### T E X A S C O U R T O F A P P E A L S , T H I R D D I S T R I C T , A T A U S T I N

NO. 03-12-00144- CV

F M Express F ood Mart, Inc. and F ouad H anna Mekdessi, Ap pellants

v. Sus an Com bs, Com ptroller of P ubl ic Acc ounts of the State of T exas, and Gre g Abbott, Attor ney Ge neral of the State of Texas, App ellees

F ROM TH E DISTRI CT COURT O F TRAVIS CO UNTY, 201 ST JUDICI AL DISTRICT NO. D-1 -GN-0 0-0 0272 4, H ONO RAB LE AMY CLARK MEACH UM, J UDGE P RESIDING

M E M O R A N D U M O P I N I O N

This i s an ap p eal from a final summary judgme nt in favor of the Comptroller in a
tax protest suit challeng ing an assessment for additional sales taxes following an audit. Appellants, 1
FM Ex press Food Mart, I nc., and its sole share holder, Foua d Hanna Mekd es s i (c o llectively “F M Ex press” ), challeng e the summary judgme nt in t wo i s s u es, arguing that (1) the Comptroller failed to follow the tax code and ag en cy ru les in conducting its audit of FM Ex press’s sales-ta x compliance , entitling FM Ex press to a new audit; and (2) sections 112.051, 112.052, and 112.101 of t he Tex as Tax Code are unco n s t i t utional beca use t hey require taxpay ers to prepa y taxes befor e seeking judicial revie w of Comptroller asse ssments. W e will aff irm the judg ment.

Actually , both the C o m p t ro l l er and the Attorney Gene ral wer e defe ndants in the suit, 1 see Tex. Tax Code Ann. § 112.053 (West 2008) (re quiring the Comptroller and the Attorney Gene ral to be named as defe ndants in tax protest suit), but beca use their interests in this litigation alig n, we will refe r to them collec tively as the “ Comptroller” for

convenie nce.BACK GR OUND At rele vant times, FM Ex press operated five convenie nce stores in Houston, Texas. 2
I n 1998, the Comptroller audited FM Ex press for compliance with sales-tax laws during the
tax periods betwee n Dec ember 1, 1990 throug h November 30, 1997. Acc ording to the Comptroller, FM Ex press’s failure to keep proper rec ords of its sales nece ssitated that the Comptroller’s auditor utiliz e estimated sales fig ures to calc ulate FM Ex press’s sales-tax liability for the taxable periods at issue. The auditor estimated FM Ex press’s sales by obtaining rec ords from FM Ex press’s suppliers, examining what was deeme d a repr esenta tive sampling of the rec ords, and deter mining from these the amount of taxable g oods that FM Ex press had purcha sed from its suppliers. To this fig ure, the auditor applied a standard markup on the g oods, made adjustments or al l o wa nces to acc ount for

s poilag e and food-stamp purchase s, and arrived at the amount of sales for the sampled purchases. The au d i t o r next extrapolated from these fig ures to calc ulate an estimate of sales for the entire audit period a

nd then compar ed this estimate to the sales actua lly repor ted by FM Express. These calc ulations y ielded a sa les-tax deficienc y of $765,727.50.
FM Ex press reque sted an administrative revie w of the Comptroller’s defic iency befor e an administrative law judge (AL J ). FM Ex press complained that the Comptroller had failed 3
to provide it require d notice about the s ampling proce dure it would use t o est imate FM Ex press’s sales and to proper ly estimate FM Ex press’s taxes. FM Ex press also asser ted that the Comptroller’s

Specifica lly , two of the stores wer e o wn ed by Mekdessi individually and three by 2 FM Express. See 34 Tex. Admin. Code § 1.22 (2012) (Comptroller of Pub. Acc ounts, Ora l and Writt en 3 Submis sion Hea

ring s) (allowing taxpay er to reque st hear ing befor e administrative law judge if the parties a re una ble to ag ree about the def iciency ). 2sample did not ref lect FM Ex press’s normal operating conditions; that the Comptroller had not used
proper auditing methods or techniques; and that limit ations barr ed rec overy of the alleg ed defic iency for some of

