Sanadco Inc. v. Office of the Comptroller of Pub. Accounts of State, 03-11-00462-CV
| Decision Date | 25 March 2015 |
| Docket Number | NO. 03-11-00462-CV,03-11-00462-CV |
| Parties | Sanadco Inc., a Texas Corporation; Mahmoud A. Isba, a/k/a Mahmoud Ahmed Abuisba, a/k/a Mike Isba; Walid 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 |
| Court | Texas Court of Appeals |
ON MOTION FOR REHEARING
NO. D-1-GV-10-000902, HONORABLE TIM SULAK, JUDGE PRESIDING
We grant the Comptroller's motion for rehearing, withdraw our prior opinion and judgment issued on September 26, 2013, and substitute in their place this opinion and judgment affirming the district court's dismissal 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 amountof taxes due was under the terms of an unauthorized 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 of jurisdiction. On appeal, Sanadco challenges the dismissal of its counterclaims. We affirm 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 synopsis 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 § 151.025, and the Comptroller is authorized to examine and audit the records of convenience-store owners, id. §§ 111.004, 151.025. In addition, the Comptroller may use sampling and projection methods for estimating the amount of taxes owed if "the taxpayer's records are inadequate or insufficient." Id. § 111.0042(b). Moreover, if the Comptroller "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. § 111.008(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 filereports chronicling their sales to stores and listing the stores by name. Id. §§ 151.461-.462. Similarly, the Tax Code authorizes the Comptroller to request wholesalers and distributors of tobacco products to file the same type of reports. Id. §§ 154.021 (addressing cigarette sales), 155.105 (covering non-cigarette tobacco products). The type of information required in these reports is commonly referred to as H.B. 11 information because the reporting requirements were enacted by House Bill 11 (H.B.11) of the 80th legislature. See Act of May 3, 2007, 80th Leg., R.S., ch. 129, §§ 1-3, 2007 Tex. Gen. Laws 159, 159-62.
Once an audit has been performed, the store owner may request a redetermination from the Comptroller within 30 days of receiving notice of the Comptroller's assessment. Tex. Tax Code § 111.009(a), (b). In addition, the owner may also request a hearing on the redetermination, id. § 111.009(c), before the State Office of Administrative Hearings, id. § 111.00455. If no request for a redetermination is filed within 30 days, "the determination is final on the expiration of the period." Id. § 111.009(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 under protest and file suit seeking their recovery.1 See id. §§ 111.104(b), (c), 112.051, .052; see also In re Nestle USA, Inc., 359 S.W.3d 207, 211 (Tex. 2012) (). 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. § 111.105. A tax-refund claimant who is dissatisfied with the decision may file a motion for rehearing, 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. § 112.151(a), (b), (c).
If pursuing a protest-payment suit, a taxpayer must file 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 final. Id. §§ 111.104(c)(3), 112.051(b), (c).
Prior to the passage of H.B. 11, 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 uniformity in estimated convenience store audits" and that "mark-up percentages and product mix percentages" were developed to be used in audits "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. 11 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.
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. 11 data. 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 penalties and seek statutory relief via a taxpayer refund or protest suit, see id. §§ 111.104, 112.151. 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 Comptroller's collection of the taxes, compensatory damages, and attorney's fees. Those counterclaims were made against the Office of the Comptroller, Susan Combs2 in her official capacity as Comptroller, and Greg Abbott3 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.4 Unlike Sanadco, the other named counter-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.5
Regarding its counterclaims, Sanadco alleged eight complaints relevant to this appeal. In its first counterclaim, Sanadco asserted that AP 92 and AP 122 are administrative rules that were not promulgated in compliance with the requirements of the Administrative Procedure Act. See Tex. Gov't Code § 2001.038. 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 he issued AP 92 and AP 122 and thereby 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 asserting that "the Comptroller is not authorized to estimate convenience store audits using the methods described 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 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 "withoutfirst 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. 11 information was improper and that the governing statutes do not allow "the Comptroller to give conclusive effect to the HB11 data."
In its fourth counterclaim, Sanadco alleged that the Comptroller...
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