Court of Appeals of Texas, Third District, Austin
THE DISTRICT COURT OF TRAVIS COUNTY, 250TH JUDICIAL DISTRICT
NO. D-1-GN-11-001059, HONORABLE LORA J. LIVINGSTON, JUDGE
Chief Justice Rose, Justices Goodwin and Kelly.
Rose, Chief Justice.
Rent-A-Center, Inc. complains of the trial court's
judgment awarding it only a portion of the franchise taxes it
paid under protest. Appellees are Glenn Hegar, in his
capacity as Comptroller of Public Accounts of The State of
Texas, and Ken Paxton, in his capacity as Attorney General of
The State of Texas ("the Comptroller"). The sole
issue on appeal is whether Rent-A-Center must reduce its
cost-of-goods-sold ("COGS") deduction for the
merchandise it sold in 2007 by depreciation on that
merchandise during the time it was rented prior to sale, as
reflected on Rent-A-Center's federal tax return.
See Tex. Tax. Code §§ 171.101(a)(1),
.1012. Answering that question in the affirmative, we affirm
the trial court's judgment.
provides furniture, electronics, appliances, and computers to
consumers, either through immediate, outright purchase or,
more commonly, through "rent to own" agreements.
Rent-A-Center, Inc. v. Hegar, 468 S.W.3d 220, 221
(Tex. App.-Austin 2015, no pet.). Under the "rent to
own" agreements, the customer makes weekly,
semi-monthly, or monthly payments over a specified period of
time-the average term is eighteen months-and becomes the
owner of the merchandise at the end of the term, provided the
customer has not terminated or breached the agreement.
Id. at 222. The merchandise is sold in an average of
approximately twenty months, the average number of
rental-purchase agreements after which an item is ultimately
sold is three, and the sale price that a customer pays for an
item decreases from one rental-purchase agreement to the next
for that same item because the item is then considered used.
Id. at 224.
2008 franchise tax report, Rent-A-Center claimed a
retailer's COGS deduction that included $562, 966, 741
referred to in Rent-A-Center's documentation as
"Rental-Purchase Sales." After an audit, the
Comptroller determined that Rent-A-Center was not entitled to
a COGS deduction at all, classifying Rent-A-Center as a
service provider and not a retail business. Rent-A-Center
paid $1, 070, 683.67 in franchise taxes under protest, and
then sued, asserting that (1) it should be allowed to take a
COGS deduction and (2) it was entitled to its entire asserted
COGS deduction, with no reduction for depreciation of the
goods prior to sale. On the first issue, the trial court
agreed with the Comptroller that Rent-A-Center was not
entitled to a COGS deduction at all. On appeal of that
ruling, however, this Court disagreed, determining that
Rent-A-Center is entitled to a COGS deduction because its
business is "more like selling than leasing and that
Rent-A-Center is, therefore, primarily engaged in retail
trade." Id. at 225. We remanded to the trial
court for consideration of the second issue-the proper amount
of Rent-A-Center's COGS deduction. Id.
remand, Rent-A-Center asserted that it was entitled to a COGS
deduction representing the total cost, when new, of all the
merchandise it sold in 2007. The Comptroller, on the other
hand, asserted that Rent-A-Center was required to adjust its
COGS basis to account for the fact that the merchandise at
the time of final sale had been rented or used, by
subtracting an amount equal to the depreciation Rent-A-Center
had claimed on this merchandise in its federal tax return.
Following a hearing on the issue, the trial court agreed with
the Comptroller and ordered that Rent-A-Center receive a
refund of $941, 847.84. It is from that order that
construing a statute, we seek to ascertain and effectuate the
Legislature's intent in enacting the statute.
Southwest Royalties, Inc. v. Hegar, 500 S.W.3d 400,
404 (Tex. 2016); Upjohn Co. v. Rylander, 38 S.W.3d
600, 607 (Tex. App.-Austin 2000, pet. denied). "We start
with the text because it is the best indication of the
Legislature's intent." Ojo v. Farmers Grp.,
Inc., 356 S.W.3d 421, 435 (Tex. 2011). We examine the
language used in the statute, in the context of the entire
act, and we read every word, phrase, and expression presuming
that the Legislature chose each word for a purpose and
purposefully omitted words not chosen. City of Dallas v.
TCI W. End, Inc., 463 S.W.3d 53, 55 (Tex. 2015);
Upjohn Co., 38 S.W.3d at 607. When a statute is
unambiguous, we do not turn to extrinsic aids or canons of
construction to construe it-we simply follow the unambiguous
language. City of Richardson v. Oncor Elec. Delivery
Co., 539 S.W.3d 252, 261 (Tex. 2018); Combs v. Roark
Amusement & Vending, L.P., 422 S.W.3d 632, 635 (Tex.
2013); Ojo, 356 S.W.3d at 435-36.
statute is ambiguous, we will generally defer to the
agency's interpretation as long as that interpretation is
consistent with the statutory language and not plainly
erroneous. Texas Dep't of Ins. v. American Nat'l
Ins. Co., 410 S.W.3d 843, 853 (Tex. 2012); TGS-NOPEC
Geophysical Co. v. Combs, 340 S.W.3d 432, 438 (Tex.
2011). Our deference, however, is "tempered by several
considerations," and we look to whether "(1) the
agency's interpretation has been formally adopted; (2)
the statutory language at issue is ambiguous; and (3) the
agency's construction is reasonable." American
Nat'l Ins. Co., 410 S.W.3d at 853-54 (quoting
Railroad Comm'n of Tex. v. Texas Citizens for a Safe
Future & Clean Water, 336 S.W.3d 619, 625 (Tex.
2011)); see Texas Utils. Elec. Co. v. Sharp, 962
S.W.2d 723, 726 (Tex. App.-Austin 1998, pet. denied).
legislature enacted Texas's franchise tax statutes
"purely for revenue purposes," and we are to
liberally construe the relevant statutes so as to effectuate
that purpose. Isbell v. Gulf Union Oil Co., 209
S.W.2d 762, 764 (Tex. 1948) (quoting Federal Crude Oil
Co. v. Yount-Lee Oil Co., 52 S.W.2d 56, 61 (Tex. 1932));
Upjohn Co., 38 S.W.3d at 606. A statute that imposes
a tax is "strictly construed against the taxing
authority and liberally construed in favor of the
taxpayer." Upjohn Co., 38 S.W.3d at 606;
see Calvert v. Texas Pipe Line Co., 517 S.W.2d 777,
781 (Tex. 1974). An exemption or deduction from tax, however,
is disfavored by the law and thus is construed strictly
against the taxpayer. North Alamo Water Supply Corp. v.
Willacy Cty. Appraisal Dist., 804 S.W.2d 894, 899 (Tex.
1991) (tax exemptions undermine equality and uniformity by
placing greater burden on some taxpayers rather than on all
taxpayers); Texas Utils. Elec., 962 S.W.2d at 726
("[T]o promote uniformity and equality in taxation, we
construe tax exemptions-and provisions tantamount to tax
exemptions-strictly against the taxpayer and in favor of the
case presents a limited question: whether Rent-A-Center is
entitled to deduct the full cost of merchandise when new as
its asserted COGS, totaling $1, 055, 657, 987, or whether it
must reduce that deduction by an amount representing the
depreciation during the time Rent-A-Center rented out these
assets, see Rent-A-Center, 468 S.W.3d at 224, here
represented by the depreciation it reported on its federal