### TEXA S C OU R T OF A PPEAL S, THIR D DIST R ICT , AT AU STIN

NO. 03-0 8 -00 212 -CV

7- Ele ve n, I nc . , A ppe lla nt

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 , Appellees

F ROM THE DISTRICT CO URT OF TRAVIS COUNTY , 53RD JUDICIAL DISTRICT NO. D-1- GN-04- 0033 69 , HO NORAB LE MARGARET A. COO P ER , JUDGE PRESIDI NG

O P I N I O N Ap pe lla nt 7 -E le ve n, I nc . b ro ug ht s uit a g a ins t Sus an Co mbs , Co mpt ro lle r o f P ub lic Ac co u n t s o f t he State of Te x as, and G regAbbott, Attorney Gene ral of the State of Texas (col le c ti v e ly , th e “ St a te ” ) s e e k in g a p arti a l r e f u n d o f s a le s tax th a t th e Co mp tr o ll e r a ssessed on 7-Eleve n’s purc hase of

financ ial softwar e for

its retail stores. The pa

rties filed c ross -m o t i ons for
su mma ry jud g me nt; the tr ia l c ourt grant ed th e State ’s mot ion and de nie d 7 -E le ve n’ s. On

a pp e a l, 7-Eleve n asser

ts that it was e ntitled to recove r taxes assessed on the por tion of the sales pric e of the softwar e that wa s (1) tra

nsfer red to store s operated b y third-par ty fra nchisee s, all of which we re outside of Tex as, and (2) delivered to those 7-Eleve n-oper ated stores (“c ompany stores”) that wer e located outside of

Texas. We will reverse the summary j u d gm en t i n favor

of the State, re nder jud g me nt t

hat 7- El e ve n is e nti tle d to a pa rt ia l sa le s- ta x re fu

nd wi th r e sp e c t to the so ft

ware that it2

transfe rre d to it s fr an chise store s, and re mand to the trial cour t the portion of the ca

use per taining to s of tw are that w a s d e liv e re d to its ou t- of -s ta te c omp any

sto re s.
F ACTUAL AND P ROCEDURAL BACK GR OUND 7-Eleve n is a

T e xa s c o r p o r a ti o n th a t o p e rate s retail conve nience stores, and f ranc hises others, throug hout the United States. I n 1993, 7-Eleve n purcha sed a lice nse to “use, r eproduc e, and po sse ss” c us tom

c omp ute r s of

tw are de ve lop e d by

Canmax Ret a il Sy ste ms, I nc . a nd de sig ne d to
mana g e and a

uto ma te 7- El e ve n’ s sto re s. Th e Canmax s of tw are wa s de ve lop e d and

imp le me nte d in
se ve ra l ph a se s. I n th e ini tia l ph a se , “ ho st s of tw are ” wa s in sta lle d o n 7 -E le ve n’ s c or porate mainfra me, re fer red to a s the “host” c omputer, while “store softwar e” w as installed on the in-store computers. Accor ding to Paul Hanson, who manag ed 7-Ele ven’s Interna l Audit Divisi on during the rele vant per iod, Canmax delivere d separ ate “ g old masters” of the host software and the store softwar e. As Ha

nson expl ained in his deposition testimony , the h ost software permitted the
c or po rate ma inf

ra me to c omm

un ic a te dir e c tly

wi th t he sto re c omp ute rs , all ow ingthe sto re s to transmit data to the cor

porate mainframe for pr ocessing . Hanson testifie d t h at a d istinction was
ma de be tw e e n th e ho st s of tw are and the sto re so ft

wa re be c a us e tho se we re “tw o sep arate t hin g s” “base d upon wher e that softwa re r esided a

nd what it did.” Hanson testified e x tensively conce rning the fun ctionality and use of

the Canmax softwar e, both by the 7-Eleven corporate office and by the stores themselve s. Hanson stated that the Canmax sof

tw are wa s th e “ ba c kb on e ” of 7- El e ve n’ s f

ina nc ia l re c or ds be c a

us e it ca ptu re d the data
nece ssary to conduct and monitor sale s and other store functions. The sof tware ’s “data-c apture ” function re place d the sy stem of manually submitt ing data from a

store to 7-Eleven’ s corpor ate of ficeHanson testified: 1 All the Canmax software did was automate the captur e of data that wa s alrea dy being c a ptu re d ma nu a lly . So , li ke , f

or ins tanc e , w e ’v e sp ok e n ab ou t the sa le s. So pr ior to the Canmax softwar e, the stores would fill out a piece of paper called a cash r eport and se nd that pie c e of pa

pe r to an a c c ounti ngof

fi c e , a nd the a c c ounti ngof

fi c e wo uld take that piec e of pa

per and key that data dire ctly into our mainframe computer . The Canmax software a llowed the store ope rator—instea d of filling out a piece of pape r, he f i l l e d o u ta c o mp u t e r

s c r e e n , i f

y o uw i l l
. S o t h e s t o r e o p e r a t o r k e y e d t h e da ta dir e c tly int o a c omp ute r, a com pute r t hat r e sid e d at th e sto re , a nd the n a ho st computer w ould poll that computer once a day and extract that data out of it and then upload it to this mainfra

me. 3 on written for

ms. He also explain ed how 7-Eleven use d the softwar e to then per form “data -proc essing service s” for the stores based on the information that wa s entere d at the store le vel and tra nsmitt ed ele ctronica lly

to the host computer. I n o n e ex ample, Ha nson discussed the 1 prepa ration of a

pay roll repor t, which would be gene rate d by the host computer a

nd provided to the stores on a w eekly

basis, showing the “g ross to net pay calc ulation” for e ach e mploy ee dur ing e ach pay period. I n another example, H anson explained how the Canmax store softwar e could be used

“ a s a too l to he lp c on tr ol t

he receipt s or cash in the sto re and a ssi g n th a t to ind ivi du a l sh if ts, to individual employ ee s , to hold them accounta ble.” Such data, Hanson e x plained, would not
nece ssarily

be tra nsmitt ed “up to the ma inframe ,” but rather would be used in “pure ly a store- level repor t to help the store mana g e its operation.” Kathy Naumann, w ho was 7-E leven’ s information sy stems manag er d u ri n g the
re le va nt p e ri od , a lso te sti fi e d by de po sit ion a bo ut the Canmax s of

tw are ’s fu

nc tio na lity

and ho w i t pe rm itt e d th e sto re c omp ute rs to i nte rf a c e wi th t he c or po rate ho st co mpute r. Re fe rr ingsp e c if ic a lly to phase one o f t h e C anmax store softwa re, N aumann state d that it “proce ssed—collec ted theNau man n t est if ied th at C anm ax dev elo pedon ly th e P has e 2B store so ft

wa re . A n e nti re ly 2 di fferen t co mp any

dev elo pedth e P has e 2B ho st softwar e. 4 information for—a

nd cre ated the ca sh repor

t” and a llowed for “ the g ather ing of timesheet data

for pay roll purposes, the g ather ing of g asoline inventory

measure ments, the g ather ing of g asoline delivery invoice information, the gather ing of detail s ales data for money order s and the g ather ing of transa ction information for c redit ca rd sales.” Th e ne xt pha se of

the sto re so ft

wa re , a c c or din g to Na

uma nn , “ ra n on a sc ann ingc a sh
re g ist e r” and fe d inf

or ma tio n that it c oll e c te d fr om the c a sh re g ist e r to t he in- sto re c omp ute r. Th is phase of the store softwa

re ( ref err ed to as “Pre- POS”) was inst alled only in franc hise stores located
ou tsi de of Te xas; it w a s n ot i ns ta lle d o n th e ho st c omp ute r o r a t any c omp any sto re s. Th e fi na l so ft

wa re ph a se re le va

nt to this a pp e a l, Pha se 2B , in c lud e d “ sc ann ingpo int

of-sa le re g isters,” de signe d to replac e non-sc anning , Pre-POS softwar e in the s tores. The Phase 2B softwar e’s “ key

functionality ” wa s to automate t he st ores’ order ing sy stem. As Naumann e x plained,
The store s have in their store softwar e their inve ntory items and the softwar e allows them to pla ce an order for eac h vendor for eac h merc handise item and the n that order is u plo a de d to the ho st s of

tw are and fr om t he re se nt t o th e ven do rs and the CD Cs [co ns oli date d di st ri bu tio n c e nte rs ] so that th e y c an d e liv e r t

hat me rc ha

nd ise to the sto re s.
L ike the Pr e -P OS sof

tw are , th e Pha se 2B so ft

wa re wa s in sta lle d o nly

in t he sto re s, no t a t th e ho st. 2 By 1996, 7-Eleve n had installed Canmax software at 286 company stores in Texas, 1,742 company sto re s o uts ide of

