H.K. Global Trading, Ltd. v. Combs

• Citation: 429 S.W.3d 132
• Decision Date: 28 March 2014
• Docket Number: No. 03–13–00260–CV.,03–13–00260–CV.
• Parties: H.K. GLOBAL TRADING, LTD., Appellant v. Susan COMBS, Comptroller of Public Accounts of the State of Texas; and Greg Abbott, Attorney General of the State of Texas, Appellees.
• Court: Texas Court of Appeals

429 S.W.3d 132

H.K. GLOBAL TRADING, LTD., Appellant

v.Susan COMBS, Comptroller of Public Accounts of the State of Texas; and Greg Abbott, Attorney General of the State of Texas, Appellees.

No. 03–13–00260–CV.

Court of Appeals of Texas,

Austin.

March 28, 2014.

Alison Haynes, Trevino, Valls & Haynes, LLP, Laredo, TX, V. Blayre Pena, Terry L. Scarborough, Hance Scarborough LLP, Austin, TX, for Appellant.

Bill Davis, Assistant Solicitor General, Office of the Attorney General, Austin, TX, for Appellees.

Before Justices PURYEAR, GOODWIN, and FIELD.

OPINION

MELISSA GOODWIN, Justice.

This appeal from a sales tax assessment concerns facial constitutional challenges to subsections (d) and (e) of section 151.307 of the Tax Code. SeeTex. Tax Code § 151.307(d), (e). Following a bench trial, the trial court granted a take nothing verdict against appellant H.K. Global Trading, Ltd. and concluded that the challenged subsections did not facially violate the Import–Export Clause of the United States Constitution. SeeU.S. Const. art. I, § 10, cl. 2. For the reasons that follow, we affirm the trial court's judgment.

BACKGROUND

The facts are not disputed. The sales transactions at issue occurred between September 1, 2000, and July 31, 2004, at H.K. Global stores that are located in Texas counties bordering Mexico. In those transactions, customers purchased goods, paid sales tax, and took possession of the goods at the time of the sale.¹ H.K. Global later refunded the customers the amount of sales taxes they paid for the goods based on the presentation of an U.S. Customs Broker Export Certificate (“export certificate”). SeeTex. Tax Code § 151.307(b)(2); see also id. § 151.157 (addressing customs brokers). Subsection (b)(2) lists export certificates among the documentation that shows “proof of export.” Id. § 151.307(b)(2). Although the goods were exported out of the country, H.K. Global refunded the sales taxes prior to the expiration of a statutory 24 hour waiting period contained in section 151.307(d)(1). See id. § 151.307(d)(1). Section 151.307(d)(1) provides:

(d) A retailer who receives documentation under Subsection (b)(2) relating to the purchase of tangible personal property exported beyond the limits of the United States may not refund the tax paid under this chapter on that purchase before:

(1) the 24th hour after the hour stated as the time of export on the documentation, if the retailer is located in a county that borders the United Mexican States; ....

Id. By refunding sales taxes prior to the expiration of the waiting period, H.K. Global violated subsection (d). See id.²

In 2005, the Comptroller issued a Texas Notification of Audit result. The Comptroller determined that the refunds at issue violated section 151.307(d)(1) and, thus, that H.K. Global was liable for $475,053.83, the amount of sales taxes refunded and statutorily imposed interest. See id. § 151.307(d), (e). H.K. Global paid the assessment and interest under protest, exhausted its administrative remedies, and then sued to recover the amount it paid. H.K. Global contended that it was not liable for the assessment because the 24 hour provision facially violated the Import–Export Clause of the United States Constitution. SeeU.S. Const. art. I, § 10, cl. 2.

The case was tried to the bench. The parties stipulated to the facts and that the sole issue before the court was “whether the 24 Hour Rule facially violates Article I, section 10, clause 2, the ‘Import–Export Clause’ of the United States Constitution.” The parties waived “[a]ny other issues raised by either party in the Texas Notification Audit Results, the administrative proceeding, or the pleadings in this case.” The parties' witnesses primarily testified about H.K. Global's business, how the statutory 24 hour waiting period works in practice, and the reasons behind its enactment. The evidence showed that the primary reason was to prevent fraud. During the relevant period of time, Texas customs brokers issued export certificates upon visual verification of the tangible personal property leaving the country, but some brokers were issuing certificates on the same day as the date of purchase, raising concerns with the validity of export certificates.³

The trial court entered a take nothing judgment against H.K. Global. The trial court also entered findings of fact and conclusions of law. The trial court referred to subsections (d) and (e) as the “24 Hour Rule,” and its conclusions of law included that the “24 Hour Rule [was] not a tax” and that it did not facially violate the Import–Export Clause. The trial court also concluded:

Under Tex. Tax Code § 151.307(e), Plaintiff is liable for $475,053.83, plus statutorily imposed interest, for sales tax improperly refunded to its customers prior to the expiration of 24 hours from the time documented on the U.S. Customs Broker Export Certificate.

