The comptroller and the attorney g ener al are st atutory defe ndants in tax protest suits. See 1 Tex. Tax Code Ann. § 112.151(b) (West 2001). 

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

NO. 03-05-00245- CV

E. de la G ar z a, Inc ., App e lla nt

v. Carole K eet on Strayhorn, as Com ptroller of P ubl ic Acc ounts an d Gre g Abbott, as

Attor ney Ge neral for the State of Texas, Appellees

F ROM THE DISTRICT CO URT OF TRAVIS COUNTY , 250TH JUDICIAL DISTRICT NO. GN003589 HO NORAB LE DARLENE B Y RNE, JUDGE P RESIDING

M E M O R

A N D U M O P I N I O N
I n th is t a x pr ote st sui t, E. de la Ga rza , I nc ., a wh ole sa le g ro c e ry su pp lie r, a pp e a ls a
summa ry jud g me nt g ra

nte d in favo r of Caro le Ke e ton Str ay ho rn , Comp tr oll e r of

Pub lic Ac c ounts , and Gr egAbbott, Attorney Gene ral of the State of Texas (collec tively , “Comptro l l er ”)
. I n two 1 issues, de la Ga

rza claims entitlement t o a refund under the “sale-for -re sale” exemption of the tax code f or the sale s tax es i t paid on paper bag s and plasti c sacks sold to customers who had blanket
re s ale c ertifica

tes. SeeTe x. Tax Code Ann. § 1 51 .3 02 (a ) ( Wes t 20 02 ); see also 3 4 T ex. Admin. Code § 3.285(b)- (c) (2003). De la Garza a lso a sserts that the Comptroller ag ree d to corre ct an e rror2

in its audit figure s as par

t of the final or der in the district c ourt litigation but failed to include that
corr ection in the summary judgme nt order. We c on c lude that de la

Ga rza is n ot e nti tle d to a

re fu nd un de r t he sa le -f or -r e sa le exemption because ba g s and sac ks may not be purcha sed for resa le under section 151.302. See T e x. Tax Code Ann. § 151.302 ( c)- (d). B eca use we also conc lude that the Comptroller fa iled to corre ct the e rr or in i ts a ud it f igur es as p art

of the summa

ry jud g me nt o rd e r, we mod if y the jud g me nt t o include the corr ection of the Comptroller’s audit err or and, as modified, a ffirm the district c ourt’s judgme nt.
BACK GR OUND

D u r in g th e a

u d it p e r io d o f Janu ar y 1 , 1 9 9 3 , thr o u g h D e c e mb e r 3 1 , 1 9 9 6 , d e la G ar za
s o l d p ap er b ags an d p l as t i c s ac k s t o gro ce rs , co n v en i en ce s t o re s , b ak er i es , an d re s t au ra n t s . Al t h o u gh de la Ga rza c o n s id e r e d th e b a g s an d s a c k s to b e taxa b le it e ms , it d id n o t c o ll e c t s a le s tax from purcha sers who pr esente d blanket resa le cer tificates beca

use it thought such sa les wer e tax-exempt sales for resa le. See id . § 15 1. 00 6( 1) (We st 2 00 2) (“ sa le fo r r e sa le ” de fi nit ion ); s e e a lso 34 T e x. Ad min . Co de § 3 .2 85 (a )( 2) (A ) ( same ), (b ) ( a c c e pta nc e of re sa le c e rt if

ic a te s) , (c) (b lank e t r e sa le
cer tificates)
. De la G arza pre paid $50,000 of sale s tax afte r the Com p t ro l l er’ s audit. After an
a dmi nis tr a tiv e he ari ngin which t he Co mpt ro lle r d e nie d th e a

pp lic a bil ity of the sa le -f

or -r e sa le
e xemp tio n , d e l a G ar z a p a i d an a d d i t i o n a l $ 3 3 , 1 3 8
. 1 4 o f s a l e s t a x. D e l a G ar z a t h e n f i l e d s uitin Travis County district c ourt seeking ref und of the total $83,138.14 sales ta x it paid, contending thatBe cause there have be en no mater ial revisions to the rele vant provisi o n s of the tax code 2 since the a

udit period, we w ill refer

to the curr ent code
.