Te xas, and

2, 94 6 f ra nc his e sto re s. Al l of the fr anc his e sto re s we re ou tsi de of Te xas.As the parties explained during oral arg ument, the C omptroller s epar ately assessed sa les 3 ta x on th e ho st s of

tw are . 7 -E le ve n h a s c ha lle ng e d th a t a sse ssm e nt i n a sep arate s uit un re la te d to thi s a pp e a l. 5 Be fore installati o n of the Phase 2B store softwa re w as under

way , the C o mp tro l l er au d i t ed 7 -E l ev en fo r sa l es -t ax co mp l i an ce fo r th e pe ri o d o f Ap ri l 1 , 1 9 9 3 , t h ro u gh September 30, 1996. The auditor dete rmined that t h e amount of the software licensing fee attributable to the re tail store softwar e during the audit period was $3,628,230, a nd assessed sa les tax on t he store sof

tware in the amount of $299,328.98. 3 Af te r e xh a u s ti n g it s a d mi n is tr a ti v e r e me d ie s an d p ay in g th e tax u n d e r the statutory protest proc edure s, 7-Eleve n filed sui t for a tax ref und under chapter 112 of the tax code. See Tex. Tax Code Ann. §§ 112.001-.056 ( West 2008). 7-Eleven s o u ght a par tial refund in the amount of $282,118, plus penalties and interest. Ac cordingto 7-Eleven, this sum repr esente d the po rt ion of the sales pr ic e a ttr ibuta ble to t he sto re so ft

wa re that w a s e ith e r ( 1) tr ans fe rr e d to third-par ty fra nchisee s outside of Texas or (2) de livered to 7 -E l ev en-operate d stores outside of Texas, neither of w hich should be subject to Te x as s al es and use ta x . 7-Eleve n argued that the softwar e tra

nsfer red t o t h e franchise store s qualified for the sale- for- resa le exemption in s ection 151.302 of the tax code. See id. § 151 .3 02 (b ) (We st 200 8) (p ro vid ingthat sa le fo r r e sa le of ta xab le ite m is e xemp te d f

ro m sa le s and

us e ta x); see also id. § 1 51 .0 06 (3 ) ( de fi nin g “ sa le fo r r e sa le ” to
m ea n s al e of tang ible persona l property to purcha ser who a cquire s proper ty for pur pose of transfe rring it in United S tates as integ ral part of t axable service ). Ther efor e, 7-Ele ven urg ed that i t w a s e n t i t l e d

t o p u r c h a s e a l l o f

t h e s t o r e s o f

t w ar e t a x - f

r e e an d p l a c e i ti na

“ t a x - f r e e i n v e n t o r

y” beca use i t intended to rese ll some of the softwar e to its franc hisees. With respect to the softwa re thatHanson c alculate d these amounts based on the Comptroller’s auditor’s de termination that 4 the fa ir marke t value of the licensing fee for a ll of the store softwa re was $3,628,230. Fr om that fig ure, H anson ca lculated “ the fa ir marke t val ue of individual copie s of the softwa re” by dividing “the lice nsing f

ee attributed to the store softwa re by the total number of store copies made .” The 286 copies sent to company stores in Texas, which 7-Ele ven conc eded w ould be taxable, repr esente d $208,620 of the total fa ir marke t value, while the 1,742 out- of-state company s t ores a nd 2, 94 6 f ra nc his e sto re s re pr e se nte d $1, 27 0, 68 3 a nd $2 ,1 48 ,9 28 re sp e c tiv e ly . B a se d o n th e se va lue s, 7- El e ve n a sse rt e d th a t it wa s ent itl e d to a re fu nd of $1 04 ,8 31 on

the c op ie s o f t

he so ft wa re se nt t o out-of-state company stores and $177,287 on the copies sent to fra nchise store s, resulting in a total ref und soug ht of $282,118. 6 was ultimately

shipped to company

s t o re s outside of Texas, 7-Eleve n asser ted that the re levant inq uir y is whe ther

us e ta x—no t sa le s tax—wa s d ue ; thus , b e c a

us e the sto re so ft

wa re sh ipp e d to out-of-state company stores “was never used in Texas,” 7-Eleven m aintained that “it was not subject t o t h e Tex as use tax under Te x as Tax Code § 151.011(f).” See id. § 1 5 1
. 0 0 1 ( f ) ( We st 2008) (providing that “use” does not include e x erc ise of rig ht or power over ta ng ible persona l property

for purpose of

transporting it outsi de state f or use solely

outside Texas). 7-Eleve n moved fo r s u mmary judgme nt, attachingto its m otion, among othe r evidenc e, Ha

nson’s ca lculation that 7-Eleve n would be entitled to a ref und of $282,118 in the eve nt the c ourt c on c lud e d th a t th e c op ie s o f t he so ft wa re de liv e re d to out- of

-s ta te c omp any

and fr anc his e stores we re not taxable. 4

7-Eleve n also attache d a copy of a Store F ranc hise Ag ree ment, which indicate s that 7-Eleve n provides data -proc essing service s to its franchisee s—including bookke eping , pay roll, and
acc ounts pay able—a s part of the bundle of ser vi ce s , t he license of 7-Ele ven’s se rvice mark a nd proprieta ry products, and the lease of the store and equipment for which the fra nchisee s pay

7-Eleve n7

a lump-sum monthly pay

ment ref err ed to as “ the 7-Eleve n Charg e.” Re g ardingthese ser vices, the Sto re F ra nc his e Ag re e me nt s ta te s:
I f F RANCHI SEE is not i n brea ch of this Ag ree ment, 7-EL EVEN shall: (i) provide Financ ial S u m m ar ies for F RANCHI SEE for the Store pr epar ed fr om the Bo o kk e e p in g Re c o r d s in th e f o r m o f an in c o me s tate me n t an d a b a la n c e s h e e t f

or eac h Acc ounting Per iod or any portion thereof as 7-EL EVEN may

deem ne cessa

ry an d f o r e a c h c a l e n d ar

y e ar , p ay r o l l c h e c k s f

o r F RA N C H I S E E ’ s S t o r e e mp l oy e e s, drawchec ks, and merc handise re ports; (ii) timely pay on behalf of F RANCHI SEE, upon approva l and subm ission to 7-EL EVEN, bank draf ts and invoices for

Purchase s (as verified by vendor statements), bills for Oper ating Ex penses, a nd the pay

roll for FRANCHI SEE’s Store employ ees; a nd (iii) assist FRANCHI SEE in the prepa ration and fi lin g of bu sin e ss ta x r e po rt s and re tur ns (e xce pt F RA

NC HI SEE ’s inc ome tax and related r etu rn s ) t o the extent the information is available f rom the B oo kk e e pin g Re c or ds
. Th e Sto re F ra

nc his e Ag re e me nt f

ur the r p ro vid e s:
FRANCHI SEE s h all prepa re a nd furnish to 7-EL EVEN, on f orms and at times a c c e pta ble to a nd a s r e qu e ste d b y

7- EL EV EN : ( i) da ily

su mma ri e s o f P urcha se s; (ii) daily repor ts of Rece ipts; (i i i ) weekly time and wag e author izations for FRANCHI SEE’s St o re em ploy ees; (iv) all information re quested by 7-EL EVEN reg ardingthe vendor s from which FRANCHI SEE makes purc hases; and ( v) all such additional repor

ts as 7-EL EVEN may

require from time to time.
I n his affidavit at t ac h ed to 7-Eleven’s motion for summary judgme nt, Hanson ave rre d that the Canmax sof

tw are wa s an in te g ra l pa

rt of the data -p ro c e ssi ng se rv ic e pr ov ide d b y 7- El e ve n “ be c a

us e it provided the method and the means” by which the franc hisees re corde d their financ ial information
an d t ra n s m i t t edi tt o t h e h o s tco mp u t er fo r p ro ce s s i n g. The State filed a

cross-motion for su m mary judgme nt, asserting that the sale-f or-r esale exemp t i o n wa s n ot applicable to the sof tware transfe rre d to the fra nchise store s8

be c a us e the e sse nc e of

that tr a n s a c t i o n “ w a s a purc ha se of

sto re s- a uto ma tio n s of

tw are , n ot a

purc ha se of softwar e that is an integ ral pa rt of data proce ssing se rvice s.” Specific ally , the State ar g ued that (1) a ny fra nchise s t o re wh o rec eived the sof tware did some of its own data proc essing using the
so ft wa re ; ( 2) the be ne fi ts p ro vid e d to fr anc his e sto re s u sin g the so ft wa re we re no t e xclu siv e ly

data proce ssing; (3) 7-Eleve n rec eived a s much or more of a be nefit t h an t h e stores f rom the store softwar e; and (4) 7-Eleve n made a diverg ent use of the softwar e. The State further asser ted that section 151.011(f

), the statute de fining “use,” i s not a sales- tax ex emption to be applied to the
so ft wa re tr ans fe rr e d to ou t- of

-s ta te c omp any

sto re s. The trial court g rante d the S tate’s moti on for summ ary judgme nt, denied 7- Eleven’ s motion, and ordere d that the State re tain the taxes at issue. 7-Eleve n appea ls, arg uing by one issue that it is e nti tle d to a

pa rt ial re fu nd of the ta xes p a id o n th e c op ie s o f t he so ft wa re tr ans fe rr e d to thi rd -p art y fr anc his e e s and

c omp any sto re s o uts ide of

Te xas.
STA ND AR

DS O F RE VI EW To be e ntitled to summary judgme nt, the movant must e stablish that no ge nuine issue of mater ial fac t exi sts and that he is entitled to judgme nt as a matter of law. Tex. R. Civ. P. 166a(c ). I n our de novo revie w of a summary judgme nt, “ we indulge ever y rea sonable infere nce and re solve any doubts in the nonmovant’s favor .” Southwestern Elec. Power Co. v. G rant , 73 S.W .3d 211, 215 (Tex. 2 0 0 2 )
. Wh e n , a s h e r e , b o th p arti e s mo v e f o r s u mm ar

y ju d g me n t o n o v e r la

p p in g is s u es and the district c ourt g rants one motion and denies the othe r, we revie w the summary -judg ment evidenc e prese nted by

both sides, determine a ll questions prese nted, and rende r t he judgment t hat the district9

court should have rende red. Texas W orkers’ Comp. Comm’n v. Patient Advoc ates , 136 S.W .3d 643, 648 (Tex. 2004).