the audited tax periods. Finally , FM Ex press complained that it was improper f or the Comptroller to assess a fr aud pena lty in the absenc e of a

proper audit. After a hear ing, the AL J ag ree d t h at l i m i t at i ons had run for the tax periods prior
to October 1993, but otherwise aff irmed the defic iency deter mination, adjusting it to exclude the defic iency amounts attributed to the pre- October 1993 periods. FM Ex press filed a motion for rehe aring , which was denied. There afte r, FM Ex press paid—under protest, they would later a ssert—a por

tion of the assesse d defic iency

. At some point afte r the con cl usion of the administrative proce ss, the Comptroller initiated enfor ceme nt actions to collect the defic iency , in cludi ng eff orts to canc el FM Ex press’s
tax permits for failure to pay the defic iency and withholding ref unds due FM Ex press from another
state ag ency . This prompted FM Ex press to file suit in September 2000 seeking ju d i ci al revie w of the Comptroller’s defic iency , decla ratory relief

, and temporar

y injunctive relief

. There afte r, the parties eng ag ed in settlement neg otiations and entered into a succ ession of Rule 11 agr eeme nts to stay the Comptroller’s collection eff orts in the meantime. I n September 2003, FM Ex press paid the portion of the asse ssed def iciency still rema ining unpa id. Howeve r, FM Ex press’s lawsuit rema ined pending

. I n J uly 2004, FM Ex press filed

a motion for summary

judgme nt on its c laims, a nd the Comptroller counter ed with a cross-motion in J anuar y 2005. T h es e m o t ions wer e not adjudicate d until 2011. Following a hear ing, the district court denied FM Ex press’s summary -judg ment motion and g rante d the Comptroller’s crossmotion. FM Ex press a

ppeals.

3ANALYSIS FM E x p ress bring s two issues challeng ing the district court’s ruling g ranting the C o m p t ro l l er’ s summary -judg ment motion and denying its own. First, FM Ex press arg ues that i t , rathe r than the Comptroller, was entitled to su m m ar y j u d gment beca use the Comptroller’s audit violated tax code provisions and ag ency rules that g overn audits. Second, FM Ex press asser ts that sections 112.051, 112.052, and 112.101 of the tax code violate the fede ral and Texas c onstitut ions by requiring a taxpay er to pay its taxes befor e it can seek judicial revie w of the tax assessment. This
prepa y ment require ment, FM Ex press arg ues, imposes an unrea sonable burden on taxpay ers seeking judicial revie w and a cts as a ba rrier to judicial acc ess.

Stand ard of review

W e revie w the district court’s summary -judg ment ruling s de novo. V a l en ce Operati n g C o. v. Dorsett , 164 S.W .3d 656, 661 (Tex. 2005); Provident Life & Acc ident Ins. Co.

v. Knott , 128 S.W .3d 21 1, 215 (Tex. 2003). Summary judgme nt is proper when there are no disputed issues of materia l fac t and the movant is entitled to judgme nt a s a matter of law. Tex. R. Civ. P. 166a(c ); Shell Oil Co. v. Khan , 138 S.W .3d 288, 291 (Tex. 2004) (citing Knott , 128 S.W .3d
at 215–16). When revi ew ing a summary judgme nt, we take as true all evidenc e favor able to the non-movant, and we indulge ever y rea sonable infere nce and resolve any doubts in the non-movant’s favor

. Valence , 164 S.W .3d at 661; Knott , 128 S.W .3d at 215. Where, as here , both pa rties move for summary judgme nt and the district court g rants one motion and denies the other, we revie w the
summary -judg ment evidenc e prese nted by both sides, deter mine all questions prese nted, and rende r the judgme nt that the district court should have rende red. Texas W orkers’ Comp. Comm’n v. Patient Advoc ates of Tex ., 136 S.W .3d 643, 648 (Tex. 2004); FM Props. Operating Co. v. C ity of Austin , 422 S.W .3d 868, 872 (Tex. 2000). We m u s t af fi rm the summary judgme nt if any of the g rounds

asser ted in the motion are meritorious. Patient Advoc ates , 136 S.W .3d at 648; FM Props ., 22 S.W .3d at 872.

