Strayhorn v. Raytheon E-Systems, Inc.

Decision Date30 January 2003
Docket NumberNo. 03-02-00346-CV.,03-02-00346-CV.
Citation101 S.W.3d 558
PartiesCarole Keeton STRAYHORN, Comptroller of Public Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas/Raytheon E-Systems, Inc., Appellants, v. RAYTHEON E-SYSTEMS, INC./Carole Keeton Strayhorn, Comptroller of Public Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas, Appellees.
CourtTexas Court of Appeals

Mark W. Eidman, Ray Langenberg, Doug Sigel, Austin, for Raytheon E-Systems, Inc.

Jim B. Cloudt and Jana Kaye Kinkade, Assistant Attorney General, Austin, for Appellants.

Before Justices YEAKEL, PATTERSON and PURYEAR.

OPINION

JAN P. PATTERSON, Justice.

In this case, we must decide whether Raytheon E — Systems, Inc. ("Raytheon") is entitled to a refund of sales tax under the "sale for resale" exemption of the tax code. Raytheon seeks the exemption for purchases of tangible overhead items charged as indirect costs to its contracts with the federal government. Carole Keeton Strayhorn, Comptroller of Public Accounts, and Greg Abbott, Attorney General of the State of Texas (collectively, "Comptroller")1 appeal, contending that the district court erred in concluding that Raytheon was entitled to the refund. In a cross appeal, Raytheon contends that the district court erred in dismissing Raytheon's claim for declaratory relief and attorney's fees for lack of jurisdiction. We affirm the judgement of the district court in part, reversing in part that portion of the judgement orderin the Comptroller to issue warrants to Raytheon for a sales tax refund and remanding the cause for a factual determination of whether Raytheon has collected the sales tax from the federal government.

FACTUAL AND PROCEDURAL BACKGROUND

Raytheon's facilities in Garland and Greenville, Texas, provide intelligence systems, aircraft navigation systems, and other defense-related products to the federal government and the private sector. From June 1, 1989 through December 31, 1996 ("refund period"), Raytheon paid sales tax to the Comptroller on its purchase of overhead items that it allocated as "indirect costs" to multiple federal contracts. Since 1975, federal contractors in Texas have been exempt from paying sales tax on purchases of items charged as direct costs to federal contracts. See Day & Zimmermann, Inc. v. Calvert, 519 S.W.2d 106, 110 (Tex.1975) (holding that a federal contractor who transferred title of items to the government could claim a sale for resale exemption). Direct costs are charged only to one contract.

In 1998, in revised internal procedures memos, the Comptroller broadened the exemption to include purchases of overhead items charged as indirect costs, which are allocated among multiple contracts. Based on the internal procedures memos, the accounting firm of Ernst & Young, at Raytheon's direction, prepared a request for a refund of sales taxes paid on tangible overhead items charged to contracts as indirect costs during the refund period. In August 2000, the Comptroller changed its policy2 and denied Raytheon's refund claims for indirect costs.

Raytheon filed two administrative appeals. In both, the administrative law judge upheld the denial of the refund claims. Raytheon then sued the Comptroller in district court for a refund. See Tex. Tax Code Ann. § 112.151 (West 2002). Raytheon also sought declaratory relief and attorney's fees under the Uniform Declaratory Judgments Act ("UDJA"), seeking a declaratory judgment that the Comptroller unlawfully denied its refund claims. See TEX. CIV. PRAC. & Rem. Code Ann. § 37.004 (West 1997). The Comptroller filed pleas to the jurisdiction, requesting that the district court dismiss Raytheon's request for declaratory relief because, by seeking relief that was redundant to the relief provided in the tax code, it was an improper pretext for obtaining attorney's fees.

After conducting discovery, the parties agreed to stipulated facts. Raytheon then filed a motion for summary judgment, contending that no sales tax was due as a matter of law and that there were no factual issues concerning either the amount of the refund or Raytheon's entitlement to attorney's fees pursuant to the UDJA. The Comptroller also filed a motion for summary judgment, contending that the purchases of overhead items charged as indirect costs to federal contracts were not eligible for the sale for resale exemption.

