Cirrus Exploration Company v. Glenn Hegar, Comptroller of Public Accounts of the State of Texas And Ken Paxton, Attorney General of the State of Texas

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-13-00036-CV
Cirrus Exploration Company, Appellant
v.
Susan Combs, Comptroller of Public Accounts of the State of Texas; and
Greg Abbott, Attorney General of the State of Texas, Appellees
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT
NO. D-1-GN-11-001851, HONORABLE JOSEPH H. HART, JUDGE PRESIDING
OPINION
This is an appeal from a final summary judgment in favor of the Comptroller in a tax-
refund suit.1 The principal issue presented is whether appellant Cirrus Exploration Company’s
purchase of two helicopters qualifies for a sales-tax exemption under Tax Code section 151.328,
which exempts from the imposition of sales tax aircraft that is “sold to a person using the aircraft
as a certificated or licensed carrier of persons or property.” Tex. Tax Code § 151.328(a)(1); see
34 Tex. Admin. Code § 3.294 (Comptroller of Pub. Accounts, Carriers) (related Comptroller rule).2
1
Both the Comptroller and the Attorney General were defendants in the suit, see Tex. Tax
Code § 112.053 (requiring Comptroller and Attorney General to be named as defendants in tax
protest suit), but because their interests in this litigation align, we will refer to them collectively as
the “Comptroller” for convenience.
2
All references to Title 34 of the Texas Administrative Code are to rules promulgated by
the Comptroller.
We will reverse the district court’s judgment in favor of the Comptroller and render judgment for
Cirrus instead.
BACKGROUND
The facts in this case are straightforward and undisputed. Cirrus is a Texas company
that owns and operates a helicopter based out of Amarillo. Cirrus hires out its helicopter and a
pilot to the public to serve in various activities and functions conducted from the air, including
aerial tours, photography, surveys, and inspections. Cirrus’s customers bring and operate their
own equipment specific to the activity, choose the duration and scope of the flight, and decide
on destinations and any interim stops. Cirrus simply provides the helicopter and pilot. Cirrus’s
helicopter and pilot operate in compliance with all necessary Federal Aviation Administration
(FAA) regulations.
Between November 2005 and March 2006, Cirrus bought two new helicopters. The
first, which cost Cirrus $233,431.02 after a trade-in, was destroyed shortly after purchase. Cirrus
then purchased a second new helicopter, paying $373,048.20 from proceeds it received in
compensation for losses related to the destruction of the first new helicopter. Cirrus did not pay
sales taxes on either of these two helicopter purchases, instead presenting signed sales-tax exemption
certificates to the seller at the time of each purchase.
At some point after these transactions, the Comptroller contacted Cirrus requesting
information regarding its claim of sales-tax exemptions in connection with the helicopter purchases.
Cirrus responded that the purchases were exempt under Tax Code section 151.328(a) because it
holds a “Letter of Authorization” from the FAA that expressly authorizes it to conduct commercial
2
air tours under Part 91 of the FAA’s regulations, specifically section 91.147. See 14 C.F.R. § 91.147
(FAA, “Passenger carrying flights for compensation or hire”). Part 91 sets forth the general
operating and flight rules applicable to all aircraft operations in the United States. See id. § 91.1
(“Applicability”); see also id. § 91.1–.1605 (provisions of Part 91, titled “General Operating and
Flight Rules”). As we will further detail as it becomes relevant to our analysis, FAA regulations
impose a number of additional certification or licensing requirements specific to various defined
categories of air carriers, but—significantly—the nature of Cirrus’s business does not bring it within
any of these additional FAA certification or licensing requirements. Instead, operators that fall
outside these additional air-carrier regulations, like Cirrus, may conduct “passenger-carrying flights
for compensation” if they meet the conditions set forth in section 91.147, which include applying
for and obtaining a “Letter of Authorization” from the FAA. See id. § 91.147. Accordingly, Cirrus’s
carrier authorization under Part 91 is singularly sufficient legal authorization for its operations—at
least as far as the FAA is concerned.
The Comptroller disagreed with Cirrus’s view of the exemption, citing a “long-
standing policy” of her office holding that FAA carrier authorization under Part 91 does not, in itself,
qualify a person as a “licensed and certificated carrier” for purposes of Tax Code section 151.328(a).