Com ptroller audit

The parties’ cross -m otions joined issue with respe ct to whether the Comptroller’s audit of FM Ex press complied with the statutes and administrative rules g overning estimated audits. I n its first issue, FM Ex press challenges t h e district court’s conclusion that the Comptroller’s audit complied with these re quirements. Specifica lly , FM Ex press contends that the tax code and Comptroller regulations expressly limit the Comptroller to two auditing methods t o deter mine
t ax p ay er l i abil ity : “a detailed auditing procedure ” or a “sample and projection auditing method.” See Tex. Tax Code Ann. § 111.0042 (West 2008) (desc ribing circ umstances under which sampling audit is appropr iate); 34 Tex. Admin. Code § 3.282(c) (2012) (Co m ptroller of Public Acc ounts, 4
Section 111.0042 provides in re levant par t that— 4 (b) Sampling auditing methods are appropr iate if:

(1) the taxpay er’ s rec ords are so detailed, complex, o r voluminous that an audit of all detailed rec ords would be unre asonable or imprac tical; (2) the t axpay er’ s rec ords are i nadequate or insufficient, so that a competent audit for the period in question is not otherwise possible; or (3) the cost of an audit of all detailed rec ords t o t h e taxpay er or t o t h e state will be unrea sonable in rela t ion to the benef

its derive d, and sampling proce dures will produc e a r easona ble re sult. (c) Be fore using a sample technique to establish a tax liability , the co m ptroller or his desig nee must notify the taxpay er in writing of the sampling proce dure to be used. 5Au d i ting Taxpay er Records) (“The comptroller may use a detailed auditing proce du re o r a

sample and projec tion auditing method to deter mine tax liability .”). I nstead of using either of these
two auditing methods to deter mine FM E x p ress’s tax liability , FM Ex press complains that the Comptroller used an “estimation method” that FM Ex press contends is n o t au t horized under the tax code or re levant reg ulations. Fur ther, F M Ex press a

rg ues that the Comptroller fa iled to notify FM Ex press in writing that it would use a sam p l i n g au d i t technique, see Tex. Tax Code Ann. § 111.0042(c) , and that the Comptroller used a sample that did not ref lect FM E x p re s s ’s normal business operating conditions, see id. § 111.0042(d). Consequently , FM Ex press rea sons, it rathe r than the Comptroller wa s entitled to summary judgme nt. We disagr ee. T ax code section 111.008(a) provides that when a taxpay er submits a tax report that the Comptroller finds unsatisfac tory , the Comptroller “may compute and deter mine the amount

(d) The sample must ref lect as near ly as p o s s i b l e the normal conditions under which the business was operated during the period to which the au d i t applies. I f a taxpay er can demo nstrate that a transac tion in a sample period is not repr esenta tive of the t ax pay er’ s business operations, the tran s action shall be eliminated from the sample and be separ ately assessed in the a

udit. I f re cords a

re ina dequate to ref lect acc urate ly the business operations of the taxpay er, the compt roller or his desig nee shall deter mine the b es t information available and base his audit repor t on that information. (e) I f t he tax pay er de monstrates that any sampling method used by the comptroll er was not in acc ordanc e with g ener ally rec og nized sampling te chniques, the a udit will be dis missed as to that portion of the audit established by projec tion based upon the sampling m ethod, and a new audit may be perf ormed.

6of tax to be paid from the information contained in the repor t or from any other information available to the comptroller.” Id

. § 111.008(a) (West 2008). We have prev iously held that section 111.008(a) allows the Comptroller to estimat e t ax es d u e based on such information as is available to the Comptroller, rea soning tha t “[w] here the taxpay er’ s own ac ts or failure s cause the Comptroller to be without g oo d o r ad eq u ate information, then the Comptroller is justified in estimating the tax due.” See Alon USA, LP v. Texas , 222 S.W .3d 19, 34 (Tex. App.—Austin 2005, pet. denied) (citing Texas Comptroller of Public Acc ounts, Dec ision No. 10,210 (1981))

. Fur ther,
t o implement and eff

ectuate that statutory authority , the Comptroller has promulg ated a rule specific ally allowing it to “estimate the person’ s tax liability based on an y av ail able information” i f the person fails to keep acc urate rec ords. See 34 Tex. Admin. Code § 3.28 1 (c ) (2 0 1 2 ) (Tex. Compt roller of

Pub. Accounts, Records Required; I nformation Required) (setting forth who must keep re cords, wha

t rec ords they must keep, and t he consequenc es of failure to kee p acc urate

rec ords). Ac cording ly , the Comptroller is authorized to estimate taxes due.

