Court of Appeals of Texas, Third District, Austin
THE 126TH DISTRICT COURT OF TRAVIS COUNTY NO.
D-1-GN-16-004422, THE HONORABLE ORLINDA NARANJO, JUDGE
Chief Justice Rose, Justices Kelly and Smith
Rose, Chief Justice
a sales-tax refund case. CEC Entertainment, Inc. sued Glen
Hegar, Comptroller of Public Accounts of The State of Texas,
and Ken Paxton, Attorney General of The State of Texas
(collectively, the "State") seeking refund, under
the Tax Code's sale-for-resale exemption, of sales taxes
that it paid on purchases of coin-operated gaming equipment
for its Texas Chuck E. Cheese restaurants. The district court
rendered a take-nothing judgment against CEC. On appeal, CEC
raises three issues relating to the Tax Code's
sale-for-resale exemption, the principal and dispositive
issue being CEC's argument that it "transfers"
gaming equipment to its customers while those customers are
playing the games on the equipment. We will affirm the
facts are undisputed, having been established below by
stipulation. CEC owns and operates Chuck E. Cheese
restaurants in Texas. These restaurants provide food,
beverages, and entertainment. The entertainment includes
coin-operated machines-video games, redemption games, skill
games, kiddie rides, and big-attraction games-that, as the
name suggests, restaurant patrons can play or ride by
inserting a coin or token in the machines.
March 2007 and April 2013, CEC purchased and paid sales taxes
on coin-operated game equipment and component parts for use
in its Texas restaurants. CEC later filed claims with the
Comptroller for refund of those sales, arguing that its
purchases of coin-operated machines and component parts are
exempt from the imposition of the sales tax under the Tax
Code's "sale for resale" exemption discussed
below. The Comptroller disputed that the exemption applied
and denied CEC's refund claims. CEC then timely filed the
underlying suit in Travis County district court, seeking a
refund of $2, 411, 522.89, plus statutory interest on that
amount. After a bench trial, the district court rendered a
take-nothing judgment against CEC. CEC perfected this appeal,
asserting in three issues that its purchase of the
coin-operated gaming equipment is exempt from sales tax under
the Tax Code's sale-for-resale exemption.
the facts in this case are not in dispute, our decision turns
on construction of various provisions of Chapter 151 of the
Tax Code. Section 151.051(a) 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. There is no dispute that the
coin-operated gaming equipment and component parts are
"tangible personal property," a term that captures
"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.
found in subchapter H set forth numerous exemptions to the
sales tax imposed by Chapter 151. Relevant here, section
151.302(a) states: "The sale for resale of a taxable
item is exempted from the taxes imposed by this
chapter." Id. § 151.302(a). "Sale for
resale" includes, at issue here, the sale of tangible
personal property to a purchaser who acquires the property:
• "for the purpose of reselling it . . .
in the normal course of business . . . as an . . . integral
part of . . . a taxable service," id.
151.006(a)(1) (defining "sale for resale) (emphasis
• "for the purpose of transferring it . .
. as an integral part of a taxable service,"
id. § 151.006(a)(3) (emphasis added).
regard to subsection 151.006(a)(1), the Tax Code does not
define "resell," but it does define "sale or
purchase" as "a transfer of title or possession of
tangible personal property" "when done or performed
for consideration." Id. § 151.005.
"Transfer" is not defined in the Tax Code.
argues that reading these provisions together-i.e.,
subsections 151.006(a)(1)'s and (3)'s descriptions of
"sale for resale" and section 151.005's
definition of "sale or purchase"-an item is exempt
from the sales tax under the sale-for-resale exemption if the
item is "transferred" to a downstream consumer as
an integral part of a service. CEC argues in its first issue
that it is entitled to the sale-for-resale exemption because
it "transfers" the ...