3 the sales of

paper bag s and plastic sac ks to its custom ers qua lif i ed fo r t h e s ale- for- resa le tax exemption. See Tex. Tax Code Ann. §§ 112.052 (West 2001) (suit af t er p ay ment under pr otest); 151.302(a) (sale- for- resa le exemption). The Comptroller filed a motion fo r s u mmary

judgme nt 2 under r ule 166a a

rguing that the sale-f

or-r esale exemptio n was inapplica ble to de la Ga

rza’s sales of bags an d sacks. SeeTex. R. C iv. P. 166a. After a hear ing, the district court g rante d the Comptroller’s motion.

I n its first issue, de la Garza argues that the district c ourt should not have g rante d the
summa ry jud g me nt b e c a

us e , a s a matte r of law, the se c tio n o f t

he ta x co de that r e fe rs to t

he ta xab ili ty of “ ba g s” a pp lie s to pa c ka g ingsu

pp lie s u se d b y

manu fa c tur e rs, bu t no t th ose u se d b y re ta ile rs , to transport their pr oducts. I n its second issue, de la G arza a rgues t h at t h er e were fa ctual disputes
conce rning whether

(i) it was notified whe n the C omptroller chang ed its interpre tation of the tax law to include g roce ry

bag s and sac ks as taxable items, (ii) it collected s al es tax on t he bag s from customers who did not have a resale certificate, and (iii) it acc epted the resa le certificate s in good faith. I t al s o as s erts that the summ ary judgme nt order e x cluded r elief it wa s due base d on the Comptroller’s admitted audit err or, which the Comptroller had ag ree d to corre ct in the final orde r.
AN AL YSI S St a nd a r d o f R e v ie w

We re vie w the dis tr ic t cou rt ’s de c isi on to gra

nt s umm ary

jud g me nt de novo
. Joe v

. Two T hir ty Nin e J oin t V e ntu re , 145 S.W .3d 150, 1 5 6 (T ex . 2004). To pre vail on a motion for4

summary judgme nt under rule 166a(c ), the movant must show that no g enuine issue of mater ial fac t exis ts and that it is entitled to judgment as a matter of la

w. See id . at 15 7 ( c iti ngTe x. R. C iv. P. 166a(c )). S t at u tory

construction matter s are g ener ally questions of law that a

re r eviewe d de

novo . Brag

g v . E dwa rd s A qu ife r A uth ., 71 S.W .3d 729, 734 (Tex. 2002). In construinga statute, our objec tive is to deter

mine and g ive ef

fec t to the leg islature’s intent. City of S an An ton io v . Ci ty of Boerne , 111 S.W. 3d 22 , 2 5 ( Te x. 20 03 ); see also T e x. G o v ’ t C o d e § 3 1 2
. 0 0 5 ( We s t 2 0 0 5 )
. We look first to the “plain and c ommon meaning of t he st atute’s words.” Id
. (c i t i n g Sta te v. Gonzalez , 82 S.W .3d 3 2 2 , 3 27 (Tex. 2002)). I f a statute’ s meaningis unambiguous, it may be interpr eted accordingto its pl ain meaning
. Id
. L e g is lati v e inte n t i s d e r iv e d f r o m t h e e n ti r e a c t, n o t isolate d portions. Id
. An administrative ag ency that is cre ated to centr alize expertise in a ce rtain re g ulatory
are a rec eives “a larg e deg ree of latitude in the methods it use s to a ccomplish its re g ulatory function.” State v. Public Util. Comm’n , 883 S.W .2d 190, 197 (Tex. 1994). S t at u t o ry tax ex emptions are d i s fa v o re d

an d co n s t ru eds t ri ct l y

b ec au s e t h ey

u n d erm i n e e qu al i t y a n d u n i fo rm i t y b y p l ac i n g a greater tax burd e n o n s ome bu sin e sse s a nd ind ivi du a ls r a the r t

ha n d ist ri butin g the burd e n e qu a lly on all taxpay ers. 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).

