009. Staff attached to its Response to Petitioner's Post-Hearing Brief the following exhibits 6 Copy of Msmorandgm Opinion issued in Sanadco, Inc. v. Comptroller, No.OS-tl-00462-CV, 2Ol3 Tex. App. LEXIS 12013 (Tex. App' - Austin September 26, 2013); and 7 Appellee's Motion for Rehearing and Reconsideration en banc filed in Sanadco, /nc. petitioner SI produced during the hearing its responses to Staffs Second Set of Intenogatories, Requests for Admissions and Requests for Production. Petitioner did not offer any other evidence during the hearing, but did attach to its Post-Hearing Brief the following exhibits: 1 The Examination performed by the Comptroller's Business Activity Research Team (BART) for the exam period January l, 2008 through March 31, 2009, including, the Accounts Examiner Coversheet; correspondence and e-mail communications from BART; the Texas Notification of Exam Results; the Message, Adjustrnent, and Allocation Reports; Petitioner's Alcohol and Tobacco q þ, CONFIDENTIAL Pursugnt to Gov't 2003.104 PAGE 4 NOS. 304-13*{211'2ó PROPOSAL FOR DECISION soAH DOCKET & 304-13-421226.26 iCp¿ uocxeT Nos to6"8l5 & 107'ü)6 2009; and ITS Work Manager Purchases for January 2008 th¡ough March Comments; 2,PlaintiffsoriginalPetition,Sanadco,Inc.,20]13Tex'App.LEXISl20l3; sønadco' Inc' 2013 Tex' 3. Defendant's First Amended Answer and counterclaim, APP. LEXIS 12013; and Plea' sanadco' Inc" 4. Counter-Defendant's original Answer and Jtlrisdictional 2013 Tex. APP. LEXIS 12013 the listed documents is admitted as There were no evidentiary objections, and each of part ofthe contested oase record' case hearing was that of The only witness testimony presented during the contested the Comptoller auditor who performed Dennis Ëastman, the aud.it supervisor who supewised PetitionerSl,saudit.Sta.ffpresentedthetestimonyofMr'Êasnnan. B. Adiustments staffhas not agleed to adjust any of the contested audit assessments. C. F¡cts Estsblished and Issues Presented during the audit period Petitioner Sl operated a convenis¡rce store in Fort Worth, Texas owns the convenience store' February 1,2007 through JunE 30,2009. Petitioner SI no longer Petitioner SI was subjecæd to a desk audit performed by BART for the exam period of assessed a tax liability of $23'593'60' January l, 2008 through March 31, 2009. It was penalty, and accrued interest' consisting of tax, the 10% standard penalty, the additional 50% alcohol and tobacco purchases for The exam was promptedl by a comparison of Petitioner SI's I Petitioner's Exhibit 1, letter dated July 2,2009 from BART advising Petitioner sl of assessment' CONFIDENTIAL Pursu¡nt to Tex, G Code 2003.104 PAGE 5 NOS. 304-l$4211'26 PROPOSAL FOR DECISION soAH DOCKET & 30+13-4212.26.26 TCPA DOCKET NOS l0ó'815 & 107'00ó and alcohol vendors pursr¡fint HB 11'2 The the exam period feported by Petitioner SI's tobacpo period exce€ded the reported taxable sales for HB 1 I tobacco and alcohol pufchases for the exfim the same period by s268,056 to $76,976, BART relied on the HB I I data and the comptroller's assessment' Petitioner sI did not Audit Division Policy Memo 122 (AP t22) in estimating the for redetermination contesting the assessment, consequently, the assessment fìle a request General.s The became final. The sales and uso tax delinquency was certified to the Attorney the delinquency from Petitioners SI and Isba'a Aftorney General filed a lawsuit seeking to collect However' the trial court Petitioners filed various counterclaims against the Comptoller' ofjurisdiction. Petitioners appealed the dismissal' dismissed Petitioners' counterclaims for lack directives in AP 92 and The Appeals court sustained Petitioners' claim rhat the comptroller's jurisdiction over sanadco's Ap lzzwere in fact rules and also concluded that the trial court had clairn that gz and AP 122 were invalid rules and thal thertfote, the trial court erred in ^P App' LEXIS 12013' dismissing this cotrnterclaim. ,See Sanadco, Inc',2Q13 Tex' sales and use tax The Comptroller subsequently conducted an audit of Petitioner SI's June 30, 2009. Petitioner sI did not compliance for the audit period February 1,2007 ttuough a Notification of Estimation respond to the auditor's requests for records.5 The auditor issued procedures for St¿te Tax Audit (Notification of Estimation) dated January 27,2011, advising petitioner Sl that the audit would be estimated using HB 1l data, and that the AP 122 procedures SI no longer would be followed.6 When the auditor initiated the audit fieldwork Petitioner operated the convenience store. Therefore, the auditor could not perform a shelftest and instead 2 Wholesalers and distributors of beer, wine, malt liquor, cigarettes, cigars, and tobacco products are required to monthly basis, to the Comptroller. These electronic rePorts are required by Tex. Tax submit electronic reports, on a of Tex' I{B I l, 80rt' Leg., R.S., 2007. The Code $$ 151.462, 154.212, and 155,105, which were enacted as Part vendor records are commonly referred to as HB I I records. 3 pçtitioner,s Exhibit 2, Texas Certificate to Attorney General of Sales and Use Tax Delinquency a Petitioner's Exhibit 2, Plaintiff s Original Petition' 5 Staffs Exhibit 4 (Petitioner St), Audit Report' 6 to Gov't Code 2003,104 PAGE 6 PROPOSAL FIORDECISION SOAH DOCKET NOS. 301-13''1211'2é & 30+l$4212.26.26 icp¡ pocxpT Nos loó'srs & lo?'orló percentages of I l8'44% and 124'07% fesp€ctively for tobacco used the induslry avGrage markup purchases Ap 122.? The auditor totared the tobacco and arcohor and alcohol purchases set out in data for the report periods January 1' 2008' tbrough made by Petitioner sI using the HB l1 June30,2009'Thetotalalcoholandtobaccopurchasesweremultipliedbytheirrespective invoices percenøge was calculated, because no purchase markup percentages.s No product-mix were available. Therefore, the standar d AP lzzproduct-mix percentage of 54o/o for tobacco and a 5% alcohol products was applied to arrive at estimated taxable sales' The auditor afforde'd wæ given for reported Exable sales' The adjusted allowance for spoilage and theft, and credit in the BART exam for the repod tuable sales were then reduced by the amounts assessed 1, 2008 throt,gh March 31, 2009, and the resulting additional taxable sales were periods January at the tax due for the period January 1' 2008' then multiplied by the applieable tÐ( rates to anive through June 30, 2009'e data available for the periods preceding January 1, 2008, the As there wris no HB 1 t the report periods January 1' 2008' through auditor estimated the additional taxable sales for monthly net estimated taxable sales' The post' June 30, 2009 by first determining the average December 31, 200'î total net estimated taxable sales of s728,443'I7 were divided by the I g report periods to arrive at a monthly average of $40,469'06.10 The additional taxable sales for the pre-January 1, 2008 report periods were calculated by giving credit for the ta:Id., andstaffs Exbibit4 (Petitioner Sl), Exam 208) I Id, e staffs Exhibit 3 (Petitioner SI), Audit Report, Exam 20' 'o StoffsExhibit 4 (Petitioner Sl), Audit Report, Exam 208 " Staffs Exhibit 3 (Petitioner SI), Audit Report Exam 20' CONT'TDENTTAL Pursu¡nt to Gov't Code IM PROPOSAL F'ORDECISION PAGE 7 soaH DOCKET NOS. 304-13-421 1.26 & 30/Lr3-4212.26.26 TCPA DOCKET NOS loó,815 & 107'006 Since no contact was made during the audit with an officer, owner' or representative of petitioner SI, the auditor did not record in the Audit Plan or in the Audit Refenal Report for owner, or Additional Penalty any information regarding the role played by an officer, director, and filing of the sales employee of petitioner SI in the operation of the store or in the preparation and use tâx returns and the remittance of sales and use tax payments. The only substantive information reganding Petitioner Isba's activities is found in Petitioner SI's responses to Staffs Second Set of Interrogatories, Requests for Admissions and Requests for Production. petitioner sI admitted that Petitioner Isba signed checks for remitting sales and use tax payments during the audit period.l2 petitionff Isba is identified as the person responsible for depositing the store's sales proceeds, ordering the store's inventory, and paying for the storg's inventory purchases. 13 Petitioner Isba was also identified as the person who received the monthly bank statements.l4 Ho*e'lrer, according to Petitioner SI's answers to the interrogatories, petitioner Isba's responsibility for these t¿sks ended when on May 1, 2008, he entered into an agreement to sell Sanadco, Inc. to his employees, Yassien Siam and Sandra Salazar' Mr' Siam thereafter assumed responsibility for these tasks from May 1, 2008, until the end of the audit period. Petitioner SI, in the responses to Staffs lnterrogatory No. l, stated that Petitioner Isba was the sole owner, officer, or manager through May l, 2008. Petitioner Isba signed petitioner SI's 2006 Texas Franchise Tax Public Information Report (PIR) as president of Sanadco.rs The PIR is dated May 10, 2006. Although Petitioner SI's 2008 PIR identified petitioner Isba as the corporate presiden! the form is signed by a Mike Isba.l6 The PIR is dated 12 Petitioncr SI's Admission No. 2. 13 Petitioner SI's Answers to Interrogatories Nos. 4, 5, anct 6. r{ Fetitiouer SI's Answer to Interrogatory No. 7, It Staffs Exhibit 4 (Petitioner Isba). t6 td. CONF'IDENTTAL Pursu¡nt to Tex, Gov't 2003.104 PROPOSAL FOR DECISION PAGE E soAH DOCKET NOS. 3M-13-¿2r1.2ó & 304-134212.26.26 TCPA DOCT(ET NOS 106,815 & 107'00ó pIR identifies Petitioner Isba as the president' but it bea¡s the March 13,200g. Thç 200g dated February 26,2009' signature Isba" without a given name.tT The PIR is 2011, the Comptroller issued to Petitioner SI a Texas Notification of Audit On April l, 50% fraud penalty, and accrued Results assessing tæ<, the standard l0% penalty, the additional interest, totaling $112,381.02, with $64,336.87 attributable to tax' The overall error rate for petitioner SI was 66.45yo,which was calculated by dividing the tax assessed by the sr¡m of the redetermination. tær reported and assessed.lt Petition"t SI timely requested 2011' against The Comptroller also issued a jeopardy determination on March 30' petitioner lsbao pursuant to Tax Code $ I t I .061 I , assessing personal liability for the tu liability of Petitioner sI for the pcriod May l, 2007, th¡ough June 30, 2009'1e The personal liability assessment consisted of tan, the standard 10% penal8, the additional 50% penalty, and accrued against Petitioner Isba interest through the date of notification. The personal liability assessed totaled $95,620.96, with $55,168.87 afiributable to tâx. Petitioner Isba timely requested redetermination' glounds: Both Petitioners SI and Isba contested their assessments on the same 1 The imposition of additional fraud penalties should be deleted because Petitioner providei substantial records, and the underpayment was not the result of fraud or à t oowing or willful intent to evade tæId. rs Petitioner Sl's Penaþ and lnterest Waiver Worksheet' ,e staffs Exhibit I (Petitioner Isba). Texa.s Notification of Personal Liabilþ CONF'TDENTIAL Pursu¡nt to Tex. Gov't Code 2003.104 PAGE 9 XXX-XX-XXXX.26 PROPOSAL FORDECISION soAH DOCKET NOS' & 304-1$.4212.26.26 TCPA DOCKET NOS 106,E15 & 107'006 The auditor,s exclusive ì¡se of HB I I information and estimated markups to J when Petitioner had determine the tax tiauitity for beer and cigarettes, markups, was improper; ãåcumentation regarding thó actual purchases and The auditor's calculations regarding markups were well beyond nationâl avemges 4. and those contemplated under AP 122; jeopardy determination was flawed' 5 The imposition of additional penalties for the because the statute uutftotititg such penalti"i is unconstitutionally vague for its failure to establish guidetines for its imposition; inventory; 6. The audit should be revised to exclude previously audited audit procedures that 7. The audit is void as unenforceable because it was based on constitute invalid rules; and The subject audit overlap, u pr"uious final audit, consisting of a BART exam for I the period January 1, 2008 through Ma¡ch 3 1 , 2009' D. AnalYsis ¡nd Recommendation 1. SOAH Docket No.304-13-421L.2626 (Petitioner SI) rilhen records are inadequâte to reflect the taxpayer's business operations, the Cornptroller is authorized to estimate a torpayer's liability based on the best information avaitable. Tex. Tax code $ 11 1.0042(d). An estimaæd audit w¿¡s appropriate in this case has held that estimated because petitioner SI did not have complete records. The Comptroller audits based on HB I I vendor records and AP 122 procedures meet the best information see comptoller's available requirement when taxpayer records are incomplete or urueliable' DecisionNo. 103,gg2(2011). Theevidencethatsøffsubmittedestablishesthattheauditwas procedures were followed' based on the best information available and that established audit therefore, bear Consequently, the audit is entitled to a presumption of correctnçss. Petitioners, the burden of proof to show by a preponderance of the evidence that the audit results are insonect. 34 Tex. Admin. Code $ I '40(2XB)' CONFIDENTIAL Pursusnt to Ter. Code PAGE 10 NOS. 304-134211'2ó PROPOSAL FOR DECISION soAH DOCKET & XXX-XX-XXXX.26.26 TCPA DOCKET NOS 106'S15 & 107'006 there were sumcient Several of the cont€ntion$ are based on Petitioners' claim that for the auditor to perfonn an audit without relying on HB 1l data and the records available assertion that AP lLTestimating procedures. The audit work papers do not support Petitioners' issued letters (dated october 22' 2009 and records were provided to the auditor, The auditor July28,20t0)requestingtherecordsrequiredtoconducttheaudit,includingpurchaseinvoices The faiture to produce records is also refe¡enced and sales records but there was no rerpon".20 by the auditor.zl Moreover, in rhe Notification of Estimation and Sixfy-Day Letter issued did not offer any of the records it claimed it Petitioner dwing the soAH contested case hearing had available. by the auditor exceeded the Petitioners also asserted that the markup pefcentages used The auditor used the markup percentage national averages and those contemplated by AP 122. provides that the of ]24.\|o/odesignated in AP 122 for alcohol purchases.u AP 122 expressly used for average convenience store markup percentage of 124'07o/o assigned to 2007 is to be The same provision applies for subsequent years until new markup percentages are available' products. The markup pffcçntage of 118.02% assigned to 2007 is to be used for tobacco The auditor, instead' rxed the subsequent years until new markup porcentages are available' markup percentage o,t ttt.U% that is reserved for 2006.8 No explanation was found in the audit work papers or in staffs pleadings fbr deviating from this directive' consequently, the percentage of I l8'02% ALJ frnds that the auditor erred and recommends that the conect markup estimated tobacco sales' The should be used in marking up the tobacco pruchases to calculate a minor effect on the calculation of application of the correct markup percentage will have only sales total $100,550'67 versus the the estimated tobacco sales. The a-djusted estimated tobacco of lll.Mo/o. The ALI calculated that the application of $100,908.51 resulting f¡om the markup ro staffs Exhibit 4 (petirioner sI), Audit Report, Exhibits ll and III. rt Sþff s Exhibir 1 (petiriorrer Sl), Sixty-Day Letter and Staffs Exhibit 4 (Petitioner SI), Audit Report, Exhibit l' æ Søffs Exhibit4 (Petitioner Sl), Exam 208' tsId. CONFTDENTIAL Pursuantto Te¡. Code 2003.101 PROPOSAL F'OR DECISION PAGE II soAH DOCKET NOS. 304-13-421 1.26 & 30+13-4212,26,76 TCPA DOCKET NOS 10ó,815 & 107'006 products would reduce the assessment of tax from the correct markup percentâge for tobacco $64,3 36.90 to approximately $64,3 05'00 be disregarded because it is bæed Next Petitioners assert that the audit assessment should the appellate couft's recent decision in on invalid estimating procedures. Petitioners rely on any precedential value placed on the Sanadco, Inc.,2013 Tex. App. LEXIS 12013. However, decision is premature, as the decision has not become final' Appeltee has filed motions for en banc reconsideration and for rehearing. The court has yet to rule on the motions' The plenary power expires' Sce Oscar appellate court's decision becomes final when the court's S.W. 3d772 (Tex' App' * waco 2006' pet' Renda contructing, Inc. v. H&S Supply co., \nc.,195 the court will lose plenary power thirty days after the cout ovemrles the motion denied). And forrehearingandenäancreconsiderâtion'Tex'RuleApp.P'19.1(b). petitioners also contend that the subject audit should be restricted to the report periods March 31,2009' Thus' that fall outside of the BART exam period of January 1,2008 through according to Petitioners, the audit assessment should be restricted to the report periods February l, 2007 through December 31, 2007, and April l' 2009 through June 30' 2009' the liability due druing the Petitioners, in effect, are arguing that Stâffis estopped ûom reargUing bar of collaterai period previously examined by BART. However, a party seeking to assert the estoppel must establish that: "(l) the facts sought to be litigated in the second action were fully judgment in the first and fairly titigated in the first action; (2) those facts were essential to the Sysco Food Servs' v' action; and (3) the parties were cast as adversaries in the first action'" Also see comptroller's Trapnell,8g0 s.w. 2d796,801-802 (Tex. 1994), citations omitted; and Decision No, I 00,190 QOlz)- The BART exam of Petitioner SI's convenience store differs in several significant ways from the subsequent sales and use tax audit of the s¿une convenience store. As the BART exam purchases, no product-mix focused exclusively on Petitioner SI's alcohol and tobacco sales and Pursuent to Govtt Code PAGE 12 PROPOSAL FOR DECISION SOAH DOCKET NOS' 304-13-42rl'26 & XXX-XX-XXXX,26.26 iCpl bocxBT Nos 1oó'8ls & lo7'ooó percentagewasapplìed.However,aproduct-mixpercentagewasneededwhenPetitionerSlwas food and general subsequently audited for sales of other products such as candy' soft drinks' theft in the petitioner sr was afforded a 5% a[owance for spoilage and merchandise. In addition judgment in eacrr contested tax facts were not essentíar to the sares and use tÐ( audit. The same case.'