This appeal followed.

ANALYSIS

H.K. Global raises eight issues on appeal. In its first seven issues, H.K. Global argues that subsections (d) and (e) of section 151.307 violate the Import–Export Clause because they are either a “direct tax on retailers and consumers related to goods undisputedly exported out of the country” or an “indirect tax that fails the Import/Export analysis set forth in U.S. Supreme Court precedent.” H.K. Global also attacks specific conclusions of law. In its eighth issue, H.K. Global asserts that the trial court erred by failing to make additional findings of fact and conclusions of law.

Did the trial court have subject matter jurisdiction to consider section 151.307(e)?

As a threshold matter, appellees urge that the trial court's jurisdiction was limitedto H.K. Global's challenge to section 151.307(d) because it did not cite section 151.307(e) in its protest letter. Subsection (e) addresses a retailer's liability for violations of subsections (b) and (d). Tex. Tax Code § 153.307(e). The subsection states:

(e) A retailer who makes a refund before the time prescribed by Subsection (d) or makes a refund that is undocumented or improperly documented is liable for the amount of the tax refunded with interest.

Id.

The issues in a tax-protest suit “are limited to those arising from the reasons expressed in the written protest as originally filed.” See id. § 112.053(b); see also id. § 112.051(b) (“The protest must be in writing and must state fully and in detail each reason for recovering the payment.”); In re Nestle, USA, Inc., 359 S.W.3d 207, 208–09 (Tex.2012) (generally describing requirements of protest letter). Although H.K. Global did not expressly cite section 153.307(e) in its protest letter, H.K. Global expressly cited section 151.307, quoted section 151.307(a), and stated that the Comptroller violated section 151.307(a) and that the “24–hour rule contained in Tex. Tax Code § 151.307(d) [was] unconstitutional.” It then challenged the assessment against it—the substance of subsection (e)—for violating the “24–hour Rule.” Among others, H.K. Global stated in its protest letter:

• This sales tax assessment arises from a violation of the 24–Hour Rule under § 151.307(d) of the Texas Tax Code.

• Since Petitioner is claiming an exemption under Tex. Tax Code § 151.307, the Comptroller should have ruled on Petitioner's claims because the assessment violates the U.S. Constitution.

• Petitioner is protesting the assessment of this tax, along with interest, because it is a violation of the U.S. Const., Art. 1, § 10, cl. 2.

Based on our review of the protest letter, we conclude that H.K. Global sufficiently alerted the Comptroller to its constitutional challenge to section 151.307 and, therefore, that the trial court had jurisdiction to consider both subsections (d) and (e) of that section. See Lawrence Indus., Inc. v. Sharp, 890 S.W.2d 886, 892–93 (Tex.App.-Austin 1994, writ denied) (concluding use of phrase “was sufficient to alert the Comptroller to the subject matter of the protest as required by the Tax Code, thereby giving the trial court jurisdiction over [challenged claim]”); see also Suleman v. McBeath, 614 S.W.2d 637, 639–40 (Tex.Civ.App.-Texarkana 1981, writ ref'd n.r.e.) (addressing predecessor to current version of statute and holding that trial court had jurisdiction to hear controversy although “wording of appellant's protest letter leaves much to be desired”). We turn then to our analysis of H.K. Global's issues.⁴

Do subsections (d) and (e) of section 151.307 violate the Import–Export Clause?

In its first seven issues, H.K. Global argues that the trial court erred in holding that subsections (d) and (e) of section 151.307 do not violate the Import–Export Clause. It argues that subsections (d) and (e) “constitute a direct tax on tangible personal property after it has been undisputedlyexported from the territorial jurisdiction of the United States,” and that the subsections fail Import–Export Clause analysis. The Import–Export Clause of the United States Constitution provides in relevant part: “No State shall, without the consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection Laws.” U.S. Const. art. I, § 10, cl. 2.

H.K. Global urges that the subsections fail Import–Export Clause analysis because (i) there is a risk of multiple taxation, (ii) they impair federal uniformity, (iii) they “discriminate[ ] against legitimate foreign shoppers,” and (iv) they are not reasonably related to services provided by the State of Texas. See Michelin Tire Corp. v. Wages, 423 U.S. 276, 285–86, 96 S.Ct. 535, 46 L.Ed.2d 495 (1976) (describing reasons behind and analysis of Import–Export Clause to determine whether a tax constitutes an impermissible impost or duty); Virginia Indonesia Co. v. Harris Cnty. Appraisal Dist., 910 S.W.2d 905, 907–08 (Tex.1995) (describing analysis of challenge to tax based on Import–Export Clause and “stream of export” doctrine).

H.K. Global also attacks conclusions of law 3, 5–8, 11–13,...