The issues ra ised in this appeal turn on the c onstructi on of the tax code a nd the Comptroller’s rules. Statutory construction is a que stion of law t hat we r eview de novo. See B ragg v. Edwards Aquifer Auth. , 71 S.W .3d 729, 734 (Tex. 2002)
. I n construing statutes, we a scer tain and g ive ef fec t to the leg islature’s i n tent as expressed by the lang uag e of the statute. Id. ; Sta te v. Shumak

e , 199 S.W .3d 279, 284 (Tex. 2006). We use def initions presc ribed by

the leg islature and consider a

ny technica l or particula

r mea ning that the words have acquir ed. Te x . Gov’t Code Ann. § 3 11 .0 11 (b ) ( Wes t 20 05 ). Othe rw ise , w e c on st rue the s ta tut e ’s wo rd s a c c or din g to t he ir pla in and common mea

ning, Texas De

p’t of Transp. v. Cit

y o f Sunset Valley , 146 S.W .3d 637, 642 (Tex. 2004), unless a c on t ra ry intention is apparent f rom the conte x t, Taylor v. Fireme n’s & Policeme n’s Civil Serv. Comm’n , 616 S.W .2d 187, 189 (Tex. 1981) , or unless such a construction leads to absur d results, University of Tex

. Sw. M ed. Ctr. v. Loutzenhiser , 1 4 0 S. W. 3 d 3 5 1 , 3 5 6 ( T e x. 20 04 ); see also Tex as Dep’ t of Protective& Regulatory Serv s. v. Me ga Child C

are, Inc

. , 145 S.W .3d 17 0, 17 7 ( Te x. 20 04 ) ( no tin g that w he n s ta tut or y tex t is un a mbi g uo us , c ourt s mu st
a do pt i nte rp re ta tio n s up po rt e d b y st a tut e ’s pla in l angua g e un le ss t hat in te rp re ta tio n w ou ld l e a d to absurd r esults).

“ We c on str ue a dmi nis tr a tiv e ru le s, wh ic h h a ve the same fo rc e a s st a tut e s, in t he same
manner as statutes.” Rodriguez v. Se rvice Lloyds Ins. Co. , 997 S.W .2d 248, 254 (T ex . 1 999). “Unless the rule is a

mbiguous, we follow the rule’ s clea r languag e.” Id. We defe r to an a g ency ’s interpre tation of its own ru l e wh en the rule is vague or a mbiguous, unless the a dminist rative7-Eleve n argues that the issue is whethe r the softwa re tra nsfer red to its company stores wa s 5 su bje c t to us e ta x ra the r than sal e s tax. Whil e 7- El e ve n c on c e de s th a t th e sto re so ft wa re that it installed in its company

stores in T exas w as subject to T exas use tax, it a rg ues that no use tax was owed on the store softwar e that wa s shipped to company s tores outside of Te x as bec ause that so ft wa re wa s n e ve r “ us e d” in T e xas. 10 interpre tation is “plainly

err oneous or inconsistent with the re g ulation.” See id. at 254-55 (quoting Public Util. Comm’n v. Gulf States Util. Co. , 809 S.W .2d 201, 207 (Tex. 1991)).
DI SCU SSIO N On appe al, 7-Eleve n urg es that the softwa re tra nsfer red to third-par

ty fra nchisee s qu a lif ie d f or the sa le -f

or -r e sa le e xemp tio n. I t f

ur the r a sse rt s th a t, b e c a

us e it i nte nd e d to re se ll s ome of the Canmax store software t o i t s fr anchisees, it was initially entitled to purcha se all of the softwar e—including the softwar e that it ultimately transfe rre d to its company stores in and outside of Te xas— wi tho ut p ay ingsa le s tax by pu tti nga ll of the so ft

wa re in a “ ta x-f

re e inv e nto ry .” Thus , acc ording to 7- Eleven, the issue reg arding the softwar e that it did not r esell to its f ra n ch i s e s tores ( i.e. , tha t it tr ans fe rr e d to its com pa ny sto re s) is wh e the r that sof tw are wa s use d in T e xas. We w ill 5 addre ss eac h argument in turn.
I. Fran chise Stores ( A) The State’s Entitlement to Summary J udgment (1) Sale- for- Resale Exemption The State was g rante d summary judgme nt pa rtly on the basis that 7-Eleve n was not entitled to claim the sale- for- resa le exemption as t o the C anmax store software that it purchased f or and deliver ed to its franc hise stores, all of w hich wer e located outside of Te x as. See Tex. Ta x Code“Ta ng ible persona l property” is define d as “per sonal proper ty that can be seen, w eig hed, 6 measure d, felt, or touche d or that is perc eptible to the senses in any other manne r,” a

nd, “for the purposes of this cha

pter, the te rm includes a c omputer prog ram.” Tex. Tax Code Ann. § 151.009 (We st 20 08 ). I t is un dis pu te d that the Canmax s tor e so ft wa re is t ang ibl e pe rs on a l pr op e rt y un de r t his definition. 11 Ann. § 1 51 .3 02 (a ) ( “ Th e sa le fo r re sa le of a ta xab le ite m is e xemp te d fr om the ta xes imp os e d b y thi s chapte r.”) . The purpose of the sale -for -re sale e x emption is to pr ev en t double taxation. Sh ar p v. Clearview Cable TV, Inc. , 960 S.W .2d 424, 426 (Tex. App.—Austin 1998, pet. denied) (“[T]he Tax Code recog nizes that the same goods shoul d not be tax ed twice ; only the ultimate owner

of the g o o d s s h o u l d

b e b u r d e n e d

b y t h e s a l e s t a x . ” )
. T a x e x e mp t i o n s a r e t o b e s t r i c t l y, b u tr e a s o n a b l y, construed a g ains t the taxpay er. Id. ; se e Nor th A lam o W ate r S up ply Cor p. v . W illac yCou nty Ap prais al D ist
. , 804 S.W .2d 894, 899 (Tex. 1991). An ex emption cannot be r aised by implication, but must affirmatively

app ear in the statute, and a ll doubts are re solved in favor of the taxing authority and ag ainst the claimant. Bulloc k v. N a t i onal Bancshares Corp. , 584 S.W .2d 268, 272 (Tex. 1979). Un de r t

he ta x co de , “ sa le f

or res ale” inc lud e s a

sa le of “ tang ibl e pe rs on a l pr op e rt y to a purcha ser who a cquire s the proper ty for the pur

pose of tra

nsfer ring it . . . as an integ ral pa rt of a tax able service.” Tex. Tax Code Ann. § 151.006(3) ( West 2008). 7- El e ve n a sse rt s, and the State 6 does not dispute, that its transfer of the store softwar e to its fra nchisee s qualifies as a

sale. See id. § 151
. 0 0 5 ( 1 ) , ( 2 ) ( d e f

i n i n g “ s a l e ” t o i n c l u d e b o t h “ a t r an s f e r o f t i t l e o r p o s s e s s i o no f

t an g ibl e persona l property” and “ the exchang e, bar ter, lea se, or r ental of ta

ng ible persona l p ro p er t y ”) . A “taxable servi ce ” is defined to include “ data pr ocessingservice s,” see id. § 151.0101(a) (12) (We st 2 00 8) , w hic h is in t ur n d e fi ne d to “ inc lud e [] wor d pro c e ssi ng , da ta e ntr y , d a ta re tr ie va l, d a ta12

sear ch, information compilation, pay roll and business acc ounting data pr oduction, the per formanc e of a tot a lis a tor se rv ic e wi th the us e of c omp utatio na l e qu ipm e nt r e qu ir e d b y the Te xas R a c ingAc t,
an d o th e r c o mp u te r iz e d

