News and Insights

Texas Supreme Court Creates Substantial Potential Tax Refund Opportunity for Texas Taxpayers

Tax Development Dec 10, 1999

The Texas Supreme Court in Fleming Foods of Texas, Inc. v. Rylander, 6 S.W.2d 278 (Tex. 1999), recently closed a trap for unwary taxpayers and created a substantial potential refund opportunity.

Fleming is a wholesale grocer that purchased various products and paid sales tax to its vendors, who in turn remitted the tax to the State. Fleming was audited by the Comptroller and agreed to several extensions of the four year limitations period so that the Comptroller could complete the audit. The Comptroller ultimately assessed a deficiency, denying a number of refund claims on the grounds that Fleming’s refund rights were derived from its vendors, who actually paid the tax to the State. Because the four year statute of limitations had run on the right of Fleming’s vendors to claim a refund, Fleming was also barred from seeking a refund. The Comptroller further held that the extension agreements signed by Fleming did not extend the limitations period for Fleming’s vendors. Thus, the Comptroller’s ruling created a one way street - the Comptroller could continue to assess taxes against Fleming for the same period that Fleming was barred from claiming a refund.

The Court of Appeals noted that the express language of Tax Code § 111.104(b) (emphasis added) supported Fleming’s right to a refund:

  A tax refund claim may be filed with the comptroller by the person who paid the tax or by the person’s attorney, assignee, or other successor.  

The Comptroller contended that when this section was re-codified in 1981, it incorrectly stated the law. However, the Supreme Court held that taxpayers "must be able to accept and to rely upon the words written by the Legislature if they are clear and unambiguous, their meaning is plain when the code in which they appear is read in its entirety, and they do not lead to absurd results." The Court also rejected the Comptroller’s contention that the Legislature had accepted the Comptroller’s interpretation of the statute. The Court held that the doctrine of legislative acceptance only applies when the statute is ambiguous and in this case, it was not.

It is the statute of limitations for the purchaser, not the vendor, that controls (eliminating the need for refund assignment forms) for purposes of determining when a refund claim may be filed; and 2. An indirect taxpayer (who pays the tax to a vendor) may properly file a claim for refund directly with the Comptroller. Taxpayers should also be aware of similar statutory changes made during the last legislative session. See taxcode § 151.430. Please contact a Ryan & Company professional for more information.