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Cantu Enterprises, LLC v. Hegar

Court of Appeals of Texas, Third District, Austin

July 7, 2017

Cantu Enterprises, LLC, Appellant
v.
Glenn Hegar, Comptroller of Public Accounts of the State of Texas; and Ken Paxton, Attorney General of the State of Texas, Appellees

         FROM THE DISTRICT COURT OF TRAVIS COUNTY, 126TH JUDICIAL DISTRICT NO. D-1-GN-13-004369, HONORABLE SCOTT H. JENKINS, JUDGE PRESIDING

          Before Chief Justice Rose, Justices Pemberton and Bourland.

          MEMORANDUM OPINION

          Cindy Olson Bourland, Justice.

         Appellant Cantu Enterprises, LLC (Cantu) seeks reversal of the trial court's denial of a refund of sales and use tax, interest, and penalty that Cantu paid under protest on the purchase of an aircraft. Cantu asserts that its purchase is an exempt sale for resale under sections 151.006 and 151.302 of the Texas Tax Code (the "sale-for-resale exemption"). Appellees, Glenn Hegar, Comptroller of Public Accounts, and Ken Paxton, Attorney General of the State of Texas (collectively, Comptroller), denied Cantu's refund request, stating that Cantu was not entitled to the sale-for-resale exemption because it did not meet the statutory requirements. Following a bench trial, the trial court ruled in favor of the Comptroller, holding that Cantu was not entitled to a refund for taxes assessed on the purchase of the aircraft. We will affirm.

         BACKGROUND

         Cantu is a Texas limited liability company owned by Alonzo Cantu and his wife, Yolanda Cantu. In June 2009, Cantu Consulting, LLC (Consulting) was formed as a single-member LLC wholly owned by Cantu. Consulting provided consulting services to various entities in which Mr. Cantu also had an ownership or management interest.

         In September 2009, Cantu purchased a 2007 Cessna 560XL jet aircraft ("the aircraft") for $7, 200, 000, which it subsequently hangared and used in Texas. During the tax period at issue, Cantu leased the aircraft to Consulting, initially under an oral contract and eventually under a written lease agreement, which Mr. Cantu signed on behalf of both parties. While Cantu did not pay sales or use tax on the aircraft at the time of purchase, it collected and remitted sales tax on the lease of the aircraft subsequent to its purchase.

         Consulting and Cantu were separate entities, but their operations were intertwined. Neither Cantu nor Consulting had any employees, but instead outsourced their bookkeeping responsibilities to the staff of Cantu Construction, another business owned by Mr. Cantu. Because it was a disregarded entity for tax purposes, Consulting filed federal tax returns on a combined basis with Cantu, rather than separately. Accounting and banking for the two companies were also performed on a combined basis. Cantu invoiced Consulting's clients for services provided by Consulting and accepted payment on Consulting's behalf. Lease payments and expense reimbursements due from Consulting to Cantu for use of the aircraft were accounted for on a consolidated basis as well. The structure of the entities and the lease were set up by an aviation and tax consulting firm for purposes that included diversification and reduction of risk of liability.

         Following an audit, the Comptroller assessed use tax on Cantu's purchase of the aircraft, which Cantu paid under protest. The Comptroller denied Cantu's request for a refund because it found that Cantu did not qualify for the exemption asserted. Cantu claims that it purchased the aircraft for the purpose of reselling it to Consulting in the normal course of business and that, therefore, the purchase was exempt from taxation under Texas Tax Code sections 151.006(a)(1) and 151.302, which make up the sale-for-resale exemption. The Comptroller counters that the proper statutory provision under which the analysis should be performed is Tax Code section 151.006(a)(2) and argues that Cantu did not qualify for the exemption thereunder because it did not purchase the aircraft for the sole purpose of leasing it to another person in the normal course of business. The trial court ruled in favor of the Comptroller, denying Cantu's request that the tax on the purchase of the aircraft be refunded but ordering a refund of the sales tax Cantu remitted on the lease of the aircraft since the purchase. Cantu appeals the trial court's decision.