FM Ex press, howeve r, argu es that there is no statutory or regulatory authority for the Comptroller to use estimation audit s an d t h at section 111.0042 and rule 3.282 require the Comptroller to use detailed audits or sampling audits. This argument is without foundation. First,

as discussed above, section 111.008 g ives the Comptroller bro a d a uth o r it y to deter mine tax liabiliti es when it is not satisfied wit h a tax pay er’ s tax repor t, see Tex

. T ax C o d e Ann. § 111.008(a) , which both th e C o m p t ro l l er and thi s Court have interprete d to include estim ating taxes due, see 34 Tex. Admin. Code § 3.281; Alon USA , 222 S.W .3d at 34. And importantly , neither section 111.0042 or rule 3.282 limit that broad authority

. Section 111.0042 mere ly sets forth the circ umstances unde r which the Comptroller may use a sampling method and the proce dures for doing so. See Tex. Tax

7Code An n . § 111.0042. L ikewise, rule 3.282 simply allows the Comptroller to use a “deta iled

auditing proce dure” or a “sample and projec tion auditing m et hod,” without defining either of those terms. Reg ardle ss, however , neither of these provision expressly contra dicts the tax code ’s 5

or rule 3.281’s specific authorization to estimate taxes due on such information as is available to the Comptroller.

I n the prese nt case , the Comptroller deter mined, and FM Ex press does not deny , that FM Ex press failed to keep adequate rec ords as require d by the tax code. Thus, the Comptroller had the authority to conduct an estimated audit using rec ords available to it, which included rec ords from FM Ex press’s suppliers. See id

. § 111.008(a) ; 34 Tex. Admin. Code § 3.281; Alon USA , 222 S.W .3d
at 34. Once the Comptroller conducte d the audit using the informatio n available and issued a defic iency deter

mination, the burden shi ft ed to FM Ex press to show that the audit deter mination

was unrea sonable, excessive, or that it was rea ched capr iciously or arbitra rily

. See A l o n USA , 222 S.W .3d at 34 (holding that “whe re the tax cannot be deter mined with rea sonable mathematica l

cer tainty from the available rec ords, an d the taxi ng authority decla res the tax due from all information available that it deems reas o n able, the burden to show that the deter mination was

unrea sonable, excessive, or that it was rea ched capr iciously or arbitra rily , shifts to the complainant” (citing Smith v. State , 418 S.W .2d 893, 896 (Tex. Civ. App.—Austi n 1 9 67, no writ)); Bullock

v. Foley Bros. Dry Goods Corp

. , 802 S.W .2d 835, 839 (Tex. App.—Austin 1991, writ denied) (holding that taxpay er has b urden to show that Comptroller’s audit is incorre ct and noting that taxpay ers have power to protec t themselves by paying taxes and keeping require d rec ords); see also

“The comptroller may use a detailed auditing p ro ce d u re o r a sample and projec tion 5 auditing method to deter

mine tax liability .” 34 Tex. Admin. Code § 3.282(c) (Comptroller of Public Acc ounts, Auditing Taxpay er Rec ords). 8Tex. Tax Code Ann. § 111.013(a) (West 2008) (providing that Compt ro l l er ’s cer tificate of delinquency is prima fac ie evidenc e of the amount due, the delinquency of the amount due, and “the compliance of the comptroller with the applicable pro v isions of [t he tax] code in computing and deter mining the a

mount due”). But FM Ex press prese nted no summary -judg ment evidenc e showing that the Comptroller’s estimate was unrea sonable, exces s i v e, or that it was rea ched arbitra rily and
capr iciously