[hus,theComptrollerwasnotestoppedbytheresultsoftheBARIexamfromthe especially since and use øx audit of the same taxpayer' subsequently performing a sales exaln were deleted from the calculation of additional taxable sales determined in the BART (2013) and taxable sales in the sales and use tax ar¡'dit see comptroller's Decision Nos' lo7 '579 104,445 and t05,726 (2012)' TheComprollerisauthorizedtoassessanadditional50%penaltyunderTex.TaxCode tax' commitæd fraud or had the intent to evade she determines th¿t a taxpayer $ lll.061(b) if penalty and convincing evidence that the fraud staff has the bruden of establishing by clear Clear and convincing evidence is proof that will applies. see 34Tex. Admin. code $ '40(lxB)' t produceafirmbelieforconvictionastothetruthoftheallegationssoughttobeestablished,but (2000); see compüoller's Decision No' 37'946 which need not be unequivocal or undisputed' See also, llebb State v' ,â'ddington,588 S.w.2d 569, 570 (Tex. 1979), on remand, 435 U.s. 967. F.2d 366 (1968) (fraud with the intent to evade tax v. Commissioner of Internal Revenue,3g4 requiresactual,intentionalwrongdoingwithaspecificpurposetoevade)' the audit period is 66'450/o' The revised overall As noted above, the overall effor rate for enor rate decreased, almost unperceptively, to 66'44% once the error rate is recalculated using prior Comptoller decisions gross undeneporting of the a.ssessed tax arnount of $64,305'24 In or gfeater, has been found sufficiently irrdicative of taxable sales, defined as an error of 25Yo of the fraud penalty' particularly when there were intent to evade the tax to warrant assessment b assessed tax and reported tåx ($9ó'790'61)' 'Ihe recalculated formula is assessed tax ($64,305) sum ofthe + CONF1DENTIAL Pursuant to Ter" Govtt 2003.1M PROPOSAL FOR DECISION PAGE 13 soAH DOCKET NOS. 30+13-4211.26 & 304-r&4212.26.26 TCPA DOCKET NOS 106,815 & 107'006 other factors or no plausible explanâtion. See, e.g., Comptroller's Decision No. 43,248 (2004)' Also see Tex, Tax Code $ 1l 1.205(b), to justifu imposition Such gross undeneporting, however, is not in and of itself sufficient tåxpayers, the Comptroller of the fraud penalty on corporate taxpayers. In the case of corporate recognizes that a corporation is a separate legal entity that is conFolled by its officers and directors and that the requisite intent of a corporation is detemrined from the actions of the officers or directors. \ilhen an offrcer is proven to have been directly involved in the fraudulent activities, the additional penalty against a corporation has been upheld, because a corporate officer's fraudulent actions can be attributed to the corporation, ^See Compholler's Decision Nos. 105,418 & 104,471 (2011),44,891 (2005) and44,528 (2005), The question is to what degree petitioner tsba, the company's president, was awaxe or should have been aware of the uncleneporting of tax. See e. g., Comptoller's Decision No. 103,204 and 104,238 (2012)- The only substantive evidence in the record directly establishing the exænt of petitioner Isba's involvement in the operation and rnânagement of the convenience store, in fhe preparation and filing of the sales and use tax retums, and remittance of the tâ( payments during the audit period is found in the answers propounded to Staff s discovery. There also æe the five checks remitting payment signed by Petitioner Isba that were proffered by Staff.zs The ALJ, based sotely on the statements made in response to Staffs discovery, finds that Petitioner Isba purchased and paid for the taxable inventory, made the daily deposits, and received the bank statements,,signed the sales tâx returns, and paid the sales and use taxes. The ALI, therefore, concludcs that Petitioner Isba was involved in, aware of or should have been aware of the underreporting of sales ta:<. However, the same inforrration that supports this conclusion expressly limits Petitioner Isba's involvement to the period preceding May l, 2008, when he qmcemenr tn cell the husiness ærd o¡re of the buyers assumçd responsibility for ^*ra.a¡t inrn ç¡lLvlçu an ¡lÀrv 4r perforrring these tasks, Staff has not addressed or refuted any part of Petitioner S['s responses to t' Staffls Exhibit4 (Petitioner Isba). Pursu¡nt to Tex. 2003.r04 PAGE 14 PROPOSAL FOR DECISION soAH DOCKET NOS. 304'13-4211'26 & 30¡l-13-4212,.26'26 lciii iiocrnT Nos lo6,8ls & 107'006 Isba's involvement to the requests, including the staæments limiting Petitioner its discovery l 2008' report periods preceding May ' AIJ COncludes that the r€cofd is suffrcient to establish' by clear and convincing The attributable to the company' the part of Petitioner Isba that are evidence, fraudulent actions on butonlyfortheperiodFebn.raryl,200T,throughApril30,200S'TheALItherefore 50% fraud penalty should be dismissed for the period recomrnends that the additional audit period' May 1, 2008 through the end of the penalties for jeopardy determination are petitioners arso argue thât the irnposition of additional contention vague. The ALJ lacks the jurisdiction to consider Petitioner's unconstitutional the jeopardy determination statute' The courts have nrled that regarding the constitutionality of theComptrollerlacksjurisdictiontonrleontheconstitutionalityofastatutethatsheadmìnisters' SeeTex,StateBd.ofPharmacyv.IlalgreenTexasCo.,520S'u/.2d845(Tex.App.-Austin l975,writrefdn.r.e.)AlsoseeComptroller'sDecisionNo.t05,82l(2013). 2.SoAHDocketNo.304-13.42|2.26(Petitioncrlsba) TaxCode$lll.06llimposespersonalliabilityonanofñcer'manager'ordirectorofa in a director, or partner' took an action or participated corpOration who "as an officer, managef' personal riability is plan to evade the payment of ta)id. $$ 15r due exceeding the amount of ta¡< repofted by and (3)" 25o/o ormore' Tex. Tax Code $ 111'061l(bxl) CONF'IDENTtAL Pursuånt to Ter. Govtt r04 PROPOSAL FOR, DECISION PAGE 15 soAH DOCKET NOS. 30+13-4211.26 & 30+13-421226.26 TCPA DOCKET NOS 106,E15 & 107'006 imposition of the additional The same facts that the ALJ ¡elied on in recommending personal liability' First' there was an overall 50% penatty support upholding the assessment of gross undeneporting of the tax, which resulted' even after taking into account the adjustment establishes that recommended by the ALJ, in an enor rate of 66.45%, Moreover, the record signing of petitioner Isba was involved in the operation and management of the store and in the the sales and use tax returns and remittance of the tax payments' He ordered and paid for the the bank ståtements, and signed both taxable inventory, deposited the store's receipts, received the comptoller' However' the the sales tax fetl¡rns and the checks remitting payments to evidence only for the period evidence establishes this involvement by clear and convincing 1, 2007 ttuough, April 30, 2008. This record is suffrcient to affrrm the personal February for that period, and the ALJ recommends that the personal liability liability assessment 1, 2008, th,rough June 30, 2009' assessment should be dismissed for the period May 3. Reconmendations The ALJ recommends that the audit assessment against PEtitioner SI should be affrrmed, of estimated tobacco sales but subject to the recommended adjusunents correcting the calculation and limiting the additional penalty to the period February 1,2007 through April 30, 2008' In the of the personal liabitity assessment against Petitioner Isbg the ALI recommends that the case adjustment in the underlying assessmsnt should be affrrmed subject to the recommended personal liability assessment for the corporate assessment and recommended dismissal of the petiod May 1, 2008 through June 30, 2009' III. FINDINGS OF F'ACT êo-oã¡n r)t¡IT.aULU) In¡ r¡¡w. lÞcrirìnner \¡ v!¡uu¡¡v¡ SI\ e^/ onerated vl¿v'F!r- a È convenicncç r *- storç in Fort Worth, Texas during the audit period February 1,2007 through June 30, 2009' t--" Pursu¡nt to Tex. 104 PAGE T6 304-1H2rt'26 PROPOSAL FOR DECISTON soAH DOCKET NOS' & 30¡l-13-4212,26'26 îðpÁ uocxBT Nos loó,81s & lo7'006 by the Business Activity Research petitioner sl was subjected to a desk audit -performed exam 2. îä'dñortlq oipoutit,qcóunts (comptroller) for the Team @ART) of the *¿ T:îùd a tax liabilitv of period of January.1,^;ôöä ,ÑshMarchãr, zoog 50% penalty' and $23,593.60, consrsnng of tax, the 10% ttt"¿'tãi;Jty' the additional accrued interest. a comparison of Petitioner sl's alcohol and tobacco The BART exafn was prompted by tobacco and alcohol vendors purchases for the .,..tti^ö;;ãì"iort"a Uyittition"t SI's under HB 11. tobacco wine, malt liquor, cigarettes' cigars' and wholesalers and disnibutors of beet, 4. products are required ì" ,"UÃi, elecüonic ***, on'u *ontñly basis, to the Compiloller' These elecfionic reports are required-by i;;.'Tæ< code $$ tst.+02, 154'212, and R.S., 2007' The vendor 155.105, which *"r*îrrl[ã * i,"n 9-f f*x. ftg tt, 80th Leg-, ;;;;üäre commonlv referred to as HB 11 records' for the exam period exceeded the reported The HB I I tobacco and alcohol purchases 5 to $76,9?o tenr relied on the FIB 1l t¿,xable sales for tr,. ää.*p.ri"å'ti SXgp56 Memo 122 (AP 122) 1n estimating the data and the Comptroñilï"ai, Division'Policy assessment. the assessment' 6 petitioner SI did not file a request for redetermination contesting beca¡ne final and the sales and use tax delinquency was consequently, tt. ^iårt-", ceÍified to the Attomey General. The Attorney General filed a lawsuit seeking to collect the delinquencv A'oo, í.Utioners SI and lsba- See Sanadco, Inc' v' Comptroller' No' 03- iExrs 12013 (Tex. Ap,p, - Austin september 26, 2013). u-00462-cv, 20r3î;;. ñ;. state' However' the fiial court Petitioners filed various counterclaims again{ jr:risdiction' -the 7 which decision Petitioners dismissed PetitioneJã*a"r"tui*s for laãk of Petitioners' claim that the comptroller's appealed. Th" App"i;î;,I{ sustained directives in AP 92'and AP lzzwere in fact rules and also concluded that the trial court tnat eu¿it Division Policy Memoranda (AP) 92 had jurisdiction ou*i J*r¿"oi .raim in dismissing this the rrial corut erred artd 122*rr. iou"üdîle* -¿ that, theiefore, *.rnl"rctui* . See Sanadco, Inc',2013 Tex' App' LEXIS 12013' and use tax compliance for the I Petitioner sI was ar¡dited by the comptoller for sales records. audit period, *o tr," u"ãitoi estimated the audit due to incomplete 9 PetitionerSldidnotrespondtotheauditor'Srequestsforlecords'Theauditorissueda of Estimation) Notification nrã-utiãn pro"d*"s for State Tax Audit (Notification "f Pursu¡nt to T Gov't Code 2003.1 PAGE 17 PROPOSALFOR DECISION soAH DOCKET NOS. 304'13-421 126 & 30+1$'4212.26.26 icï¡ pocrBT Nos 106,815 & 107'006 Petitioner sl that the audit would be estimated using dated January 27, 2011, advising would be foliowed' HB 1l data, and that th;AP 122lrocedures l0 WhentheauditorinitiatedtheauditfieldworkPetitionerSlnolongeroperatedthe perform a shelf test and instead used auditor .oJJ convenience ,aorr. rr,.i"iore, the "ot theindustryaveragçmarkuppercenla9!|-orrrt.qaxand1i24.07%respectivelyfor AP 122' ;ú"t* ;á alcohoipurchases set out in alcohol purchases made by?etitioner sI using the HB 11. The auditor totaled the tobacco and June i0, 2009' The total alcohol 1l data for rhe reporr periods January 1, 2d0C üt*gh markup psrcentages' and tobacco p*"t **rÇre marked up by their respective AP lLlproduct-mix percentage o! for tobacco and alcohol products s+ot; 12 The standard was applied ,o ur.ii."ut þxabl; sales, because no purchase records were "stimatd available. spoilage and theft to determine net estimated 13 The auditor afforded a 57o altowance for ,*;tl"ã"s. Credit was given for reported torable sales' then reduced by the amounts assessed in the L4 The resulting adjusted taxable sales were anive at BART exam for th.;;p; periods January l, 2008 ttrough March 31,2009.to the additional taxable sales' by the applicable tax rates to determine the The additional tÐ(able sales were multiplied frorn January i,' zoos througþ June 30 2009. 15 tax due for rhe ;;;; ;"riods the periods preceding January 1,2008, the 16 As there was no HB 11 data available for auditor estimated ttt" u¿¿itional ta¡ RESIDING MEMORAND I]M OPINION After the Comptroller of Public Accounts performed an audit on a convenience store owned by Sanadco Inc,, the Comptroller and the Attorney Ceneral (cumulatively the "Comptroller") filed suit against Sanadco to recover delinquent taxes. In response, Sanadco filed various counterclaims against the Comptroller arguing that the manner in which she calculated the amount of taxes due was under the terms of an unauthorized rule, that many of'the actions that she engaged in while conducting her audits were ultra vires, and that the provision o1'the tax cocle authorizing audits by sampling ancl projecting was unconstitutional. After Sanaclco filed its counterclaims, the Comptroller filed a plea to the jurisdiction contending that the district court did EXHIBIT H not have jurisdiction over the counterclaims. Subsequent to reviewing the plea and convening a hearing, the district court dismissed Sanadco's counterclaims lbr lack ofjurisdiction. On appeal, Sanadco challenges the dismissal of its counterclaims, and we will reverse the portion of the district court's order dismissing Sanadco's rule challenge, affirm the remainder of the district court's order dismissing Sanadco's other counterclaims, and remand the case fbr further proceedings. RELEVANT STATUTORY SCHEME AND AUDITING MEMOS Before delving into the background and issues in this case, a brief overview of the governing framework for this case as well as a brief synopsis of the actions by the Comptroller tliat fbrm the subject o1'this case is helpful. Under the tax code, convenience stores are required to maintain their sales records for tax purposes, Tex. Tax Code $ 151.025, and the Comptroller is authorized to examine and audit the records of convenience-store owners, L025,111.004. In addition, the Cornptroller may use sampling and projection rnethods f-or estirnating the amount of taxes owed if "the taxpayer's records are inadequate or insufficienl."Id. $ 11L0042(b). Moreover, if the Comptroller "is not satisfied" with the calculated tax owed based on the taxpayer's records, the Comptroller rnay determine the amount of tax owed liom "other inf-ormation available to the comptroller." Id $ 1l1,008(a). In addition to rcquiring convenience stores to maintain sales records, the tax code also requires brewers, manutäcturers, wholesalers, and clistributors ol'alcoholic beverages to 1ìle rcports chronicling their sales to stores and listing the stores by name. 1d $ $ l5 1,46I-.462. Similarly, the tax code authorizes the Comptroller to request wholesalers and distributors of tobacco products to lìle the sarne type ofreports. 1d $$ 154 (addressing cigarette sales), 155. 105 (covering non-cigarette 2 tobacco products). Thc type of inf'ormation rcquircd in thcsc rcports is commonly rcferrcd to as H.B. I I information because the reporting requirements were enacted by House Bill I I of the 80th legislature. Act of May 3,2007,80th. Leg., R.S., ch. 129, SS$ \-3,2007 Tex. Gen. Laws ^S¿e 159,159-62. Once an audit has been perfbrmed, the store owner may request a redetermination fiom the Comptroller within 30 days of receiving notice of the Comptroller's assessment, Tex. Tax Codc $ 111.009(a), (b), In addition, thc owncr may also rcqucst a hcaring on thc rcdctcrmination, id g t t l.009(c), before the State Office of Administrative Hearings,id. $ 111.00455. If no request 1-'or a redetermination is filed within 30 days, "the determination is final on the expiration of the period." Id ç 11 1.009(b). As an alternative to requesting a redetermination, an individual may also pay the assessed taxes along with a written protest and then file a suit challenging Ihe tax,Id. $$ 112.0s1(a), (b), .052, Prior to the passage olHouse Bill I 1, the Comptroller issued a memo entitled AP 92, which provided guidance to auditors performing audits of convenience stores. In the memo, the Comptroller explained that there had been a "lack of'unil'ormity in estimated convenience store audits" and that "mark-up percentages and product mix percentages" were developed to be usecl in audits "when necessitated by lack of reliable records" or iI'a store's "records are unavailable, inadequate or unreliable," Afier House Bill 11 passed, the Comptroller issued another memo to audit personnel entitled AP 122. The new memo updated AP 92 and required auditors to use H.B. 1 I information "to produce the most accurate audit results." The issuance of these two memos along with various actions taken by the Comptroller when perfbrming convenience-store audits lorm the basis lor this case. J BACKGROUND Turning to the f'acts of this case, Sanaclco owns a convenience store, ancl Mahmoud Isba operates the store and is designated as a responsible person 1òr Sanadco. The Comptroller audited Sanadco and determined that Sanadco had underreported its taxable sales fbr alcohol and tobacco proclucts. The amount of the cleficit was cletermined using H.B. 1 I data. After making her deterunination, the Comptroller sent a bill for the estimated amount owed and for interest on that amount as well as a penalty. After receiving notice of the amount clue, Sanaclco clid not file an aclministrative challenge to the assessment, nor did it pay the amount due. Accordingly, the Attorney General fìled suit to collect the delinquent taxes. In response, Sanadco liled an answer and raised several counterclaims l-or declaratory relief. Those counterclaims were macle against the Offìce of the Comptroller, Susan Combs in her of ficial capacity as Comptroller, and Greg Abbott in his official capacity as the Attorney General. In its response, Sanadco also natned as counter-plaintilfìs other inclividuals ancl companies who had been assessed similar taxes. Those other inclivicluals and companies are Walid Abclerrahman; Majic Investments, Inc,; Faisal Kahn; Isra Enterprises, Inc.; Hattab Al-Shudil'at; Hailà Enterprises, Tnc.; EID Corp.; Moharnmed S. AlHajeid; Majdi Rafe Okla Nsairat; and Omar Unlimited, Inc.r Unlike Sanadco, the other namecl counter-plaintiffs all sought redeterminations of their assessed taxes through administrative teview, but none ol'the administrativc proceedings had been cornpleted by the time that the individuals were added to the lawsuit. t For casc ol'rcading, wc will gcncrally rclcr to all of'thc countcr-plaintifïs as Sanadco. 4 Regarding its counterclaims, Sanadco alleged six complaints relevant to this appeal, In its lirst counterclaim, Sanadco asserted that AP 92 and AP I22 are administrative rules but that theywere not promulgated in compliance with the requirements of the administrative procedure act. Accordingly, Sanadco sought a declaration that those memos are invalid administrative rules. In its second counterclaim, Sanadco alleged that the Comptroller engaged in ultra vires actions when she issued 92 and AP I22 and thereby authorized auditors to estimate taxes owed by convenience- ^P o'frrst store owners without ascertaining whether adequate records are available" from the taxpayer to perfbrrn an audit. For those reasons, Sanadco sought declarations asserling that "the Cornptroller is not authorized to estimate convcnicnce stole auclits using the methods clescribed in AP 92 or AP 122 until their proper adoption, and/or that the authorization of their use is a non-discretionary ultra vires act committed without legal authority," In its third counterclairn, Sanadco contended that the Comptroller actedwithout legal authoritywhen she improperly instructed auditors to use H.B. I 1 information f'or convenience store audits "without first ascertaining whether the determination can be rnade fiom the taxpayer's records." Accordingly, Sanadco insisted that the Comptroller's decision to require the use of H.B. I 1 data is an ultra vires act and, therefore, sought cleclarations that the use of Il.B, l1 infbrmation was irnproper and that the governing stalutes do not allow "the Comptroller to give conclusive eÍlect to the HBI I data."z In its f'ourth counterclaim, Sanadco alleged tliat the Comptroller improperly authorized auclitors to "use an abbreviated proceclure which b¡.passed 2 In this counterclaim, Sanadco also sought a declaration that the Comptroller's decision to recluire the use of H.B. I I infbrmation constituted an impermissible and invalid rule, Because that declaratory relief would seem {.o parallel the assertions made in Sanadco's lìrst counterclaim, our analysis regarding the lirst counterclaim is intendecl to address the declaration regarding H.B. l1 as well. 5 examination of the taxpayer's records and authorized an estimation of his tax liability based solely on the invalid H. B. 11 data, without first determining the adequacy of the taxpayer's records." For that reason, Sanadco insisted that the Comptroller was acting ultra vires and sought a declaration that the governing tax code provisions do not authorize the abbreviated procedure. In its fiflh counterclaim, Sanadco alleged that the Comptrolleractedultravires byauthorizing the imposition ol'a 50% penalty without proof of fraud or of an intent to avoid the tax as required by the tax code. ^S¿e Tex. Tax Code $ I 1 1.061(b), In its sixth counterclaim, Sanadco sought a declaration that the provision of the tax code authorizing sample and projection audits f'or estimating taxes owed is unconstitutionally vague and is, "by its nature, a denial of substantive and procedural clue process." ,Se¿ id $ 1 t 1.0042. After Sanadco filed its counterclaims, the Comptroller filed a plea to the jurisdiction. In her plea and brief in support o1'the plea, the Cornptroller argued that the district court did not have jurisdiction over Sanadco's counterclaims because Sanaclco dicl not allege a proper rule challenge, because the claims are barred by sovereign immunity, because Sanadco and the other named counter-plaintifß fäiled to exhaust their adrninistrative remedies bef'ore filing suit, because some of the counterclaims were not ripe for review, and because Sanaclco ancl the other counter- plaintifß did not have standing to challenge the allegedly unconstitutional tax statute. After reviewing the pleadings, the plea, and Sanadco's response to the plea, the district court signed an order granting the Comptroller's p1ea.3 On appeal, Sanaclco contests the 3 In addition to the six counterclaims mentioned above, Sanadco also alleged the f'ollowing additional counterclainrs: (l) that the Comptroller engaged in an unconstitutional taking when she improperly collecf ed sales and use taxes, and (2) that the tax code provision authorizing the Comptroller to impose a ten percent penalty if she believes that "the amount due lòr a tax period is jeopardized by delay" is unconstitutional. 