d a ta an d in f o r mati o ns to r a g e o r

ma n ip u lati o n , ” s ee id. § 151.0035 (West 2008) (interna l citations omit ted). “‘Data proce ssing se rvice ’ also includes the use of a computer or

computer time for

data processing whether the proc essing is perfor med by the provider of the c omputer or c omputer time or by the purc haser

or other be nefic iary

of the ser vice.” Id. The tax code further provides that the Comptroller shall have e x clusive jurisdiction to interpret the statute defining “taxable servic e.” See id. § 151.0101(b). Th e Com ptr oll e r’ s rule interpre ting se ction 151.0101 states that da t a- p roce ssing se rvice s “spec ifically includes word proce ssing, pa

y roll and business acco u n t i n g, and computer ized data and infor mation storag e or manipulation” and notes that examples of data-pr ocessingservice s “include e ntering i n ventory
c on tr ol d a ta

fo r a c omp any , ma int a ini ngre c or ds of e mpl oy e e wo rk

tim e , f ili ngpa y ro ll t a x re tur

ns , prepa ring W-2 forms, and computing and pre paringpay roll chec ks.” See 34 Tex. Admin. C ode § 3.330 (2009) ( Tex. Com ptroller of Pub. Ac counts, Data Processing Service s). 7-Eleve n argues that the re cord e stablishes conclusively that it perfor

med datapr oc e ssi ngse rv ic e s f

or its fr anc his e sto re s. We a g re e . Purs ua nt t o th e Sto re F ra

nc his e Ag re e me nt, fo r e xamp le , 7 -E le ve n w a s r e qu ir e d to c omp ute and pro vide its fr anc his e e s f ina nc ia l summa

ri e s,
merc handise re ports, and pay roll chec ks, all of which wer e based on and pre pare d from the store ’s bookkeepingrec ords. I n addit ion, the Store Fr anchise Ag ree ment sets forth that 7-Ele ven wa s
re qu ir e d to a ssi st i ts f

ra nc his e e in t

he pr e pa ratio n a nd fi lin g of bu sin e ss t a x re po rt s and re tur ns , “ to the extent the inf

ormation is a

vailable from the Bookke eping Records.” The bookke eping rec ordsMore prec isely , howeve r, the e vidence shows that many of the be nefits 7-Eleve n rec eived 7 wer e fr om its own use of the ho st softwar e in conjunction with the franchisees’ use of the sto re softwar e. As Ha

nson testified, the Canmax softwar e fu n cti oned by havingthe store ope rator ke y “ data dir e c tly int o a c omp ute r, a

c omp ute r that re sid e d at the sto re , a nd the n a ho st c omp ute r w ou ld poll that computer once a day and extract that data out of it and then upload it to this mainframe.” Whil e it i s c le ar f

ro m th e su mma

ry -j ud g me nt e vid e nc e tha t the sto re so ft

wa re and the ho st softwar e func tioned in conce rt with o n e an o t h er, the rec ord re veals that the r eports and othe r proce sses that the State cites a s evidenc e of a direc t benef

it to 7-Eleven we re a ctually g ener ated by the host software —a distinc t product that wa s assessed a separ ate sa les tax (which, as the pa rties acknow ledg ed duringoral a rg ument, is being challeng ed in a separate proce eding ). I t is therefor e unclea r why the State, havingsepar ately valued a

nd t ax ed t h e p o rtions of the licensing fee attributable to the store softwar e and the host softwar e, appear s to conflate t he two products, citing 13 consist of data that is entered, tr ansmitted, rec ei v ed , an d proce ssed using the Canmax sy stem softwar e. 7-Ele ven thus argues that the Canmax s o ft wa re was an “integ ral pa rt” of the data- proce ssing se rvice s it provided b eca use the softwa

re of fer ed “the method and the mea ns by which the f

ranc hisees re corde d the financ ial information and tra n s m itted it to 7-Eleven for pr ocessing .”

Th e State argue s in

re sp on se that th e tr ans fe r o f t he Canmax sof

tw are wa s n ot, in f

a c t, integ ral to the dat a- p ro ce s s ing se rvice s 7-Eleve n provides to its franc hisees bec ause the evidenc e demonstrates that the true purpose of the softwar e was to a utomate 7-Eleve n’s stores for 7-Eleve n’s own bene fit. The State points to e v i d en ce that 7-Eleven’ s corpor ate divisions rec eived c opies of repor ts that were provided to the store s and that data collecte d using the store software was used by 7- El e ve n in

pr e pa ri ng its ow n tax re tur

ns , s e tti ngits g a so lin e pri ces, an d p e rf or min g c or po rate
acc ounting a

nd audit functions. Acc ording t o t h e State, the “pur pose” r equire ment of sec tion 151.006 is not met beca

use “7- Eleven’ s actua l use of the Softwa re c lear ly evidenc es a pur chase for its own use, as opposed to a tr ansfe r of Softwa re to a third party

as par t of a re sale tra

nsaction.” In

7evidenc e in i ts brief showinghow 7-Eleve n used the ho st softwar e for its own benefit as suppor

t for its arg ument that the store softwar e wa s actua lly purcha sed for

7-Eleve n’s own use. 14 e sse nc e , th e State argue s th a t, i n o rd e r f or 7- El e ve n’ s p ur c ha se of

the so ft wa re to qu a lif

y a s a sa le for resa le under section 151.006, the transfe r of the store softwar e from 7-Ele ven to its franc hisees cannot ha ve provide d any

“dire ct bene fit” to 7-Eleve n. We disag ree . I n the f i r s tp l a c e , n o t h i n g i nt h e s t a tu t e i n d i c a t e s t h a tt h e p u r c h a s e r o f t ang ibl e pe rs on a l pr op e rt

y wh o tr ans fe rs it a s an in te g ra l pa rt of a ta xab le se rv ic e may

no t ob ta in a

ny be ne fi t from the transac tion. Neither the statute’s plain text nor its c ontext within c hapter 151 sug g ests that the de ri vat ion

of a “ be ne fi t” by

the pa rt y pe rf or min g the ta xab le se rv ic e ne g a te s w hat w ou ld otherwise qua lify

for the sa le-for -re sale e x emption. Se e In re Be ll , 91 S.W .3d 784, 790 (Tex. 2000) (“c ourts should not insert words in a statute except to g ive ef fec t to clear

leg islative intent”); W illiams v. Texas State Bd. of Orthotics & Prosthetics , 1 50 S.W. 3d 56 3, 57 3 (T e x. Ap p. —A us tin 2004, no pet.) (“ [W ]e will not rea d into an act a provision that is not there
. . . .”). Thus, evidence that 7-Ele v en’s c orporate divisions also reviewe d and bene fited fr om reports that we re g ener ated using the store softwa

re, f or example, does not alter the fa ct that the tra

nsfer of the store s oftwar e to the fra nchisee s was integ ral to 7-Ele ven’s pe rfor mance of data -proc essing service s. Cf. Stray ho rn
v. Raytheon E- Systems, I

nc. , 101 S.W .3d 558, 567 (Tex. App.—Austin 2003, pet. denied) ( reje cting Comptroller’s argument that rese lle r’ s control over proper ty for its own use de feated its claim for sale-f or-r esale exemption, not ing that n o t h i n g i n tax code require d sale to hing e on ele ments of control and use ). So long as the purcha ser’ s intent in acquir ing the proper ty was to transf

er it as a n15

int e g ra l pa

rt of a taxab le se rv ic e , th e e le me nts of the se c tio n 1 51 .0 06 (3 ) d e fi nit ion wo uld a pp e a r t o be satisfied. Mo re ov e r, e ve n in te rpreti ng the statut e to p e rm it c on sid e ra tio n o f t he be ne fi ts
a lle g e dly re c eiv ed by the p art ie s to the tr ans a c tio n, we dis a g re e that th e statut e c on ta ins a require ment that the recipient of the ser vice be the sole be ne fi tin g pa rt y . Su c h a c on str uc tio n w ou ld impose on the party

seekingelig i b ility

for the sa le-for -re sale e x emption an imprac tical burde n,
re qu ir inga

sh ow ingno t on ly

that th e tr ans fe r o f t

he pr op e rt y wa s in te g ra l to its pr ov isi on of a ta xab le service , but also that the transfe ror of the prope rty

rec eived no be nefit fr om the transfe r beyond
rec eipt of the sale s price. See Te x. Go v’ t Co de Ann
. § 31 1. 02 1( 3) (We st 2 00 8) ; Ol d A m. Cou nty Mut. Fire Ins. Co. v. Sanc hez , 149 S.W .3d 111, 117 (Tex. 2004) (re quiring that we r ejec t statutory interpre tation that would lead to unre asonable result). The more re asonable inte rp re t ation of the “purpose ” re quirement is that it exi sts to prevent par ties from o b t ai ning f

avora ble tax treatment pr e mis e d o n a sh am arr ang e me nt w he re in l itt le or no ta xab le se rv ic e s a

re a c tua lly

re nd e re d. Th is is c on sis te nt wi th the sa le -f or -r e sa le e xemp tio n’ s p ur po se be ingto a

