Alon Usa, Lp v. State

• Decision Date: 26 May 2005
• Docket Number: No. 03-03-00431-CV.,03-03-00431-CV.
• Parties: ALON USA, LP and Alon USA GP, Inc., Appellants, The State of Texas, Cross-Appellant, v. The STATE of Texas, Appellee, Alon USA, LP and Alon USA GP, Inc., Cross-Appellees.
• Court: Texas Court of Appeals

222 S.W.3d 19

ALON USA, LP and Alon USA GP, Inc., Appellants, The State of Texas, Cross-Appellant, v. The STATE of Texas, Appellee, Alon USA, LP and Alon USA GP, Inc., Cross-Appellees.

No. 03-03-00431-CV.

Court of Appeals of Texas, Austin.

May 26, 2005.

Rehearing Overruled May 3, 2007.

Scott S. Cooley, C. Morris Davis, Marc O. Knisely, McGinnis, Lochridge & Kilgore, LLP, Austin, for Appellants.

David Randell and Jim Hill, Karen Bartlett, Asst. Atty. Gen., Austin, for State.

Before Chief Justice LAW, Justices PATTERSON and PURYEAR.

OPINION

W. KENNETH LAW, Chief Justice.

Appellants, Alon USA, LP and Alon USA GP, appeal from the trial court's judgment awarding the State of Texas damages for unpaid motor fuel taxes for the months of December 2000 and January 2001. The lawsuit involved unpaid fuel taxes for the months of September, October, and December 2000, and January 2001. Appellee, the State of Texas, cross-appeals the trial court's denial of damages for the first two months at issue. We will affirm that part of the trial court judgment awarding damages to the State for the months of December 2000 and January 2001, and reverse and render judgment awarding damages to the State for the months of September and October 2000.

I. BACKGROUND

Although Alon USA LP, Alon USA GP, Inc. (collectively Alon), and the State of Texas are the only parties to the lawsuit, several actors were involved in the transactions giving rise to the suit. Appellant Alon USA, LP is a Texas limited partnership in the business of refining and selling motor fuel in the state of Texas under the Fina brand. It also provides credit card processing and collection services to gas stations operating under the Fina brand. Appellant Alon USA GP, Inc., is a Texas corporation and Alon's general partner. Vista Stores LLC ("Vista") is a Texas limited partnership that leased fifty-three gas stations in the Dallas/Fort Worth Metroplex area, selling motor fuel under the Fina brand. Vista was the parent company of Akard Street Fuels LP ("Akard"), a Texas limited partnership engaged in the business of buying motor fuel from Alon for resale to Vista.

During the liability period, Alon had a dual role, acting both as a gasoline distributor and a provider of credit card processing and collection services. Alon, Vista, and Akard followed a business model where Akard would buy tax-free gasoline from Alon on credit and resell to Vista on a tax-paid basis. Alon provided credit card processing services to Vista and, as a result, would owe Vista money every time a customer paid with a credit card at a Vista gas station. Alon thus had a right to receive payment from Akard for Akard's purchases of fuel and Vista had a right to receive payment for Alon for credit card purchases at Vista gas stations. Instead of forwarding these credit card payments to Vista and demanding payment from Akard, Alon adopted the practice of setting off these payments against each other. Instead of paying Vista, it would issue credit memos against Akard's fuel debt. After Vista and Akard declared bankruptcy, the State sued Alon for payment of Akard's past due gasoline taxes. A full understanding of the transactions and the basis for the lawsuit requires a chronological depiction of the facts.

The facts in this case are not in dispute. In December 1998, Vista acquired lease-hold interests in fifty-three Fina branded convenience store gas stations from Fina-Serve, Inc., a subsidiary of Fina. Vista and Fina also entered into a Branded Contract, requiring Vista to purchase gasoline exclusively from Fina and operate the gas stations under the Fina logo and trademark. The contract also required Vista to purchase at least 5,000,000 gallons of gasoline each month. Fina, through its bundle of equipment and services known as FinaNet, would provide Vista with credit card acceptance, authorization, and other services necessary to accept payments by credit card. Fina also offered Vista customers its own private label credit card ("Fina card"). Customers at Vista gas stations could use their Fina Cards or any other major credit card ("bank cards"). The Branded Contract also established that Fina would provide credit card collection services to Vista for a fee, and that all of Vista's credit card sales would be transferred and assigned to Fina. As a result, under the Branded Contract, Fina operated both as Vista's exclusive supplier of gasoline and Vista's sole provider of credit card services.