6 district court's order granting the Comptroller's plea and, in six issues, challenges the district court's disrnissal of its six counterclaims.a STANDARD OF REVIEW "A plea to the juriscliction is a dilatory plea, the purpose of which is to defeat a cause of action without regard to whether the claims asserted have merit." Bland Indep. Sch. Dist. v. Blue,34 S.W.3d 547, 554 (Tex, 2000). A party to a lawsuit rnay challenge a trial court's subject-matter filing containing thc Comptroller's plca to thc jurisdiction also servcd as a The rcsponsivc motion for summaryjudgment. [n the plea porlion of the filing, the Comptroller souglrt dismissal of the six counterclaims discussed in the body of the opinion but did not discuss the two additional countcrclaims. In the summary-judgment portion, the Comptrollcr sought judgmcnt in hcr lavor regarding the two additional counterclaims as well as some of the other counterclaims. In a separate order, the district court granted the motion fbr summaryjudgment. In two issues on appeal, Sanadco argues that the district court erred by dismissing the two additional counterclaims listed above. However, those additional claims were disposed of'by summaryjuclgmcnt. The lcgislaturc has cmpowcrcd appcllatc rcvicw of a trial Çourt's intcrlocutory order granting a plea to the juriscliction by a governmental unit, see Tex. Civ. Prac, & Rem. Code $ 5l.Ola(a), but has not empowered us with authority over interlocutory orders granting a govarnmcntal unit's motion for summary judgmcnt. Accordingly, in this appcal, wc onfy adclrcss the six counterclaims listed in the body of the opinion that were attacked and dismissed on jurisdictional grounds. 4 In its counterclaims, Sanadco filed suit against the Comptroller in her individual capacity and sought to initiate a class action on behalf of individuals who had similarly been assessed taxes. In her plea to the jurisdiction and brief in supporl of the plea, the Comptroller sought dismissal of Sanadco's claims against her in her individual capacity on the ground that Sanadco had failed to "plead any Iäcts that would expose [her] to individual liability" and because the pleadings demonstrate that Sanadc o "cannot plead any làcts that would give rise to such liability." Similarly, the Comptroller requested that the district court dismiss the class action claims for several reasons, including that none of the convenience-store owners had "satisfied the statutory prerequisite to filing a class action under" the tax code. ,See Tex. Tax Code $ I12.055 (allowing lbr class actions by persons who have paid their taxes under protest). The district court granted the Comptroller's plea in its entirety, and Sanadco cloes not challenge the dismissal of its claims against the Comptroller in her individual capacity or of its class-action claims. Accordingly, those claims are not considered in this appeal and remain dismissed. 7 jurisdiction overacasebyfilingaplea. I"{ou.stonMun. Em¡ts. Pension,5"y,s. ,. Ferrell,248 S.W.3d 151, 156 (Tex. 2007). Determinations regarding whether a trial coutt has juriscliction over a case are questionsoflaw. TexasDep'toÍ'Parks&Wildli/Þv.Miranda,133S.W.3dZI7,225-26(Tex.2004). Subject matterjurisdiction is a question of law that appellate courts review de novo, State v. IIolland,221 S.W.3d 639, 642 (Tex. 2007), ancl may be raised for the first time in an interlocutory appeal, Rusk State Hosp. v. Black,392 S.W,3d 88, 95-96 (Tex. 2012). Moreover, appellate courts must consider their jurisdiction 'oeven if that consideration is sua sponte." Freedom Cr¡mmc'ns., Inc. v. Coronado,372 S.W.3cl 621,624 (Tex. 2012) (per curiam). On appeal, we review de novo a trial court's decision to grant a plea to the jurisdiction. Ferrell,248 S.W.3d at 156. [n perftrrrning this jurisdictional analysis, courts look to the "plaintif'f"s petition to determine whether the fàcts pled aflirmatively demonstrate that juriscliction exists," I{olland,221 S.W.3d at642. "If the pleadings are insuffìcient to establish jurisdiction but do not affirrnatively dernonstrate an incurable defèct, the plaintiff should be alÍbrded the opportunity to repleacl."Id. at 643.However, if "the pleadings alTìrmatively negate the existence ofjurisdiction, then a plea to the jurisdiction may be granted without allowing the plaintiffs an opportunity to amend." Miranda,133 S.W.3d a|227. DISCUSSION As mentionecl above, Sanadco challenges the dismissal of its six counterclaims in six separate issues on appeal 8 Sanadcoos First lssue In its first issue on appeal, Sanadco urges that the district court erred by clismissing its counterclaim regarding AP 92 and 122. In its counterclaim, Sanadco sought a declaration ^P that the memos are invalid administrative rules, Essentially, Sanadco contends that the memos required the Comptroller's auditors to use certain methods when perf'orming audits of all convenience stores and that the Comptroller used the procedures specified in the memos when performing the audits at issue in this case. In challenging the district court's order, Sanadco insists that the memos constituted administrative rules as defined by the adrninistrative procedure act but thattheruleswerenotacloptedincompliancewiththeact. SeeTex,Gov'tCode$$2001.021-.041:, see ctlsc¡ rd $ 2001.003(6) (defining "rule"). Accordingly, Sanadco contends that the district court had jurisdiction to consider its challenge to the rules because the adrninistrative procedure act empowers a parly to seek a declaration challenging the validity or applicability of a rule, see i.d. $ 2001.038, including one not adopted in compliance with the act, see El Paso Cnty. Ilosp. Dist. v. Texas Health & IIuman Servs. Comm'n,247 S.W.3d 709,715 (Tex. 2008), In supporting the district court's dismissal of this counterclaim, the Comptroller contends that the provision of the administrative procedure act authorizing rulc challenges does not apply in this case because the memos do not qualify as rules under the act, As suppott f.or this proposition, the Comptroller argues that the memos are simply statements regarcling the internal management of the agency and do not impose any duties or requirements on convenience-store owners. On the contrary, the Comptroller insists that the memos are designed to irnprove the accuracy of auclits by requiring auclitors, not taxpayers, to use certain aucliting methocls. Fuilhermore, 9 thc Comptrollcr urgcs that although the mcmos may hclp auditors asccrtain whcthcr taxpaycrs owc money, the taxpayer may challenge the determination. Accorctingly, the Comptroller insists that any ell.ect on a taxpayer caused by the implementation of AP 92 and AP 122 would only be binding alter an aclministrativc hcaring, which shc contends supports thc conclusion that thosc mcmos arc not rulcs, Because we believe that AP 92 and AP I22 are rules, we must conclude that the district court erredby dismissing Sanadco's first counterclaim. Under the administrative procedure act, a rulc is dcfincd as ooa statç agcnoy statcmcnt of gcncral applicability that: (i) implcmcnts, interprets, or prescribes law or policy; or (ii) describes the procedure or practice requirements of a state agency." Tex. Gov't Code $ 2001.003(6)(A), For rule determinations, 'ogeneral applicability" rel'ers to statements affecting the interest of the public and does not refer to statements issued whendeterminingtherightsofindividuals. Combsv.EntertainmentPubl'ns,Irtc.,292S.W.3d712, 72I (Tex. App.-Austin 2009, no pet.). Further, the statutory definition "includes the amendment or repeal of a prior rule" but excludes "a statemenf" regarding only the internal management or organization of a state agency and not af fecting private rights or procedures." Tex. Gov't Code $ 2001.003(6XB)-(C). In determining whether an agency statement is a rule, courts consider "the intent of the agency, the prescriptive nature of the guidelines, and the context in which the statement was made." Entertainment Publ'ns,292 S.W.3d at722. AP 92 states that lbrmulas were developed l-or estimating couveniencc-store audits to promote uniformity. Essentially, the memo sets out mark-up percentages that were to be used in all cascs where "records are unavailable, inadequate or unreliable." Similarly, AP 122 provides oolnust guidelines l'or convenience-store audits and instructs that H.8. 1 1 inlorrnation be the starting point" f'or all convenience-store audits conducted after the date of the memo. l0 By their language, both memos are statements implementing, interpreting, or prescribing law or policy . CJ:id. at727 (concludingthat letters by Comptroller indicating her intention to apply statute in all cases "involving brochure fundraising firms" without regard to individual factors were rules). The directives in the memo apply to audits perf'ormed on all convenience-store owners and not just to the named counter-plaintifß, and the memos, particularly AP 122, reveal the Comptroller's intention to apply particular information and methods when performing all audits of çonvenience stores in all future cases and regardless of any individual circumstances. ,See Triniry Settlement Serv,s., LLC v. Texas State Sec. Bd , No. 03-10-0063g-CV, 2013 Tex. App. LEXIS 9487, at *15-16 (Tex. App.-Austin Aug. 7,2013, no pet. h.) (concluding that agency statement did not qualily as rule because it applied only to particular company and because agency did not express intention to apply statement to all future cases). Another factor weighing in favor of a determination that the memos are rules is Sanadco's allegation that the Comptroller is in fäct generally using directives and fbrmulas in those melnos when perf'onning audits on convenience stores and that the Cornptroller used the memos during the auclits of the convenience stores at issue in this case. In other wclrds, the memos had a tangible efïect and were not simply advisory statements. See Brinkley v. Texa,s Lottery Comm'n, 986 S.W.2d 764,770 (Tex. App.-Austin 1999, no pet.) (explaining that letters liorn Commission setting lbrth criteria by which licensees coulcl determine if their eight-liner machines were legal were not rules because they were merely informal views bearing upon internal agency management in absence oÍ statute giving letters legal eflèct or attempt by agency to enlbrce statement against licensee). Civen that the nÌemos hacl çífects on convenience stores at large, we also cannot agree ll with the Comptroller's asseftion that thc memos were only statements directed to auditing personnel "regarding only the internal management or organization" of the Comptroller's ofTìce. ,See Tex. Gov't Code $ 2001.003(6)(C); cJ: Texas Mut Ins. Co. v. í/isîa Cmty. Med. Ctr., LLP,275 S.W.3d 538, 555 (Tex. App.-Austin 2008, pet. denied) (determining that staff report concerning inconsistent implementation of rule was not itself rule because repoft was presented to agency but agency took no official action regarding report and because it simply presented possible correction to stop inconsistency), Although we need not thoroughly pursue the issue here, we are also persuaded that AP 122 is a rule because that memo requires the use of H.B. 1l information as a primary tool f'or estimating taxes regardless of'the condition of the taxpayer's records. That requirement is noteworthy because it seems like a departure fiom the provisions of the tax code authorizing estimating techniques when the taxpayer's records are somehow inadequate ancl when the Comptroller is "not satisfied" with a tax report that has been filed "or the amount of the tax required to be paid." ,S¿e Tex. Tax Code $$ l1 L0042,.008;see also El Pa,so Cnty. Hosp. Dist.,247 S.W.3d aI714 (concluding that agency letter setting cutofïdate f'or seeking reimbursement was rule because it was statement of general applicability, affected all hospitals, and implemented agency policy by rnodilying pre-existing base-year rule). This type ol modilìcation to prior practices and governing fiameworks woul1 S.W.3d 532 , 546 (Tex, App,-Austin 201 I, pet. denied) (describing distinction as "elusive"). Although the legislature has attempted to distinguish the two through legislation, making the distinction is ofìen not an e asy task, particularly given the varied functions that agencies are charged with undertaking. In discussing the dilliculty in rnaking these determinations, this Court has explained that the core concept to consider is whether the agency statement has "a binding effect on private parties." Slay,351 S.W.3d at 546; see ctlsoid. at 546,548(concluding that evidence supported trial court's determination that agency statement was not rule because there was evidence that agency commissioners "were not bound to follow fstatement's] methoclology when exercising their legislatively conf'errecl cliscretion to impose penalties"), Although this is an extremely close case, we believe that the record as it has been developed at this stage of the lawsuit cornpels a conclusion that the memos at issue have suflicient elfeci on private parties to render ifiem rules. 13 In light of the preceding, we conclude that the directives in AP 92 and AP 122 aretn fàctrules. Forthatreason,wemustalsoconcludethatthedistrictcourthadjurisdictionoverSanadco's claim that AP 92 ancl AP 122 were invalicl rules and that, therei'ore, the district court erred by dismissing Sanadco's first counterclaim. Accordingly, we sustain Sanadco's first issue on appeal. Sanadcoos Second, Third, Fourth, and Fifth Issues In its second, third, and fburth issues, Sanadco challenges the dismissal of its requestecl declaratory relief regarding actions taken by the Comptroller that it contencls are ultra vires acts, Specifically, Sanadco urges that the following actions by the Comptroller are not supported by any governing law: the Cornptroller's decision to require auditors to estimate taxes owed by using the methods described in AP 92 and AP 122 and to authorize her auditors to use H,B. 11 information to conduct abbreviated tax audits. In asserting that these actions are ultra vires, Sanadco points to section lIL0042 of the tax code, which allows auditors to use sampling auditing methods when a taxpayer's records are unsatisfactory. See Tex, Tax Code $ 111.0042. Similarly, Sanadco refers to a rule in the administrative code that authorizes the Comptroller to use "a sample and projection auditing method to determine tax liability" when a taxpayer's records are unsatisl-actory, See 34 Tex. Aclmin. Cocle $ 3.282(c), (d). In light of the statutory provision and the rule, Sanadco insists that the Comptroller's decision to perform the audits in the manner described is contrary to the governing law. In its fifïh issue, Sanadco challenges the disrnissal of his declaratory claim alleging that the Comptroller actecl ultra vires by authorizing a 50j/u penalty lòr fraud. Specifically, Sanaclco insists that although subsection 111.061(b) of the tax code authorizes the Comptroller to impose penalties, the provision lirnits its imposition to circurnstances in which it is determined that a fäilure t4 to pay the tax o'due was a result of fraud or an intent to evade the tax" or that the taxpayer engaged infiaudulentconducttoafÏèctthe"outcomeofanaudit." SeeTex.TaxCocle$ 111.061(b), Relying on that statute, Sanadco insists that the Comptroller did not make the requisite determinations before imposing the fiaud penalty on convenience-store owners. Furthetmore, Sanadco contends that even though none of the named counter-plaintiff's had fully exhausted their administrative remeclies regarcling the Comptroller's tax assessments, the district court still had jurisdiction to consider these declaratory complaints because parties are not requiredtoexhausttheiradrninistrativeremediesl'orproperlypleadedultra-viresclaims. Accordingl¡ Sanadco insists that the district court hacl juriscliction over its declaratory claims requesting the Comptroller to comply with the governing statutes and rules. Generally speaking, a party must exhaust all of its administrative remedies bel'ore seeking judicial review of an agency determinalion. Friends of Canyon Lake, Inc. v- Guadalupe- Blanco Riyer Auth.,96 S.W.3d 519, 525 (Tex. App,-Austin 2002, pet. denied); cf. Burgess v. Gallery Model [Iomes, Inc., 101 S.W.3d 550,558 (Tex. App,-Houston Ist Dist.] 2003, pet. deniecl) (explaining that Comptroller has exclusive juriscliction to rcsolve tax refunds and that party must exhaust such remedy bel'ore filing refund suit); c/. Tex. Gov't Code $ 2001 . 17 I (empowering person who has exhausted his administrative remedies and who is aggrieved by final agency decision to seek juclicial review). Exhaustion of aclministrative remeclies is necessary in orcler to waive sovereign immunity, which otherwise typically forecloses suits against government offîcials. ,See As,signees oÍ'Best Buy v. Combs,395 S.W.3d 847 ,869 (Tex. App.-Austin 2013, pet. liled). In its bricf, Sanaclco correctly points out that the supreme çourt has recognized an exception to the l5 general rule for claims alleging that government ofïcials have engaged in ultra vires acts, See City of'El Paso v. Heinrich,284 S.W.3d 366, 372-73, 380 (Tex. 2009) (explaining that with one exception, "governmental immunityprotects government ofl.rcers sued in their official capacities to the extent that it protects their employers" and that suits filed against government officials seeking "to require state ofTìcials to comply with statutory or constitutional provisions are not prohibited by sovereign immunity"); Appraisal Revietv Bd. oJ'Harci.s Cn.