Fleming Foods v. Rylander, 97-1044

Citation6 S.W.3d 278
Decision Date09 December 1999
Docket NumberNo. 97-1044,97-1044
Parties(Tex. 1999) Fleming Foods of Texas, Inc., Petitioner v. Carole Keeton Rylander, Comptroller of Public Accounts of the State of Texas and John Cornyn, Attorney General of the State of Texas, Respondents
CourtSupreme Court of Texas

On Petition for Review from the Court of Appeals for the Third District of Texas

Justice Owen delivered the opinion of the Court.

The opinion issued June 10, 1999, is withdrawn, and the following opinion is substituted in its place:

The issue in this case is whether a taxpayer who pays sales tax to a vendor rather than directly to the State may request a tax refund from the State without receiving an assignment of refund rights from the vendor. We hold that sections 111.104, 111.107, and 111.203 of the Texas Tax Code permit an indirect taxpayer to pursue refunds without first obtaining an assignment from the vendor who collected and remitted the tax. Accordingly, we reverse the judgment of the court of appeals and remand this case to the trial court for further proceedings.

I

Fleming Foods, a wholesale grocer, purchased products and commodities from more than a dozen vendors and paid sales taxes to those vendors, who in turn remitted the taxes to the State. Beginning in 1989, the Texas Comptroller of Public Accounts audited Fleming for possible sales and use tax deficiencies. As part of that audit process, Fleming and the Comptroller entered into a series of agreements that extended the four-year limitations periods for the assessment of taxes, penalties, and interest. Each extension also specifically provided: "This agreement entitles the taxpayer to credits or refunds for the report periods that are extended." None of Fleming's vendors joined in the extension agreements between Fleming and the Comptroller, but Fleming obtained assignments of refund rights from its vendors. However, in some cases, vendors did not execute the assignments until more than four years had elapsed since Fleming paid the tax, and in other cases, assignments were made to Fleming after its extension agreements with the Comptroller had expired.

The Comptroller ultimately assessed a deficiency of $353,996.57 against Fleming for sales and use taxes. Fleming requested a redetermination hearing and filed for refunds, contending that it had erroneously paid sales taxes on exempt packing materials over several years. The Comptroller agreed that Fleming was entitled to refunds for certain periods of time but denied claims for others on the basis that they were barred by the Tax Code's four-year statute of limitations. The Comptroller maintained that Fleming's refund rights were wholly derivative of its vendors' rights and that the Tax Code did not permit Fleming, as an indirect taxpayer, to obtain refunds from the State unless vendors timely assigned refund rights.

Fleming paid the tax deficiency under protest and sued in district court, challenging the Comptroller's decision that the disputed refund claims were time-barred. Following a bench trial, the trial court rendered a take-nothing judgment against Fleming. The court of appeals affirmed. 951 S.W.2d 278. It concluded that although the clear language of section 111.104 of the Tax Code would allow indirect taxpayers to file for refunds from the State, the statute's legislative history indicated that this was to be only a codification and that no substantive change was intended. The court of appeals then looked to the predecessor of section 111.104, which included former article 1.11A(3), and concluded that because article 1.11A(3) indicated that only direct taxpayers could file for refunds, section 111.104 of the Tax Code should be construed to say the same thing.

Fleming filed a petition for review with this Court,1 contending that (1) the courts below erred by holding that Fleming had no right to file for refunds from the State, (2) Fleming's legal expert should have been permitted to testify, and (3) Fleming should prevail on a detrimental reliance theory. Because of our disposition of the first issue, we do not reach the other questions presented for review.

II

As already indicated, the Comptroller's position is that the Tax Code only permits taxpayers who pay sales taxes directly to the State to file for refunds. The Comptroller contends that Fleming should have sought a refund from its vendors or that Fleming should have obtained assignments of refund rights from its vendors on a timely basis and then proceeded to request refunds from the State as an assignee.