Under this arrangement, Vista operated as a "Dealer," the "operator of a service station or other retail outlet and who delivers motor fuel into the fuel supply tanks of motor vehicles or motorboats." Tex. Tax Code Ann. § 153.001(4).¹ Fina operated as a "Distributor," a person who "regularly makes sales or distributions of gasoline that are not into the fuel supply tanks of motor vehicles, motorboats, or aircraft." Id. § 153.001(9)(a). A distributor must obtain a distributor's permit. Id. § 153.107. A tax of 20 cents per gallon is imposed on the first sale or use of gasoline. Id. §§ 153.101(a), 153.102(a). A distributor is exempt from collecting the gasoline tax when it sells to another distributor, but must include the tax when it sells to dealers. Id. §§ 153.104(3). As a result, all sales of gasoline from Fina (the distributor) to Vista (the dealer) had to be executed on a tax-paid basis, with Fina charging Vista the gasoline tax at the statutory rate of 20 cents per gallon. The tax would ultimately be passed on to the consumer, as Vista charged the state gasoline tax at the pump. Because gasoline was sold on a tax-paid basis, Fina was responsible for remitting the appropriate gasoline tax to the taxing authority.²

Although the Branded Contract required Fina to provide Vista with credit card collection services for a fee, in practice Vista's credit card revenues were used as a credit against Vista's liability for gasoline purchases. Fina would provide Vista with bi-weekly statements, showing matured credit card receipts of Vista's sales of gasoline and non-gasoline items as a credit against Vista's gasoline purchases.³

The distributor making the first taxable sale or use of the gasoline is allowed to retain the tax on two percent of the taxable gallons of gasoline it sells to compensate it "for the expenses of collecting, accounting for, reporting, and remitting the tax collected and for keeping records." Tax Code § 153.105(e). The distributor makes money not only by keeping the two percent statutory discount but also by retaining the amount it receives from dealers for 25-55 days until it must remit the tax to the Comptroller on the 25th of the following month. See id. § 153.118. However, a distributor cannot simultaneously operate as a dealer. Id. § 153.001(9)(A). In order to take advantage of the statutory discounts and payment schedules allowed distributors, Vista created its own distributor, Akard. Akard obtained a distributor's permit enabling it to buy gasoline from Fina on a tax-free basis, effective July 1, 1999. Fina's contract was only with Vista; Fina was under no obligation to sell gasoline to Akard. However, Fina started to sell gasoline to Akard on a tax-free basis. Fina ceased to include the gasoline tax on its price to Akard but continued to apply Vista's credit card revenues as a credit to Akard's liability for gasoline purchases. Fina also continued to provide Vista with bi-weekly statements, showing matured credit card receipts of Vista's sales of gasoline and non-gasoline items as a credit against Akard's gasoline purchases.⁴

Akard basically operated as a vehicle to allow Vista to purchase gasoline tax-free from Fina. Akard purchased gasoline exclusively from Fina and sold it exclusively to Vista. Akard's accounting results were consolidated with those of Vista, its only "customer." Akard did have a separate banking identity, but its bank account was a zero balance account linked to Vista's so that every payment item was covered by funds pulled from Vista's account. In substance, Fina treated Akard as the same entity as Vista and did not modify its Branded Contract to include Akard. It simply considered Akard as a name change, often referring to the new company as "Akard/Vista".

In August 2000, Alon acquired Fina's distributor network in Texas, Oklahoma, and New Mexico, along with Fina's refinery in Big Spring, Texas and Fina's pipeline network in these states. As a result of the acquisition, Fina conveyed its interest in the Branded Contract to Alon.

Alon was under no obligation to continue to sell gasoline to Akard since the Branded Contract was only between Vista and Alon, as Fina's successor in interest. However, Alon chose to continue Fina's practice of selling gasoline to Akard on a tax-free basis and applying Vista's credit card revenues as a credit to Akard's liability for gasoline purchases. Alon, as Fina did before it, provided Vista with bi-weekly statements, showing matured credit card receipts of Vista's sales of gasoline and non-gasoline items as a credit against Akard's gasoline purchases.⁵

In August 2000, Akard started having difficulties paying its gasoline tax obligations. As of December 6, 2000, it owed the state $2.5 million in gasoline tax, representing past due taxes for August, September, and October 2000. On this date Alon's credit manager notified Vista by e-mail that he was aware of the tax deficiency. At the time, Alon was holding $432,000 as a cash deposit to cover future fuel purchases. The deposit was created by withholding credit card credits due Vista.⁶ As of January 5, 2001, the cash deposit had increased to $659,000 and Alon intended to continue withholding credit card credits due Vista until the security deposit totaled $1 million. As of January 25, 2001, the security deposit had increased to approximately $880,000, and to over $900,000 as of February 9, 2001. On February 9, 2001, Vista sued Alon for a temporary restraining order to allow...