Íy. v. O'Connor &. Assocs.,267 S.W.3d 413,418-19 (Tex. App,-Houston [14th Dist,] 2008, no pet.) (outlining exception to exhaustion lequirement fbr ultra vires clairns and stating that generally courts may only interlère with duties o1' agencywhen officials exceedstatutorily conferredpowers eventhough administrative remedies have not been exhausted). However, we do not believe that the exception applies to Sanadco's claims. In order to fall within the exception, a party must allege that the oflicial "acted wholly outside [his] jurisdiction," and allegations that an agency official fuiled to fully comply "with all of the intricacies" of the governing statutes and rules are insufïicient to confèr jurisdiction. Friends of Canyon Loke,96 S,W.3d at 528; see O'Connor & A,ssocs.,267 S.W,3d at 4I9. As a preliminary matter, we note that the H.B. l1 information that the Comptroller used for calculating the audits was infbnnation that the legislature required wholesalers to provide regarding their sales of alcohol and tobacco proclucts to convenience-store owners. See Tex. Tax Clocle $$ 151.462, 154.212. Moreover, the bill analysis fbr H.B. 1 I reveals that the law was enacted because of 'ogrowing concern over fiaud among convenience store owners in the area of sales tax reporting" and that the legislature t6 was requiring the inf'ormation in order to help the Comptroller perform her audits of convenience stores. Senate Comm. on Bus. & Cìommerce, Bill Analysis, Tex, H.B. 11, 80th Leg., R.S. (2007). In acldition, the legislature has specifìcally empowered the Comptroller to perform tax audits of convenience stores. ,See Tex. Tax Code $ $ I 1 1.001 (empowering Comptroller to collect sales taxes), .004-.0041 (authorizing Comptroller to examine records of taxpayers), Importantly, the legislature has also allowed the Comptroller to estimate the amount of taxes due in certain circumstances. ,S¿e id $$ I I1.0042 (allowing Comptroller to use sampling auditing techniques if certain conditions are met), .008 (authorizing Cornptroller to use other infbrmation if she is dissatisliecl with tax reporl), Moreover, the tax code clirects the Comptroller to impose a penalty o1' 50% ol'the taxes due if the Comptroller concludes that a taxpayer's f-ailure to pay was the "result of fiaud or an intent to evade the tax."Id. ri Il I .061(b). Although Sanaclco may disagree with the manner in which the Comptroller is perf'orming her duties and her decision to use legislativelyprescribed information for estimating the amount owed in her audits, we cannot agree that Sanadco has alleged complaints about actions wholly outsicle of the Comptroller's authority. Allegations that the Comptroller is not complying completely with every statutory requirement when performing the duties that she is authorized to perlbrrn are not sufTicient to invoke the ultra-vires exception. See Creedmor¡r-Maha Water Srrpply Corp. v. Texa,c Cotnnl'n olt Envtl. Quality,307 S.W.3d 505, 517-18 (Tex. App.-Austin 2010, no pet.) (determining that allegations that agency rcached incorrect result when exercising its delegated authoritydoes notconstituteultra-vires clairns); O'Connor &Assocs.,267 S.W.3d at4l9 (explaining that assertions that agency hcarings clicl not fully comply with statutory procedural requiremcnts ll were not enough to invoke ultra-vires exception); Friends of' Canyon Lake, Inc. ,96 S.W.3d at 528 (concluding that arguments that agency did not provide required notice and inf'ormation during application process were insufficient to invoke exception); cf. Texas Comm'n of Licensing & Regtilatìon v. Model Search Am., [nc.,953 S.W.2d 289,292 (Tex. App,-Austin 1997, no writ) (relating that claim that agency had authority to interpret statute but had interpreted provision incorrectly was insufficient to involce ultra-vires exception because possibility that agency might interpret provision incorrectly does not destroy agency's ability to make that determination). In light of the fäct that Sanadco's petition làiled to demonstrate that the named counter-plaintil'fs had failed to exhaust their administrative remedies and in light of our cletermination that Sanadco's allegations did not properly invoke the ultra-vires exception to the exhaustion requirement, we must conclude that Sanadco's petition did not invoke the jurisdiction of the district court to consider its requested declaratory relief, For these reasons, we eannot conclude that the district couft erred by dismissing Sanadco's requested declaratory relief, and therefore, we overrule Sanadco's second, third, lburth, and fìfth issues on appeal. See Creedmoor-Maha Water Supply Corp.,307 S.W.3cl at 515 (noting that party does not avoid jurisdictional limitation by hling claim under unif'orm declaratory.judgment act and that act is not general waiver of immunity).s s On appeal, Sanadco contends that exhaustion of administrative remedies was not warranted in this case because its claims ¡rresented pure questions o1'law and were based on uncontested facts. Assuming without deciding that Sanadco invokes a viable exception to the exhaustion-of-remedies cloctrine, we disagree with Sanaclco's assertion that the reliel'that it sought only involved pure questions o1'law. In addition to seeking declarations regarding whether certain procedures by the Comptloller complied with relevant governing law, Sanadco also sought in its counterclaims to have the counter-plaintiffs be relieved of the obligation to pay their respective taxes, to recover compensatory damages liom the Comptroller as well as interest and attorney's fèes, and to obtain a judgment directing the Comptroller "to account . . . for all of the damages caused to" the l8 Sanadco's Sixth Issue In its final issue on appeal, Sanaclco asserts that the district court erred by clismissing onjurisdictional grounds the counterclaim that section I11.0042 of the tax code is unconstitutional. That provísion authorizes the Comptroller to use sarnpling auditing methods if'certain criteria are met. Tex. Tax Cocle $ 11L0042. In its sixth counterclaim, Sanadco sought a declaration that the provision is unconstitutionally vague as written and as applied to the counter-plaintifï's. In order 1'or a trial court to have juriscliction over a declaratory-judgment claim, a party must allege "a justiciable controversy as to the rights and status of parties actually before the courl for adjudication, and the declaration sought must actually resolve the controversy." Brooks v. Northglen A.s,t'n,141 S.W,3d 158, 163-64 (Tex. 2004). "A justiciable controversy is one in which a real and substantial controversy exists involving a genuine conflict of tangible interests and notmerelyatheoreticaldispute." TexasDep'tof'Pub. Safetvv. Moore,985 S,W.2d 149, 153 (Tex. App.-Austin I 998, no pet.). 11'there is no çase or controversy, then any declaration issued by a trial court woulcl constitute an impermissible advisory opinion. Broolcs,l4l S.W.3d at 164, Although Sanadco urges the statute's unconstitutionality, neither his 1ìling containing the counterclaim nor his appellate briefìs contain any allegation regarding a dispute between the Comptroller ancl the named counter-plaintiffs involving the statute in question. In parlicular, Sanaclco does not assert that the Comptroller used or threatened to use the sampling methods authorized in countcr-plaintif'f's. CJ. I{arri:t Cnty. Apprai:sal Di,st. v. ETC Mktg.,399 S.W.3d 364, 368 (Tcx. App.-Houston [14th Dist.] 2013, pet. filed) (disagreeing with assertions that claims were just questions of law and that exhaustion requiremcnt did not need to be met because parly was seeking to havc its tax asscssmcnts sct asidc and could not, thcrcforc, bc pursuing purc qucstion ollaw). T9 the provision when perl'orrning the audits for any of'the counter-plaintiffs, To the contrary, Sanadco's filings in the district court and in his appellate briefi all allege that the Comptroller improperly used H.B. I 1 inforrnationwhen performing audits. Accordingly, Sanadco did not plead any conflict regarding the statute, and there was no justiciable controversybetween the named counter-plaintiffs and the Comptroller. For that reason, we cannot conclude that the clistrict court erred by dismissing its requested declaratory reliefl and therefbre, we overrule Sanadco's sixth issue on appeal. CONCLUSION Having overruled Sanadco's second, third, fourth, f'rfïh, and sixth issues, we affirm the portion ofthe district court's orcler dismissing onjurisdictional grouncls the following declaratory counterclaims urged by S anadco : that the Comptroller acted ultra vires by implementing AP 92 and AP 122, that the Comptroller acted ultra vires by requiring the use of H.B. I 1 information during audits of convenience stores, that the Comptroller actecl ultra vires by authorizingabbreviatecl audits andby giving preclusive ei'fect to H.B. I 1 information during those audits, that the Comptroller acted ultra vires by authorizing the imposition of a lraud penalty without requiring a determination that all the statutory criteria hacl been met, and that section 111,0042 is unconstitutional. Having sustained Sanadco's fÌrst issue on appeal, we reverse that portion of the clistrict court's order disrnissing the counterclaim asserting that AP 92 and AP 122 were improperly promulgated rules, Accordingly, we remand the case for proceeclings consistent with this opinion. 20 David Puryear, Justice Befbre Justices Puryear, Henson, and Goodwin Jusl"ice Henson not participating Aff,rrmed in Part; Reversed and Rernanded in Part Filed: September 26,2013 21 Amalia Rod rig uez-Mendoza District Clerk, Travis County Travis County Courthouse Complex P. O. Box 679003 Austin, Texas 78767 Date: November 3, 2008 TO: All attorneys of record in cases pending in Travis County District Couft NOTICE OF ENTRY OF NEW E-FILE MANDATE ORDER The 2008 Court Order Regarding E-filing is effective as of November 1, 2008. You can view this order by selecting the link near the top of the following web page: htto: //www.co.travis.bx. us/district clerUdefault.asp If you have not yet established an e-filing account, please refer to Texas Online's eFiling Main Information at: http : //www.texasonline.com/oortal/tol/en/info We are asking that you establish your account as soon as possible, but a grace period through the end of the year has been implemented to allow you adequate time to make e-fili ng preparations. 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Certlllcale No. 9303 SI USTED NECESITA EL GONSEJO DE UN ABOGADO Y NO CONOCE A NINGUNO PUEDE LLAMAR A LA REFERENCIA DE ABOGADOS 512-472-8303 866-303-8303 (llame grat¡s) www.AustinLRS.com Abierto de lunes a viernes de 8:00 am-4:30 pm $20.00 por la primera media hora de consulta con un abogado /la nnncrrlfl ac nr¡fic ci co trrf¡ rla ¡l¡ñn norc,nnal nanli¡anci¡ indemnización al trabajador, bancarrota o por incapacidad del Seguro Social) This service is certified as a lawyer referral service as required by the State ol Texas under Chapter 952, Occupations Code. Certificate No. 9303 Tab D Letter regarding payment for Reporter’s Record Sanadco II, No. 03-14-00771-CV Third Court of Appeals. Appellees’ Responsive Brief page 4 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV I Il.li (:()t,\' Counr oF AppEALS Tuno Drsrrucr or TexRs P,O, BOX I 2s47, AUSI'[N. TEXAS 7871 l_2547 www. tx0ourts. gov/3r'dcoa.aspx (stz) 463_t733 JEFF L. ROSE, CHIEF JUSTICE JEIìIII{EY D, KYLE, CLERK DAVID I'UIìYEAR, JUSTICE BOB PEMBEIì'TON, JUSTICI': MELISSA cOODWIN, JUSI ICIl SCO]I' K. ITIËLD, JUS]'ICE CINDY OLSON I]OURLAND, JUSl'ICE February 10,2015 Mr. Samuel T. Jackson Law Office of Samuel T. Jackson P. O. Box 170633 Arlington, TX 76003 * DELIVERED VIA E-MAIL * RE: Court of Appeals Number: 03-14-00771-CV Trial Court Case Number: D-1-GN-13 -004352 Style Sanadco Inc., a Texas Corporation; Mahrnoud Ahrned Isba; Broadway Grocery, Inc.; and Shariz, Inc. v. Susan Combs, in Her Individual and Offrcial Capacity as Comptroller of Public Accounts; Office of Cornptroller of Public Accounts for The State Of Texas; and Gregg Abbott in His Official Capacity as Attorney General of The State Of Texas Dear Counsel The reporter's record was due in this Court on December 15,2014 and is overdue. The Court has been informed by Sheri Linder, the court reporter, that appellant has neithcr paid, nor made arrangements for payment, for the reporter's record. Accordingly, the reporter's record will not be filed. If appellant does not notify this Court that payment arrangements have been made for the record, or otherwise responcl to this notice on or before Friday. February 20, 2015, the Court will consider the appeal without the reporter's record. See Tex. R. App. P. 37.3(c). If the appeal is submitted for decision without a reporter's record, appellant will be expected to file a brief on or before March 12,2015. Very truly yours, JEFFREY D. KYLE, CLERK BY .(t). Amy Strother, Deputy Clerk cc Mr. Jack Hohengarten Tab E Order Denying Plaintiff’s Declaratory Judgment and Application for Temporary Injunction Plaintiffs’ Third Amended Petition for Judicial Review, Declaratory Judgment, Temporary Injunction and Request for Disclosure Sanadco II, No. D-1-GN-13-004352 200th Judicial District Court of Travis County, Texas Appellees’ Responsive Brief page 5 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV F¡fed in The ilictritlt {i#un e¿f i¡'¿.¡vis eçrunfil, "içyr¡:' i i ¿¡-ilir l) M-- r'tt}'l NO. D-1-cN-13-004352 t\t**ß-ll l- SANADCO INC, A TEXAS CORPORATION nffi "tr;i¡'Eiüìitri;'äio--..A'rl' i ' î ii' r AND MAHMOUD AHMED ISBA $ IN THE DISTRICT COURT OF $ Plaintiff's, $ $ V $ $ SUSAN COMBS, IN HER TNDIVIDUAL $ AND OFFICIAL CAPACITY $ AS COMPTROLLER OF PUBLIC, $ TRAVIS COUNTY. TEXAS ACCOUNTS $ $ OFFICE OF COMPTROLLER OF $ PUBLIC ACCOLINTS FOR THE STATE $ OF TEXAS, $ $ AND GREG ABBOTT, IN HIS $ OFFICIAL CAPACITY AS ATTORNEY $ GENERAL OF THE STATE OF TEXAS $ Defendants $ 2OOth JUDICIAL DISTRICT SD AP TI T CTI I oN October l4th, 2014, this Court heard Mahmoud Ahmed lsba's application for , temporary injunction. After considering the pleadings on file, the evidence, and the arguments of counsel, the Court hnds that the application is without merit and should be DENIED. ACCORDINGLY, Mahmoud Ahmed Isba's application for temporary injunction is denied. *'l.g-tt' SIGNED on the tT day of Qs"Let,e/,2014 HON ORABLE CHARLES RAMSAY í¡,¡-l'-Ì -|4 ProDoc FaxService Pâge Z of Z7 CAUSE NO. D-1-GN-l3-4352 SANADCO INC, A TEXAS CORPORATION, s IN THE DISTRICT COURT MAHMOUD AHMED ISBA, BROADWAY s GROCERY,INC., SHARIZ,INC., AND RUBY & s SONS STORE, INC., AND RUBINA NOORANI, $ PIaíntiffs, s s s VS s $ SUSAN COMBs,IN HER INDIVIDUAT s TR,AVIS COUNTY, TEXAS AND OFFICIAL CAPACITY $ A5 COMPTROTTER OF PUBTIC ACCOUNTS, s s OFFICE OF COMPTROLLER OF PUBLIC s ACCOUNTS FOR THE STATE OF TEXAS, $ $ AND GREGG ABBOTT IN HIS OFFICIAL s CAPACITYAS ATTORNEY GENERAL OF $ THE STATE OF TEXAS $ Defendants s z 0OTH IUDTCTAT DTSTRT CT PLAINTIFFS' THIRD AMENDED PETITION FOR JUDICIAL REVIEW, DECI,,ARAT O RY J U D G MENT, TEM P ORARY I NIUNCTI ON AND REQUEST FOR DISCTOSURE COME NOW SANADCO INC. anrl MAHMOUD AHMED ISBA, et al, Plaintiffs, who file this Second Anended Petition for fudicial Review, Declaratory Judgment and Tetnporary Injunction from a pending Conrptroller's Decision in a conlested case proceeding before the State Ollice of Arlninistrative Hearings, and joining Plainliffs RUBI & SONS STORE, INC. and RUBINA NOORANI, and Mahmoud A. Isba, complaining of SUSAN COMBS, in her individual and official capacity as Texas Cornptroller ol Public Accounts, and GREG ABBOTT, in his ofTìcial capacity as Texas Attorney Ceneral ("Defendants"), and f'ol' cause woulct respecttully show the fbllowing: ProDoc FàXSerViCe Page 3 oÍ. 27 I. DISCOVERY CONTROL PIAN 1. Plaintiff.s designate tlri.s case as a Leveì 2 ca.se requiring a cliscovery control plan tâilored [o the circumstances ôf this particular suit pursuânt to Texas Rule of Civil Proceclure L90.4. II. REQUEST FOR DISCTOSURE 2. Pursuant to Texas Rules of Procedure 194, Plaintiffs reqr.rest that Def'endants disclose, within S0 days of service of this request, all of the intbrmation or material described in Rule L94.7,. I II. PARTIES 3 Sanadco Inc., PlaintifT, is a private Texas Corporation, duly organized and existing under the laws of the State of Texas, engaged in the operation of a convenience store whose principal place of business is located at 3801 East Rosedale St., Fort Worth, Texas 76L05-1732, artd whose Taxpayer No. is 4 Mahrnoud A. Isba, Plaintifl, is an individual wlto resides in Arlington, Tarrant County TX and operâtes the convenience store owned by Sanadco Inc., located at 3801 East F-oseclale St-, Fort Worth, Texas 76L05-1'732, and whose Taxpayer No. is 5 Broadway Grocery Inc., Plaintifi is a private Texas Corporation, duly organizecl and existittg under the laws of the State of Texas, engaged in the operation of a convenience store whose principal place of business is located at 8342 Broaclway St., San Atrtonio, Texas 78209-2009, atrd whose Taxpayer No. is 6. Shariz, l¡rc., PlaintitÏ, is a private Texas Corporation, duly orgattized and existing u¡rder tlre laws of the State of Texas, engaged in the operation of a conveuience store whose principal place of bttsiness is located at 143L0 Taslnania Ct., Strgarland,TX77498, and whose Taxpayer No. is 7 Plaintifls Rulli & Sons Stole, lnc. and Rutrina Noorani joirr tìri-- petitittn on alÌ cìairl.- as Pctitroners in a suit currerrtly on file with the State Oflice tll ?age 2 ol 26 ProDoc FaxService Page 4 of 27 Adnri¡ristrative Hearing.s who have not yet exhausted their aclruitristrative remedies, but an audit has been initiated by the Conrptroller of Public Acct¡unts. B. Mahmourt A. Isl¡a, Plaintiff, as owner ând ôperâftr Òf Nevine Food Store #2, located ât 163L E Vickery Blvcl,, Ft. Worth, TX, joins this Petition on all claims as the Petitiorrer in Case No. 1"10,485 with lhe State Office of Administratrative Hearings for audit periods Merclt 1", 2009 thru Septetnber 30, 20I2. 9. Defendant, Su.san Comb.s (hereinafter referred t997 S.W.2d 248 , 255 (Tex. 1999). These procedures include providing notice, publication, and public conlment on the proposed rule. /d. fciting Tex. Gov't Code Ann. $$ 200L,023-.030). The process assr¡res notice to the public ancl atfected persons and an opportunity to be heard on matters that aff-ect them. /d. 39. Unless a rule is pronmlgated and adopted in accordance with the requirements of the APA, it is invalid and unentbrceable, Tex. Gov't. Code Ann. $$ 2001.035, 2001,004 and 2001,005. Neither AP 92 nor AP 122 as it relates to HB 11, were ever aclopted as rnanclated by the APA and are therefore invalid and unetrforseal:le whetr appìied ttl ctllrvenience stttre auclit-^. 40 Pl¡intiffs seek a cleclaratory juclgment against Susan Comhs in her indiviclual and officiaì capacities as (ìomptroller of Public Accounts for tlre State of Tèxås, pursuânt to Tex. Gov't. Cocle Ann. $ 2001.038 and the Uniform Declaratory Jucìgments Act, Tex. Civ. Prac. & Rem. Code Ann, 5 37.001 et seq., which waive sovereign immnnity, declaring that the Cornptroller's mèmorânda, clesignated as AP 92, AP 722 (incorporaling HB ) 1J, are invaìid adrninisfrative rttles hecanse they were not adopted in accorclance with the requiremenls of the APA fotlnd at Tex. Gov't Code Ann. $iì 200i-.035 ancl 2001.004. El Paso Hosp. Disf. v. Texas Health & Huntan Cotnnt'n. 247 5.W,3d 7 09 , 7L4 (Tex. 2008) (quoting Railroad Comtn'n v. WBD Oíl & Gas Co.. 1,04 S.W.3cl 69, 79 (Tex. 2003)); Combs v. Entertainment Publ'ns,Inc.,292 S.W.3d 712,720 [Tex.App.