The district court granted the Comptroller's pleas to the jurisdiction and dismissed Raytheon's claims for declaratory relief and attorney's fees. The court also granted Raytheon's motion for summary judgment in part, finding that it was entitled to a sales tax refund but that a fact issue existed as to the amount of the refund. It denied the Comptroller's motion for summary judgment. The parties then entered into a supplemental stipulation of fact that the amount of the refund totaled $5,381,609. The district court, in light of the stipulation, determined in its final judgment that there were no factual issues to be tried and ordered the Comptroller to issue warrants for a tax refund.

The Comptroller contends in its appeal that the district court erred in its conclusion that Raytheon was entitled to the refund under the sale for resale exemption. Raytheon, in a cross appeal, contends that the district court erred in its conclusion that Raytheon was not entitled to declaratory relief and attorney's fees. We will first address the Comptroller's appeal.

COMPTROLLER'S APPEAL

In four issues, the Comptroller contends that the trial court erred in granting Raytheon's motion for summary judgment and denying its motion for summary judgment. Specifically, the Comptroller argues that Raytheon's purchases of tangible overhead items charged as indirect costs to multiple federal contracts do not qualify for the sale for resale exemption because (i) Raytheon purchases the items for its own consumption and use; (ii) the sale for resale exemption does not encompass overhead costs charged to multiple contracts; and (iii) there is insufficient evidence of transfer of title to the federal government and nevertheless, that mere transfer of title is not a sufficient basis for a sale for resale exemption.

The standards for review of a traditional summary judgment are well established: the movant must show there is no genuine issue of material fact and that it is entitled to judgment as a matter of law; in deciding whether there is a disputed material fact issue precluding summary judgment, the court must take evidence favorable to the nonmovant as true; and the court must indulge every reasonable inference in favor of the nonmovant and resolve any doubts in the nonmovant's favor. See Cathey v. Booth, 900 S.W.2d 339, 341 (Tex. 1995); Nixon v. Mr. Property Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex.1985). A plaintiff must establish all elements of the cause of action as a matter of law. TEX. R. CIV. P. 166a(c); City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex.1979). A defendant, however, must disprove at least one essential element of each of the plaintiffs theories of recovery or conclusively establish each element of an affirmative defense to prevail. See Friendswood Dev. Co. v. McDade + Co., 926 S.W.2d 280, 282 (Tex.1996). We review the trial court's decision to grant summary judgment de novo. Natividad v. Alexsis, Inc., 875 S.W.2d 695, 699 (Tex. 1994).

Generally, a party cannot appeal the denial of a motion for summary judgment because it is an interlocutory order and thus not appealable. See Cincinnati Life Ins. Co. v. Cates, 927 S.W.2d 623, 625 (Tex.1996). However, when both parties move for summary judgment and the district court grants one motion and denies the other, the unsuccessful party may appeal both the prevailing party's motion and the denial of its own. See Holmes v. Morales, 924 S.W.2d 920, 922 (Tex.1996). We will review the summary judgment evidence presented by both sides, determine all questions presented, and render such judgment as the trial court should have rendered. Commissioners Court v. Agan, 940 S.W.2d 77, 81 (Tex.1997). We are required to consider all summary judgment grounds the trial court ruled on and the movant preserved for appellate review that are necessary for final disposition of the appeal. Cincinnati Life Ins. Co., 927 S.W.2d at 625-26.

To put Raytheon's claim for the sale for resale exemption in context, we will first examine Raytheon's contracts with the government, as well as the relevant federal regulations. The Federal Acquisition Regulations ("FARs") set forth standards for government contracts. See 48 C.F.R. ch. 1, pts. 1-99 (2001)3 Raytheon's contracts included both "fixedprice," in which the government pays a set price for the contract, see Id. § 16.201, and "cost-type," in which the government pays certain costs in performance of the contract, plus an additional fee, see id. § 16.301. The government paid the fixedprice contracts in "progress payments" over the course of Raytheon's performance of the contracts.

Both the fixed-price and cost-type contracts contain title-vesting clauses upon which Raytheon relies for its argument that it sells its overhead items to the federal government. FAR 52.232-16(d), incorporated in fixed-price contracts entered into after April 1984,4 states as follows:

PROGRESS PAYMENTS

. . . .

(d) Title.

(1) Title to the property described in this paragraph (d) shall vest in the Government. Vestiture shall be immediately upon the date of this contract, for property acquired or produced before that date. Otherwise, vestiture shall occur when the property is or should have been allocable or properly chargeable to this contract.

(2) "Property," as used in this clause, includes all of the below-described items acquired or produced by the Contractor that are or should be...

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