(Volume 4, Issue 9 – October 2009)
“Your Source for Information About the Texas City Attorneys Association”
News and Updates
Save the Date! The TCAA Fall Seminar in conjunction with the TML Annual Conference is scheduled for October 22, 2009, in Fort Worth. Special thanks to our fall sponsor:
Taylor, Olson, Adkins, Sralla, and Elam, L.L.P.
A link to registration and hotel information is available on the front page of www.texascityattorneys.org.
TATOA Broadband Workshop: The Texas Association of Telecommunications Officers and Advisors and the Office of Congressman Ciro Rodriguez will host “Cities Workshop for Successful Request of Federal Broadband Technology Opportunities Program Grants and Energy Efficiency Block Grants” at the San Antonio Convention Center on October 23, 2009, from 9:00 a.m. to 5:00 p.m. The cost is $50. For more information, please contact Gabriel Garcia, assistant city attorney, City of San Antonio, at 210-207-2114 or email@example.com.
Municipal Attorney Job Openings: For the most recent Texas Municipal League classifieds postings, please click here.
TML/TCAA Legal Defense Program
Amicus Brief, Attorney General Opinion, and State Agency Comments Filed
Governmental Immunity: Linda Sanders-Burns v. City of Plano and Joseph Cabezuela, No. 08-40459 (5th Cir. 2009). TCAA, TML, and TMPA joined others in filing an amicus brief in the United States Court of Appeals for the Fifth Circuit supporting the City of Plano’s request for rehearing en banc. Amici argued that a plaintiff should not be able to sue a governmental official in his or her individual capacity after the statute of limitations has expired and after most discovery deadlines have passed, even if the official was previously named in his official capacity. Amici argued that strong policy arguments work against the panel’s holding, including the fact that the panel’s decision will force local governments and governmental officials to guess – at their peril – whether officials are being sued in an official capacity, individual capacity, or both. Also, plaintiffs should be required to clearly state whether the suit is brought against an individual in his or her individual versus official capacity. The brief was accepted by the Fifth Circuit on September 17, 2009.
Recent Texas Cases of Interest to Cities
Note: Included cases are from the period beginning on the 10th of the previous month through the 10th of the current month.
Sales Tax: Susan Combs v. City of Webster, et al., No. 03-08-00291-CV (Tex. App.—Austin Oct. 2, 2009). This suit began when the comptroller retroactively recovered sales tax revenue from past furniture store sales from certain cities to give to other cities.
The Room Store, Inc., and Ashley Furniture have retail furniture store locations throughout Texas. Originally, the sales taxes earned on sales at the retail locations were given to the city in which the retail location was sited. The furniture stores then amended their sales tax reports to their “place of business” from their retail stores to their warehouses in another city. The comptroller then retroactively reallocated the sales tax revenue earned from May 2002 through January 2006. The cities that lost sales tax revenue sued the comptroller in September 2006, and the comptroller filed a plea to the jurisdiction as to all of the cities’ causes of action, which included: (1) takings and due process; (2) declaratory judgment that the comptroller was acting outside her authority by allocating tax revenues retroactively; and (3) that the comptroller did not follow the Administrative Procedure Act (APA) when she reallocated the tax revenue.
Article I, Section 19 of the Texas Constitution states:
Article I, Section 17 states:
To have standing to argue rights under Section 19 or Section 17, plaintiffs must show that they have a vested property interest at stake. See Spring Branch Indep. Sch. Dist. V. Stamos, 695 S.W.2d 556, 560-62 (Tex. 1985). There is a four-year period in which the comptroller is allowed under statute to make a refund or credit based on a taxpayer’s overpayment. TEX. TAX. CODE §§A111.107; 111.201. Until the end of this four-year period, a taxing unit’s interest in the sales tax is contingent upon a possible refund. See Corpus ChristiPeople’s Baptist Church, Inc. v. Nueces County Appraisal Dist., 904 S.W.2d 621, 626 (Tex. 1995).
The cities argued that the comptroller’s attempted recovery and reallocation of the sales tax violated Section 19 because the cities did not receive notice or an opportunity to be heard before the money was reallocated. The cities further argue that the reallocation is a taking under Section 17. The court of appeals held that the cities do not have a vested property right in their sales tax amounts during the four-year period in which the comptroller can provide refunds. The court of appeals held that the comptroller’s plea to the jurisdiction on the cities’ constitutional issues should be granted.
For a declaratory judgment to be brought against a governmental entity, a plaintiff must prove that sovereign immunity has been waived. See Fed. Sign v. Tex. S. Univ., 951 S.W.2d 401, 405 (Tex. 1997). The comptroller exercises a governmental function when administering sales tax. TEX. TAX. CODE §§ 321.301; 322.201. If a state official violates state law, sovereign immunity may be waived for the individual. City of El Paso v. Heinrich, 84 S.W.3d 366, 371 (Tex. 2009). The cities argued that the comptroller violated state law in two ways: (1) that the comptroller misconstrued the “place of business” definition in the Tax Code; and (2) that the comptroller misapplied the “place of business” definition.