vo id d ou ble ta xati on , b e c a

us e if there is no perfor

mance of signific ant service s that would be subjec t to sales and use ta x , taxi ng
any tang ibl e pe rs on a l pr op e rt y int e g ra l to the pe rf

or manc e of tho se se rv ic e s w ou ld n ot r esu lt i n double taxation.I n its reply brief, 7-Eleve n acknow ledg es that it benefited “ from all the g oods and ser vices 8 that it transfer

red to the f

ranc hisees, including the computer s , s t o re f urniture, the tr adema

rks, the c on su ltatio ns , the data pr oc e ssi ng , and oth e r ite ms. Al l of the se ite ms t e nd e d to inc re a se fr anc his e sales, ther eby

incre asing the fe es to 7-Eleve n.” 16 Her e, eve n taking into account the be nef i t s t hat 7-Eleve n rec eived, the 8
su mma ry -j ud g me nt re c or d do e s no t sh ow that the e ff e c ts of the sto re so ft

wa re we re so on e -s ide d in 7-Eleve n’s favor that its claim to have purcha sed t he software as an int eg ral pa rt of its provision of data- proce ssing se rvice s is merely prete nse. On the contra

ry , the record shows that the f ranc hisees derive d a substantial ac tual benef it from the taxable service s rende red by 7-Eleve n. The e vidence is undisputed that 7-Eleven use d the store softwa re to pe rfor

m pay roll and ac counting functions for the fra nchisee s; to store and manipulate the sto res’ computerized data a nd information, including inventory data; to maintain re cords of store employ ee w ork t i m e; an d to compute and pr epar e the store employ ees’ pay

roll chec ks—all of which ar e identified as data- proce ssing se rvice s in the Comptroller’s rule de fining that term. See 34 Tex. Admin. C ode § 3.330.

Th e Sta t e f

u rt h e r a r g u e s t h a t7
- E l e v e nc an n o ta v a i l i t s e l f o f t h e s a l e - f

o r - r e s a le exemption because some a spects of the s tore softwa re—spe cifica lly

Phase 2B —wer e “unr elated” to th e perf

or manc e of data -p ro c e ssi ngse rv ic e s. Th e re c or d s ho ws that Ph a se 2B wa s d e sig ne d to permit the stores to upload their merc handise orde rs to the host computer, whic h proce ssed and tr a ns mit t e d

t h e o r d e r d a t a t o t h e v e n d o r s f

o r t h e p u r p o s e o f s u p p l y i n g m e r c h an d i s e t o t h e s t or e s. Naumann te stified that Phase 2B incl u d ed “transmission of order infor mation” to 7-Eleve n’s consolidated distribution center s and vendor s, as well as “ sales tre nd information for the stores.”Acc ording ly , we also reje ct the State’s asser tion that the sale-f

or-r esale definition is not met 9 beca use the store s themselves we re c apable of g ener ating their own reports us ing the store softwa re. Th e re c or d d oe s n ot s up po rt the State ’s argume nt t

ha t “ the Sto re s are the on e s a c tua lly do ingthe data proce ssing.” L ikewise, we disag ree that 7-Eleve n was re qui re d t o produce evidenc e “to show w hat 10 pe rc e nta g e of

the de ve lop me nt c ha

rg e wa s f or Pha se 1, pr e -P OS, or

Pha se 2B so ft

wa re ” in o rd e r t o be entitled to summary

judgme nt, give n that all phases of the store softwa

re—not just Phase 1—ar e 17 We rejec t the State’s ar g ument for two r easons. F irst, as a matter of l aw, we do not construe the statute to require that the tang ible persona l property be committed so l el y t o the pe rf or manc e of the ta xab le se rv ic e in o rd e r f or se c tio n 1 51 .0 06 (3 ) t o b e satis fi e d. Ra the r, the statut e is phrased in ter

ms of whether

the taxable service could be c ompleted but for the ta ng ible persona l p r o p e rt y— i.e. , whether

the prope rty

i s “a n integ ral pa

rt of a ta x able se rvice .” See Tex. Tax Code Ann. § 1 51 .0 06 (3 ); se e als o W e bs te r’ s Th ird Ne w I nt’ l D ic tio na ry 1173 (1986) (“integ ral” means “of, r elating to, or servingto form a whole ; es s en t i al t o completene ss; constituent; i nhere nt”). Be cause the evidenc e conf irms that the store softwa re w as esse ntial to t h e p erformanc e of data- proce ssing se rvice s that wer e perf ormed by 7-Eleve n, it is not r eleva nt unde r the statute that the sto re so ft wa re may have be e n p ut t o o the r u se s a s w e ll. Fur ther, a s a matter of f

act, the e vidence 9 shows that even the Phase 2B softwar e was integ ral to 7-Eleven’s “ storag e and ma nipulation” of the Store’s computer ized sales-trend a nd merc h a

n d is e - o r d e r in g

d a ta , p r o c e s s e s th a

t a r e e xp r e s s ly

define d as data -proc es s i n g s er vices unde r the tax code. See Tex. Tax Code Ann. § 151.0035 (data -proc essing service s specific ally include data

entry , d at a retrie val, data se arc h, information compilation, and other c omputerized data and information storag e or manipulation). Ba sed on our
re v ie w o f th e r e c o r d , w e d is a g r e e w it h th e St a te ’ s c o n te n ti o n th a t “ o n ly a s ma ll p o rti o n ” of the Canmax stor e so ft

wa re wa s u se d f

or data -p ro c e ssi ngse rv ic e s. 10pr op e rl y

se e n a s in te g ra l to the pe rf or manc e of data -p ro c e ssi ngse rv ic e s. “Scouting service is the timely procur ing of

statistical data on oil a

nd g as we lls, necessa

ry 11 to ke ep oil operators informed of developments in their industry .” W illiams & Lee Scouting Serv

. In c . v . Ca lv e rt , 452 S.W .2d 789, 790 (Tex. Civ. App.—Austin 1970, writ ref’d)
. 18 (2 ) “ Es se nc e -o f- the -T ra

ns a c tio n” Te st I n a sepa rate but relate d argument, the Sta t e ar gu ed in its moti on for summary judgme nt that 7-Eleven w as not entitled to purcha se t he C anmax store software tax -fr ee be cause the softwar e purc hase f

ails the judicially

cre ated “ essenc e-of

-the-tr ansac tion ” t es t
. Acc ording to the State, the store softwa

re w as purchased not for the purpose of pr oviding data-proc essing service s for 7-Eleve n’s stores, but wa s instead done to automate 7-Eleven’ s operations and to protect 7-Eleve n’s fra nchise fe e. The se purpose s, the State arg ues, re veal that the essenc e of the transac tion between 7-Eleve n and its fra

nchisee s was not the tra

nsfer of tang ible persona l pr operty as an integ ral pa rt of a taxable servic e, and the ref ore 7- Eleven is not entitled to the sale- for- resa le exemption. T h e e s s en ce -o f- t h e- t ra n s ac t i o nt es twa s d ev el o p edt o ad dre s s s i tu at i o n s i n v o l v i n g a “mix ed t ra n s action” of both tax able a nd nontaxable elements. See, e .g. , Bullock v . Statist ical Tabulati ng Corp. , 549 S.W .2d 166, 167 (T ex . 1 9 7 7 ); Ry lan de r v . S an An ton io S

MS A Lt d. P’ sh ip , 11 S.W. 3d

48 4, 48 7 (Tex
. App. —A us tin 20 00 , n o p e t.) ; W

illiams & Lee Scouting Serv . Inc.

v . Ca lv e rt , 452 S.W .2d 789, 792 (Tex. Civ. App.—Austin 1970, writ ref’d) . I n W illiams & Lee , the
case in w h ic h th e e s s e n c e - o f

- th e - tr an s a c ti o nte s t w a s f ir s t a p p li e d , th e Co mp tr o ll e r

a s s e s s e d s ales ta x o np r i n t e d

r e p o rt s p r o d

u c e d b y a c o mp an y p e r f o r m i n g s c o u t i n g s e r

v i c e s f o r o i l c o mp an ie s. 11 452 S.W .2d at 790. The printed materia ls summarized the oil and g as we ll data that the compa ny g a the re d and fu

rn ish e d to i ts s ub sc ri be rs fo r a mon thl y c ha rg e , b ut t he re c or d s ho we d th a t th e same19

information was a lso communicated by teleg raph a

nd o v er the telephone , rathe r than in printed
re po rt s. Id. at 790-91. The scouting company challeng ed the tax assessment, ar g uing on a ppeal that

“ the e sse nc e of

the tr ans a c tio n invo lve d in thi s in sta

nc e is t he pe rf or mance of a se rv ic e fo r o il companies, na

mely , a scouting service .” Id. at 792. At that time, the sales tax had not bee n extended by the leg islature to cove r ser vices. Id. Th e re fo re , in

or de r t o d e te rm ine wh e the r t he sc ou tin g re po rt s
wer e subjec t to sales tax, t he W i l l i a ms & Lee court foc used its inquiry on what wa s rea lly

being sold—a scouting repor

t, which consisted of infor mation presente d in a per

manent, tang ible form and
was there fore taxable, or a service , which wa s not tax able. Id. The court held t hat because the value from the standpoint of the subsc riber w as in the information its elf, r ega rd l ess of what form the inf or ma tio n took , the tr

ue tr ans a c tio n wa s the se lli ng of a se rv ic e and the re fo re wa s n ot s ub

je c t to sales tax. Id. at 792-93.