She ultimately assessed a liability determination against Cirrus in the amount of $66,900.06 for the
tax period January 1, 2006 through June 30, 2006. Cirrus sought an administrative redetermination,
but the Comptroller’s determination was upheld by SOAH after a contested-case hearing.
Thereafter, Cirrus paid the tax under protest—now $70,598.19 with accrued penalty and
interest—and filed the underlying lawsuit in Travis County District Court. See Tex. Tax Code
3
§ 112.052 (authorizing suit to recover taxes after payment under protest); see generally id.
§§ 112.001–.156 (“Taxpayers’ Suits”).
In its petition to the district court, Cirrus carried forward its assertions that it was
a “certificated or licensed carrier” entitled to section 151.238’s sales-tax exemption by virtue of
the fact that it hires out its helicopter to carry persons and that it does so in full compliance with
FAA regulations, including obtaining an “FAA Letter of Authorization” to conduct commercial air
tours. See 14 C.F.R. § 91.147 (setting forth requirements for “conducting passenger-carrying flights
for compensation or hire”); cf. 34 Tex. Admin. Code § 3.297 (Comptroller rule defining “licensed
and certificated carrier” as person “authorized by [FAA] . . . to operate an aircraft . . . as a common
or contract carrier”). The Comptroller responded that only persons holding one of the carrier-
specific categories of FAA certification—which, again, Cirrus does not hold and is not required
to hold—qualify as a “certificated or licensed carrier” entitled to the sales-tax exemption. Both
parties filed competing motions for summary judgment on the sole issue of whether Cirrus qualified
for section 151.328’s licensed-carrier exemption. After a hearing, the district court issued a final
judgment denying Cirrus’s motion and granting the Comptroller’s. It is from this judgment that
Cirrus now appeals, arguing in two issues that the district court erred in granting the Comptroller’s
summary-judgment motion and denying its own because it is entitled to the exemption as a
matter of law.
STANDARD OF REVIEW
We review the district court’s summary-judgment rulings de novo. Valence
Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). Summary judgment is proper if the
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movant establishes that there is no genuine issue of material fact and that it is entitled to judgment
as a matter of law. See Tex. R. Civ. P. 166a(c); Southwestern Elec. Power Co. v. Grant, 73 S.W.3d
211, 215 (Tex. 2002). When, as here, both parties move for summary judgment on overlapping
grounds and the district court grants one motion and denies the other, we review the
summary-judgment evidence presented by both sides, determine all questions presented, and render
the judgment that the trial court should have rendered. Texas Workers’ Comp. Comm’n v. Patient
Advocates, 136 S.W.3d 643, 648 (Tex. 2004).
In this case, as previously noted, the material facts are undisputed, such that the
judgment rests solely on construction of Tax Code section 151.238 and Comptroller rule 3.297,
questions of law that we review de novo under traditional principles of statutory construction. See
TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 438 (Tex. 2011) (holding that
administrative rules are interpreted under principles of statutory construction); City of Rockwall
v. Hughes, 246 S.W.3d 621, 625 (Tex. 2008) (“Statutory construction is a legal question we review
de novo.”). Our primary objective in statutory construction is to ascertain and give effect to the
drafters’ intent. See TGS-NOPEC, 340 S.W.3d at 439 (citing Tex. Gov’t Code § 311.005; Texas
Dep’t of Protective & Regulatory Servs. v. Mega Child Care, 145 S.W.3d 170, 176 (Tex. 2004)).
We determine that intent from the plain meaning of the words chosen when it is possible to do
so, using any definitions provided. See id. (citing Tex. Gov’t Code § 311.011(b)). We consider
the statutes or rules as a whole rather than their isolated provisions. See id. (citing Texas Dep’t
of Transp. v. City of Sunset Valley, 146 S.W.3d 637, 642 (Tex. 2004)). We presume that the
enactment’s language was chosen with care, with each word included (or omitted) purposefully.