-Attstin Z009, no pet.) COMPLAINT II The comptroller acted ultra vires because she acted without legal authority by implementing and enforcing AP 92, AP l2.Z and HB 11 before performing the purely ministerial act of arlopting them as Rules in conrpliance with the nondiscretionary, purely ministerial rule-making procedures nrandated by the APA. 4L Plaintilf.s rncrlr¡torate the ¡rrececling paragr:ìphs hy reference ¿ìs if, the .sarr¡e were set lorth fully and verbati m hereill, 42 The Conr¡rtroller is r:lrarged witli establi^shing rlethocl.s frlr adnrinisterrng Page 9 of 2Ci PrÕDoc FaxService Page 1l- of. 27 antl ackt¡:ting necessary rules frlr the collection of taxes arrtl tlther revenues. Ter Tax Code Ann. S 111.002[a). Specifically, the Conrptr<¡ller has statutot'y authority to "arìo¡:t, repeaì, rlr ameud suclr rr-rìe.s to reflect change.s in the power rtf this state ro collect taxes anci enforce the provisions of this title." Id' 43. Suits to require stale officials to comply with statutory or constitutionâl provisions âre ltot prohibitecl by sovereign imntuttity. Heínrích,284 S.W.3d at 372. To fall within the u/tra vires exception to sovereign immunity, a suit "must allege, and ultimately prove, that the officel acted without legal authority or tailed to perfbrm a purely rni¡risterial act."Id. (citations omittedJ."Tltus, ultra víres suits do not attempt to exert control over the state - they atternpt to Ìeassert the control of the state. Stated another way, these suits do not seek to alter govertlment policy but rather to e¡rtbrce existing policy." /d. ++. Unless a rule is promulgated and aclopted i¡r accordance with the requirements- of the APA, it i"- invalid and une¡rforceable. Tex. Gov't. Code Ann. $$ Tex. Gov't. Cr¡de Ann. $S 2001.035,2001.Û04 and Aq01.0Q!' The Comptrollerhas no legal ar.rthrtrity to elrfrlrce agency rr-rles heftlre they are adopted in accr¡rdance with the APA. Such adoption r.s marrrJatury and nclncliscretir)näry. The Comptroller's failure to comply with this tninisterial, nondiscretionâry act was lherefore an ultra vires acl. This Corlrt is respectfully requested to enjoin the use of AP 92 and AP 122 unlil they are properly adopted as rules pursuant to the requiretnents of the APA. 45. Plaintift's seek a declaratory iudgrnent against Susan Combs in her individual and official capacities as Comptroller of Public Accounts for the State of Texas, pursuant to Tex. Gov't. Code Ann. $ 2001.038 and the Uniforrn Declaratory |udgments Act, Tex. Civ. Prac. & Rem. Code Ann. S 37.001 et seq., declarittg that the ComptroÌler is not ârìthorized lo estimate convenience store auclits ttsing the lrethçcls prei^ct'¡herì by AP 92 or AP 122 until their ¡tro¡ter adtrptitlrr, and/or that tlre authorization of tlreir u.se is a non-c.liscretittnary uìtra vires act ctlmmitted without legal authority which conflicts with relevatrt prtlvisions rlf the Tax Code and the Cornptroller's adrninistrative regulatiotrs. El Paso Hosp, Ditt. v. lexas th &. Hu Comm'n 247 5.W.3d,709,714 [Tex, Z00B) [quoting Rçilroad 'tl v. WBD (].9 104 S.W,3d 69, 79 [Tex. 2003)); Contbs v. rtainment Publ' 292 S.W.3cl 712,720 [Tex.App.-Austin 2009, no pet.J COMPLAINT IV Page 10 of 2ó ProDoc FaxService Page 12 of. 27 The Cornptroller acted ultra vires and in excess of her statutory authority when she unilaterally established "gross underreporting" ¿ts ân irrebuttable presumption of proof to impose the additional SOYo penalty instead of proof of fraud or intênt to avoid the tax as required by Tex. Tax Code Ann. $ 111'061[b). 46. PlaÍntilfs incorporate the preceding pârâgraphs by reference as if the sarne wÈre set forth fully and verbatim herein. 47. Tex, Tax Code $ 111.06Lfir) authorizes the Cornptroller to impose a penalty of 50% f'or tiaud, or intent to evacle the tax, in addition to the deficiency determination. When the Comptroller seeks to impose a 50 percentadditional penalqy it must show clear and convincing evidence of traud or intent to evade tax. TEX. TAX CODE Section 111.061[b) and 34 TEX. ADMIN. CODE Sectio¡r 1.40 [1] [Bl 48. Fraud implies "bad faith, intentional wrollg, and a sinister motive, and the intent required to be showetl is tl-rat tìrere was .specific intent trl evade tax believecl tr¡ he rrwing," CInc., 145 S.W.3d at 1 .73 [Tex. 2004), inclutling the following: i. The Comptroller's failure or refusal to perform the purely nlinisterial act of adopting AP 92 and AP 1-22 âs âgency rules, âs mandated by Tex. Gov't Code S 2001 ët seq. ii, The Comptroller's artthorizatiotl atrd etrforcement of policies and procedures that hacl not beelr prornulgated as agency rules, as rnattdated by Tex. Gov't. Code An¡r. SQ 2001-.035, 200L.004 and 200L.005 including the use of AP 92, AP 1.22 and HB 1L clata. (a) In an aclniinistrative acljudicatory proceeding ot'a civiì action I'esulting tioul o con:plaiut issued Lry a sfate rgcncy àgainsr rt small busincss uirrlcr thc agcncy's adn:inistrativc ()r rùÈ,ul¡ìt()ry functions, thc snrall busincss moy be awal'decl reasonal¡le íittonìey fÞes an<ì coult costs ifl ( l) it is a sr¡all businr;ss at thc tinrc it lrcc0Ìrcs d party t0 thc ¡rrocucrling r,r¡ ncti<)n; (2) ir prevaila in the proceeding ot'nction; nnd (3) thc l¡-r.rr;cctlirrg r¡r uctio¡r wal groundlcsl ar¡tl brought: (A) in bud laith; rir (B) lbr prrrposes o1' harasstlretrt' PageIT of26 ProDoc FaxService Page l9 af. 27 iii. The Comptroller'.s ar,ttht¡rization ttl concìuct "de.sk" audits and giving ct¡nclusive effect to HB11 clata without deternrirring tìre adec¡uacy of l:laintiffs'recorcl.s in coutravention ttf Tex. Tax Cocìe Ann, $ 111,0042 and 34 I Tex. Adnin. Code Section 3.281(cJ. iv. The Conrptroller's authorization, in excess of her stâtutory authority, to conduct estimated audits i¡l contravention of Tex. Tax Code Ann. $ 111.0042 which specifically restricts the Cornptroller to either detailed or sample and projection auctits when sales tax reports have been filed. The only time the Comptroller is statutorily authorizecl to estìmate an audit is wlrere the taxpayer /ails to Jìle a sales tax report. Tex. Tax Code Ann. $ 151.503. v. The Comptroller's unauthorized, ultra vires reduction of the burden of proof required to impose an adclitional 50%' penalqy from "fraud, or intent to avoid the tax" as required ìryTex. Tax Code Ann. $ 111.061[b), to "gross underreporting" of Zí%t of the tax clue as developecl by agency decisions ahsent it.s promuìgatitln as^ a rule utrder tlie APA. 4. Plaintiffs have plead il c¿rL¡se of action agairrst the Comptroller. As previou.sly outlined in tlris ¡retitittn, Pìaintiff ¡^eeks a decìaratitln under Tex, Gov't. Code Ann. 5 2001.038 that AP 92 and AP L22 are invalid. Plaintiff seeks a declaralion also ttnder Tex. Civ. Prac. & Rem. Code õ 37.004 that the Com ptroller exceedect her statutory authorily under Sections 11,1,0042 ancl 11L.06L of the Tcxas Tax Cocte in authorizing êstinìâtecl nudits anrl the additionnl 50% penalty. 5. The Cornptroller's ultra vires conduct in excess of her statutory authority conti¡rues to create invalict, uneliforceable, fiauduletrt and illegal audits resulting in excessive and distorted cteticiencies uporì convenience store owners and operators subjecting them to tlle fbllowing pre-hearing enfbrcemeltt retnedies: i, Irnposition of a jeopardy cletermination fl-oln which taxes can be inrmediately and forcibly collected without filing a collectiou suit. Tex. Tax Code Ann, Ç 111.022. ¡i. Perfection of a lien on all non-exetrtPt Property, real ancl per.sonaì, merely by filing a tax lien notice with the apprrlpriate county clerk. Tex. Tax Code Ann 113 attaclrilrg to all afl-er-acqr-rireiì property r-¡ntil the taxes are pairì, Tex. Tax Cr¡de Ann. 11" 3.10 5 renrlering the [axpayer's property virtually unsalable. Page L8 of 26 ProDoc FaxService Page 20 of. 27 iii. of the taxpayer's balrk accr¡urrt¡- ancl freezing of Garni.shnrent property hekl hy thirtl ¡rarties without tlre requirement of a hearing. See Tex. Tax Code Ann. $S 1 11,021, 113.103. iv, Seizure and âuctiôning of lhe taxpayer's proper[y, or, after affording a hearing, revoldng the taxpayer's sales tax perrnit. See Tex. Tax Cocle Ann. SF 111.0047. 11_1.017-.019 v. Enjoining ft¡rther sales of goods or services after revoking the sales tax perrnit, etfectively closing a business. Te><-Jax Code Ann. $ 151..26Z(a). vi. Unílateral imposition of a bond to secure payment of the defìciency under the threat of revocation of the sales tax permit and et'fectively closure of the business without a hearing. Tex. Tax Ccde Aru $ 111.012 vii. Refusal to renew sales tax permit due to clelinquency o¡. refusal to pay the tax. Tex. Tax Code Ann, S 11.1,0046. viii. Corrtinuecl accurnuìation of rJaily irrterest rrntil a final jr,rdgment is reached. ix. The.se renredie.s are cumuìative, and may tlrerefctre be imposecl simultaneously upon the taxpayer. 6. It is probable that Plaintilfs will prevail agains[ Defenclants on the merits and oblain permanent injunctive and declaratory relief prohibiting the use of the policies and proceclure incorporated in AP 92 and AP l_22 because it is inclisputable that they are adrninistrative rules as defined by the APA as statements of statewide application; that prescribe law or poìicy; and describes the procedure or practice requirements of the agency. Further, the Third Court of Appeals has already rendered a ctecisiolt fì'oln the acceleratecl appeal declaring that AP 92 and AP 1,22 were invalicl adrninistrative rules subject to the provisions of tlie APA, because they had r-rot been properly adopted nncler the rnanclatory requirements of the APA. ackson v. the C troller Public Acco No. 03-11-00462 [Austin App.j [Sept. ZB,2073). 7. If thc Plaintiff.s' A¡rplication fr¡r Temporary Injunctirlri rs not grarrted, irreparable harnr is imminent ìrecau.se denying tlre reqr-rest frlr the injurrctive relief will irnmediately.subject defelrdants to the enforcenrent procedure.s orrtlined in palagreiph 44 abclve witlrout [renefit oF a hearing, ba.sed sriìely tin t]re auditr¡r.s' unconfirmecl deficiency determinations. Page 19 of26 ProDoc FaxService Page 2I of. 27 B. The Plaintiffs will therefore ¡rotentially face the imnrecliate imposition of ¡:ro¡rerty liens; seizure and sale of proFerty ancl ¡:roper-ty rigìrts^; immecliate garnir-hnrent and freezitrg of banking accounts; .suspen.sion or revocatir¡n of saìes and use tax permits; imposition of cnerous bond or security requirernents; accrual of interest, and potential loss ând clestrllction of their businesses without access to judicial intervention for which Defendants have no adequate remedy at law. (See {[ a - L1, incorporaled herein by reference). 9. Plaintift's lrave no adequate remedy at law because the Comptroller is not subject to damages claims and these enforcement procedures are not subject to pre- deprivation hearings because any judicial remecly available is by appeal to the Distlict Court after the enforcement procedures have already been applied. Tex. Tax Code Ann. $$ 1.l. L.0049, 162.007 . By the time these remedies are accessed, the taxpayers will have already lost their permits, their right to engage in business, and the probable loss or sale of their- business a¡rd assets. 10. Plaintiffs ruc¡ve the Court to set this request frrr a temporäry injunclion hearing, and after the hearing, enter a temporary injurrction grantirrg the relief requested herein ancl further enjr:ining Defendants from corrducting any audits incing allegations making the following declaratir¡nli âs to Plaintiff.s' rights: â. ihat the Cornptroller's memos AP 92 and AP 722 on Augusl 17,2004, and July 22,2009 respectively, establishing and irnplementing procedures for the conduct of conveniencè stôre audits, are invalid administrative rules, anrl that the Cornptroller's authorization o[ their use without complying with the APA requiremenls was ultra vires ancl exceecled the scope of her statutory authority, and that her failure to comply with the requirements of the APA was a f'ailure to perf'orrn a purely ministerial, non- discretionary act, thereby entitling PlaintifÏ's to declaratory and injunctive relief fîorn the collection of these illegal, invalicl ancl unenfbrceable taxes, penalties and interest; b. that the Corr-rptroller's rnemo of Juty 22, 2009, implementing and establishing procedures for tlie use of HB11 data, is an invalid administrative rule, and that the Comptroller's authorization of its use without conrplying wrtlr the APA requirements wa.s â non-dir^cretionary, ultra vires act which exceecled the .scope of her statutory authrlrity, anrl that lrer failure to comply with the requirements of the APA was a failure t<¡ perfornr a pr-rrely ministerial, non-discretiurrary act, thereby entitling Plaintiffs and Class to cleclaralory and injunctive relief from the collection ol these illegal, invalic-l and unenforceable taxes, penalties and interest; Page 2L of 26 ProDoc FaxService Page 23 of. 27 c. that Tex. Tax Cocle $ 151.462 and 155,105 do not authorize the Com¡rtroìler to contluct clesk audit.s giving conclu^sive ef,fect to the HB11 data i¡r determinirrg Plaintiffs'tax deficiency witlrout examirratron of Plaintiffs' business records, and that doing so is ultra vires anr-l in excess of the Cornptroller's sf¿ìtutory authority, thereby entitling Plaintiffs and Class to declaratory and injunctive relief from the collectiôn of these illegal, invalid and unenforceable tâxes, penalties ancl interest ; rl that the Cornptroller is not authorizecl to estimate the rnarkup of alcohol and tobacco proclucts or to concluct audits of convenience stores under the requirements of AP 92 or AP l-22 without first adopting them as Rules pursnant to the requirements of the APA, ancl that doing so is a non- discretionaly and ultra vires acl in excess ot- her statutory authority, thereby entitling Plaintiffs and Class to declaratory and injunctive relief from the collection of these illegal, invalid and unenforcealrle taxes, penalties and interesÇ e tl'"t@isunctlnstitutitrnaìrlnits.faceandas appliecl tr¡ Plaintiffs hecau.se it permits the auditor tr¡ deternrine whether records are adet¡uate basecl solely r¡n ulrdefined sulrjective criteria, and without ¡:rroviding any guicleliner^ for its administration lenrìing itself to cliscriminatory application, lhereby entitling Plaintiffs to declaratory anrl injunclive relief fronl tlle collection ol these illegal, invalid and unenforceabìe laxes, penallies and interest; f. that Tex. Tax Cod e 6 1I']...O22 is unconstilutional on its face and as apptied to Plaintiffs because il permits the feopardy Determinâtion to be made merely on the Comptroller's undefined subjective criteria, and withont providing any guidelines for its administration lencting itself to discrirninatory application thereby entitling Plaintiffs ancl Class to declaratory and injunctive relief frorn the collection of these illegal, invalid and unenforceable taxes, penalties ancl interest. o b. that the Comptroller is not ar¡thorizecl to unilaterally reduce rhe burden of proof, or to shift the bltrden of proof in estabìishing fraud as required by Tex. Tax Code Ann. Ç 111,061.. ancl that such conduct is non- cliscretionary and ultra vires and iu exce.ss of her statr-rtory autholity, thereby entitling Plaintiff.s and Cla.ss to declaratory and injurrctive relief from the collectiorr of the.se itlegal, invalid and unenlorceabìe taxes, penalties and iuterest. h, that the Comptroller has engaged in intentional conrluct resulling in the tal Id. 9 tågr trg ot 3¿6t I I Nert Pctitionñt ülcrt thlt thc ar¡dlt a,iscsrmctrt rhould bc dlsrega¡ded becansc it h based on invalid estinadng proccducr. Paitiocr¡ rely on thc appellate cou¡t's receot dod¡ion in Sandco, Inc.,ãJt3 Tor App. LE¡l$¡ 1æ13. Ilowcver. auypræedcntlal valrrc placcd m tho dccisim ir prunatuio' ar tho deci¡io¡ h¡¡ ¡ot bccous ffnal. Appcllcs h¡s ñled üotlotrs for an åønc¡ccmsidcradqs and fq ¡üeuh& Thc coruth¡s ]rÊtto n¡ls o¡ tbc motions. Th¡ ap,pellate col¡¡t'¡ decisim beconw fi¡¡l when the court'g plenry powor enpinos. ,Íe¿ Oscæ Renfu Contmctlng ilrc. v. H&It Sttpply Cd, tgí S.W. 3d 7U¿ (Ter. ADp.-Wm 2fF6, peL dcnid). And thÉ court will loso pleorry powr 30 days aftr thc cor¡rt ovc¡n¡lss thc uotion for rchcartng E¡d ¿¡t bøtc ¡cco¡sldsadø. Ter. R. App. P. lg,fft). Paldoncrs al,so contend th¡t thc snbjccr ardlt shouldbo ¡cstrl¿:tcd to tho rÉTqt psrtodr ûst f¡ll oursidc of tho BART cxam pøiod of January l, 2008, thm¡Eh Ma¡ch 31, 2009. ïtru, aßcoûdl¡g to Petitioner¡, tbc audit as¡Gssrrcot should be restrlctcd to tho nport pcdodt Fcbn¡¡ry \.z0úl,througb [lcccobcr3L,1W, and Apnl 1, 2009, thrurgbluoc 30,2009. Pctidonss, h cftct, are ugulng ùat St¡ff i¡ cstoppcd from nargutng thc llabitity duc during tho period prcviotsly c¡autncd bV BAtr(f. Ho$rwcr, B bc ü collater¡l paúy scr$úg to arscrt thÊ estoppel mut etebllsh th¡B 'U) th! facE sougbt to bo litigatcd in thc sccond rctim wcro fully md frfuly litlgated h tbo ftst scdolr; @) thoro fects rryÊre esscnd¡l to thc judgmeot tB tbÉ ñrst acdoq md (3) tho pardos wcro cast as ¡dvcrr¡ric¡ l¡tbo first aßtioû' ,Sylco Food Íeru. u 7Iaprcll,890 S.$t 2d 796,801 (Ter. 1994),cüaìont øúnd: ¡ndáI¡o sac Comprollar's Decisíon No. l00,f 90 (2012). Iho B¡{RT cxam of Pedtionn SIs convtnicnco storp dlffers i¡ scvcral rignificrot ways Ëom the stùseqtcut sales md r¡se tnr audit of th¡ san! oonyenicnae sto¡e. As thc BART o¡am focr¡scd cxclttsivoly on Peddoær SI's alcohol a¡d rcbaaco salcr and purc.hasetr !o product-uix pctcÊutage wt! epplied" Howevtr, a pmduæ-mix pcrceutagÊ wa¡ nccded rrybeo Petítlon¡r SI was nrbscqreotly il¡ditcd fc ¡al¡s of other poducts sr¡cb as c¡ndy, roft drinlr, fmd and gcoeral ¡n¡¡chmdi¡c. I¡ addidon Pctitioner SI was afr¡dcd a 5% allowa¡cc for spoilagc and thÉfr in the sslet etrd use t¡¡ audiL Tto sanË faas weru not csrcod¡l to thc judgmø i¡ each ontestcd taf, cæo. rhus, tho Conptroller w¡s mt e¡topp€d by thc rc¡r¡lß of thc BART c¡¡m from subaequcotly pedoruing a galc¡ ¡¡d rus ta¡ ar¡dit of thc ssmt tsrpÊyer, especiatly si¡co tbo ÍÛ 'agÉr 20 6t 3¡¡6, t I ta¡able sal€s det€rm¡ncd itr lhc BART exan w€r€ dcleted from the calcr¡luion of ddltional tnr¡blo salca is tb€ ¡ale¡ ¡nd ¡¡¡e tar ardit S¿¿ Compùoûler's Decision Nm . ltl ,579 (2013) B¡d 104,445 a¡d 105126 (2012). Conptolls i¡ autho¡izcd to u$css n additio¡¡l 5096 pcr¡¡tty unds Ten..Tal Codo Thc Aü" $ 111.061(b) if ¡hc detcrnincs that a tarpaycr commined Êaud or had tbs Inæot to evadc tf,. Strtr hÄ ths bu¡deu of establishing by derr and convlndng cvidcncc ûat tb Êa¡¡d peoalty rpplies. See 34Tex, Ad¡dn CodË 0 1.40(1XB). Cleu rnd cmvhcing evideoce ic proof thnt will producc a firm bolid or conviction ¡s to thc tnrth of thc allcgodous sougþt to bc eståblhhcq but whtch necd not bc uncçirncal or mdisputcd. Sae Compbollrr's Decisioû No. 3?,946 GmOÌ Sutcv. Addlngto45SE S.W2d 569, fl0(tcx" 1f/9) (pcccrui¡m)toînËñondç¡141 U.S.418. A¡ noted above, thc overall €N¡aß ratÊ for ths ûrdit p€aiod b 66.459t. 1t¡ rwised ovcratl €mtr rltc dccrcase{ rluoot unperccptiveln to 66.44% oncc tho ccu ratc ir rcc¡lcul¡tcd using thc qsecsscd t¡r auoutrt of $64305.