Subsequently , courts have applied the e ssence -of- the-tra nsaction t es t to other
scena rios involving the bundling of a nonta x able se rvi ce wi t h a tax able sa le or ser vice. See, e .g. , Statist ical Tabulati ng , 5 49 S.W. 2d a t 16 7 ( ho ldi nge sse nc e of tr ans a c tio n w a s n on ta xab le data- proce ssing se rvice , which wa s perf ormed by translating rawdata o n t o p u n ch car ds that customers fe d in to computer; court therefor e held that transfe r of punc h car ds was not taxable sale); San Antonio SMSA , 1 1 S. W.3 d at 48 7 ( ho ldi ng that no ntaxab le e ng ine e ri ngse rv ic e s b un dle d w ith
sa le of te le c omm

un ic a tio ns e qu ipm e nt w a s n ot t a xab le ); Com ptr oll er of Pu b. Ac c ou nts v . A us tin Multiple List ing Serv., Inc

. , 723 S.W .2d 163, 165 (T ex . Ap p . — Aus tin 1986, no writ) (holding
e sse nc e of

tr ans a c tio n w a s p ro c e ssi ngof re a l- e state data, r a the r t ha n p ri nti ngof

we e kly listi ng -ser vice book)
.20 As th i s C o urt explained in San Antonio SMSA , th e e sse nc e -o f- the -t ra ns a c tio n te st i n v o l v e s t h e f

o l l o w i n g i n qu i r

y:
I f t he re a l ob

je c t of a mixe d tr ans a c tio n is the purc ha se of e qu ipm e nt w hic h is ta xab le , a nd the se rv ic e e le me nt i s in c ide nt t o th a t purc ha se , th e e nti re tr ans a c tio n is taxabl e . O n th e o th e r h an d , if th e e s s e n c e o f th e tr an s a c ti o n is th e p u r c h a s e o f a nontaxable service , which incidenta lly includes the purc hase of

some other ser

vice or equipment that is taxable, the entire transac tion is nont axable.
11 S.W .3d at 487 (c itations omi tted). Ultimately , this Court i n San Antonio SMSA deter mined that the transa ction at issue, which involved the pe rfor mance of nontaxable eng ineer ing se rvice s as par t of the taxable sale of tele communications equipment, did not fall into either c ateg ory beca use “e ach transac tion is i ndepende ntly desired a

nd independe ntly

provided.” Id. T h er ef o re , the Court
rec og nized a third cate g ory in which the two elements of a mixed transac tion involvi ng service and tang ibl e pr op e rt

y are “‘read il y

se pa ra ble ’: ‘Wh e n th e re is a

fi xed and a sc e rt a ina

ble re la tio ns hip betwee n the value of

the ar ticle and the va lue of the service s rende red, a nd eac h is a conseque ntial element c apable of a se parate and distinct transact i o n , then the ele ments must be analy zed as separ ate tra

nsactions for ta x purposes.’” Id. at 4 8 8 (q u o t i n g Ne w Engl an d Tel. & Te l. C

o. v . Clar k , 624 A.2d 298 (R.I . 1993)).

The tra nsaction involved in the instant case confor ms e v en l es s to the traditional
essenc e-of

-the-tr ansac tion inquiry . The issue he re is not wheth er the “esse nce” of the 7-Eleve n–fra

nchisee transac tion was a taxable sale o r a nontax able se rvice , see Statistical Tabulati ng , 549 S.W. 2d a t 16 7; Austin Multipl e Listing Serv. , 723 S.W .2d at 165, or e ven whe ther
we c an lo g ic a lly

“ un bund le ” the ta xab le and the no ntaxab le e le me nts of a sin g le tr ans a c tio n, a s inWe no te that the Com ptr oll e r ha s argue d in

pr e vio us a dmi nis tr a tiv e he ari ng s th a t, b e c a us e 12 the e sse nc e -o f- the -t

ra ns a c tio n te st w a s d e ve lop e d p ri or to the imp os iti on

of the sa le s tax on s e rv ic e s, i t i s n o t ap plicable in a c ase involving taxable service s. See Co mp tr o ll e r D e c is io nN o . 3 0 , 394 (Oc t. 28, 1997).

E v e n if th e te s t w e r e a

p p li c a b le in th e s e c ir c u ms ta

n c e s , w e d is a g r e e w it

h th e State’s 13 asser tion that 7-Eleven’ s alleg ed purpose in acquiringthe store softwa re f rom Canmax is materia l to t he inq uir y re g ard ingthe ta xab ili ty

of the so ft wa re that 7-El even tr ans fe rr e d to its fr anc his e e s. The e ssence -of- the-tra

nsaction test is intended to deter mine the essenc e of w hat t h e purchaser rec eived. See Sharp v. Direct Res. for Print, Inc. , 910 S.W .2d 535, 538 (Tex. App.—Austin 1995, wr i td en i ed ) ( ci t i n g Statist ical Tabulati ng , 5 4 9 S
. W.2d at 169). Thus, in order to de termine the essenc e of the transac tion between 7-El ev en an d its franc hisees, we must consider fr om the fra nchisee s’ perspe ctive whether taxable data-proc essing service s wer e rende red. As d i s cu s sed previously , the evidenc e conc lusively establishes t hat such ser vices e nabled the f

ranc hisees to use the store sof

tware to transmit electronic data to 7-Ele ven, wh er e i t wa s proce ssed. The essenc e-of

-the-tr ansac tion doctrine, eve n if applica ble, would not support the State’s position. 21 San A ntonio SMSA . Rathe r, bo th t he tang ibl e pe rs on a l pr op e rt y and the se rv ic e s at is su e in t his
a p p eal a re taxable. Yet the State pur ports to invoke the essenc e-of -the-tr ansac tion doctrine to show 12 that any “[s] oftwar e that may

have bee n t ransf

err ed as a n integ ral pa

rt of data proce ssing se rvice s
was mer ely

‘incident to’ the ‘ basic purpose ’ of this transa ction.” As we un de rs tand the State ’s argume nt, it i s th a t th e e sse nc e -o f- the -t ra ns a c tio n te st pr ov e s th a t 7- El e ve n’ s mo tiv a tio n f or tr ans fe rr ingthe sto re so ft wa re to its fr anc his e e s w a s to ob ta in a fina ncial bene fit for it self, not to transfe r t he software as an int eg ral pa rt of data -proc essing service s provided to the fr anchise es. In other words, the S tate wants to use t he test to show that 7-Eleve n was
n o te n g a g e d

i n “ a t r u e r e s a l e t r an s a c t i o n . ” T h e S t a t e h a s c i t e d n o a u t h o r i t y, n o r h a v e w e f

o u n d a n y, in d ic a ti n g th a t t

h e e s s e n c e - o f

- th e - tr an s a c ti o nd o c tr in e h a s e v e r b e e na p p li e d in this ma

n n e r . We conclude that it doe s not a pply here , and that the function of that test has eff ective l y b een inc or po rate d in to t

he de fi nit ion of “ sa le fo r re sa le ” re g ard ing wh e the r tang ibl e pe rs on a l pr op e rt y is “an integ ral pa

rt of a ta x able se rvice .” See Tex. Tax Code Ann. § 151.006(3)
. 1322 (3) Policy

Considerations The State fur

ther a rg ues that allowing the store softwa re pur chase to esca

pe sale s tax would contravene the purpose of the sale-f or-r esale exemption, which is t o preve nt double taxation. I n this case, a s the State points out, there is no evidenc e that 7-Eleve n char g ed or collecte d sales tax for a ny of the data-proc essing service s it perf ormed for out-of-state fra

nchise store s. There fore , the State urg es that, as a

matter of public policy , 7-Eleve n should be prec luded from c laim i n g the exemption in the absenc e of evidenc e that it a ctually char g ed sales tax to its fr anchise es “f o r t he provision of these a sserted ta x able data proc essing service s.”

