Hallmark Marketing Company, Llc v. Glenn Hegar, Comptroller of Public Accounts of the State of Texas, and Ken Paxton, Attorney General of the State of Texas
488 S.W.3d 795
| Tex. | 2016Background
- Hallmark Marketing Company paid disputed franchise tax after the Comptroller audited its 2008 report and required inclusion of a $628,243,514 net loss from sales of investments in the apportionment-factor denominator.
- Texas Tax Code § 171.105(b) states that gross receipts from sales of investments include “only the net gain from the sale.”
- The Comptroller’s rule (34 Tex. Admin. Code § 3.591(e)(2)) required entities to net a resulting net loss against other receipts (but not below zero) rather than report zero.
- Hallmark sued for a refund, arguing that “only the net gain” excludes a net loss and thus the loss should not be included in the denominator; the trial court and the court of appeals deferred to the Comptroller’s rule.
- The Supreme Court of Texas granted review to resolve whether the statutory phrase “only the net gain” permits including a net loss and whether deference to the Comptroller’s rule was appropriate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Tax Code § 171.105(b)’s phrase “only the net gain” requires inclusion of a net loss in apportionment-factor receipts | Hallmark: “Only the net gain” excludes net losses; if result is a net loss, exclude it (report zero) | Comptroller: statute ambiguous; agency rule requires net losses be netted against other receipts (not below zero) | Court: Held that “only the net gain” cannot include a net loss; Hallmark need not include the net loss |
| Whether agency deference supports the Comptroller’s contrary rule | Hallmark: no deference where statute’s plain language is unambiguous and the rule conflicts with it | Comptroller: agency interpretation entitled to deference if statute ambiguous | Court: Agency rule not entitled to deference because it conflicts with plain statutory language |
| Whether other Tax Code provisions (e.g., §171.1055, §171.1121) compel inclusion of the net loss | Hallmark: other provisions do not override the specific directive of §171.105(b); Hallmark complied with §171.1011 reporting | Comptroller: cross-references and accounting-consistency provisions require treating the loss consistently across provisions | Court: Those provisions do not contradict §171.105(b); specific rule §171.105(b) controls and permits excluding a net loss |
Key Cases Cited
- Calvert v. Electro-Science Inv’rs, Inc., 509 S.W.2d 700 (Tex. Civ. App.—Austin 1974) (explains offsetting gains and losses to determine net gain)
- TGS–NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432 (Tex. 2011) (agencies’ interpretations receive deference when statute ambiguous)
- Combs v. Health Care Servs. Corp., 401 S.W.3d 623 (Tex. 2013) (agency interpretation cannot change plain statutory language)
- Fiess v. State Farm Lloyds, 202 S.W.3d 744 (Tex. 2006) (same principle on limits of agency deference)
- Tex. Lottery Comm’n v. First State Bank of DeQueen, 325 S.W.3d 628 (Tex. 2010) (general/specific statutory interpretation principles)
Decision: Reversed the court of appeals; held §171.105(b) does not require inclusion of a net loss in the apportionment-factor denominator and remanded for further proceedings consistent with the opinion.