5
See id. (citing In re M.N., 262 S.W.3d 799, 802 (Tex. 2008)). Undefined terms are typically given
their ordinary meaning, but if a different or more precise definition is apparent from a term’s use in
context, we apply that meaning. Id. (citing In re Hall, 286 S.W.3d 925, 928–29 (Tex. 2009)). If the
text of the enactment is unambiguous, we adopt the interpretation supported by its plain language
unless such an interpretation would lead to absurd results that the drafters could not possibly have
intended. See id. (citing Mega Child Care, 145 S.W.3d at 177). If the text is ambiguous, however,
we may be required to defer to an authoritative administrative construction that is reasonable and
consistent with the text of the provision. See id. at 438 (“If there is vagueness, ambiguity, or room
for policy determinations in a statute or regulation, as there is here, we normally defer to the agency’s
interpretation unless it is plainly erroneous or inconsistent with the language of the statute,
regulation, or rule.”).
ANALYSIS
Tax Code section 151.328 exempts from the imposition of sales tax aircraft that
is “sold to a person using the aircraft as a certificated or licensed carrier of persons or property.”
Tex. Tax Code § 151.328(a)(1). Comptroller Rule 3.297, in turn, provides that “[s]ales or use tax
is not due on aircraft used by [a licensed and certificated carrier] in the regular course of business
of transporting persons or property for hire.” 34 Tex. Admin. Code § 3.297(d)(1). Rule 3.297
further defines “certificated and licensed carrier” as follows:
Licensed and certificated carrier—A person authorized by the appropriate
United States agency or by the appropriate state agency within the United States to
operate an aircraft, vessel, train, motor vehicle, or pipeline as a common or contract
carrier transporting persons or property for hire in the regular course of business.
6
Id. § 3.297(a)(1). Although neither the Tax Code nor the Comptroller regulations explicitly define
the “carrier” component of this definition, both enactments’ use of the term reflects a common
meaning the term has acquired—i.e., someone who “contracts to transport passengers or goods for
a fee.” Black’s Law Dictionary 242 (9th ed. 2009). Further, both sides agree that the “appropriate
United States agency” in this context is the FAA. Thus, under the relevant statutory and regulatory
text, a “certificated and/or licensed carrier” potentially entitled to the exemption is a person
“authorized by” the FAA “to operate an aircraft . . . as a common or contract carrier transporting
persons or property for hire in the regular course of business.”
Both sides agree that Cirrus, in the regular course of its business, operates an aircraft
as a common carrier.3 They join issue, however, on what “authorized by the FAA” means in this
context. Cirrus maintains that the phrase means merely that it holds whatever authorization it is
required by law to obtain from the FAA in order to carry persons or property for hire in the manner
it does. Accordingly, Cirrus concludes, it is a “licensed and certificated carrier” under this definition
because the FAA authorizes it to conduct, in the regular course of its business, passenger-carrying
flights for compensation. In fact, Cirrus observes, it holds a “Letter of Authorization” under
FAA regulation 91.147 that specifically authorizes Cirrus to conduct passenger-carrying flights for
compensation. See 14 C.F.R. § 91.147 (setting forth Part 91 requirements for operators “conducting
passenger-carrying flights for compensation or hire”).
3
A “common carrier” is a carrier that holds itself out to the public as willing to furnish
transportation to anyone who wants it. See Black’s Law Dictionary 242 (9th ed. 2009). By contrast,
a “private” carrier (sometimes also called a “contract” carrier) is not bound to accept business from
the general public; instead, it usually carries one or select customers, generally on a long-term basis.
See id.
7
In response, the Comptroller continues to emphasize her office’s “long-standing”
policy, reflected in Comptroller decisions dating from at least 1982, that an air carrier is not a
“licensed or certificated carrier” unless it is “certificated under a provision that specifically qualifies
it to be used to carry persons or property for hire,” as opposed to being merely “authorized”
or permitted by law to do so. Comptroller Decision No. 13,505 (1982); see Comptroller Decision
No. 103,511 (2006) (“Comptroller’s long-standing policy is that an air carrier cannot be a licensed
and certificated carrier unless it is authorized under [specific FAA regulations].”). The provisions
that “specifically qualify” a person to be a common carrier in this context, the Comptroller has
reasoned, are Parts 121, 125, or 135 of the FAA’s regulations, which, as we will detail shortly,
govern commercial airlines, private carriers using large aircraft, and short-distance/commuter
carriers, respectively.4 See, e.g., Comptroller Decision No. 13,505 (Part 135); Comptroller Decision
No. 103,511 (Parts 121 and 135). Consequently, this “long-standing policy” further holds, a person
who operates an aircraft solely under Part 91 of the FAA regulations, like Cirrus here, is not a
licensed and certificated carrier. See Comptroller Decision No. 13,505 (“It is the position of the
[Comptroller] that operation under Part 91 alone does not qualify an aircraft as a licensed and
certificated carrier, even though, as is the case here, the aircraft may be used to carry people
for hire.”).
