Taxpayers May Amend Pleadings in Protest Suit to Develop New Facts, But May Not Add New Grounds

Taxpayers may amend state court pleadings in tax protest suits as facts develop without losing jurisdiction, so long as new grounds are not raised.

In Texas, tax protest suits differ from many other types of lawsuits because taxpayers must comply with strict jurisdictional requirements unique to Chapter 112 of the Texas Tax Code. Taxpayers must first pay the amount assessed and submit with the payment a written protest letter stating fully and in detail each reason for recovering the payment. See Tex. Tax Code § 112.052. Then, the taxpayer must file suit within 90 days of the date the protest payment is made. Id. In protest suits, the issues determined by the court are limited to those arising from the reasons expressed in the written protest as originally filed. See Tex. Tax Code § 112.053(b). If the taxpayer amends its pleadings to include grounds for recovery not expressed in the written protest, then the amendment could create a variance issue where the court no longer has subject-matter jurisdiction to hear the case.

In OGCI Training, Inc. v. Hegar, No. 03-16-00704-CV (Tex. App.—Austin Oct. 27, 2017, no pet. h.), the court allowed OGCI to amend its tax protest suit to plead new facts, as they became known through discovery. OCGI had filed its protest suit to challenge the Comptroller’s calculation of OGCI’s apportionment factor. In its protest letter, OGCI argued that the tax was assessed in error because OGCI performed its receipt-producing activities principally in Oklahoma and not in Texas. OGCI’s protest letter alleged that its revenues should be apportioned using the “relative cost of performance” method and that the Comptroller failed to properly apportion OGCI’s receipt-producing activities.

During discovery, OGCI’s counsel learned that OGCI had entered into arrangements with third-party instructors to create course materials, deliver the courses, and update the course materials as necessary. In exchange, the third-party instructors received two-thirds of the course revenue and bore two-thirds of the courses’ expenses. OGCI amended its petition to plead these additional facts. This resulted in the Comptroller filing a plea to the jurisdiction, which argued that OGCI raised new grounds for recovery, not expressly stated in its protest letter. The trial court granted the Comptroller’s plea, and OGCI appealed.

The Third Court of Appeals reversed the trial court’s decision. It held that OGCI’s pleadings did not violate the jurisdictional requirement, stating: “[t]o the extent OGCI now claims that its income arrangements with its third-party instructors impact the calculations of its gross receipts, of its costs, and ultimately its apportionment factor, we conclude that this issue does ‘arise’ from the reasons presented in OGCI’s protest letter. These issues—how much OGCI collects from the training sessions in Texas and how any apportionment of that revenue should be calculated—reasonably relate to and are wholly consistent with the legal basis presented by OGCI in its protest letter concerning the calculation of its apportionment factor.” See OGCI Training, Inc. v. Hegar, No. 03-16-00704-CV at 17.

Because OGCI’s amended petition did not affirmatively state incurable defects in jurisdiction, the appeals court remanded the case to the trial court to allow OGCI the opportunity to amend its pleadings to clarify the purpose of the amendment.

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