Court of Appeals of Texas, Third District, Austin
THE DISTRICT COURT OF TRAVIS COUNTY, 126TH JUDICIAL DISTRICT
NO. D-1-GN-16-006072, HONORABLE LORA J. LIVINGSTON, JUDGE
Chief Justice Rose, Justices Kelly and Smith
a suit for judicial review of a tax assessment levied by the
Comptroller of the State of Texas. See Tex. Tax Code
§ 112.052 (establishing cause of action). Taxpayer
Instill Corporation contends the Comptroller incorrectly
classified certain online management solutions as
"data[-]processing services" subject to sales tax
rather than "proprietary information services,"
which are not subject to that tax. Compare id.
§ 151.0101(12) (listing data processing among taxable
services), with 34 Tex. Admin. Code §
3.342(a)(5)(A) (Tex. Comptroller of Pub. Accounts,
Information Services-Nontaxable information services). After
a bench trial, the district court rendered a take-nothing
final judgment against Instill. We will affirm.
issue are certain online management solutions Instill
provided to customers in the food-service industry at various
periods from 2008 through 2014. As Instill describes it,
these solutions varied by customer but typically included
information on each customer's procurement,
manufacturing, inventory, and sales. To create these customized
solutions, Instill would obtain raw data from customers and
each customer's vendors and then use its own algorithms
to process and present these data in a user-friendly manner
intended to "help Instill's customers run their
businesses." Instill's customers would then access
the solution via a secure website.
Comptroller conducted an audit in 2014 and concluded Instill
had misclassified its solutions as "proprietary
information services" exempt from Texas sales tax and
that Instill owed more than $1 million in overdue taxes,
penalties, and interest. Instill disagreed with the
Comptroller's conclusions but paid the disputed amount
under protest and then sued for judicial review of the
assessment. See Tex. Tax Code § 112.051
(requiring payment as predicate to judicial review). The
district court held a bench trial and ultimately agreed with
the Comptroller, holding that "Instill's services
are 'data[-]processing services' as provided by Texas
Tax Code § 151.0035 and  Texas Administrative Code
§ 3.330(a)(1)." See 34 Tex. Admin. Code
§ 3.330(a)(1) (Tex. Comptroller of Pub. Accounts, Data
Processing Services-Definitions). It further held that
"Instill's services are not 'information
services' as provided by  Texas Administrative Code
§ 3.342(a)(1)." See id. § 3.342(a)(1)
(Tex. Comptroller of Pub. Accounts, Information
Services-Definitions). After the Comptroller denied its
motion for rehearing, Instill sought judicial review of the
Comptroller's conclusions under chapter 112 of the Tax
Code. See Tex. Tax Code § 112.052. After a
two-day bench trial, the district court rendered final
judgment in favor of the Comptroller. On Instill's
motion, the court subsequently filed a set of findings and
conclusions consistent with the Comptroller's
classification of Instill's solutions. Instill timely
perfected this appeal.
State of Texas imposes sales tax on the conveyance of most
information services. See id. § 151.0101(10).
There is an exemption, however, for the provision of
information services if "the information is of a
proprietary nature to that client and may not be sold to
others by the person who gathered or compiled the
information." See 34 Tex. Admin. Code §
3.342(a)(5)(A) (Tex. Comptroller of Pub. Accounts,
Information Services-Nontaxable information services). The
State also imposes sales tax on the provision of most
data-processing services, defined as "the processing of
information for the purpose of compiling and producing
records of transactions, maintaining information, and
entering and retrieving information." See Tex.
Tax Code § 151.0101(12) (listing data processing among
taxable services); 34 Tex. Admin. Code § 3.330(a)(1)
(Tex. Comptroller of Pub. Accounts, Data Processing
Services-Definitions). These data-processing services are
excluded by rule from the definition of information services,
see 34 Tex. Admin. Code § 3.342(a)(1) (Tex.
Comptroller of Pub. Accounts, Information
Services-Definitions), and therefore cannot fall into the
exemption afforded to certain proprietary information
contends the evidence before the district court is legally
and factually insufficient to support several findings of
fact and that the district court misconstrued applicable
statutes and regulations by classifying its solutions as
data-processing services rather than proprietary information
services. We address these arguments in turn.
of the Evidence
Instill does not challenge the admission of any evidence
before the district court, it contends that the record was
both legally and factually insufficient to support several
findings of fact. "Findings of fact in a case tried to
the court have the same force and effect as a jury
verdict." GATX Terminals Corp. v. Rylander, 78
S.W.3d 630, 633 (Tex. App.-Austin 2002, no pet.) (citing
Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex.
1994); Starcrest Tr. v. Berry, 926 S.W.2d 343, 352
(Tex. App.-Austin 1996, no writ)). "Likewise, findings
of fact are reviewable for factual and legal sufficiency
according to the same standards as jury findings."
Id. (citing Catalina, 881 S.W.2d at 297).
Thus, to prevail on its challenge, Instill "must
establish the lack of evidentiary support for these
findings." Id. To prevail on its
factual-sufficiency challenge, Instill "must demonstrate
on appeal that the adverse finding is against the great
weight and preponderance of the evidence." Dow Chem.
Co. v. Francis, 46 S.W.3d 237, 241 (Tex. 2001) (citing
Croucher v. Croucher, 660 S.W.2d 55, 58 (Tex.
1983)). "The final test for legal sufficiency must
always be whether the evidence at trial would enable
reasonable and fair-minded people to reach the verdict under
review." City of Keller v. Wilson, 168 S.W.3d
802, 827 (Tex. 2005). "In conducting our review, 'we
credit evidence that supports the verdict if reasonable
jurors could have done so and disregard contrary evidence
unless reasonable jurors could not have done so.'"
Graham Cent. Station, Inc. v. Peña, 442
S.W.3d 261, 263 (Tex. 2014) (citing Akin, Gump, Strauss,
Hauer & Feld, L.L.P. v. National Dev. & Research
Corp., 299 S.W.3d 106, 115 (Tex. 2009)).
contests the following findings of fact:
8. Instill sold supply chain data management services (the
"Solutions") to restaurant and food-and-beverage
companies in Texas . . . ...