The assignments to Fleming from vendors fall into three categories: (1) assignments made less than four years after the sales to Fleming occurred, (2) assignments made more than four years after the sales to Fleming but within the limitations period as extended by the agreements with the Comptroller, and (3) assignments made more than four years after the sales to Fleming and after the expiration of the extended limitations periods, but within six months after the deficiency determination became final. The Comptroller does not dispute that the assignments in the first category permitted Fleming to seek refunds, and the Comptroller has in fact made refunds with respect to those assignments. The State takes issue with the last two categories of assignments. The State contends that the refund rights of Fleming's vendors were barred by limitations at the time of the assignments and that the extension agreements cannot revive those barred claims since Fleming, as assignee, took the assignments subject to all defenses the State would have.

Fleming contends that none of the assignments were necessary because the Tax Code permits taxpayers, including indirect taxpayers, to seek refunds from the State. If that is so, then the extension agreements between Fleming and the Comptroller were effective to extend the time within which Fleming could file for refunds, and none of Fleming's refund claims are barred by limitations.

The resolution of this case turns on the proper construction of the Tax Code and who may file with the State for refunds. The express language of the Code supports Fleming's position, as the court of appeals observed. See 951 S.W.2d at 281. Section 111.104 clearly and unambiguously allows Fleming to file for refunds of sales taxes even though the tax was collected by a vendor rather than paid directly to the State. Section 111.104 says that "[a] tax refund claim may be filed with the comptroller by the person who paid the tax." Tex. Tax Code 111.104(b). There is no question that Fleming is the "person who paid the tax." The Tax Code contemplates that vendors collect the tax from taxpayers such as Fleming and that the vendors hold those taxes in trust for the benefit of the State until they are remitted to the State. See id. 111.016. Section 111.104 of the Tax Code also says that if a tax has been unlawfully or erroneously collected, then the Comptroller shall make a refund to "the taxpayer." Id. 111.104(a). The term "taxpayer" is defined by the Code as "a person liable for a tax imposed by this title." Id. 101.003(8). Again, there is no question that Fleming is a person liable for sales taxes imposed by the Tax Code. And section 111.104, which directs the Comptroller to make refunds to the taxpayer, expressly applies "to all taxes and license fees collected or administered by the comptroller," with certain exceptions that are not relevant here. Id. 111.104(e). The sales taxes paid by Fleming are taxes administered by the Comptroller.

Another section of the Tax Code also indicates that a taxpayer such as Fleming may file for a refund from the State. Section 111.107 says that "[a] person may request a refund or a credit or the comptroller may make a refund or issue a credit for the overpayment of a tax imposed by this title at any time before the expiration of the period during which the comptroller may assess a deficiency for the tax." Id. 111.107(a). Fleming is "a person" under the Tax Code. See id. 111.104(f) (recognizing that a taxpayer such as Fleming is a "person" from whom another "person," such as one of Fleming's vendors, collects taxes).

The court of appeals held, however, that the clear, unambiguous language of these statutes was rendered uncertain by their legislative history. 951 S.W.2d at 231. The statute that preceded Tax Code section 111.104, former article 1.11A,2 provided that a refund claim could be filed by any person who paid sales taxes "directly to the state."3 The codification of former article 1.11A was part of the Legislature's ongoing codification of our statutes. The 1981 enactment that resulted in section 111.104 stated that "[t]his Act is intended as a recodification only, and no substantive change in the law is intended by this Act."4 The court of appeals accordingly concluded that, notwithstanding what it thought was clear language in the Tax Code that allowed Fleming to seek a refund, the former statute governed. 951 S.W.2d at 282. The court of appeals held that because Fleming did not pay taxes "directly to the state," it did not have standing to seek a refund. Id.

The court of appeals was also swayed by one of the Comptroller's regulations. See id. at 281. When former article 1.11A was still in effect, the Comptroller promulgated rules based on the language in article 1.11A(3) that said that any person who paid sales taxes "directly to the state" could file for a refund. See 34 Tex. Admin. Code 3.325. Section 3.325(b) of the Comptroller's rules provided that a person who paid tax to a seller rather than directly to the State could not request a refund from the Comptroller but must recover the tax from the seller.5 Section 3.325(b) remained substantially unchanged after the enactment of section 111.104 of the Tax Code.

The court of appeals concluded that the doctrine of legislative acceptance applies to section 111.104 because the Comptroller had...

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