Tennessee Gas Pipeline Co. v. Rylander

• Decision Date: 13 June 2002
• Docket Number: No. 03-02-00029-CV.,03-02-00029-CV.
• Parties: TENNESSEE GAS PIPELINE COMPANY, Appellant, v. Carole Keeton RYLANDER, Comptroller of Public Accounts of the State of Texas; and John Cornyn, Attorney General of the State of Texas, Appellees.
• Court: Texas Court of Appeals

80 S.W.3d 200

TENNESSEE GAS PIPELINE COMPANY, Appellant, v. Carole Keeton RYLANDER, Comptroller of Public Accounts of the State of Texas; and John Cornyn, Attorney General of the State of Texas, Appellees.

No. 03-02-00029-CV.

Court of Appeals of Texas, Austin.

June 13, 2002.

Rehearing Overruled July 26, 2002.

Ron Patterson, Kliewer, Breen, Garatoni, Patterson & Malone, Inc., San Antonio, for Appellant.

Christopher S. Jackson, Assistant Attorney General, Austin, for Appellees.

Before Justices KIDD, PATTERSON and PURYEAR.

MACK KIDD, Justice.

This appeal involves a claim for tax exemptions related to aircraft operated by a common carrier pipeline. See Tex. Tax Code Ann. § 151.328 (West 2002). Tennessee Gas Pipeline Company ("Tennessee Gas") filed a claim for a refund of sales and use taxes paid in association with the maintenance and repair of its aircraft. When its refund claim was denied, Tennessee Gas filed suit against Carole Keeton Rylander, Comptroller of Public Accounts of the State of Texas, and John Cornyn, Attorney General of the State of Texas (collectively the "Comptroller"). After the parties filed competing motions for summary judgment, the district court affirmed the Comptroller's denial of the refund claim by granting summary judgment in favor the Comptroller. We will affirm the district court's judgment.

THE CONTROVERSY

The tax code provides that sales tax will be imposed on the sale of all taxable items. Tex. Tax Code Ann. § 151.051 (West 2002). The tax code further provides that a use tax will be imposed on the storage, use, or other consumption in this state of a taxable item purchased from a retailer for storage, use, or other consumption within this state. Id. § 151.101. But the tax code also creates certain exemptions to the imposition of sales and use taxes, including exemptions for persons using aircraft as a certificated or licensed carrier of persons or property. The section of the tax code relevant to Tennessee Gas's claim provides, in relevant part, as follows:

(a) Aircraft are exempted from the taxes imposed by this chapter if:

(1) sold to a person using the aircraft as a certificated and licensed carrier of persons or property

* * *

(b) Repair, remodeling, and maintenance to aircraft, including an engine or other component part of the aircraft, operated by a person described by Subsection (a)(1) or (a)(2) are exempted from the taxes imposed by this chapter.

Id. § 151.328. Tennessee Gas is authorized by the Federal Energy Regulatory Commission ("FERC") to operate a common carrier pipeline. In conjunction with its operation as a common carrier pipeline, Tennessee Gas owns and operates two aircraft that it uses to transport employees and executives for business purposes and to inspect pipelines and rights-of-way. Between January 1, 1994 and May 31, 1996, Tennessee Gas either paid or accrued and remitted $83,472.57 in Texas sales and use taxes on purchases of parts and repair and maintenance services for its aircraft. Tennessee Gas filed a claim for a refund on those taxes with the Comptroller, claiming an exemption pursuant to section 151.328 of the tax code.

The outcome of Tennessee Gas's claim for an exemption is not determined solely by the tax code. A rule promulgated by the Comptroller interpreting the section's exemptions is also relevant to Tennessee Gas's appeal. See 34 Tex. Admin. Code § 3.297 (2001) ("Rule 3.297"). In applying for its refund, Tennessee Gas attempted to rely on Rule 3.297, which defines "licensed and certificated carrier" to include, among others, a pipeline operator authorized to operate as a common carrier by the appropriate state or federal agency. See id. § 3.297(a)(1). As a common carrier pipeline authorized by FERC, Tennessee Gas argued it was a licensed and certificated carrier under section (a)(1) of Rule 3.297. As such, Tennessee Gas claimed that it was qualified under section (d)(2) of the Rule — the section interpreting and applying the exemptions for aircraft repair and maintenance created by section 151.328 of the tax code. See id. § 3.297(d)(2).

In ruling on Tennessee Gas's claim for a refund, the Comptroller rejected Tennessee Gas's conclusion that the exemptions under Rule 3.297(d) are available to all licensed and certificated carriers identified by Rule 3.297(a)(1). The Comptroller interpreted the exemptions in tax code section 151.328 and Rule 3.297(d) to be limited to air common carriers certificated by the Federal Aviation Administration ("FAA"). The Comptroller found that Tennessee Gas does not use its aircraft as commoncarrier devices to transport persons or property for hire and is not licensed or certificated as an air common carrier by the FAA. Therefore, the Comptroller denied the refund claim. Tennessee Gas filed suit in district court to contest the Comptroller's decision.