. See Alon USA , 222 S.W .3d at 34. To the extent that it prese nted summary -judg ment evidenc e, FM Ex press does not explain how that evidenc e establishes defic iencies in the audit. L ikewise, althoug h FM Ex press asser ted in its pleading s that it established t h at the audit was
not conducte d acc ording to g en er all y rec og nized sampling techniques and that it did not ref lect FM Ex press’s normal business, that standard applies to sampling audits not estimations. See Tex. Tax Code Ann. § 111.0042(d) (re quiring sampling audit ref lect the taxpay er’ s normal business conditions), .0042(e) (re quiring Comptroller to conduct sampling audit in acc ordanc e with g ener ally

rec og nized sampling techniques)

. Fur ther, althoug h it offe red the auditor’s deposition testimony as summary -judg ment evidenc e, the examples to which FM Ex press points in support of its argument do not show that the Comptroller’s audit was incorre ct or unrea sonable. First, FM Ex press asser ts that the auditor’s testimony that he li mited his revie w of rec o rds to the beer and cig are tte/tobacco information shows that the audit is inc orre ct or unrea sonable. Howeve r, FM Ex press’s motion for
summary judgme nt did not include the auditor’s entire d ep osition testimony , and his testimony
reg arding the beer and cig are tte information standing alone does not show that the overa ll audit was incorre ct or unrea sonable, espec ially in light of the fac t that FM Ex press’s motion for summary judgme nt was limit ed to issues reg arding the beer and cig are tte calc ulations. FM Ex press also points

9t o the auditor’s testimony that he used only six months of i nformation to calc ulate the defic iency ,

but the evidenc e shows that the six months of information ref err ed to involved a beer distributor that ref used to provide rec ords to the auditor without reimburse ment and that FM Ex press soug ht and paid for the six months of invoices from that distributor. I n other words, FM Ex press chose to pay for only six months of information from this particula r supplier when it presumably could have paid for and rec eived all the invoices. Reg ardle s s , ev i d ence of the sample time period alone does not establish the unrea sonablene ss or inacc urac y of the audit. Fur ther, the evidenc e does not show that basing an audit on six months of information, which is the information the auditor had available to him, somehow rende red the audit unrea sonable or unreliable

. Simi larly , FM Ex press argues that the auditor testified that he used only two months of information from another beer supplier to estimate the def iciency , but the auditor’s a ctual testimony was that he revie wed two months of information in preparation for his deposition. I n sum, F M Ex press pre sented no summary -judg ment evidenc e showing that the Comptroller’s audit of FM Ex press was unrea sonable, excessive, o r t h at it was

rea ched c apric iously

or ar bitrarily

. We overrule FM Express’s first issue.

Constitutional claims

I n its second issue, FM Ex press bring s forwa rd a challeng e to the constitutionalit y

o f t ax code sections 112.051, 112.052, and 112.101. See Tex. Tax Code Ann. §§ 112.051–

. 0 5 2 , .101(a) (West 2008 & West Supp. 2012). These provisions ope rate to require , as a pr ere quisite to suit for rec overy of taxes or injunctive relief to pr event the collection or assessment of a tax, that a taxpay er prepa

y under protest any taxes due at the time of suit. See id. ; see also R Commc’ns, Inc.

v. Sharp , 875 S.W .2d 314, 314–15 (Tex. 1994) (noting that section 112.051 conditions the rig ht to 10file suit attacking the tax’s validity or its assessment or collection upon prior pay ment of the taxes, and that section 112.101 prec ludes injunctive relief without prior tax pay ment or post ing a bond). FM Ex press ar gues that these provisions, by requiring prepa y ment as a requisite to suit, impose an unrea sonable burden on litigants and cr ea t e a b arr ier to courts in violation of the Texas Constit ution’s open courts doctrine. See Tex. Const. art. I , § 13 (“A ll courts shall be open, and ever y person for an inj u ry d o n e him, in his lands, g oods, person or reputa tion, shall have

reme dy by due course of law.”) ; Texas Ass’n of Bus. v. Texas Air Control Bd. , 852 S.W .2d 440, 448 (Tex