Sale of a taxable item occurs within the city in which the sale is consummated, which is generally the “place of business” of the retailer. TEX. TAX. CODE § 321.203. “If a retailer has more than one place of business in this state, a sale of a taxable item by the retailer is consummated at the retailer’s place of business” from where the item is shipped or where the buyer receives the product. Id. § 321.203(c). However, if the buyer does not receive the item from the retailer or the order is not received at the retailer, the warehouse may be the place of business. Id. § 321.203(d). A place of business is a location “operated by the retailer . . . for the purpose of receiving orders for taxable items and includes any location at which three or more orders are received by the retailer during a calendar year.” Id. § 321.002. The court of appeals held that it is a reasonable interpretation by the comptroller that the warehouses were “places of business” under the Tax Code because they received the required number of orders per year. The court of appeals held that sovereign immunity bars the cities’ claim that the comptroller violated the law in interpreting “place of business.”
The cities also argued that the comptroller illegally misapplied the definition of “place of business.” The comptroller argued that the three orders can be received at a distribution center, or other offices within the same building, so long as the doors are unlocked. Evidence was presented by the cities that no orders were taken at the distribution center and that offices where orders were taken were separated by walls and locked doors. The court of appeals held that since there is a fact issue as to whether the warehouses in question are “places of business” under the Tax Code, the issue should be decided by the trial court. The court of appeals held that the comptroller’s plea to the jurisdiction was properly denied.
Retroactive Assessment of Local Sales Tax
The cities also sought a declaratory judgment that the comptroller had no authority to reclaim or recover taxes and then reallocate them to a different taxing unit. Section 322.101 of the Texas Tax Code allows cities to impose and receive sales taxes. The comptroller is responsible for administering, collecting, disbursing, and enforcing the taxes. TEX. TAX CODE §§ 321.301; 322.201; 321.502; 322.302. The comptroller also has the authority to adjust tax amounts if they were unlawfully or erroneously collected. Id. § 111.104. These adjustments can be made any time within four years from the date the tax becomes due. Id. §§ 111.107; 111.201. The comptroller’s position is that the adjustment can either be that a taxpayer owes less taxes or that a taxpayer owes more taxes. In this case, the furniture stores amended their tax returns to state that they owed less taxes from their retail locations and owed more taxes from their warehouses. The court of appeals held that this interpretation by the comptroller was reasonable and that the comptroller’s plea to the jurisdiction should have been granted.
Administrative Procedure Act (APA) Claim
The cities also sought a declaratory judgment under the APA to determine whether the comptroller’s rule allowing retrospective reallocation of local sales tax was not properly promulgated and is invalid. Section 2001.038 allows declaratory relief to determine whether a rule or interpretation of a rule “interferes with or impairs, or threatens to interfere with or impair, a legal right or privilege of the plaintiff.” TEX. GOV’T CODE § 2001.038. Section 2001.038 waives sovereign immunity. Tex. Logos, L.P. v. Tex. Dep’t of Transp., 241 S.W.3d 105, 123 (Tex. App.—Austin 2007, no pet.). The court of appeals held that the cities failed to plead a cause of action under the APA.
Governmental Immunity: Dorsey L. Smith v. City of Blanco, No. 03-08-00784-CV (Tex. App.—Austin Oct. 8, 2009) (mem. op.). The court of appeals held that the city’s sovereign immunity was not waived because: (1) Local Government Code Section 271.152 does not apply to Smith’s breach of contract claim; and (2) Smith did not plead sufficient facts to show a waiver of governmental immunity on the issue of nuisance. The court also denied Smith the opportunity to amend since he did not have subject matter jurisdiction on his other causes of action and simply wished to allege new causes of action.
Civil Service: City of Houston v. Thelma J. Jones, No. 14-08-00209-CV (Tex. App.—Houston [14th Dist.] Oct. 8, 2009). The court of appeals held that the district court had no jurisdiction to hear the city’s appeal from the civil service hearing examiner’s ruling under Local Government Code § 143.1016(j) because the city did not show that the examiner exceeded his jurisdiction as occurred in City of Pasadena v. Smith, No. 06-0948, 2009 WL 2667599 (Tex. Aug. 28, 2009).
Governmental Immunity-Tort: City of Pasadena v. Steven Belle and James West, No. 14-08-00531-CV (Tex. App.—Houston [14th Dist.] Oct. 1, 2009). The court of appeals held that a fact issue existed as to whether the police officer’s speed was sufficient for a finding of recklessness and therefore a possible waiver of sovereign immunity.
Property Tax: James M. Gilbert v. Houston Indep. Sch. Dist., City of Houston, et al., No. 01-06-00159-CV (Tex. App.—Houston [1st Dist.] Sept. 24, 2009) (mem. op.). Mr. Gilbert, who represented himself, did not present issues with substantive merit, and the court of appeals affirmed the trial court’s tax lien judgment against his property for unpaid property taxes.
As a supplement to TCAA News, please check the TML Legislative Update Newsletter and TML’s Connect News Service .
Please contact Scott Houston, TCAA General Counsel, with your news, questions, and/or comments by e-mail at firstname.lastname@example.org or by phone at 512-231-7400.
TCAA members may use the information herein for any purpose. No other person may reproduce, duplicate, or distribute any part of this document without the written authorization of the Texas City Attorneys Association.
Texas City Attorneys Association
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