The Comptroller does not elaborate as to an underlying rationale for this “long-
standing policy” (apart from her emphasis on the existence of prior Comptroller decisions that
have espoused it), but the view would seem to derive from the organization and structure of the
4
See 14 C.F.R. §§ 119.5, .21–.25.
8
FAA regulations themselves. As mentioned above, Part 91 of these regulations contains the general
operating and flight rules applicable to all aircraft operations in the United States, see 14 C.F.R.
§ 91.1 (“Applicability”), including for example, the familiar FAA regulation requiring that all
aircraft be equipped with emergency locator transmitters, see id. § 91.207(a). Subchapter G sets
forth FAA rules that are specific to commercial air carriers. See id. §§ 119.1–139.343 (“Air Carriers
and Operators for Compensation or Hire: Certification and Operations”); see also 49 U.S.C.
§§ 41101(a) (provision of Federal Aviation Act specifying that “air carrier may provide air
transportation only if the air carrier holds a certificate . . . authorizing the air transportation”), 41701
(directing FAA to establish regulations regarding classifications of air carriers and requirements each
of those classifications must meet). Specifically, Subchapter G provides that flights involving the
carriage of persons or property for compensation or hire must be conducted with a commercial
operating certificate issued under Parts 121, 125, and 135. See 14 C.F.R. § 119.1(b) (setting forth
types of FAA “air operator certificates” and prescribing certification requirements operator must
meet in order to obtain and hold certificate authorizing operations under part 121, 125, or 135”);
Department of Transp. Federal Aviation Admin., Legal Interpretation, 2008 WL 2204585 (Feb. 4,
2008). Parts 121, 125, and 135 cover the following types of commercial air carriers:
• Part 121—major commercial airlines;
• Part 125—private (non-common) carriers using large aircraft; and
• Part 135—short-distance (commuter) and on-demand (air taxis and charters)
carriers, both common and private.
9
See 14 C.F.R. §§ 119.5, .21–.25. Thus, as a general rule, FAA regulations require that all air-
carriers—i.e., anyone who transports people or property by air—to both comply with Part 91 and be
certified under Parts 121, 125, or 135 of the FAA regulations.5 However, as we have previously
indicated, this is not always true.
As Subchapter G provides:
[Part 119] does not apply to—
...
(2) Nonstop Commercial Air Tours . . . in a helicopter . . . that begin and
end at the same airport, and are conducted within a 25-statute mile
radius of that airport, in compliance with a Letter of Authorization
issued under § 91.147 . . . .
....
(4) Aerial work operations, including—
...
(iii) Aerial photography or survey;
...
(vi) powerline or pipeline patrol; . . . .
Id. § 119.1(e). It is undisputed that Cirrus’s air-carrier operations—i.e., sightseeing or aerial
photography or surveying flights—come within this exception or exclusion from the FAA
regulations specific to air carriers. Consequently, FAA regulations do not require Cirrus to obtain,
5
Section 119.25 specifies that carrier operations conducted using helicopters must comply
with Part 135’s certification requirements. See 14 C.F.R. § 119.25.
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and it has not obtained, carrier certification under Parts 121, 125, or 135 in order to transport people
or equipment for hire. Instead, FAA regulations allow Cirrus to operate its carrier flights solely
under the general flight rules set forth in Part 91, which include specific requirements for obtaining
a Letter of Authorization to operate air tours.