7-Eleve n responds that the s a le-for -re sale e x emption does not require that the re seller actua lly collect sa les tax on the t axable item, analog izi ng to resale transac tions between c ontrac tors and the f eder al g overnme nt. Se e Da y& Zim me rm an , I

nc . v . Ca lv e rt , 5 1 9 S .W.2d 106, 110-11 (T e x. 19 75 ) ( ho ldi ngthat c on tr a c tor wh o tra ns fe rr e d title of

ite ms t o f e de ra l g ov e rnme nt c ou ld c la im sale-f or-r esale exemption even though ultimate r esale would not actually be taxed, based on
c on sti tut ion a l pr oh ibi tio n a g a ins t st a te s taxing fe de ra l g ov e rnme nt ) ; see also Ratheon E- Systems , 1 0 1 S
. W
. 3 d at 5 6 8 , 5 7 0 (ap p l yi n g Day &Zimmerman ana ly sis to c on tr a c tor ’s purc ha se of tang ibl e overhe ad mater ials allocate d as indirec t costs to contra cts with f eder al g overnme nt a

nd holding that purcha se qualified f

or sale- for- resa le exemption). We f ind 7- El e ve n’ s ana log y

to t hese c a se s to be a

pt. Th e sa le -f

or -r e sa le statut e simply require s that the servic e to wh i ch the transf er of tang ible persona l property is integr al be a taxable s e r

v i c e
— n o tt h a ti ta c tu a l l y be taxed in the particular instanc e in question. See T ex . Tax Cod e Ann. § 1 51 .0 06 (3 ). Whil e it m ay be tr ue that 7- El e ve n w ill a vo id p ay ingsa le s tax on so me23

of th e s o ft wa re t h at it purcha sed for transfe r to its stores, this is the re sult mandated by the plain lang uag e of the tax code exemption. T h e co u rt s h ave long r efuse d to enforc e straine d
rea din gs of tax-exempti on statutes for the pur pose of pr eventinglost revenue to the State. See, e .g. , Sc hlu sse lbe rg

v . Ca lv e rt , 4 43 S.W. 2d

69 5, 69 7 ( Te x. 19 69 ) ( ho ldi ngthat such c la ims “should be a ddresse d to the L eg islature, bec ause it is our opinion that the statute as wr itten is too plain to admit any construction other than t hat adopted by the t rial court” permitt ing application of sale-f or-r esale exemption to g oods sold out of state, despite Comptroller’s contention that such an interpre tation would rende r it “virtually impossibl e for h i m t o deter mine whether

the g oods are actua lly resold” a nd result in “the loss of much r evenue ”). We likewise de cline to do so here
. ( B) 7-Elev en’s Entitleme nt to Summary Judgm ent I n view of the prec eding , we hold t h at 7-Eleve n, having shown that its transfer of store software to its fra

nchisee s satisfies t he definition of a sa le for r esale , proved a s a matter of law that its purchase of store sof tware for its fr anchise stores qualified for the sale-f or-r esale exemption under section 151.302 of the tax code. We there fore sustain the portion of 7-Eleve n’s issue re lating to t he sto re so ft

wa re that w a s tr ans fe rr e d to thi rd -p art y fr anc his e e s o uts ide of

Te xas.
II. Com pany Stores As to the s oftwar e that was transfer red to 7-E leven’ s out-of-state company stores, the parties joined issue c oncer ning w hether

7-Eleve n was e ntitled to claim a sales-ta x exemption on t he basis that such softwa

re w as not used in Texas. 7-Eleve n asser ts—and the State does
no t di sp ute —th a t be c a

us e so me of

the Canmax stor e so ft

wa re wa s p urc ha se d to be re so ld t o it s out-of-state fra

n chisee s, 7-Eleve n was e ntitled to ini tially put all of the softwa

re into a “ tax-freeTh e C omptroller’s tax-policy division ex pert, Na

ncy Prosser, testified that the 14 Comptroller, as a matter of practice, has interpre ted t he sale-for- resa le s tatute to require that a vendor int e nd to s e ll o r t

ra ns fe r at le a st s ome of

the ite ms that it

purc ha se d f

or its ta x-f re e inv e nto ry , b ut i t did no t ne c e ssa

ri ly have to k no w that it

wo uld se ll o r t ra ns fe r e ve ry

singl e ite m th a t it

pu t in to i ts tax-free inventory
. See also, e .g. , Tex. Com ptroller of P u b . Acc ounts, STAR Document No. 8908L 0952E01 (ef

fec tive Aug
. 8, 1989) (“A tax-free inventory of out-of- state purc hases may be kept if separ ate rec ords are maintained on the out-of-state purcha ses and it is not known whether the items purcha sed will be used in Te x as.”)
. 24 inventory .” Ac c or din g ly , 7-Ele ve n a rgue s, it c ou ld l a te r r e mov e the so ft wa re that it int e nd e d to 14 tr ans fe r t o it s o ut- of

-s ta te c ompan y st ores wi tho ut h a vin g to p ay Te xas s a le s tax on th os e ite ms, ba se d o n it s in te rp re ta tio n o f C omp tr oll e r r ule 3. 28 5. Rul e 3. 28 5 p ro vid e s:
When an item is removed f rom a va lid tax -free i n v en tory for use in Texas, Tex as sales tax is due. Texas sales tax is not due on items remov ed from a valid tax-fre e inventory for use outside the state. Whe n an ite m purc ha se d un de r a re sa le c e rt if

ic a te is used for a

ny purpose other than retention, demonstration, or display , the purc haser is liable for sale s tax based on the fair ma rket re ntal value of the i tem for the period of time used.
34 Tex. Admin. C ode § 3.285(e) (1) (2009) (Tex. Comptroller of Pub. Acc ounts, Resale Certificate; Sa le fo r R e sa le ) ( e mph a sis a dd e d) . T he re fo re , 7 -E le ve n as ser ts that th e de te rm inativ e iss ue wi th respe ct to the copies of the s tore software that wer e transferr ed to its company stores is whether the softwar e wa s “used” in Texas, as “use” is define d in section 151.011 of t he tax code. For sof tware that was installed in its company stores i n Texas, 7-Eleve n conce des t hat i t owes sales tax. As to the softwar e that was transfer red to its out-of-state c ompany stores, howe ver, 7- Eleven a rg ues that no
sa le s tax is du e be c a

us e the re wa s n o u se in T e xas. I n g e ne ra l, “ us e ” re fe rs to “t he e xer c ise of

a ri g ht o r p ow e r i nc ide nta l to the ow ne rs hip
o f ta n g ib le p e r s o n a l p r o p e rty o v e r ta n g ib le p e r s o n a l p r o perty .” S ee Tex. Tax Code Ann.25

§ 151.011(a)
. Use does not include “the e x erc ise of a r ight or power over or the kee ping or

reta ining of tang ibl e pe rs on a l pr op e rt y fo r t he purp os e of

tr ans po rt ingthe pr op e rt

y ou tsi de th e st ate for

us e solely outside the state.” Id. § 151.011(f) . I t is on thi s exclusion from the d ef i n i t i o n o f u s e that 7-Eleve n relies in asse rting that it did not use t he st ore sof tware in Texas when it removed the store
so ft wa re fr om i ts t a x-f

re e inv e nto ry

and tr ans po rt e d it

to i ts c omp any

sto re s o uts ide of

Te xas. ( A) The State’s Entitlement to Summary J udgment Th e State so ug ht s umm ary jud g me nt o n th e ba sis that 7- El e ve n was n ot e nti tle d to
c ra ft “ a sa le s- ta x exem

pti on” fr om s e c tio n 1 51 .0 01 (f ), a statut e tha

t is “ de fi nit ion a l” and

“ so le ly applicable to the use tax—not t he s al es t ax.” I n the State’s view, it is not nece ssary to determine whether the taxpa y er m ak es a use of the pr operty in Texas; so l ongas the taxpay er pur chase s the pr op e rt y fr om a Te xas s e lle r a

nd take s poss e ssi on of the pr op e rt y in Te xas, sa le s tax is due . “U se tax is not applicable if the purc haser paid sales tax to a Texas retailer or owe s sales tax to a Texas reta iler who failed to collect it.” See 34 Tex. Admin. C ode § 3.346(c )(2) (2009) ( Tex. Com ptroller of Pub . Ac c ounts , U se Ta x); see also Tex. Com ptroller of Pub. Ac counts, STAR Document No. 7712L 0100A02 (e ffe ctive De c. 1, 1977) ( “When a sa le is consummated betwe en a T exas seller and his customer a

nd the customer ta

kes possession of the items in Tex as, the tra nsaction is subject to sales tax; not use tax.”). Acc ording to the State, the Comptroller’s under standing that the de fi nit ion of “ us e ” is i mmate ri a l to wh e the r s a le s tax is du e re pr e se nts a lon g -s tand ing , unif

or mly enfor ced Comptroller policy that should be entitled to defe renc e by this Court. See Se rgeant Enters., In c . v . S tra y horn , 112 S.W .3d 241, 250-51 (Te x . App.—Austin 2003, no pet.) (“ The c onsistent
cons tr u c ti o n b y a n a d mi n istrative ag ency

char g ed with ef

fec tuating the policy

of an e nactment c arr ies26

very considera

ble weight.” (quoting Felix Frankf urter, Some Reflec tions on the Reading of Statutes , 47 Colum. L . Rev. 527, 543 (1947))
.