Beca use the district cour

t’s order g rantingsummary

judgme nt does not specify the basis for its ruling , we must aff irm the s ummary judgme nt if any of the theor ies prese nted to the trial5

c ourt and pr e se rv e d f

or a pp e llate re vie w a

re me ri tor iou s. See Provident Life & Acc ident Ins. Co. v. Kno tt , 128 S.W .3d 211, 217 (Tex. 2004).
Section 151.302 Is Not Lim ited to Manufacturers

Se c tio n 15 1. 00 6(1 ) of

the ta x co de de fi ne s a

sa le fo r r e sa le a s a

“ sa le of tang ibl e persona l property

o r a t ax able se rvice to a purc haser who ac quires the pr operty or ser vice f or the purp o s e o f reselling it. . . .” SeeTex. Tax Code Ann. § 151.006(1) . Both pa rties ag ree that since 1991 g roce ry

bag s and sac ks have be en taxable items. Thus, the only issue is w hether the bag s and sacks qua lify

for the sa le-for -re sale exemption under section 151.302. Se e id . § 151.302. Section 15 1. 30 2 s tate s: (a ) Th e sa le fo r r e sa le of a ta xab le ite m is e xemp te d f ro m th e ta xes i mpo se d b y thi s chapte r. (b) Tang ible persona l property used to perf

orm a taxable ser

vice is not c onsidered re so ld u nle ss t he c are , c us tod

y , a nd c on tr ol of the tang ibl e pe rs on a l pro pe rt y is transfe rre d to the purcha ser of the servic e. (c) I nterna l or external wra pping, pa cking , and packag ing supplies used by a per son in wrapping , packing , or pac kag ing ta ng ibl e p er sonal proper

ty or in the pe rf or manc e of a se rv ic e fo r t

he purp os e of fur th eri ng the sa le of the tang ibl e persona l property

or the ser vice may not be purchased by theperson for resale. (d) I n this section, “wra

pping,” “pac king,” and “pa ckag ing supplies” include: (1) wra pping pa per, w rappingtwine, bags , c art on s, c rate s, c rat ing mate ri a l, tape, r ope, rubbe r bands, labe ls, staples, g lue, and mailingtubes; and (2) excelsior, straw, c ardboa rd fillers, se parators, shredde d paper , ice, dry ice, co t t o nb at t i n g, s h i rt b o ar d s , h ay l at h s , an d p ro p er t y u s edi n s i d e ap ac k age to s ha pe , f or m, s ta bil ize , p re se rv e , o r p ro te c t th e c on te nts
.6

Id . ( e mph a sis a dd e d) . T he ta xpay e r c la imi ng a statut or y e xemp tio n b e ars the burd e n o f p ro vin g its entitlement to the exemption. North Alamo W ater Supply Corp. , 804 S.W .2d at 899. B a se d o n a re pe a le d law that e xemp te d a ll p a c ka g ingsu pp lie s f ro m sa le s tax, de la Garza asserts that the de fini t i o n of “wrapping , packing , and pac kag ing supplies” in section 1 5 1
. 3 0 2 (c ) ap p l i es o n l y t o i t em s u s ed b y m an u fa ct u re rs t o t ra n s p o rt p ro d u ct s , n o t t o gro ce ry

b ags and sacks sold to reta ilers. See Act of Aug ust 8, 1961, 57th L eg ., 1st C.S., ch. 24, 1961 Tex. Gen. L aws 71, 82, (c odified 1981), repeale d by Act of Aug ust 12, 1991, 72nd L eg ., 1st C.S ., ch. 5, § 14.12(3), 1991 Te x . Gen. L aws 134, 190.

Contrary to de la Garza’s assertion, section 151.302(c) i s not lim ited to packa g ing
su p p l i es u s ed in t he manuf actur ing industry
. SeeTe x. Tax Code Ann. § 1 51 .3 02 (c ). I ts t e rm s expli citly include “ba g s” as “ wra

pping, pa c k in g , a

n d p acka g ing supplies” that may not be purc hased for r esale
. Id. Moreove r, de la Garza’s interpre tation is not persuasive bec ause a nother sec tion of th e tax c o d e e xe mp ts p a c k a g in g u s e d in ma nu f a c tu r in g f r o m s a le s tax
. S

ee id. § 151.318(a) , (d) (We st Su pp . 2 00 4- 05 ). I f d e la

Ga rza ’s un de rs tand ing we re c or re c t, the n se c tio n 1 51 .3 02 (c ) w ou ld be mea ningle ss beca

use all packing supplies would be tax exempt. An ag ency ’s construc tion of a statute is give n serious co n s i d eration as long a s its construction is reasona ble and doe s not contra dict the plain lang uag e of the statute. Continental C as. Co. v. Downs , 81 S.W .3d 803, 807 (T e x. 20 02 ). We f

ind that the Com

ptr oll e r’ s c on str

uc tio n of se c tio n 1 51 .3 02 (c )- (d ) i s r e a so na ble and does n o t c o n tr a d ic t t h e p la in la n g u a g e o f th e s tatute
. D e la

