Texas Sales Tax: Declaratory Relief Claims Allowed in Tax Protest Suit

The jurisdictional tide may be turning in Texas. Prior to May 9, 2019, Texas taxpayers were generally barred from pursuing claims for “declaratory relief” in tax protest and tax refund suits. As a result, taxpayers were unable to seek attorney’s fees otherwise available for declaratory claims. In general, a claim for “declaratory relief” asks the court to determine the litigating parties’ rights under a statute or rule. In a tax suit, a claim for “declaratory relief” would seek the court’s ruling construing tax statutes and rules for the future.

Historically, courts have barred taxpayers from raising claims for “declaratory relief,” reasoning that a court’s judgment awarding recovery of the overpaid taxes implicitly provides the future guidance that taxpayers seek. As a result, the courts considered the claims for “declaratory relief” to be unnecessary and redundant.

However, times have changed. The Texas Comptroller no longer treats a court decision or judgment ordering the refund of taxes as providing any guidance on how the tax laws apply in the future. In CSG Forte Payments, Inc. v. Hegar, the Comptroller refuses to apply the decision in Hegar v. CheckFree Services Corporation as judicial precedent to Forte, a similarly-situated provider of electronic payment services. In Pointsmith Point-of-Purchase Management Services, LP v. Hegar, the Comptroller has gone even further. There, the Comptroller refuses to apply the state court judgment rendered in favor of Pointsmith for one audit period to resolve the same tax issue arising in Pointsmith’s subsequent audit period. So, Pointsmith was forced to file yet another lawsuit on the exact same issue. According to the Comptroller, a Texas judgment does not provide prospective guidance to any taxpayer, including the taxpayer to whom the judgment is issued.

In light of this change in the Comptroller’s position, on May 10, 2019, a state district court issued its order in CSG Forte Payments, Inc. denying the Comptroller’s challenge to Forte’s right to pursue claims for declaratory relief. Specifically, the court’s order allows Forte to proceed with its claims for declaratory relief under the Administrative Procedure Act, Uniform Declaratory Judgments Act, and the ultra vires doctrine. The Comptroller filed an expedited appeal on May 13th.

For more information, please visit texastaxlaw.com/blog or contact Jimmy Martens, Danielle Ahlrich or Allison Cunningham, the attorneys representing Forte and Pointsmith.