¿ ln ptor Comptollcr of dcclsions grosr undonqordry t¡xeblo cslcs. dcfiúGd ar an cror of 25ft or grcctcr, har bccn frr¡nd ¡ufñcicntly hdtcativo of ín¡cot to cv¡dc tho lax to wûrant rssossrrot of the frürd pcû¡lty, padcululywhs¡ th¡ro wcre olher facton or m plaurible erplanatlon Seq e.go Com:ptsoller's Desision No .432A9 (2004). Also ¡cs Ter. Tar Codo A¡u $ 111.2050). Such gross undcrcporting horcver, i¡ not in a¡d of ltself sr¡ffldeût to jrsttfy tnposltlm of tbe frard penalty otr cor¡þratc tupa¡lcn. I¡ tho casc of corporaE ts¡paycm, tbc Couprollu recog¡ízer rhnt ¡ çoqpsrat'p¡ ís a scparaæ tegrl eotity th* ts coatrolledby its offioen and d¡tcctors a¡d th¡t thc rcqt¡lsito irtE¡lt of a corporadon is dctcm¡scd üom tbc a¡üo¡¡ of tho officem or dheclo¡¡. 'Slheû an officer is provcn !o havc becn dhoctly involrred i¡ thc fra¡¡duleot activities, tho rddltiust penrlty agninst a corporation bas beca uphcld, bcøruo a oûrlþratc officcr't ft¡r¡dr¡lcot acdons can bo au¡ibr¡tcd to thc corymatiou Sec Compboller's Ilecision No¡. 105,148 &, 104,471 (2011),44.891 (2005) otrd ++"52t (2005). Tto çmtton is to whd, degræ Fedtionrr Isba, the oonpuJt's presidmt was awårs or should h¡ve bem swqg of tbe nnderæ,porting of ta¡. ,S¿¿ e, g, Comptrollcdc Deci¡iotr No. 103,204 and 104¿38 (2012), 2f lba rcc¡lcr¡l¡td fmu¡¡l¡ t¡ rsrcr¡cd ¡¡¡ ($úfJ{lll) + un of tba s¡¡c¡¡cd tu ud nporred h¡ ($96,790.61). il '¡9Ð 2l ot 346) Ð ü Ttc only subst¡ntivc widenße in tbc rccord dircctty çgtaþliihtng the extent of Petitioncß f¡bds lnvolvtmeü in tho orpcration end nn¡¡gcocnt of th! coovcuiencc srtc, ln tbc prparrtion and filing of thp sales s'ld uso tr¡ ¡Ëür¡rq ard rorn¡ttrscÊ of the ta¡ payncnts durlng th! audft pcsiod is found i¡ tbc answcr¡t popounded to Statrs dlscovcry. ltcrc al¡o uc ùo fiw chcclß rrmittiry paynËût rigned by Pcddoner I¡b¡ that were ¡nofued by Statr ã ThÊ ,¡lLI, based solely on tho stqFEFût¡ made in raspmsc to Sufs disoavoçr, find¡ that Pctidoncc I¡ba puch¡sd rnd patd for thc t¡rablt invcotory, mado ths daily d4osltq and rcccilræd thc bæk statc¡DsúF, signcd th¡ sales t¡¡ rch¡¡nr, and paid thc s¡lcs a¡d r¡se t¡¡c¡, Ttc ,{LI, thcrcfo¡q conclud$ that Pctitionor Bba ws¡ involved in, awuc of, or shor¡ld h¡vs bcco awsrt of tho undencportiug of ralcs t¡r ltrowwer, thc sams info¡oadm thnt supporb tblr couchsiou exprculy limitr Petitisrcr Isbr's involvcmcot to ths perlod preæding ltsy l, 2008, wheu hc cûtËrd l¡to m ogremrmt to seU tho buslnc¡s md ouo of tho buyars assuurd rcspooribilíty fG perbrming thcsc t¡cks. St¡ff bsl uot rdd¡c¡sad ø ¡sñnpd my p¡rt of Petitloncr SI's rcrpmser ùo its discovery requcats, hclt¡d¡ng thc ¡tatcneûtr limiting Pcdtiomr IsbC¡ involveusnt to th! repøt puiodr prcccding May 1, 2ü)8. Tho ¡{LI co¡sludc! i¡ srfflciæ b cstabüdr" by clerr and convincing that thc ¡eco¡d eyid€úco, fra¡¡dulcut scdou¡ on tba pan of Ftitioncr Isba thrt au aûih¡t¡bb to tho compann but only for the pertod Februsry l, 2(XIl, thrf,¡gb Aprü 30, 2fi18. Thc ¡{LI thorcfu¡c recommcnds tb¡t the sddldonal 5096 frat¡d p€o¡lty ¡hould be dismissed frr the peaiod ì{ey I. 2fi}8, thmueþ the cod of the ardit plod. Pctidmer¡ also arguc th¡t thc inposition of ¡ddithn¡l penaltler for jeopardy deçnnin¡tion ¡rounco¡stlnüion¡l vaguc. Tho ALI lackr tho jurMictionm considcrPaitio¡cds conteirtion regardirrg thc corutihrtlonnlity of tbc jcqrrdy d*crnination stah¡to. Ibc cor¡¡t¡ h¡vo ruled th¡t thc Co,ryEoller lac.ks jurtsrlicdoû to n¡le on thc cousdhrttonality of ¡ sunüc tb¡t sho adøini¡tsrs . Tal. Statc Ed øf Fhønaq v, Walgrecn Tæ cø.,520 s.w.2d 845 Cfex. civ. Sec App.-Austb 1915, writ rtfld n.r.c) . Also,rce Compnoller's Dedsion No. 105,821 (2013). ä sr¡tr¡Brbibir4(Èrirtoulsb¡). l2 raf¡€ æ of 346, o I L SOAEllockctNo.Sfl{-lil{Zl¿26(Pcttllo¡erlsb¡) Tsr Code $ 111.0611 iryes pcnmal lirbilityon a¡officer, Esnsglg ordi¡cctqof ¡ corpcatiou who'a¡ u officcr, m¡ongÊf, direú:tor, orpartcr, took o¡ acdor orpartlclpatrd tn a frar¡ù¡lent scheoo or fraudttlcot plan to evadc thc payncnt of taxes.' Ttc pcnonal llability fu for trxeq p¡ldeq including u ¡ddldon¡l 50ß penalty, ¡¡d tnscst th+ arc duo ftom thc ærporatloa Acdonr th* indica¡e s ft¡rdulcût scbeoc or Êa¡¡ô¡lenl pl¡o o evade thc psyu@t of tarcs includo filing, G er¡!¡ng to bc filÊE ¡ fr¡ndulcut ta¡ rtt¡rr c rcport wlth tbc Conptrollcr o¡ bchalf of thc brui¡css endty, or fillng or cãusl¡g to bo ffte{ a tar, rch¡m ffi rcport with tbc Comptollcr mbeh¡lf of thebruinc¡¡ outþ th¡l o¡t¡in¡ ¡n lqtrqtonaly fal¡o s'qt¡rnent that results i! qÊ amor¡nt of thÊ tar duc cxcccdlng tbo amor¡qt of tar rcporæd by 25% or morg. Tcx. Ta¡ Cod! A¡n ! 111.0611O)(1), (3). The sanc facu thåt thË ALI relied on in æconncodlng tnposltloo of tho additiusl 50fú pq¡tty support upbldlng tùG æseslmcût of pcnoral liability. Fhst, üere wa¡ üt ovcr¡ll gnss undßmpoßülg of the t¡r. which rtsr¡lteq evcú slftcr tÀlrlñg inb sccontrt tho rdJumcut rÊcorneúdcd by thc ALt, ltr ar !ilot tat€ of 66.45*. Morrcoyer, thc ¡ccord esubllshcr th¡t Petido¡cr Isbr ws¡ l¡volved ln tbc opemtion ¡¡¡l mrnngg'rcût of thc cttrc aûd iD üc ¡tgni¡g of thp sales and ruc t¡¡ ¡Eh¡ror snd r€úitrüßc of the ts¡ ps],rer¡s Hc ordËrÊd and prtd for thc t¡rnbþ inventory, deposltcd thc std!'s t?ccþts, ¡ccciwd thc ba¡k ståtcNrmc, and slgnod both tho sales tsr rcü¡rr! and thc chccks rcoittlng ps''mmb ûo the Corpholler. Horpsrrc. thc evidcnps e$tablbhË thls hvolvemcut by cleu ud convincing eridcnco only fur thc pcdod Fcbruary l, 2007 ùrougù, Aprtl30, 2æ& TbiE rËcord i¡ srúficicût to nffirm tbe pcnonal Uabitity âsse$smmt for thc pertod Mry 1, 20(n, th¡ou$ Ap¡i130, 2008, snd tho lllJ rccom¡nÊn& that tbc pcrronat li¡bility Êss€ssnclrt shq¡ld bG disni¡sed for tho pcriod Mny l, 2fX)8, througb Jr¡¡Ê 30, 2009. A R¡couueud¡don¡ Tte ALI rccom¡no¡rd¡ tht the ar¡dit o¡scs¡rnent agpinrt Petitiou¡r SI should bc atrrrrc4 btrt subject to thc reco¡nm¡ndcd adjwtmcnts correcdng th¡ catcr¡latiou of estim¡ted tobacco sales It ago 2t of 316l o o and limiting tho addido¡ral pcualty to tho pËiod Fcbrurry \,z[ßr,thmugb April 30,2008. In thc c¡sc of tho peßson¡l llabllity IssËsmÉnt rgdnst Petitioner Isbq ùe ALI recor¡mcnd¡ th¡t the rssÉsmcnt ùq¡ld bo affi¡ucd strbjccf to th¡ rccommcodcd rdjusheot in tho undedying corpoßÊtt ¡s¡es$rcrt and recoded dlsní¡¡rl of thc pemørl tiabiltty Bss€s$lsnt for tbe pcriod llíay 1, 200t, througþ ft¡nc 30,2fi19. III. NNIIINGS OFFACÏT t. Smadco, Inc. (Pcddo[€r SD oporated a cmveofoucc slorÊ h Fort S/o¡lb" Texu, dr¡¡fug the ndft poriod februry 1.2ßCÍ1, thougþ June 30,2(n9. L Pedtionlr SI war subjectcd to a desk urdit pcrfued by the Brnins¡ Acdvtty Rcscarch Te¡m (BART) of tbc Ters¡ Cooptoller of Pr¡blic Apcounts (Comptrollc) fo¡ ths Gf,arn pcriod of lanury l, 2008, thrc¡tgb ME¡rü, 31, 20(Þ, and a¡¡sscd a tar lirbility of $23"5E1.60, conrirtingof tlr, tbo 10ft ¡t¡¡d¡¡d pco¡lty, tbÊ sdditiooål50* p€ülty, Ed accn¡cd intcrest 3, Ttc BART qam wrs prompEd by a comparisoo of Pctidmsr SIs alohol a¡d tobacco purtù¡lct for thc craln pcdod rcponod by Paltioner SIs bbsoco ¡¡d alcohol vcadors r¡ldcr IIB 11. 4. \lfholcs¡lsn and disüCbutoñ of bccr,wine mnlt liqum, cigrrc[g, dg¡¡¡, ¡¡d tobacco psoductr are rcqulred to submít elect¡ontc rcIþrür, on a nonthly basír, !o the Comptroller. Tlese elesl¡onic repffi arc rcqulred by Tc¡. Tax Codc ADD" l! LJl.Æ2" f54.212, ¡¡d 155.10Éi, which wera eriactcd rs paft of Tcx. ILB. 11, 80th Læg., RS. (2007). Tt¡ veodor records orc commonly refcrrËd to as IIB tl ¡eco¡ds. 5. ThG HB ll tobacco ¡nd nlpohol purchrscr fortho cxan paiod e¡cceded the rr,pwted tr¡ablo sslßs for tho ¡qnle ¡rcdod by $268,056 to $76,y/6. BART rclled oa tho HB l1 d¡t¡ md tho Comptoller'¡ At¡dit Divi¡ion Policy Mcmo (AP) 122 in cstimating thc asge!s¡ucnt 6. Podtion* SI did not fllc a rcqu€st furrcdetc¡ni¡stion contdting üÊ E¡NcssEGrt, conseqæatly, thc assæsraçnr bccuc finEl s¡¡[ tþç sales ud u¡o tsr dgltñquç{tcy was ccstiñcd to tho Anoruoy Oeoffal. Thc Anornoy Gcoeral filcd a l¡w¡r¡it scaking to cotlcct tbc dollqtcncy from Peddonsû SI ed Mahmor¡d Ahmd Isba @ctldorrcr l¡ba). $ea Søna¿co. Inr. v. Compnvllcr $ Puh Accorutîs,No. G-1140462CV, 2lll3 Tex. Ap¡1. tE¡(il¡ 12013 (Ten App. - A¡sdn ScBtarbcr 26,?Ãl3,no pet h.), 7 PdÍtioncrsfiled varior¡¡ cormterclains as¡l¡¡tthostato. Howover, tc trial cor¡rt dl¡ni¡¡ed PctidonÊß' counterclaim¡ frr ladr ofjruisdictiq whiù dccision Poütioncn appealcd" Thc appeals court su¡t¡i¡cd PeddCIncß' clq|m thåt thË Compfolleds di¡edivc¡ t{ 'àgË 2l o! 3O6t t t h AP 92 Êrd AP lZt w€re in fastn¡lcs and alco concludd thrt tbË uirl court had juridiaíon over Sandco's clafrn ûat AP q¿ E¡d AP 122 wcæ i¡vrlid rule¡ md that, thcrcfo¡q thc Ei¡|, court GGd ln dtsnissi¡g thir countcrclaim. Sec 1øtfu, Incn 2013 Tcr. App. tElfIS 12013, alry7.L-22. 8. Pcdtifllr SI wa¡ audltcd by thn Comptroltcr' Tar Divisiø (St¡tr) for s¡lcs ¡¡d u¡c t¡x compliancc for thß audit pedod, 8rd ü! ar¡ditor o¡üm¡tcd thc audit dus to incompleæ ¡Ecord¡. 9. Petition¡r SI did uot respond to tte Euditodr rcqucstr for record¡. Tlo audltor l¡su€d a Notificati¡¡n of E¡timado¡ ProcedurËr for Statc T¡¡ Audit &tcd January n ,2011, odvlstng Pcdtloocr SI th¡t tha utdit mutd bo estlmatcd rsing IIB I f dils, md tbat thc AP 122 pmccù¡es would b! fuUorvcd" 10. Whcu thÊ sudltu ¡¡itisbd thc audit frsldwodc Pcütloner SI no longrr opcratcd tha couveuicocc stont Tbãcfr¡q thc ¡ttditor could uot pcrform ¡ ¡hclf tcst md instcad t¡sd thc indr¡$ry Evcrrgo marhry pcmcntage! of 118.44ft 0!d 124.ür% rcspcctivdy frr bbacco snd alcohol prchrucs sct orü in AP lZL 11. ltc u¡dltor totaled tbc tobacco a¡d atcohol pnrcbascr nrdc þ Fctidonæ SI uslng tha HB I 1 d¡r¡ for tbo rcport pcriodr Jaarrary I, 2l)0E, thmugþ Iruc 30, 2009. fts ætat slcohot snd tobasco pt¡¡shrscs wcrs r[¡nitEd up by thcir respcctivc narlnrp pcæËntryc!. t2. lþ gtnndt¡d AP 122pmùrct-mir perccnt¡BÊ sf il% fortoba¡co sndatcoholprodncb wu rpplled to s¡dvc et estlmnted t¡nblË sslË, becmso no purch¡¡! rrcords wcæ availabla t3. Ite audio¡ afbrdcd ¡ 5ã ¡llowqnco br spollago a¡d thsft to dcæ(dtrc n¡t estlm¡tcd t¡xable sale¡. Crdit was givro frr reporæd taxablc slle$ 14. Itc ¡esulttng adjutcd tarable sales werc thco red¡rced by thp ¡nounts asscssed in the BART exam for tho rcpo¡t pcriods Januory l, 200t, thror¡É ME¡ù 31, 2ü)9 to ¡¡¡ivc ¡t the addiÉonsl ta¡sblo sales. 15. Itc addidm¡l tarable sales we¡c multtplied by thc appllcablc tårß ratcs !o detetnino tbG t¡¡¡ dnc for tbc rcport pcriods ftoo Jrnuary 1, 2008, thrcugþ h¡¡c 30 2ü)9. 16. As thcm war no HB 11 dca availablc for Éc peçto& preædingJanrar¡r 1, 2008, th€ audito¡ cttim¡tcd thÊ addition¡l ux¡ble salc¡ fot tbic pcriod by first dclcrmtning tbc avetegÊ monthly nct est¡m¡tcd t¡x¡ble salcs for tbc rqort pcrtodr lanuary L zqlq tkougþ Juo 30, 20m. Tho poct-Dccanbcr 31, 20û7, toul ¡ct rstinstpd tuablo ¡alcs of $fr2,t,443.17 wqe dfuldcd by ths l8 rEpo¡t puiodr !o a¡rlvl d a montbly averago of $40,469.06. ls rgs 25 of 3¿16) I t 17. Tfu additionsl ta¡¡blc sslcc for thcprc.Innuary 1, 200E, ¡Wo¡tpcúiodt we¡t c¡lculatcd by rcduchg thc averago monthly nct eilimstcd t¡¡¡blo s¡les by ths t¿r¡blc mler rcportcd to thÊ Compbollor. 18, A 5É allownnco forspoilaç ¡dth¡frwa¡ ap'plted b deterabËtbs addttion¡l t¡xsblç srlês. 19. additioral tsrr¡bl€ ¡alc¡ wrre thco multiplicd by thc applicablo t¡f, rate to Ito rc¡ultlng detcminÊ thc t¡¡ duo for pr+Isruåry 1, 2008, psil of tbc audit pcdod. 24. Pedtío¡cr lsbawas üopnsidcntof Ptaitionet SL 2t. Pctiriøcr hbr rigncd cücctr hr rcuitting salor and usc tar paymrutr drutng thc atdtt pËriod" 2?,. Paltioncr Isba wle rcrporsiblc frr dcpositing thp ¡b¡e's raler ptncccdr fton Fcbruary Tl, 2lßÍ1, thot¡¡þ Ap¡il 30, 200t' 23, Pcdtion¡r Isba w¡s reoponsiblc for doposidng tb¡ storG's sales proeds Êom Fehrt¡sry tl, 2907, th¡ouih Atril 30, 200t. 24. Pcdtioner Isba was responslblo hr ondcing tho stors'c hvørtory from Fob,n¡sry 27 , '2ûgl tbrougb Aprit 30, 2008. 2:t. Pedtioner Isba was resBoruible furp¡ynm of tho sto¡c's invcqtøfiE¡rchases from Febrnary 27,z0lJl-, th¡utgh April 3Q zfXlt. 26. Pctido¡ec Isb¡ was the pcnon crüo rcceivçd tbe monthly b¡¡k statcmøs Êoln Fcbrnrary 27,2:ßVl, tbrot¡gh Ap¡il 3O 2008. n. Pctitioncr [¡ba'¡ rcsponsibility fc thesc ' skr cnded on ìilay l, 2008, wbm hs entcred hto an agrüÊEer[ to ¡ell thc company to hir omplo¡rccs Ya¡¡ieq Si¡m and Sstr&¡Sal¡zãr. 28. Mr. Siam asil¡Esd Esponeibility fm thesa 'a"L. ûom lvhy l, 2008, r¡ntil thc cnd of thc auditpcriod. 29. Oû Apil l,201l, thÊ Statrissucdto Pctitimcr SI aTex¡¡ Notific¡tio¡ of AudttRcsulti assessingtax, thc st¡rdard t0% pcndty, thÊ Êddiüond sflqb Êaud pcnalty, sDd accrud irtsrcst, totaling S112381.02. with S64336.t1 ¡ttribr¡¡blc to t¿r. 30. Petitionersltimdyrequeotcdrcdctcrminrdon 31 St¡ff elso issued a jcopady daccminrtim m Ma¡frh 30, æ1 1, against Petitbner Isbo, punurnt b Tax Codc 0 I 11.061 1, arscsring pmooal li¡b¡lity for tho ta¡ liability of Pctitioffi SI b¡ tho pcríod May 1. ZM, tbrougþ Juno 30, 2ffi!1. tú ågr 26 of 3{6, o o 32- Tho pemonat tlùiltty a¡scssmcú con¡istcd of tar, tho staod¡¡d 109å pcnalç tlrc addido¡¡l50S pcndty, aad ocuued íltËæstthrongbthc date of úl¡fic¡tioü. ThË pcrsonal ti¡biüry sssciscd agahsthddon¡r Isb¡ toteled S5,620.96, with $55,168.E7 atuibut¡blc b tsr" l!. St¡tr rcftrrcd thc c¡se¡ to tht StEt! Officc of Adminis¡aüvc Hoarhgp for oral hcuingr" StatrisstrcdNodcer of llcring th¡t ss6¡þs¿ s ¡tstûn€ût of thp dsÞ, d'¡G' ud place of tho hedng$ a stal€ûrcut dth! ün¡rc of thc hcarings; ¡ st¡tcmcú of ths lcg¡l üüborlty rnd jruisdicdon rndcß whtch tb hcaùÞ wcro to bo held¡ I rsfGrerc! to tho putioilar section¡ of tbc stah¡tcs ¡¡d rule¡ hvolvc{ a¡d a ¡bo¡ì pl¡t¡ sl¡trrncnt of tbc m¡tten¡ ssrcrtËd. !4. Ttc Adn¡dstrative law ludgo (ALD ordcred the cascr joincd. 35. Ito ALI coweocd thc headug m August t2"2OL3 36. 'lihc ALI ordsrcd the ¡ccord dosed on Nov@bq 12, 2013. 37. Its cor€ct ouhrp pcræút¡gÊ that thc urdimr should havc a¡pliod to thÊ tobaaco puchases wa¡ 118.ü19t, which AP lX¿ dìæcg should bc r¡s€d for ¡rcnre followlng 20û7. 38. Applyi¡rgtho coneacdmnùry p€rccûtagt to ûç tob¡cco prcbascs proùrcd cstlnâtd tobapco sal€! of $lü)"550.67 (tæcsur thc $100,90t 51 resultingfrom amartup of 118.44fr). 19. Tto applicaüon of ths corrcctcd marhp pcroEotagc to tobacco purcåasco rcdnccd tho asscssmÊnt of ta¡ fr'Dm $64,336.90 to appruùnaæly 964J05. 40. Tto orlgi¡¡l ovcrall e¡ror ratc for Pcdtioncr SPs audlt w¡s 66.459ó. 41. The ALI has rccalo¡latcd thc einr ratc using thc reù¡ccd prilc'ipal ¡mor¡nt of tar duc. Tltc ¡cc¡lo¡latcd audit cmot raic ls 66.44%, whích wa,r c¡ls¡latcd by dviding tho t¡x a¡¡esscd ($É{"30Ð by tho ¡um of thc as¡essed t¡¡ snd ¡cportd ts ($96,790.61). rv. coNcl,rJslroNs or L.l\w 1. Itc Conptmllcr hu juisdicûion oyer this E¡üË pn¡sr¡¡trt to Te¡¡¡ Tar Codc ch. t I l. L Ttrc Statc Offico of AdninisEadve Hearingp hrs Jruirdicttoc ovc¡ m¡ttcrs rÊlald to ths hÊtiry in th¡¡ Erttctr, including tbo autbrity to i¡¡uq ¿ proposal for dccision witb flrnrtínar of fncn nnd ennnlu¡irmr nf lnw ñrñ¡nrrrl tn T¡rqr fl¡ve+rrmcnl lrnde nh lflfl? 3. Ststr prwidcd propcr and ttmcly notlca of tho hearing purauant to Tox¡l Governmeot Code cb" 2001. v åqll ?? ôt 346, o o 4. Thc Compnoller i¡ u¡thodzed o usc tho bcst lnfrrmqdon waihblc to esd¡n¡ts ¡ tarpa¡rcr's liability whco rËcorù aro incouplen q r¡¡¡eliablc. Ter Tar Codo Ann 0 111.0042(d) a¡d 34 Ter. AdmirCode I 3.2t1(c). 5. Petidoncr SI mst show by a prrc,pondrrancc of thc evidcuce th¡t ths audit w¡s i¡ erm¿ 34 Tex. fi¡lml't. CodÊ $ 1.40(2XB), 6. Ttc ar¡dit of Petitioner SI wa¡ pcrfrnncd bqsed on tc best info@¡tbs evril¡ble 1, fta audím eæd in ¡ot rnhg thÊ cûrrcct p€scrûtlgo d llE.(n% in ndíng up thc tob¡cco purcha¡c¡ in order to ssrimaþ tob¡cco sal€s. ,Sea AP lüt 8. Tlc calaünttm of ¡dditiou¡l ¡r-ahlo salcs should bc rdjn$cd by u¡i¡g tbs cor¡cct narhry ¡rcsccr¡tsg€ of 118.0296 þ m¡reìrrg up tobscco pt¡fch¡¡G!. 9. Tto Comptollcr is autho¡ized m impose au addltlon¡l 50S penalty lf thc failuc to pay tsr or filc a re¡lort urüer duo was a rc¡r¡lt of fru¡d or m lntent to ovadc thc ta¡. Tcr T¡¡ CodGAn¡L ¡ 111.061(b). 10. Statrbesn the bu¡dco of pmof ùo sbowby clear andcorll¡cing cvldencc that Petitioncr SI acted with tntcst to cvadô ta¡. 34 Tcr. Admin Codo S 1.40(lXB). 11. Petitlmcr Sl hsd thg intcut to er¡adc tar r€qrdrcd by Tcx. Tar Codc A¡n ¡ 1 t 1.061(bX1), but ouly for thc ¡tpüt pcrtods fcbrtnry l,2ûïl,th¡or¡gh April 30, 200t. t2. Tto rccorú ætabllshß! by clca¡ a¡d co¡vlncing wldcoæ th¡t tho grosr undccepødnþ of t¡¡was due to thc tntcntto cradc tax and that thc impoaition of thÉ additiud 50ft pcn¡lty w¡¡ wsr¡¡ted, hrt ody br thc rr?oû pGriods February 1,20(Xl. througþ April 30, 2008. Ter. Tsr CodcA¡n ü lll.06fGxl). 13. Ite additton¡l50fr poualty ehouldbÊddotcd forthe rçøtperlods ìil¡y 1,2008, lh¡ouib Junc 30,20(Xl. 14. Itc a¡scssucot agaiut Petitlon¡r SI sttould bo afñnncd exccpt fur tho adjutncntr rccommcudcdinConduslons of l¡rp Nos. E td 13. 15. ! Tex¡s Tar Codo lt 1.0611 hnpo¡e¡ pcffionat li¡bllity on an officcr, raFnnSGrr or direú:toÌ of a corpomdon who "a,s ao officcr, qrln¡lcEr di¡eaor, or po¡ütGfi took a¡ astioo or participrrcd tn a fraduhnt schcm¡ or fra¡¡dulent plrn to w¡d¿ tho pa¡mcnt of tarer." Tho pusonal Uability is for t¡xe¡, pcaaltics, irclrdiry an addition¡l 509å ponnlty and intcrest th¡t a¡o duo from thc coaporatiou Ten Tar Cods Atr¡. !1 U.06U(e). 16. Acdons th¡t i¡dic¡¡e ¡ fr¡udulcu sc,heuo or f¡¡udr¡lcot plan to ovado tho payment of ta¡cc i¡cludc frUng or caruing b bo ñlo4 a ftar¡duld tsr Éü¡r! or ¡Ëpott wlth tho Conpuoller m beh¡lf of ths brrrhress cotity, or ñling, or cauoing o bo filed, I tar ¡Ghrm It rÀçt€ 28 of, 3¿l¡, o o or rËPo¡t with tbo CoEFüollGr on bchalf of thc br¡slnpss cndty tbat cont¡in¡ an ùneuttonallyfalss st¡tcmmtth¡trcsultr inthc ¿mor¡¡t of the t¡rdræ exccediag thc ruuntoft¡rrcpqtdbyZS9É ormsc. Te¡. TqrcodcArD" Í 111.0611(b)(l), (3). 17. Stafre¡tabtisbcd th¡t Petidoncr bba war persmally liablc r¡nder Tcx¡s Tax Cdc | 1U.061f for ùc ûssqßEÊtrt mdo agahst Peido¡¡r SI, but ody fm thc rcport p€dods Ùfay 1,20(n, û¡ougb April 30, Zl0t. 18. Tbc pccuonal llsblllty üictsrt!úû aggiûtPetitioncß Isb¡ for npocpedods ilfny 1,200t, thmugþ Juc 30, 2009, ¡ho¡ld bo dolctcd. 19, Th¡ ¡ssccsmcnt agalnst Pedtiooer l¡ba shor¡ld bc uphel4 eubjcct !o rhp dcterim recom¡cudcd l¡ Couclusloq of I¿w No l8 and b thc adþtncot¡s ¡lsrmrledlng coqtcatc Îs¡ stsÊssücnt agÊinot Pctldoncr SI rccommooded in Conclu¡iou of Lcw No. 8. ¡f, râgË 29 ot 3r¡51 o o HearlngNo& 106rûf5 snd 1üt006 OADER, OF THE COMPI.ROLT,ER Ou Ilcccmbcr l?,2Ûll,thc Stato Officc of Adoi¡i¡E¡tivolleuingr' Adninistntiv€ Iåw Iudæ (ALf), PcÈt B¡ookr, iosucd a Pnopos¡l fc Dcdsim in tho above'¡ef€ûEoccd m¡tH¡ to whlchTa¡ Divi¡ionfiledErcsptim¡ onDcccmbcr 17,2013. fbConpuollcrh¡¡ ætsidc¡cd thc Excoptions sûd tbo ALI's æcor"'lcodation lcüGtr fto Comptmllcr f¡s dctñn¡Bcd thc thc ALI'¡ hoposal for Dccision, ef,ccpt for minfi chqngÊo b MGGt tJpogrôpbical or clcrical snots' should bo adopEd withq¡t ch¡[gs üd thís Decislm npreseoE thc nûíng thctcon Thc abwc Dcci¡ion ¡csultlng i¡ Petit¡oüc(s' ll¡btlltiæ as sct or¡t l¡, Anachnoat¡ A, whlch ar! irco¡pcstdby ¡¡fe¡cncq lr appmræd s¡d sdspbd in all upcctr, ThÊ Deciston bccoucr fusl tw€uty dayr afrer thc d¡Ë Faiüoscrs rcccivo nodcc of thiç l}cdrlon, and thË tot¡l sus of ths ts4 pg'rnltt, Erd l¡tcrcst anormtr is dus and peyablc withh hflcoty dayr thacafrcr. If rue.h sum l¡ not paid withi¡ rucb timo, an additim¡l pcoalty of tco poccnt of tho tarer ú¡G wíll accrilqqdintäcrtwillcmti¡rætoaccnro' Ifoithcpartyde¡i¡e¡¡rehcsrin&thatpertymust filc ¡ modo¡ fu ¡chcr¡ng whicü El¡rt ctlt! tbo grouud¡ fü fiücãrhg, no latu th" twcuty dayr affcr tho duo Faitlono¡¡ rccçivo notlco of ihl¡ Dcci¡ion Nodcc of thi¡ Deci¡ion ic prtsumcd to oaq¡ron üo &td dryafrcr ttc.lajg of thl. H¡lo¡. SisrGd qrr rhii JËh, of lr¡¡s 2014. ST,TSAN COMBS¡ Ter¡¡ Corytollcr of Rtblic fi¡ser¡ntr bp 7 -mnf'Pi Compüollcß ru ?sg€ 30 of 3461 Þ739 (Rev I -9619) I o TEXAS NOT1RCAT1ON OF HEARINGS RESULTS -AtlachmentA ETATEIT¡ENT DATE Junc 17, 2014 Ta:çeyer Number Audlt Pedod Headng Number 32014146158 u1t07 THRU 8ßm0 1(F815 Typa ofTar Llmltad Salæ, Edss, and Use FIGURESWERE AMENOED STATE LOCAL TOTAL TÆ( $¡t8,876.09 s15,576.0r¿ $84,2õ3.31 FEI.