J.D. Fields & Co. (“Fields”), a pipe and piling distributor headquartered in Houston, Texas was audited by the Comptroller in 2008 for the period April 1, 2005 to May 31, 2008. The auditor determined that Fields was incorrectly collecting local sales tax on its sales based on ship-to locations rather than Fields’s Houston place of business that received the order. The auditor instructed Fields to collect Houston city and transit taxes on orders received at the Houston location. Fields agreed and told the auditor that it would begin collecting local tax based on its Houston place of business on January 1, 2009, unless the auditor objected. According to the testimony provided by Fields’s chief financial officer, the auditor replied: “No, I think that will be fine.”
When the Comptroller audited Fields again in 2012, the auditor assessed Houston city and transit sales taxes on sales between June 1, 2008 and December 31, 2008. Fields requested relief based on the previous auditor’s acceptance of Fields’s plan to start collecting Houston city and transit taxes beginning January 1, 2009, as provided in Comptroller’s Rule 3.10, the Taxpayer Bill of Rights (34 TAC § 3.10). The Taxpayer Bill of Rights provides that the Comptroller will grant relief to a taxpayer who follows erroneous advice given by a Comptroller employee. In addition, Fields referenced the Comptroller’s Rule 3.5 (34 TAC § 3.5), which provides that the Comptroller will consider factors including reliance on advice provided by the agency when deciding requests to waive penalty or interest.
When the Comptroller denied relief, Fields paid the tax under protest and filed suit, claiming that the Comptroller erred when he failed to grant relief under Rules 3.10 and 3.5. In response, the Comptroller filed a motion for summary judgment, arguing that sovereign immunity barred Fields’s claim. The district court denied the motion, and the Comptroller appealed.
A taxpayer may file a protest suit pursuant to Tax Code § 112.051, which is a statutory waiver of sovereign immunity. Under that section, a taxpayer must pay the tax with a protest letter that states in detail the reasons for recovering the payment and must file suit before the 91st day after the date of the payment.
The Comptroller contended that, although Fields complied with these requirements, the Legislature did not waive immunity for this claim because Fields asserted an equitable estoppel claim instead of alleging that the Comptroller cannot legally collect the taxes. The Court of Appeals found that Fields was not seeking relief under principles of equity.1 Rather, Fields was arguing that the Comptroller failed to follow its own rules, which entitled Fields to a refund.
The Comptroller also argued that Tax Code § 111.103(a) gave the Comptroller sole discretion to settle tax claims. The Court of Appeals did not agree that the Comptroller’s discretion is absolute. The Court of Appeals found that § 111.103(a) requires the Comptroller to use specific and objective standards in deciding whether to settle tax claims and must follow the standards set forth in § 111.103(a).
Next, the Comptroller argued that, because protest suits are tried de novo, the Court cannot review a settlement decision that no longer exists. The Court explained that trial de novo “does not preclude the court from considering the underlying facts and determining if the agency violated its own rules” and upheld the denial of the Comptroller’s motion.
The Texas Supreme Court2 recently denied the Comptroller’s petition to review the Court of Appeals decision.3 This decision clears the way for Fields to argue the merits of its suit to recover taxes paid under protest. This case makes clear that a taxpayer may sue the Comptroller to enforce the Taxpayer Bill of Rights.
1 Hegar v. J.D. Fields & Co., 604 S.W.3d 120 (Tex. App.-Austin 2020).
2 Hegar v. J.D. Fields & Co., No. 20-0510, 2021 BL 161009 (Tex. April 30, 2021).
3 Hegar v. J.D. Fields & Co., 604 S.W.3d 120 (Tex. App.-Austin 2020), Court Opinion (March 19, 2020).
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