G ar za ’ s r e li an c e o na

repe aled
s e c tion of t he ta x c o d e to d e f e a t t h e a p p li c a b il it y o f s e c ti o n1 5 1
. 3 0 2 ( c )

- ( d ) is mi s p la c e d
. We
overr ule de la G arza’s f

irst point of error
.7

No G e nuine Iss ue of M at e r ialF ac t T hatTax Exe m pt ion is I nappl ic abl e

De la Ga rza ne xt ar g ue s that it

wa s n ot n oti fi e d w he n th e Com ptr oll e r c ha

ng e d it s int e rp re tatio n o f t

he ta x lawto i nc lud e g ro c e ry ba g s and sacks wi thi n th e de fi nit ion of ta xab le packa g ing supp l ies. But a fter a n act of the leg islature bec omes eff ective, it is consider ed to g ive notice of a ll its provisions . No rto n v . Kl e be rg Cou nty , 231 S.W .2d 716, 718 (Tex. 1950). De la Ga rza a lso c la ims that i t di d col lec t sal e s taxes o n th e ba g s th a t it so ld t o
c us tom e rs wh o la c ke d r e sa le c e rt if ic a te s. I n s up po rt

of thi s cla im, de la

Ga rza a tta c he d a ff

ida vit s and re ceipts in appe ndices to its brief. B eca use the appended a ffidavits and r ece ipts are not included in the rec ord, we cannot c onsider them. See, e .g. , Burke v . Ins. Auto Auctions Corp. , 169 S.W. 3d 77 1, 77 5 (T e x. Ap p. —D a lla s 20 05 , no pe t.) (a pp e llate c ourt c ann ot c on sid er do cume nts attache d as appe ndices if t hey are not formally

included in appe llate re cord) ; Ad am s v . R e y no lds Tile & Flooring, Inc ., 120 S.W .3d 417, 423 (Tex. App.—Houston [14t h Dist.] 2003, no pet.) (sa me). De la G arza fur

ther a rgue s th a t i ts a c c e p ta

nce of resa le ce rtificate s from its customers in good f aith sh o u l d all ow it to claim the sale-f or-r esale exemption. SeeTex. Tax Code Ann. § 151.054(a) -(b) (West 2002). Section 151.054 includes a g ood fait h co m ponent for a seller’ s
a c c e pta nc e of re sa le c e rt if

ic a te s f ro m pu rc ha se rs : (a) Ex cept as provided by Subsection (d) of this section, all g ross rec eipts of a se ller are presumed to have bee n subject t o the s ales tax unless a prope rly completed resa le or e x emption cer

tificate is ac cepte d by

the seller. (b ) A s a le is e xemp t if

the se lle r re c e ive s in go od fa ithfr om a purc ha se r, wh o is in th e b u s i n e s s o f

s e l l i n g , l e a s i n g , o r

r e n t i n g t a xa

b l e i t e m s , a

r e s a l e c e rt i f

ic a te statin g that th e tang ibl e pe rs on a l pr op e rt y or se rv ic e is a c qu ir e d f

or the purp os e of sell in g , le a s in g , o r r e n ti n g it in th e r e g u la r c o u r s e o f b u s in e s s o r f o r the8 purpose of

transfe rringit a s an integ ral part of a taxable service perf ormed in the re g ula r c ours e of

bu sin e ss.
Id .; see also 34 Tex. Admin. C ode § 3.285(b) -(c ). De L a Ga rza contends that, a lthough it did not
c oll e c t sa le s tax es fr om c us tom e rs wh o h a d p ro vid e d it wi th b lank e t r e sa le c e rt if ic a te s, it a c te d in g ood faith beca

use it rec eived most of the r esale cer tificates be fore 1991 and its sales on the blanke t
resa le ce rtificate s were only a small perc entag e of its total sales. Be cause de la Ga