In the district court, the parties stipulated to the facts and filed competing motions for summary judgment. The district court denied Tennessee Gas's motion, granted the Comptroller's motion, and rendered judgment accordingly. Tennessee Gas filed a motion for a new trial that was overruled by operation of law. Tennessee Gas now appeals.

In this appeal, Tennessee Gas complains that by granting the Comptroller's motion for summary judgment, the trial court erred in affirming the Comptroller's decision to deny Tennessee Gas's refund claim. Tennessee Gas argues that Rule 3.297 is unambiguous and that the Comptroller's present interpretation conflicts with the way it has interpreted the rule in the past. Furthermore, Tennessee Gas contends that the Comptroller's decision to interpret Rule 3.297 in a manner that precludes Tennessee Gas from receiving an exemption improperly amended the Rule, thus violating the rule-making requirements of the government code.

DISCUSSION

When the language of a statute is unambiguous, courts must seek the intention of the Legislature as found in the plain meaning of the words used. Retama Dev. Corp. v. Texas Workforce Coinm'n, 971 S.W.2d 136, 139 (Tex.App.-Austin 1998, no pet.). But in construing a statute, courts may consider, regardless of whether the statute is ambiguous, the administrative construction of the statute. Tex. Gov't Code Ann. § 311.023(6) (West 2002). The Comptroller's interpretation of a statute it is charged with enforcing is entitled to serious consideration, so long as the construction is reasonable and does not contradict the plain meaning of the statute. See Tarrant Appraisal Dist. v. Moore, 845 S.W.2d 820, 823 (Tex.1993).

Administrative rules are ordinarily construed in the same way as statutes and an agency's interpretation of its own rule is entitled to deference by the courts. Lewis r. Jacksonville Bldg. & Loan Ars'n, 540 S.W.2d 307, 310 (Tex. 1976); Public Util. COMMW v. Gulf States Utils. Co., 809 S.W.2d 201, 207 (Tex.1991). Greater deference is given to an agency's interpretation that is longstanding and applied uniformly. Amarillo Indep. Sch. Dist. v. Meno, 854 S.W.2d 950, 954 n. 6 (Tex.App.-Austin 1993, writ denied).

To succeed in its appeal, Tennessee Gas must overcome the heightened burden placed on claimants of a tax exemption. Statutory exemptions from taxation are strictly construed and the claimant bears the burden of clearly showing that it falls within the exemption. North Alamo Water Supply Corp. v. Wilkiecy County Appraisal Dist., 804 S.W.2d 894, 899 (Tex.1991). All doubts as to the availability of an exemption must be resolved in favor of the taxing authority. State v. Glass, 723 S.W.2d 325, 327 (Tex.App.-Austin 1987, writ ref'd n.r.e.) (citing Bullock r. National Bancshares Corp., 584 S.W.2d 268, 274 (Tex.1979)).

Tennessee Gas first complains that the Comptroller improperly denied Tennessee Gas's exemption claim because the Comptroller arbitrarily and capriciously disregarded the clear and unambiguous language of Rule 3.297. In support of its argument, Tennessee Gas cites Public Utility Commission v. Gulf States Utilities Co. for the proposition that if an agency fails to follow the clear, unambiguous language of its own regulation, its action must be reversed as arbitrary and capricious. Gulf States Utils. Co., 809 S.W.2d at 207. The Comptroller responds that its construction of tax code section 151.328 is both reasonable and consistent with the language contained in Rule 3.297. The Comptroller further argues that because its interpretation is consistent with the statute and rule in question, this Court should accept its interpretation regardless of the existence of other reasonable interpretations.

Rule 3.297 begins with the following language defining who qualifies as a licensed and certificated carrier:

(a) Carriers Generally

(1) Licensed and certificated carrier — A person authorized by the appropriate United States agency or by the appropriate state agency within the United States to operate an aircraft, vessel, train, motor vehicle, or pipeline as a common or contract carrier transporting persons or property for hire in the regular course of business.

34 Tex. Admin. Code § 3.297(a)(1) (2001). Tennessee Gas points to the specific inclusion of pipelines among those common carriers who can qualify as licensed and certificated carriers. Given its authorization by FERC to operate as a common carrier pipeline, Tennessee Gas argues that it is a licensed and certificated carrier for purposes of section (a)(1) of the Rule. Tennessee Gas then looks to a separate section of the Rule on exemptions for aircraft, which reads as follows:

(d) Licensed and certificated carriers, flight schools, and flight school instructors

* * *

(2) The following items or services used in the repair, remodeling, or maintenance of aircraft or aircraft engines or component parts by or for a person qualified under subsection (a)(1) or (c)(7) of this section are exempt if purchased by the aircraft owner or operator, by the aircraft manufacturer, or by a repair facility.

(A) Machinery,...