We ag ree with the State that the issue in this case is wh et h er , u p o n removing the softwar e intended f

or its company

stores fr om its tax-free inventory , 7-Eleve n owed sales tax—not use tax—on the items. See 34 Tex. Admin. Code § 3.285 (providing that when pr operty is removed fr om tax -free inv e nto ry

fo r u se in T e xas, Te xas s a le s tax is du e ). B ut, a s w e e xpla in m or e fu lly be low , th e de fi nit ion

of “ us e ” is m a te ri a l in so fa

r a s th e pla in l angua g e of

the Com ptr oll e r’ s o wn

ru le require s a dete rmination of whethe r the software was “used” in Texas. See id. Summary judgme nt in favor of the State was there fore improper on the basis that section 151.011(f) of the tax code doe s
no t a pp ly to t he Canmax sof

tw are de liv e re d to ou t- of

-s ta te c omp any

sto re s. As an “ alternative” basis for summary

judgme nt, the State argue d that 7-Eleve n “ha[d] not presented any evidenc e to show that the softwar e wa s transported ‘ outside the state for use solely outside the state.’” The State further urg ed that 7-Ele ven did not conclusively prove that it e sta bli sh e d a va lid , tax-f

re e inv e nto ry

fr om w hic h it c ou ld re mov e so ft wa re fo r t ra ns fe r a nd us e out-of-state , noting that 7-Eleve n is require d by law to keep rec ords “in the form of rec eipts, shipping manifests, invoices, a

nd other pe rtinent pape rs that subs t an t i ate e ach c laimed deduc tion or exclusion,” see Tex. Tax Code Ann. § 151.025(a )(3) , and tha t t h e record c ontains no such docume ntation.

Th e “ a lte rn a tiv e ” g ro un ds ra ise d in the State ’s mot ion are no t pr op e r b a se s f or a ru le 166a(c ) summary

judgme nt. “When both parties move f or summary

judgme nt, eac h party

must carr y i t s o wn burden and neither can pre vail due to the other’s failure to mee t its burden .” Trib ble27

& Stephens Co. v. RGM Constructors, L .P. , 154 S.W .3d 639, 649 (Tex. App.—Houston [14t h Dist.] 2 0 0 4 , p et
. d en i ed ) ( ci t i n g W

. H

. V

. , I n c . v . A s s o c i a t es H

o u s . Fi n. , LLC , 43 S.W .3d 83, 87-88 (T e x. Ap p. —D a lla s 2 00 1, pe t. d e nie d) (e mph a sis a dd e d) . A c c or din g ly , if 7- El e ve n f

a ile d to
e sta bli sha s a ma tte r o f l aw that it

wa s e nti tle d to a

sa le s- ta x exem

pti on for th e so ft

wa re that it transfe rre d to its out -of- state company stores, that did not, ipso facto, e ntitle the State to summ ary judgme nt. See id. at 650. ( B) 7-Elev en’s Entitleme nt to Summary Judgm ent As discussed above , Comptroller rule 3.285 provides that “Te x as sales ta x is not due
on items r emoved from a valid tax-free inventory for use outside the state.” 34 Tex. Admin. C ode § 3.285(e) (1). 7-Eleve n maintains, and we ag ree , that whether proper ty is remove d for “ use” outside the state implicates the statutory definiti o n o f “u s e” found in section 151.011(f ) of the ta x code. Un de r t hat de fi nit ion , an y c op ie s of the sto re so ft wa re ov e r w hic h 7 -E le ve n e xer c ise d c on tr ol s ole ly fo r t h e purpose of transpor t out-of-state w ere not “used” in Texas. See Tex. Tax Code Ann. § 1 51 .0 11 (f

). Ac c or din g ly , to be e nti tle d to su mm ary ju dg me nt o n th is i ssu e , 7 -E le ve n h a d to conclusively prove that when it re moved the softwa re de stined for its out-of-state company stores from its tax -fr ee inve ntory , it did not ex erc ise a right or power over, keep, or reta in the softwar e for any purpose other

than to transport it “outside the state for use solely outside the state.” See id. 7-Eleve n asser

ts that it met this burden, having pr oduced unc ontroverte d evidenc e that the store softwa

re w as i nstalled in 1,742 out-of-state company stores in Texas; theref

ore, the y argue, “pr oof of the numbe r and ty pe of store s and their locations outside the State of Te x as prove d the number a

nd locatio n o f s t o re softwar e copie s that were used out-of- state.” 7- Eleven f urtherAlthough the rule ref ers specific ally to items purcha sed under a resa le ce rtificate and the 15 rec ord her e does not ind i cate that 7-Eleve n used a r esale cer tificate in its initial purchase of the so ft wa re fr om C anmax, ne ith e r p art y argues that r ule 3. 28 5 d oe s n ot a

pp ly to t he sa le a t is su e in this case. 28 argues that the S tate failed to produce contraverting evidenc e showing that any of the store softwar e tr ans po rt e d to 7- El e ve n’ s o ut- of -s ta te c omp any

sto re s w a s u se d in

Te xas. We d isa g re e wi th 7 -E le ve n th a t th e me re fa c t that the sto re so ft wa re wa s e ve ntu a lly installed in 1,742 out-of-state c ompany stores proves as a matter of lawthat such softwa re w as neve r used in Texas. The re cord c ontains no evidenc e re g ardingwhat 7- E l ev en did with the software during the interve ning pe riod of time af ter it wa s remove d from 7-Ele ven’s tax-fre e inventory and be fo re it wa s ins ta lle d in the ou t- of -s ta te c omp any sto re s. Rul e 3. 28 5 su g g e sts that ta x lia bil ity
a c c ru e s f or the pe ri od of tim e that ite ms take n fr om a ta x-f re e inv e nto ry

are us e d “ fo r a

ny purp os e oth e r t ha n r e te nti on , de mon str a tio n, or dis pla y ” wh ile the ite ms are be inghe ld f or tr ans fe r o r r e sa le
a s anin te g r a l p art o f

a taxa b le service
. The re cord c ontains scant evide nce a s to what was done

15 with the store softwa

re a fter 7- Eleven took de livery of it and how it was a ctually transfe rre d to the stores. The attorney s for the pa rties indicated in their briefs and during oral a rg ument that copies of the store softwar e wer e made, either by 7-Eleve n or at 7-E leven’ s direction, in Texas and installed on computers in Te x as, and that these computer s w er e t h en shi pped to the out-of- state compa ny stores. Acc ording to the C omptroller, “use” occurre d at the moment that the softwa re w as installed
on co m p u t er s in Texas, reg ardle ss of whethe r the c omputers loaded w ith the store softwar e we re intended to be shipped out of state to be “ used” by the out-of- state store ope rators. B ut the rec ord do e s n ot c on c lus ive ly

pr ov e e ith e r u se or

a bs e nc e of us e in T e xas.29 We will not spec ulate as to how 7-Ele ven mig ht have use d the orig inal g old master of the sto re so ft

wa re or ho w it dis se min a te d the sto re so ft wa re to i ts o ut- of

-s ta te c omp any

sto re s in an ef fort to d e te r

mi n e w h e th e r s u c h c o n d

u c t c o n s ti tute s “ u s e ” f

o r p u r p o s e s o f r u le 3
. 2 8 5
. T o be entitled to summary j u dg ment, 7-Eleve n had the bur den to prove as a matter of law that it did not use the store softwar e in Texas when it re m o v ed the softwar e fr om its t ax-free inventory to be transfe rre d to its out -of- state compa ny stores. We conc lude that the pre sent summary -j u d gm ent
re c or d d oes not me e t th is b ur de n. B e c a us e the summa

ry -j ud g me nt r e c or d d oe s n ot c on c lus ive ly establish that the store softwar e for the out-of-state company stores was used in Texas or that it was

no t u s e d in T e xa s , w e h o ld th a t n e it h e r p arty w a s e n ti tl e d to s u mm ar y ju d g me n t o n th is is s u e . We
ov e rrule 7-E le ve n’ s is su e in p art a s to the sto re so ft

wa re that w a s tr ans fe rr e d to its ou t- of -s ta te
c omp any sto re s.
CO NC LU SION We reve rse the tr ial court’s summar y judgme nt in favor of

the State. As to the tax
a sse sse d o n 7 -E le ve n’ s p ur c ha se of Canmax stor e so ft

wa re fo r r e sa le and del ive ry

to i ts f ra nc his e stores, we rende r judgm en t that 7-Eleve n is entitled to a sales-tax refund of that amount, plus penalties a

nd interest asse ssed as a uthorized by

the tax code. As t o t h e s al es t ax assessed on 7-Ele v en ’s p u rcha se of store softwar e for its out-of-state c ompany

stores, we rema

nd that portion of the c ause to the tria l court for further proce eding s consistent with this opi nion.30 J . Woodfin J ones, Chief Just ice Be fore Chief J ustice Jones, J ustices Pury ear and He nson Reverse d and Rende red in Part; Reve rsed a nd Remanded in Part Filed: August 31, 2009