rza relies on a ffidavits that ar e not included in the rec ord, we cannot consider the m. See, e .g. , Burke , 1 69 S.W. 3d a t 77 5; Adams , 120 S.W .3d at 423. I n any event, de la Ga rza ’s a ud it pe ri od be g an in J anu ary 19 93 , af te r se c tio n 151 .3 02 ha d ma de the ba g s in e lig ibl e for resa le. See Tex. Tax Code Ann. § 151.302(c) -(d)
. Fur thermore , the Comptroller has rule d that if a pr e vio us ly

va lid re sa le c e rt if

ic a te be c ome s f

a c ia lly inv a lid a ft e r a c ha

ng e in t he law, that r e sa le
cer tificate c annot be a cce p t ed in good f aith. Comptroller Dec ision No. 35,834, av ail ab le at 1997 Te x. Tax L EX I S 95 , at *8 -9 (1 99 7) ; htt p:/ /a ixtc p. c pa .s tate .tx.u s/o pe nd oc s/o pe n1 5/9 70 10 10 h. htm l. De la G arza doe s not challeng e the fac t that the 1991 chang e to s ection 151.302 that made de la Garza’s bag s ineligible f or re sale be came eff

ective be fore the audit per iod of J anuar y 1, 19 93 , thro ug h D e c e mbe r 3 1, 19 96
. No r did de la Ga rza inc lud e su

pp or t in the re c or d fo r i ts c la im that it c ollected sales taxes on bag s sold to customers without resale c ertificates and that it ac cepte d previously

valid resa le ce rti fi ca t es in good f aith. Additionally , de la Ga rza did not address the Comptroller’s ruling that resa le ce rtificate s that bec o m e facially invalid after

a cha ng e in the law cannot be acc epted in g ood faith. Thus, de la Garza’s arguments that it wa s not notified about the 19 91 c ha ng e in t he ta x co de , th a t it col lec ted tax e s f ro m ot he r c us tom e rs wh o la c ke d r e sa le9

cer tificates, a

nd that it acce pted the re sale c ertificates in g ood faith do not raise a g enuine issue of materia l fac t showing its entitlement to the sale- for- resa le exemption. W e o v er ru l e d e la Garza’s second point of e rror . Relief Exclud ed F rom Order

De la Ga rza ’s fi na l argume nt i s that the summa ry jud g me nt o rd e r e xclu de d r e lie f i t
wa s d ue ba se d o n th e Com

ptr oll e r’ s a dmi tte d aud it er ro r, wh ic h th e Com

ptr oll e r h a d a g re e d to
corr ect in the f

inal order . De la G arza’s c ounsel wrote to the Compt roller on Dec ember 11, 2000, advising of an e rror i n d e l a Ga rz a’s a udit. I n a re sponse letter dated J anuar y 8, 2001, the C o mp tr o l l e r

a c k n o w l e d g e d

t h a tt h e a

u d i to f J anu ar y 1 9 9 6 c o n t a i n e d

ani n c o r r e c td o u b l e e n t r y, resulting in an er

roneous a udited tax amount of $2,020.55, inst ead of $1,010.71. After consulting w ith its deputy g ener al counse l, the Comptroller ag ree d to “make this corre ction as par

t of the final or der in the district c ourt litigation.” N ever theless, the cor

rec tion
wa s o mitte d f

ro m th e c ourt ’s summa

ry judgm e nt o rd e r. We f

ind that th e Com

ptr oll e r f a ile d to inc lud e the c or

re c tio n o f i ts a

ud iti ng error i n th e summa ry jud g me nt o rd e r i n a c c or da nc e wi th i ts ag ree ment. Acc ording ly , we modify the judg ment to i n cl u d e a correction of the Comptroller’s J anuar y 1996 assessment ag ainst de la Ga rza, from $2,020.55 to $1,010.71.
CO NC LU SION Havingconclude d that de la Ga rza did not raise a genuine issue of m ater ial fac t on the applica

bility of the sale -for -re sale exemption to its sale s of g roce ry bag s and sac ks and that the Comptroller failed t o n o te the cor rec tion of its auditing er

ror in the summary

judgme nt order, w e10

modify the judg ment to include the cor rec tion of the Comptroller’s audit er ror a nd, as modified,
a ff ir m th e dis tr ic t c ourt ’s jud g me nt.

__________________________________________ J an P. Patterson, J ustice Be fore J ustices B . A. Smith, P atterson a nd Pury ear Modified and, a s Modified, Aff irmed Filed: Nove mber 10, 2005