. 1993) (noting that open courts provision g uara ntees, among other rig hts, that citizens have acc ess to courts “unimpeded by unrea sonable financ ial barr iers” (citing L eCroy v. Hanlon , 713 S.W .2d 335, 342 (Tex. 1986)). I n support of it s ar gu m en t h er e, FM Ex press cites to the Texa s S upreme Court’s decision in R Communications , which held tax code section 112.108 unconstitutional a

nd void to the extent that provision pr eclude d a taxpay er from obtaining judicial revie w of its tax liability by means of decla ratory action. See R Commc’ns , 875 S.W .2d at 314–15. 6 Whil e we ag ree that there may be u nr e s o lv e d q

u e s ti o n s reg arding the constitutionalit y of chapter 1 1 2 ’s prepa

y ment require ments g iven the supreme court’s historical trea tment of

The L eg islature has since amende d section 112.108 to provide that a taxpay er, upon filing 6 an oath of inability to pay , may be excused from prepa y ing requirem en t s i f t h ose require ments constit u t ed an unrea sonable barr ier to acc ess to court. See Act of May 24, 1995, 74th L eg ., R.S., ch. 579, § 13, 1995 Tex. Ge n. L aws 3374, 3377 (codifie d at Tex. Ta x Code Ann. § 112.108). The Texas Supreme Court noted rec ently that this section “has since been amende d to prec lude an Open Courts violation,” but it did not addre ss w hether it did so succe ssfully

. See In re Nestle USA, Inc ., 359 S.W .3d 2 0 7 , 2 1 1 n.38 (Tex. 2012). Prior decisions by the supreme court have held that whether a party may be able to aff ord prepa

y ment is irrele van t beca

use the g uara

ntee of constitutional rig hts does not depend on the balanc e of one’s bank acc ount. See Central Appraisal Dist. v. Lall , 924 S.W .2d 686, 692 (Tex. 1996); Texas Ass’n of Bus. v. Texas Air C o n t r o l B d

. , 852 S.W .2d 440, 450 n.18 (Tex. 1993). And rely ing on these case s, we held in 2000 that section 112.108 was still unconstitutional despite the L eg islature’s 1995 amendment. See Rylander v. Bandag Licensing Corp ., 18 S.W .3d 296, 304 (Tex. App.—Austin 2000, pet. denied). 11such provisions, we disag ree that this matter is p ro p erly befor e this Court in this case .

C hapter 112’s prepa

y ment require ments wer e not enfor ced ag ainst FM Ex press. Consequently , FM Ex press has not suffe red an injury from those req u irements. See Texas W

orkers’ Comp. Comm’n

v. Garcia , 893 S.W .2d 504, 518 (Tex. 1995) (“[T]o cha lleng e a statute, a plaintiff must first suffe r

some actua l or threa tened restric tion under that statute.). Relatedly , the reme dy that FM Ex press

s ee k s i s mere ly to have the case rema nded to the district court and proce ed to judgme nt without having to p re p ay the assessed tax liability

. I n other words, we would be rema nding to the district court to re- do what h as alre ady been done. This confirms the absenc e of any justiciable
controve rsy that a decla

ration reg arding Chapter 112’s constitutionalit y would resolve. See Brooks

v. Northglen Ass’n , 141 S.W .3d 158, 163–64 (Tex. 2004) (“A decla ratory judgme nt require s a justiciable controve rsy as to the rig hts and status of parties actua lly befor e the court for adjudication, and the decla

ration soug ht must actua lly resolve the controve rsy .”); Texas Ass’n of Bus ., 852 S.W .2d
at 446 (noting jurisdictional require ment that there be a rea l controve rsy betwee n the parties that will be actua lly deter

mined by the judicial decla ration soug ht). Our decla ration would, in othe r words,
amount to a mere advisory opinion, which the Texas Constit ution forbids. See Brooks , 141 S.W .3d
at 164 (“A judicial decision rea ched without a case or controve rsy is a n advisory opinion, which is barr ed by the separ ation of power s provision of the Texas Constit ution.” (citing Tex. Const. art. I I , § 1; Tex. Ass’n of Bus. , 852 S.W .2d at 444)).

We overrule FM Express’s sec ond issue on appea l.

CONCLUSION Having overr

uled FM Express’s issues, we aff irm the district court’s judg ment.

12__________________________________________ Bob Pembe rton, J ustice Be fore J ustices Pury ear , Pemberton and F ield Affir med Filed: Mar ch 15, 2013

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