The gravamen of the Comptroller’s “long-standing policy” is that “licensed or
certificated carrier,” as contemplated in Tax Code section 151.328 and Comptroller Rule 3.297, is
defined and limited by the FAA’s certification requirements under Parts 121, 125, or 135, such that
a carrier who is not required to comply with these requirements in order to operate lawfully, such
as Cirrus, cannot possibly be entitled to the exemption. This construction is squarely contrary to the
unambiguous language of the Comptroller’s own Rule 3.297, which again defines “licensed and
certificated carrier” as “[a] person authorized by the appropriate United States agency [i.e., the FAA]
to operate an aircraft, vessel, train, motor vehicle, or pipeline as a common or contract carrier
transporting persons or property for hire in the regular course of business.” 34 Tex. Admin. Code
§ 3.297(a)(1) (emphasis added). “Authorize,” the term the Comptroller has chosen, merely denotes
the conveyance or recognition of legal authority or permission,6 and it is not limited to the
conveyance of legal authority or permission through the issuance of a certificate or license, or of any
particular kind of certificate or license.7 Nor does the rule itself specify any. Rather, there is no
6
See Webster’s Third New Int’l Dictionary 146 (2002) (defining “authorize” as “to endorse,
empower, justify, or permit”); Black’s Law Dictionary 153 (9th ed. 2009) (defining “authorize” as
“to give legal authority; to empower . . . . [t]o formally approve”).
7
Cf. Webster’s at 367 (defining “certificate[d]” as “authorize[d] . . . or . . . license[d] by a
certificate”), 1304 (defining “licensed” as “permit[ted] or authorize[d] esp[ecially] by formal
license”).
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textual support in the Comptroller’s rule for her narrowing of “authorized by the FAA” to require
certain, specific types of FAA carrier certifications that, while undeniably authorizing carrier
operations, are not the only methods by which the FAA authorizes commercial air carrier operations.
The Comptroller urges us to defer to its “long-standing” construction of this rule, but
as the Texas Supreme Court has recently and repeatedly explained, agency deference of this type is
appropriate only where the statute or rule in question is ambiguous. See Texas Coast Utils. Coal.
v. Railroad Comm’n, __S.W.3d __, No. 12-0102, 2014 WL 185030, at *6 n.16 (Tex. Jan. 17, 2014)
(noting that agency-deference doctrine not implicated where statute at issue is unambiguous);
Railroad Comm’n v. Texas Citizens for a Safe Future & Clean Water, 336 S.W.3d 619, 625
(Tex. 2011) (noting that agency deference is only appropriate where language at issue is vague
(citing Fiess v. State Farm Lloyds, 202 S.W.3d 744, 747–48 (Tex. 2006)). The Comptroller’s
definition of “certificated and licensed carrier” is not vague or unclear. Rather, it unambiguously
requires that the person seeking the air-carrier exemption be “authorized” by the FAA to operate as a
carrier. See 34 Tex. Admin. Code § 3.297(a)(2). While the word “authorize” alone may have broad
application, the phrase “authorized by the [FAA] . . . to operate an aircraft . . . as a common carrier”
is not susceptible to more than one reasonable meaning. Accordingly, we need not defer to the
Comptroller’s construction. See Texas Coast Utils., 2014 WL 185030, at *6 n.16; Texas Citizens,
336 S.W.3d at 625. Further, even if deference were appropriate here, the Comptroller’s construction
and application of this rule is unreasonable and inconsistent with the text of the rule given that it
improperly narrows the types of carrier authorizations allowed. See Texas Citizens, 336 S.W.3d
12
at 628 (noting that where there is ambiguity requiring deference, we defer only to reasonable
interpretation).
Because Cirrus is authorized by the FAA to operate its helicopter as a common carrier
transporting persons or property for hire in the regular course of its business, it is a “licensed and
certificated carrier” under the Comptroller’s regulations. Accordingly, and given that there are no
remaining disputed issues relevant to Cirrus’s entitlement to the exemption, the two helicopter
purchases are exempt from the imposition of sales tax. We sustain Cirrus’s two issues on appeal.
CONCLUSION
Having sustained Cirrus’s two issues on appeal, we reverse the district court’s
judgment and render judgment in favor of Cirrus in the amount of $70,598.19, plus interest as
allowed under the Tax Code. See Tex. Tax Code § 112.155 (entitling successful taxpayer to interest
on amount of tax paid).
__________________________________________
Bob Pemberton, Justice
Before Justices Puryear, Pemberton, and Rose
Reversed and Rendered
Filed: February 12, 2014
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