¿ALTY 18,768.89 I,m6.07 u,n4,98 ¡ NTEREST THRU STATEMENT DATE 17.797.n 4.41.!,9* lE.rqsj[ TOTAL OUEAS OF ÍITATEMENT OATE 981,23it.85 $2õ,994.e3 t107,2ãt.¡tE n$¡Lqflf9% Penal$ g per the Proposel lbr Oeclelon. InÞrpd v¡lll conünua to accrue at I Z.4B psr d€y aþ¡6117114 thmugh lhc dab of paymenl H1,.9 lj99q p9qÊlly.qlll. ba assss¡ed on tax süll duc 43 dayc after lhe Older of the Comptouer (TEX TÆ( CODE ANN. SEe. 111.008'l (c¡. For payment lnhrmaüon call 1-800-531-6441, erû 3€800 bü free naüonrrtdg or celt siz¡t8lgg0o. paye]¡le b STATE COMFÍROLLER and mall to Compfollcr of Pubtb Accounts, i 11 E [.ake.Vqur thegk 17',r Sbeet Autün, Texas 787744100. ' Per annurn lntemst ratot rra aubleotto chenge on Janurry ld of e¡ch yrae For rnon lnteruet nto lnlbrmatlon, refer b Publlcetlon 98.00¿, crlll1'{,77.44l1-Zttrl, w rslof to htto:lrutWw.wlndow.¡t¡ûe,t¡.prne,xl¡lo/tnt ile.html (CutAnd Rct¡r¡r Bottom lb¡tlon ltlirh P¡y,mcnr) 0G,z¡m TË'(AS NOTIFICATION OF HEARING RESULTS¡ Hearlng Nunbor - AttactrmentA 1ffi816 STATEÍTIENT DATE June 17.2014 Type ofTar Llmlted Sales, E¡¡clss, ald Use Taxpayr Name E Malllng Address SANADCO,INC. 3801 E ROSEI¡ALE Sr EflEl? tr¡/tEl'FL¡ l"V¡\¡ lU\rl\l l l Tt lt\ tQa,lÊ tl,ll,r¡- .rqt t l tù¡r3 Arnount qfYour Payment .PMD- lcode laxpayer Number 'Perlod 'Audlt 'Twc 'StaÞ Amount .Type'Ld Amou¡rt 260¡10 32014146160 0s00 001 02 81232.86 04 26994.63 (Påg€ 31 of 297i qÞ739 o o (Hev 9 -9€/91 TEXAS NOTIFICATION OF HEARINGS RESULTS . Attschmenl A STATEMENT DATE Tarçayer Number Pedod Headng Number æ LfiiãGütIBT{1ã5 W T¡rye olTar I s"A_l-Es. ExcsE.AND u_gF_.. _."_." " -.:l F rcu n Es WERE [:!EEEñ_-:¡fl CTÄTtr I ñôÂt TôTÀ¡ TÆ( ;ú610fõ!3ð PFNÂI TY :i¡a.UUOiW INTFFIFST THFIT I STÀTtrMFÀfT NATtr ¡t¡!J¡ll,t,: TOTAL DUE AS OF STATEMEI.IT DATE Thl¡ notlar rullcotr tño lot¡l smoutrt du] Pa¡n.nla mado by Sanadcq lno. wlll b cr¡dlt¡d wtrcr thcy Þccom¡ ¡v¡llrblr You wlll nood lo conlacl Fwlnu. A¡Gounüng/8uccæror Llablllty d (t001 6t1-641t or locally rt (5t4 4eg¡¡æ fbr queatlonr on updñ rt¡l¡lnontt (lntereelwlllcontln¡etoaccruoÊtf,!!i!þperdayafter|@|thrcughthgdaleolpaymenl..) A 10% penalty wlll be assessed on tar stlll due ¡lft dep efter thË Older ol the Comptrollor (IEX TÆ( CODE ANN, SEc.111.0081 (c). For paymenl lnlormellon call 1 -80G631.5441 . e:û. 3-3900 toll frse nallonwlde, or call 512/46$3900. Make your check payable to STATE COMPTROLLEH and mall to Comptrcller of Publlc Accounts, 111 E. 1?0' Slrs€t, Austln, Texas 7077+0100. Ò Por annum lntsrltl taþr rrr cubtcct lo changc on January 1ú of cacNr ycea For more lnlorud fate lnlonnrtlon, rl'lor lo Publlc¡tlon 9811Oq c¡¡ll14774f-283r1, or rebr to hþ://wwrv.wlndsw,sleto.bç usltÐd nf oilnLret€. html (CutAnd Rctum Bo$oE PoÍlon With Paymeat) *2N TH(AS} NOTIFICATION OF HEARING BESULTS Hearlng Number - Anachm€nt A STATEMENT DATE "T,Lf-o?,oqotl l$lË?!r?gruK:5;:l Twe ol Tar :Il:;rä,q Tarpayer Name & Malllng AddEEs I snms, EXcTSEAND usE :I [\inHruöt$ÃF" iSBAþ':;.ir,":ñ1 Amount of Your Payment r i]¿t, lil oqii evtøId. at 37 6-77,In Reata, thÊ cout t explained: When the govêrnmental entity interJects itself into or chooses to êngage in litigation to assert affirmative claims for monetary danrageÐ the entity will presunrably have made a decision to expend rêsourcês to pay litigation costs, , , , In thís situation, we believe that it would be fundamentally unfair to allow e governmental entity to assert affirmative claims against a party while claiming it had immunity as to the party's claims against it, Id, at375-76." The Defendants' claims unquestionably meet these criteria, and therefore mey nÕt be dismlssed on immunity grounds ând âre properly before the District court, Further, in suits filed pursuant to Tex, Tax Code Ann. $1Lt,01-0, officers and directors âre entitled to a full and complete hearlng on rheir tax liability in district court, .5e¿ Tex. Tax Code Ann. $ L1-L,0L0 (West 2008) [authorizlng ettorney general to file suit to recovertaxes), Thecaseistrieddenovo. Greenev,State,324S,W.3d 276,288 (Tex,App.- Austln 2010, no pet,l [111,010 allows for a de novo review of the pârty's tax liability), Herrera v. State, No, 03.01-0010L-CV, 2002WL L85476, at *L n. 4,2002 Tex.App..-Austin Feb' 7, 2002, no pet,J lnot designated for publication) [identifying suit under sÊction 1LL,0L0 as "de novo action by the State to collect dellnquent tax"), The Adninistrative Procedure Act [APA) provides that wlren "the mânner of review authorized by law for the decision in a contested case .., is by trial de novo, the reviewing court shall ffy each issue of fact and law ,,, as though there had not been an intervening agency action or clecision." Tex, Gov't Code Ann. $ 2001.173(a) fWest 2000), A de novo hearing has been defined âs "a rlew and independent action in which the whole case is gone into as if no trial whatever had been hacl in the court below." Trial de novo is not an "appeal", but is a new and independent action. Key Western Life Ins. Co. v. State Bd. of Ins., 350 S,W,zd 839,846 [Tex, 1961), The sine quâ non of a de novo trial is the nullificatiotl of the judgment or orcler of the first tribunal and a retriâl of the issues on whlch the judgment or order was founded, When jurisdiction of the second tribunal attaches, the judgment or order of the first tribunal is not merely suspended, but is nullified, Iexas Dept, of Public Safety v, Banks Transp, Co,, 417 S,W,Zd 593, (Tex,Sup. 1968); Sauthern Canal Co, v. State Bd, afWater Engineers, SlB S,W,2d 619; 159 Tex, 227 [Tex, 1.958), Accordingly, "res judicata" and "final Judgment" are inapplicable in de novo proceeclings because the original aclministrative order that is the subject of appeal is nullified in a de novo proceeding, State Bd, of Ins, v, Republic Nat'l lns, Co,,384 S.W.zd 369,372 [Tex.Civ,App. - Austin 1964, writ refd n.r,e,), Thus, each of the issues raised in the cause before the District Court may be addressed by the court without consideration 0f the fìnality of the adnrinistrative judgments, -3-lP¡rr,'.- Letter Bricf; In ro Sanadco lnc,, and \4alunaud A Isba; No, 03-11-00 462-CV ProDoc Faxservice Pâge 5 of t0 [Z] Dltl the flnal ludgment ln the admlnlstratlve proceedlng prectude the class litigants frorn raising affirnrative defenses or counter'claims not addressed in the admlnlstratlve prücee dlngs? Aside from the Sanadco audit, the remaining class issues are independent of the contested case proceedings in the administrative process. Each claim was filed before the administrative process had been c0mpleted, alleging ultra vires conducr and unconstitutionality of statutes under the UDIA, and invalidity of agency rules under the APA-all of which would render the respective audits voi'd, The filing of these complain$ prior to completion of the administrative process has no effect on the court's jurisdiction as exhaustíon was not requirecl because these claims are not within the Comptroller's exclusive jurisdictlon, and independently invoked the Dishict Court's jurisdiction, thereby perrnitting the court to abate its proceedings pending the exhaustlon of admlnistratlve remêdies, LÌndig v. Johnson CiÐl, 03-08-00574-cV (Tex,App,-Austin l0-21-200g); Marblø Falls Independent school Dìsttiôt v, scott, 275 s,w.3d 558 (Tex. App.-Ausrin 200g, pet, denied). A UD)A clainr is sui generis and, âll otlrer things being equal, the distríct coutt's subject-matter jurisdiction over it exists independently of any administrative remedies. Texas Llquor contrll Bd, v, canyon creek Land corp,,456 s,w,zd Bg1, B9s [Tex, 1g70); cobb v. Harrington,I44 Tex. 360, L90 S.W,zd 709,713 (1945), . If a gôvÊrnmental ageucy acts beyond its statutory powêrs, or ultra vires, lts actions are void ancl may be challenged at any time, Tn-Cify Fresh Water Supply Disr, iVo. 2 of Harris Cnty, v, Mønn,142 S,W,Zd 945,946,947 [Tex, 1940); see also Mobil 0il Corp, v, Matagorda County Drainage Dist, No, 3, 597 S,W.zd 910, 913 [Tex, 1980) [holding that drainage district's attempt to ennex Iancts was beyond its statutory power and therefore null). If a governmental authorityrs actions are voicl, the actions can be challenged by affectecl persons. See City of Irv:ing v. Callaway,363 S.W.U d 832, 834 [Tex.Civ.App..Dallas 1962, writ refld n,r,e,J [quo warranto proceeding necessary where åctions are voidable, but quo warranto proceeding not necessary and claim may be brought by private citizens affected by action when annexation ordinance attacked on grounds alleging âction void), Bexør Metra. Water v, Cíty af Bulverde,l"56 S.W,3d 79,88 (Tex,App, -Anstin 2005). The general rule in Texas is that courts do not irrterfere with the statutorily conferrecl dutles and functÍons of an aclministrative agency, Westheimer Indep, Sch. Dist- v. Êrockette, 567 S,W,zd 780, 7BS [Tex. 1978), However, courts mây inrervene in aclministrative proceedings when an agency exercises authority beyond its statutorily conferred powers,Id. See alsoCity of Houston v. Williams, gg S.W,3d 709,717 [Tex.App,- Houstou [14th Dist,] 2003, no pet,), "ln such a case, the purposês underlying the exhaustion of renredies rule are not applicable, judicial and admini$trâtive efficacies ârê n0t served, and agency polices and expertise is irrelevant if thê agêncy's final action will be a nullity," MAG-T, L.P,,L61, S.W.3d at625. Further, the doctrine has no application where the legal question is one of whether a stalute is constitutional, because aclministrative agencies have no power to deterrnine the cônstitutionality of statutes, Id.; see Texas Educ, Agency v, Cypress-Fairbanks lndep, Sch, Dist,, -4-ll:tag* Lçttor Brief;In re Sanadco hrc,, and Mahmaud À Isba;No, 03-i1-00462-Qy ProDoc FaxService Page I of 5 830 S'W'Zd BB,9A'91. (Tex. L992),Accorclingly, there is no sound reason for forcing a litigant through the adnlinistrâdvê process when ln good fâirh he is advancirrg a zubstautial complaint that the statute that he is charged with violating is unconstitutional. Grounds, 707 S'W'2d ât 892. In other wôrds, "Whên the only issue raised is consritutionally of rhe statute, a court may decide it without waltlng for an adminísffatíve proce.eding." 4 K. Davis, Administratìve Law Treqtise 435 (Znd Ed, 1983) [ernphasis addedJ; see Cent,þower & Light Ca, v, Sharp,960 S.W,Zd 6l-7, 618 (Tex, t_997). Witlt respect to the challenge of thè agency rules, the administr.ative proceedings present no bârriêr to the District Court's jurisdiction because the Comptroller has deternrined that she has no Jurisdictton over thê issue and declined to âddress ir, Comptroller's Decision Nos, 103,683; 103,961 [2011) and104,277 (2012). Additionally, "[t]he APA proviclei two modes of iudicial review case decisions aud thÈ othêr for rules - one for contested that âre significantly differÊnr, The only time limitation on iudlcial review of a rule -is thar a proceeding to contest compliance with certain procedural requirements must be initiated wfthin two yêars of the rule's effective date, Otherwise, judicial review of a rule may be sought at any time, .,. The APA does not restrict thê scopê of juclicial review of rules but says only: The validity or applicability of a rule . , . may be determinecl in an action for declaratory judgment if it is alleged that the rutre or its threatênÊd applicåtion interferes with or lmpairs, or threâtens to interfere with or impair, a legal right or privilege of the plaintiff. No standard of review is prescribed. The statltte adds that plaintÍff need not have challenged the rule before the agency, fudicial review of rules is thus largely unlimited in time and scope," Rdilrodd Comm'n v, WBD )il E¿ Gas Co.104 S.W,3d 69,75 [Tex.2003). t3). Is the comptroller authorized to estimate audits under Tax code $111.0042? The Appellants have briefed and argued its contention rhâr the Comprroller is not authorizecl to estÍmate aurllts performerl pursuant to $ ttt,O04Z. At oral argumenf, Appellants cited two stâtutes establishing the circumsrånces undÊr which rhe Cotnptroller is authorized to estimate audits which were not included in the briefs. Tex. Tax Code Ann, $ 1-51.501-4 directs the cletermination of taxes clue when the taxpayer has filecl a sales tax report, It instt:ucts tlte Comptroller to issue a determination under 5111.00S which åuthorizes a determination under $ 111,0042 which only authorizes detailed and sample and projection audits, The only circumstance under which the Comptroller is aurhorized to estimate an audit is when the taxpayer fails to file a report. Tex. Tax, Code Ann, $ 151,503s, 45 t S LSOI TAX, Dete¡minotion Afrer the Filing of a Report If a person hæ fileci a tax report, thn comptroilcr may issue a clefroicncy detcrmination uncler Section I I i .008 of thig ccdç, ' 5 1Sl,¡03 TAX, Determinstion if No Report Filed (o) If n per,ron fails to file B report, the com¡rtroller shali estimste the amount of receipts of the person subject to the sales to4 ths smount oftotal sales prices oftaxnble items sold, bnsed, or rcntçd by the person to nnother for storage, -5-ll':agr" Letter Briof; In re Sanadco Inc,, and Mahmaud A Isba; No, 03-11.00 462-CV ProDoc FaxserviGe Page Z of 5 The statute provides, in pertinent part, "lf a person fails to file a repor!, the cornptroller shall estimate the âmount rf rècÊipts of the person subject to the sâles tâx , , , ,,, By specifying failure to file a report under whidr estimation is permitted, the Legislature in effêct êxplêssecl its intention to exclurlê all other circumstances, It is a genêrâl rule of stetutory construction that the express rnention or enumeretion of one person or thing or cÖnsêquênce is tantamount to ân êxpress excluslon of all others , Foshee ReflnÍng Co, v, State et q1.,73 S,W,Zd 1098, 1-100, The nraxim, Expressio unius est excìusio alterius [the narning of one thing excludes ânother) is applicable here, It has often been applied in determining the powers which have been or have not been delegated by the Legislature to administrative boards, commissions, licensÍng authorities ancl others. CommercÍal Standard Ins, Co. v. Board of Ins. commissioners, 34 s,w.2d 343 (Tex,civ,App.); Foshee Refining co. v, state, 73 s.w,zd 1099, 1L00 [Tex,civ'App,); state v, Mapel, 61 s,w,zd L49, Lsz [Tex,civ,App,]; srate v, Mauritz- Wells Co,,141 Tex. 634, L75 S,W.Zd 28B; Ex parte Halsted,, LAT Tex,Crim. R., t_BZ S,W.Zd 479,484; Harris coung v, crooker, 1"L2 Tex, 450,248 s,w,6s2,6s5; Hunrress v, state, BB 5,w.2d 630 643 (Tex.civ,App.); Mccamey v. Hollisrer oil co., Tex.civ.App., 241 s.w, 689 [aff, by ].15 Tex, 49,27+ S,W,562); Clarkv, Briscoe lrr, Co,, Z00 S,W,Zd 67q,682, Accordlngly, the Legislature has expressþ excluded cases in which a sales tax report has been from an estimatêd auclit, and this court should so hold, Conclusion It is therefore apparent that the District Court m¡¡sf permit Sanarlco to pursue its claims and defenses in this proceeding because Reata requires it since tlìê StarÊ has brought its action seeking the recovery of damages, Because the standartì of review is cle novt, the District C0urt proceeding is ä nêw and independent åction, and the original aclministrative order that is the subject of appeal is nullified, Accordingly, there is no final judgntent upon which to base a judgnrent of res judicata or orhÊrwise conflict with the Di strict Court's jurisdiction. The independent claims raised by the class claimanm arspursuÊd under the UD)A or Gov't Code $ 2001,03B by which the District Court obtains jurisdiction outside the purview of the administrative contested case proceeding. Whether or not the aclministrative order ostensibly resolved the issue, the District Court would proceed de novo âs though no Judgment ltad been entered, The ultra vires clainrs prèsume tlìât the state agency acted or consumption without the pâyrnônt of the use tax tn a retailer for each period or the totâi period for which the person feriled to report es required by this chapter, (b) The estimate require cl by Subsection (a) of this section may be made on any information avaiìable to the comptroiler, (o) On thn basis of thÊ estimatc, the comptroller shail oompute ancl determinc the amow:t requlcd to be paid to thr stete for each period, (d) The comptroller shell add to the determirurtion an nmount equel to l0 percent pf the smount computed under Subsection (c) of this section ns tr penelty, -6-lPar¡* Letter Brief; In re Sanadco Inc., and ivlahmaud A Isba; No. 03-I1-00462-CV ProDoc FaxService Page 3 of 5 outslde its statutory authority, thereby invaliclating the audlts, which may be challenged independent of the adnrinistrative proceedings under thÊ UDJA, Likewise, the rules challenges may be pursuecl inclepenclent of the administrative procÊedlngs beøuse the Cotnpffoller presumed.thât it did not have jurisclicrion and therefore refused to rule on the issue, The Dlstrict Court takes jurisclictton, therefore, without the indicía of an administrative ruling pursuârlr ro 2001,098, uninhibired by restrictions of neither time nor scope. Respectfully sl¿bmittecl" Law Affice of SønuefÍ, Jacñçon P.O. Box 770633 Arlingtorç 'IX76OL7 Tet (81/) 751-7155 Fax: (866)374-0164 j adssonlaw@hobnail,com $amuelT. Jaikson State Bar No. 10495700 Attorney for Relat¡rrs ccl Jack Hohengarten, Assistant Attor.ney General -7-lllaqr: Lette,r Briof; In rs Sanadco Inc,, and M¿hmaud A lsba; No, 03-li-00 462-CV ProDoc FaxService Page 4 of 5 Dutside fts stahrtory-authority, thereby lnvalidating the audi$, which may bê chalienged independent of the admtnlshative proceedlngs under the UDT4" Llkewfsq the rules challenges may be pursued. lndependent of the administrative proceedtngs Ïecause tJre Comptroller presumed that it dld not have jurfsdfction and therefore refused to rule on the issue. The Dish'ict Court takes jurisdi'rtion, therefore, without the indîcia of an admjnistrative ruling pursuant to 2001.088, uninhibited by restrictiorus of neither time nor scope, Ræp ætf uJIy subanitte d, tøw We ofsømuøttî, Ja.cftgon P.O,Box170619 Arlington, TX76017 TeL (817) 7s1-715s rax (866) 37+0L& jacke onlau@holmailcom T. Jadcson State Bar N0.10495700 Attomeyfor Relato¡e cc: JacJ< Hohengarten, Aooretant Atinmey Gcneral -7-lPage Letter Brief; In ro Sanadco I¡ç,, süd Mahmaud A. Iabq Nq, 03.i i-00 462-CV Tab H State Officials’ Response to Appellants’ Post-Submission Brief Sanadco I, No. 03-11-00462-CV Third Court of Appeals. Appellees’ Responsive Brief page 8 Sanadco v. Glenn Hegar, et al., 03-14-00771-CV NO. 03-11-00462-CV fin tÍlt @ourt of $pseuts tor tbe (trbtrù luùici¡t Dístrír Hagtin, U,exug S¿rr{anco INc., L Tnx¿,s Conpon¡TroN, ¡,xu Manuoun A. IsB.L, ilxl¡.M¡,Hn¿loun Anunn ABursna, N rcl ¡Mmn IsBA., INntvlnu^l.Ll,v, 4ppellants, V SusaN Comnsr l¡¡ntvrnu¡,Ll,y, AND IN HER Orrrcul, Clplcrtv ¡,s ConnprnollERor Punr,lc Accouxrs oF THE Sr¿rB or Tnx¡,s; ar.