         ANALYSIS

         On appeal, Cantu asserts that the trial court erred in denying Cantu's requested exemption on the basis that the aircraft purchase did not qualify as a sale for resale, as defined in Tax Code section 151.006. In its first issue, Cantu challenges the trial court's conclusion that the aircraft purchase did not fit the definition of a sale for resale under Section 151.006(a)(1) of the Tax Code. In its second issue, Cantu asserts error in the trial court's conclusion that section 151.006(a)(1) does not apply to Cantu's aircraft purchase because Cantu retained ownership of the aircraft. In its final issue, Cantu challenges the propriety of the trial court's findings regarding the economic substance of the purchase and lease transactions, claiming the analysis improperly imposed extra-statutory requirements. Our resolution of Cantu's second and third issues informs our resolution of the first. As such, we begin with those.

         Standard of Review

         The resolution of Cantu's second and third issues depends on statutory construction, which we review de novo. See State v. Shumake, 199 S.W.3d 279, 284 (Tex. 2006). Our primary goal in construing a statute is to give effect to the legislature's intent, as indicated by the plain meaning of the text of the statute. See id.; Lexington Ins. Co. v. Strayhorn, 209 S.W.3d 83, 85 (Tex. 2006). Texas law recognizes that "an agency's construction of a statute may be taken into consideration by courts when interpreting statutes, " and deference to an agency's construction is appropriate when the statutory language is ambiguous. Southwest Royalties, Inc. v. Hegar, 500 S.W.3d 400, 405 (Tex. 2016) (citing Railroad Comm'n v. Texas Citizens for a Safe Future & Clean Water, 336 S.W.3d 619, 624 (Tex. 2011)).

         Furthermore, as recognized by the Texas Supreme Court, exemptions from tax are strictly construed against the taxpayer because "they undermine equality and uniformity by placing a greater burden on some taxpaying businesses and individuals rather than placing the burden on all taxpayers equally." North Alamo Water Supply Corp. v. Willacy Cty. Appraisal Dist., 804 S.W.2d 894, 899 (Tex. 1991); Mont Belvieu Caverns, LLC v. Texas Comm'n on Envtl. Quality, 382 S.W.3d 472, 486 (Tex. App.-Austin 2012, no pet.). Accordingly, the taxpayer carries the burden to establish that it is entitled to a refund. Texas Student Hous. Auth. v. Brazos Cty. Appraisal Dist., 460 S.W.3d 137, 141 (Tex. 2015). Specifically, the taxpayer must clearly show that it meets the requirements for an exemption from tax. Id. An exemption must affirmatively appear in the statute, and all doubts are resolved in favor of the taxing authority. Id.; see Bullock v. National Bancshares Corp., 584 S.W.2d 268, 272 (Tex. 1979); DuPont Photomasks, Inc. v. Strayhorn, 219 S.W.3d 414, 423 (Tex. App.-Austin 2006, pet. denied).

         Statutory Scheme

         Section 151.051(a) of the Tax Code imposes a sales tax "on each sale of a taxable item in this state." Tex. Tax Code § 151.051(a). "'Taxable item' means tangible personal property and taxable services." Id. § 151.010. It is uncontested that the aircraft at issue here is "tangible personal property, " which means "personal property that can be seen, weighed, measured, felt, or touched or that is perceptible to the senses in any other manner." Id. § 151.009. Cantu is seeking a refund of use tax under the sale-for-resale exemption of the Tax Code, which states: "[t]he sale for resale of a taxable item is exempt from the taxes imposed by this chapter." Id. § 151.302(a). The purpose of the sale-for-resale exemption is to prevent double taxation. DTWC Corp. v. Combs, 400 S.W.3d 149, 155 (Tex. App.-Austin 2013, no pet.) (citing Sharp v. Clearview Cable TV, Inc., 960 S.W.2d 424, 426 (Tex. App.-Austin 1998, pet. denied)). A "sale for resale" is statutorily defined as one of six types of sales. Pertinent to our discussion are two:

(1) tangible personal property or a taxable service to a purchaser who acquires the property or service for the purpose of reselling it . . . in the normal course of business in the form or condition in which it is acquired or as an attachment to or ...

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