¡n Gnnc AnnorrrN Hrs Orntcr,ll C¡,pacrrv, ETAL., Appellees. On Appeal from the 98th Judicial District Court of Travis County, Texas Trial Court Cause No. D-l-GV-10-000902; The Honorable Tim Sulak, Judge Presiding STATE OFF'ICIALS' RESPONSE TO APPELLANTS' POST-SUBMISSION BRIEF' GREG ABBOTT JACK HOHENGARTEN Attorney General of Texas Assistant Attorney General Financial and Tax Litigation Division DANIEL T. IIODGE State Bar No. 09812200 First Assistant Attorney General P.O. Box 12548 Austin, Texas 7 87 ll-2548 DAVID C. MATTAX Tel: (512) 47s-3503 Deputy Attorney General for Defense Litigation Fax: (512) 477-2348 j ack. hohen garten@oag. state.tx. us JEFF M. GRAHAM Counselfor Appellees Chief, Financial and T ax Litigation TABLE OF CONTENTS PAGE TABLE OF CONTENTS .....11 INDEX OF AUTHORITIES I. SUMMARY OF ARGUMENT 2 il. ARGUMENTS AND AUTHORITIES 2 A. The State's flrling suit against Sanadco for tax collection waives sovereign immunity only for def'ensive counterclaims operating as an offset 2 B The waiver of immunity in APA section 2001.171 does not apply, because the legislature has set out a specializedprocedure for tax protest suits 4 C The ulha vires claim relating to Tax Code section I I 1.0042 and HB 11 was disposed of by summary judgment and is notbefore this court; alternatively, the Cornptroller did not exceed her statutory authorþ 7 CONCLUSION ...10 CERTIFICATE OF SERVICE 1l ll INDEX OF AUTHORITIES STATE CASES PAGE Central Power & Light Co. v. Sharp,919 S.W.2d 485(Tex. App.-Austin 1996, writ denied) 5 City of El Paso v. Heínrich,284 S.W.3d 366(Tex. 2009) 4,9 Combs v. Chevrari, 319 S.V/.3d 836 (Tex. App.-Austin 2010, pet. denied) 5 County of Bexar v. Bruton,256 S.W.3d 345(Tex. App.- San Antonio 2008, no pet.) 7 Dubai Pelroleum v, Kazí, 12 S.w.3d 71 (Tex. 2000) 6 In re: NestleUSA, Inc., 359 S.W.3 d 207 (Tex. 20tz) 6 R Communícatíons v. Sharp, 87s S.W.2d3t4 (Tex. 1994) 416 Reata Constr. Corp. v. Cíty of Dallas, 197 S.W.3d37l (Tex. 2006) 3 Scottv. Presidío Indep. Sch. Dist., 266 S.V/.3d 531 (Tex. App.- Austin 2008, pet. filed) . . . 7 Tex. Dep't of Protective & Regulatory Servs, v. Mega Child Care, 14s S.V/.3d 170 (Tex.2004) 5 Tex. Dep't of Transp. v. Crockett, a 257 S.W.3 d 412 (Tex. App.- Corpus Christi 2008, pet. denied) J rll STATE STATUTES Tex. Civ. Prac. & Rem. Code g 5 l.0 ta(a)(B) (West 2008) I Tex. Govot Code Ann. 9,2001.03S (Wesr 2008) 4 Tex. Gov't Code Ann. $ 2001.121 (West 200S) 4, 5,7 Tex. Gov't Code Ann. g 3l 1.034 ('V/est 2005) 6 Tex. Gov't Code Ann. g 2001.144 (West 200S) 7 Tex. Tax Code Ann. $ 711.0A42 (V/esr 200S) 4,7,8 Tex, Tax Code Ann $ 111.008 (West 2008) . I Tex. Tax Code Ann g 111.022 (Wesr 200S) 8 Tex. Tax Code Ann, $ 151.461(Wesr 2008) 9 Tex. Tax Codç Ann. $ 154.212 (West 2008) . I Tex. Tax Code Ann. $ I55.105 (West 200S) 9 Tex. Tax Code Ann. $$112.051-.060 (West 2008 & Supp. 2011) 5 Tex. Tax. Code Ann. $ I I 1.009 (\Mest 200S) 3 Tex. Tax. Code Ann. $ 11 1.010 (West 2008) 4 Tex. Tax. Code Ann. li 1l 1.0013 (West 2008) .....3 Tex. Tax. Code Ann. $ 111.0102 (V/est 2008) 3,4 1V OTHER AUTHORITIES Tex. S. Comm. on Business and Commerce, Bill Analysis, HB 11, 80th L.g., R,S. (2007) 2,7-9 v NO. 03-1t-00462-CV 5n t$e @ourt of ß[ppedr for tüe (ÍDirù luùícist Þistriú Hastin, îllex¡s s¡,F¡anco rNc.r .l Tnxas conpoRauoN, AND M.¿.nruoun A. rsnl, Nxt¡,Mtun¿oun Annnun Anursn,l, Nrcln Mlxn Isnl, INnrvrnulll,v, 4ppellants, v Susa¡l Connnso INDIVIDUALLv, AND IN HER Orrrcu.l, C¿.p¡crty ¿s Con¡rrnoLLER on Puslrc Accouivrs oF THE Sr¿.rp or Tnx.l,s; nnn Gnnc Asnorr IN HIs Orrlcr¡¡ Cap^lcrry, ET AL., Appellees. On Appeal from the 98th Judicial District Court of Travis County, Texas Trial Court Cause No. D-l-GV-10-000902; The Honorable Tim Sulak, Judge Presiding STATE OF'FICIALS' RESPONSE TO APPET-,LANTS' POST-SUBMISSION BRIEF TO THE IIONORABLE JUSTICES OF SAID COURT: Appellees, Susan Combs, Individually and in her Official Capacity as Comptroller of Public Accounts of the State of Texas, and Greg Abbott in his Official Capacity as Attomey General of Texas (the "State Officials"), file this re3ponse to Sanadco's post-submission brief, I. First, although its failure to contest the tax at the administrative level does not prevent Sanadco from asserting properly defensive offset claims in the district court, its claims still must fall within the court's subject-matter jurisdiction. And they must be viable as a matter of law. Sanadco's claims are neither. Second,APA section 2001.171 does not provide an alternative basis forjurisdiction here, because the agency's organic law specifically sets out the statutory prerequisites for challenging a determination of tax liability in district court. Application of the APA, provisions for judicial review would render meaningless the statutory requirements in the Chapter 112 of the Tax Code. Those requirements serve as legislative safeguards to the fiscal operations of the State and ensure the Comptroller is not unduly hindered in her collection of taxes, penalties and interest. Thírd,the State Offrcials have already shown, in their initial brief, that the Comptroller's guidelines in Ap 92 and 122, and her use of desk audits, are expressly authorized by sections 111.0042 and ^P 111.008, and by HB 11. il. ÄRGUMENTS AND AUTHORITIES A. The State's filing suit against Sanadco for tax collection waives sovereign immunity only for defensive counterclaims operating as an offset. Because the State of Texas filed suit against it, Sanadco may assert claims that arc "germane to, connected with, and properly defensive to" claims asserted by the State of ) Texas, except for amounts that exceed the amounts necessary to offset the government,s claims. Reata constr. corp. v. city ofDallas,lg7 s.w.3d 371,37UTex.2006 );Tex. Dep,t ofTransp- v' crockett,zs7 s.w.3d 412,414 (Tex. App. Corpus christi 200g, pet. denied); - see also Tex' Tax' Code Ann. 1 I 1.0102 (West 200s) $ fiurisdiction of suit to challenge or avoid comptroller collection action exclusively conferred on Travis County district courts); I I I '013 (certificate oftax delinquency is prima facie evidence, requiring sworn denial); Tex. R. Civ. P.97 InReata,the Supreme Courtstressedthe limitednature ofthe waiver ofimmunity and the policy considerations underlying it. It explained that when: The governmental entity interjects itself into or chooses to engage in litigation to assert affirmative claims for monetary damages, the entityïill presuãrably have made a decision to expend resources to pay litigation costs, If the opposing party's claims can operate only ur * oifr.t to reduce the goverrrment's recovery, ûo tax resources will be called upon to pay a judgment, and the fiscal planning of the governmental entity shout¿ noi ue disrupted. Reata, 197 S.W.3 d at375. To the extent Sanadco's counterclaims for "compensatory relief' exceed this limited waiver, the district court lacks jurisdiction.r C.R. 74, 104. For claims that are properly gennane and defensive to the State's suit, the Tax Code does not require, as a statutory prerequisite, that the taxpayer first challenge the Comptroller's determination at the administrative level" ,See Tex. Tax, Code Ann. $ I I 1.009 (West 200S) (authorizi¡ gtaxpayer I Sanadco is the only appeliant against which the State of Texas has brought claims in district court to coilect taxes, penalties and interest. J to administratively petition Comptroller for redetermination of tax liability); 111.010 (authorizing Attorney General to bring suit to recover taxes); 111.0102 (authorizing claims to challenge or avoid collection action.); compare Tex. Gov't CodeAnn. 2001.t71(West $ 2008) (person who has exhausted administrative remedies is entitled to judicial review). Although failure to contest the tax at the administrative level does not preclude offset claims in the district court, Sanadco's claims still must fall within the court's subject-matter jurisdiction, and they must be legally viable. Sanadco's claims are neither. First, ApA section 2001.03S cannot confer jwisdiction, because internal agency memos written by division directors to their auditors are not APA "rules." Second, Sanadco has failed to plead a legally viable claim that the Comptroller engaged in ultra vires acts, warranting relief under the UDJA . See Cíty of El Paso v. Heinrich,284 S.W.3d 366(Tex. 2009); R Communications v. Sharp,875 S.W.2 d374,3 17 (Tex. 1994). Third. Sanadco has no standing to challenge Tax Code section 111.0042, and any such ruling by the courtwould amount to an advisory opinion that does not resolve a live controversy. Sanadco's remaining constitutional claims were decided on summary judgment and are not before this court. B. The waiver of immunity in APA section 2001.171 does not apply, because the legislature has set out a specialized procedure for tax protest suits. The intervening convenience stores theorize in their post-subrnission brief that APA section 200L171, which authorizes judicial review of frnal agency decisions, provides an alternative basis for jurisdiction here. According to these appellants, once the Comptroller's administrative decisions have become final, they can invoke the APA as grounds for /l challenging the administrative detennination of tax riability. But APA section 2001.171 does not apply to the Tax Code. The ApA provides an independent rÍght to judiciat review only where the agency's enabling statute neither specifically authorizes norprohibits judicial review ofthe decision. Tex. Dep,t of protectíve & Regulatory servs. v. Mega chitd careo 145 s.w.3d 170 (Tex. 2004). Flere, in clear contr astto Mega Chitd Care, tn'e Comptroller's organic law specifically sets out the statutory prerequisites for challenging the Comptroller's determination of tax liability in district courr, The legislature has created a limited waiver of sovereign immunity for tax protest suits, but mandated specific prerequisites which must be satisfied prior to filing suit against the state. ,9ee Tex. Tax code Ann. ggl12.05t-.060 (west 200g & supp. 20ll).2 The undisputedjurisdictional facts show that none ofthe intervening convenience stores have met the statutory prerequisites in sections 112.051 and ll2.0SZ. C.R. 2g, 5g-61(Affidavit of David Rock). Compliance with the procedural requirements of the tax-protest law is a jurisdictional prerequisíte to suit. ,See Central Power & Lìght Co. v. Sharp,gl9 S.W.2d 4g5, 491 (Tex. App.-Austin t996, writ denied); Combs v. Chevron 319 S.W.3d g36, 844-45 (Tex. App.-Austin 2010, pet. denied). Further, none of the "counter-plaintiffs" have satisfied the statutory prerequisites for filing a class action under section 1 12.055 of the Tax 2 Like suits chalienging, or in avoidance of, the State's tax collection suit, the statutory prerequisites for filing a tax-protest suit do not require the taxpayer to first contest the tax at the administrative level. 5 Code. As a result, the trial court lacked jurisdiction over the putative class action as well. These explicit prerequisites serve as legislative safeguards to the fiscal operations of the State by ensuring that the Comptroller is not unduly hindered in her obligation to collect onfinaltaxassessments.,seeR communicationsv.sharp,sTss.w.2d 314,317(Tex. lgg4). The counter-plaintiffs cannot circumvent these safeguards simply by characterízing their claims as APA claims forjudicial review. Such an outcome would be contrary to the holding in Mega Chíld Care. More importantly, Sanadco's argument, if accepted by this court, would effectively read out of the Tax Code the statutory prerequisites for bringing a tax- protest suit in district court. The APA procedure for judicial review would swallow and render meaningless those prerequisites-an outcome the legislature could not have intended. See In re; Nestle (JSA, ?nc.,359 S.W.3 d 207,211-12(Tex. Z[lz)(holding that statutory prerequisites for taxpayer suits are conditions on the legislative waiver of immunity and dismissing original proceeding for want ofjurisdiction). In 2005, the legislature amended the Code Construction Actto reiterate that statutory prerequisites to suit are both rnandatory and jurisdictional. Tex. Gov't Code Ann. g 3 1 L034 (West 2005). The amendment was in response to confusion about which, if any, statutory prerequisites to suit were actuallyjurisdictional after the Supreme Cour{'s decision in Dubaí Petroleum v. Kazi, 12 S.W.3d 71,76 (Tex. 2000). Since the amendment to the Code Construction Act, the courts of appeal have considered carefully whether a plaintiff has properly complied with statutory mandates and exhausted administrative remedies where 6 required. Scott v. Presìdio Indep Sch. Díst.,266 S.w.3d 531 (Tex.App.- Austin 200g, pet. filed); see, e.g., county of Bexar v. Bruton,256 s.v/.3d 345 (Tex, App.- San Antonio 200g, no pet,). Sanadco itself never challenged the assessment administratively, so it became final. The State of Texas and other taxing authorities then filed suit against it and Mahmoud A. Isba under Chapter 111 to collect the tax, interest, and statutory penalties. Sanadco, to the extent it relies on APA section 200l.77l,tries to have it both ways. It argues, in effect, that the APA judicial review provisions apply, but that the Act's exhaustion-of-remedies requirement does not. ,see Tex. Gov't code Ann. 2001.144,2001.171 (west $ 200s) (party seeking judicial review must exhaust administrative remedies, including the filing of a motion for rehearing). C' The ultra vires claÍm relating to Tax Code section 111.0042 and HB Ll was disposed of by summary judgment and is not before this court; alternatively, the Comptroller did not exceed her statutory authority. In its last point, Sanadco simply re-urges arguments relating to Tax Code section 111.0042 that have been fully briefed by the parties. As part of its ultra vires ârgumenr, Sanadco contends that the Comptroller has acted outside section 1 I 1.0042(b)(2) of the Tax Code, which authorizes audit "sampling" under certain circumstances. According to Sanadco, both the guidelines in AP 92 and AP 122 and the use of abbreviated, or "desk,"audits exceed the limitations in that section. This issue, however, was resolved by summary judgment and is therefore not before the court. C.R. 28, 49-50,128. Intheir brief 7 in support of plea to the jurisdiction and motion for summary judgment, the State Officials explicitly argued that: Because the collection and use of HB I 1 data is specifically authorized by the Legislature, collection and use of the data by the Comptroller cannot be an ultra vires act. Ultra vires acts are acts beyond the statutory authority granted to state officials. See cip of El paso v. Heinrtch, 2g4 s.w.3d 366, 371-73 (Tex. 2009). As a matter of law, when the Legislature specifically grants a state fficíal the power to perþrm an act, that act, by deJìnitíon, cannot be outside the ffi¿¡61's statutory authority. c.R. 50 (emphasis added). Section 5l '014 of the Civil Practice and Remedies Code authorizes interlocutory appeal of an order granting or denying apleato the jurisdiction. It does not authorize an interlocutory appeal of the trial court's sunmary judgrnent. Even though the issue is not befbre the court, the State Officials have also shown in their initial brief that the desk audits, as well as the guidelines in Ap 92 and Ap IZ2, arc entirely consistent with section I I 1 .0042and HB 1 l. They have also pointed out that the Tax Code expressly authorizes the Comptroller to make an estimated assessment when taxpayers fail to file a return or when the filed return is incorrect. Tex. Tax Code Ann $ I11.008, lll.A22 (West 200S). Subsection 111.008(a), in particular, expressly provides that: If the comptroller is not satisfîed with a tax report or the amount of the tax required to be paid to the state by a person, the comptroller may compute and determine the amount of tax to be paid from information contained in the report or from any other information at¡ailable to the comptroller. (emphasis added). I Thus, the Comptrollçr is expressly empowered to calculate the amount of tax due by examining any information available to her. Further, the legislature has expressly authorized the Comptroller to collect and use wholesaler reports of beer, wine, malt liquor, cigar, and tobacco product sales to convenience stores' Tex. Tax Code Ann. $ 151.461 (forrnerly 151.433) (beer, wine, and {i malt liquor reports), 154.212 (cigarette reports), and 155.105 (cigars and tobacco pro¿uct reports). As the legislative history for HB I I shows, these reports are intended to enable the Comptroller to cross-check a convenience store's reports or returns with wholesaler records of sales to that store. Tex. S. Comm. on Business and Commerce, Bill Analysis, HB l, gO,h .l Leg., R.S. (2ooT.3 Where the cross-check indicates a discrepancy-usually in the form of substantial under-reporting of taxable sales by the convenienca store, as was the case with Sanadco-section I I 1.008 authorizes the Comptroller to compute the amount actually owed. The convenience store owners, in response, baldly theorize that while HB I I requires wholesaler reporting to the Comptroller, it does not authorize the agency to use that data. This contention, however, is undermined by the statutory language itself.a 3 The bill analysis is included in the appendix, at Tab 2, to the State Officials' initial brief. a Sections 151.433(b), 154,21"2(a) and155.105(a) of the Tax Code are included in rhe appendix, atTab 1, to the State Officials' initial brief. I CONCLUSION WHEREFORE, PREMISES CONSIDERED, the State officials requesr tharthis courr affirm the trial court's order granting their plea to the jurisdiction. Respectfully submitted, GREG ABBOTT Attorney General of Texas DANIEL T, HODGE First Assistant Attorney General DAVID C. MATTAX Deputy Attorney General for Defense Litigation JEFF GRAI-IAM Chief, Financial and Tax Litigation Division /s/ .Inck Enrten JACK HOHENGARTEN State Bar No. 09812200 Assistant Attorney General Financial and Tax Litigation Division P.O. Box 12548 Austin, Texas 781 1I-2548 TEL: (512) 475-3503 FAX: (sr2) 477-2348 j ack.hohen qarten@texasattorney gen eral. gov Counselþr Appellees 10 CERTIFICATE OF SERVICE I heteby certi$r that on April 12, 2A12, a true and correct copy of the foregoing document, State Officials' Response to Appellants' Fost-Submission Brief, was sent by electronic filing with the court and counsel of record to the following: Samuel T. Jackson Lew Orprcg oF SAMUEL JACKSoN P.O, Box 170633 Arlington, Texas 76003-0633 TEL: (817) 751-7lss FAX: (866) 374-0164 E-mail : j acksonlaw@hotmail.com Attorneyþr Appellants JACK HOHENGARTEN I1
State v. Mauritz-Wells Co. , 141 Tex. 634 ( 1943 )
County of Bexar v. Bruton , 256 S.W.3d 345 ( 2008 )
Greene v. State , 324 S.W.3d 276 ( 2010 )
Miller Paper Co. v. Roberts Paper Co. , 901 S.W.2d 593 ( 1995 )
Friends of Canyon Lake, Inc. v. Guadalupe-Blanco River ... , 2002 Tex. App. LEXIS 7756 ( 2002 )
Texas Department of Protective & Regulatory Services v. ... , 47 Tex. Sup. Ct. J. 1116 ( 2004 )
Millwrights Local Union No. 2484 v. Rust Engineering Co. , 12 Tex. Sup. Ct. J. 71 ( 1968 )
Rogers v. Howell , 1979 Tex. App. LEXIS 4461 ( 1979 )
Schafer v. Conner , 813 S.W.2d 154 ( 1991 )
Texas Industrial Gas v. Phoenix Metallurgical Corp. , 1992 Tex. App. LEXIS 840 ( 1992 )
Walling v. Metcalfe , 37 Tex. Sup. Ct. J. 18 ( 1993 )
Garth v. Staktek Corp. , 876 S.W.2d 545 ( 1994 )
Central Power and Light Co. v. Sharp , 919 S.W.2d 485 ( 1996 )
CRC-Evans Pipeline International, Inc. v. Myers , 1996 Tex. App. LEXIS 3127 ( 1996 )
Bryant v. United Shortline Inc. Assurance Services, N.A. , 972 S.W.2d 26 ( 1998 )
Rodriguez v. Service Lloyds Insurance Co. , 997 S.W.2d 248 ( 1999 )
State v. Holland , 50 Tex. Sup. Ct. J. 642 ( 2007 )
Texas Logos, L.P. v. Texas Department of Transportation , 2007 Tex. App. LEXIS 7370 ( 2007 )
Bland Independent School District v. Blue , 44 Tex. Sup. Ct. J. 125 ( 2000 )
Combs v. TEXAS ENTERTAINMENT ASS'N, INC. , 287 S.W.3d 852 ( 2009 )