Affirmed and Memorandum Opinion filed April 19, 2016.

In The

Fourteenth Court of Appeals

NO. 14-15-00027-CV

GLENN HEGAR, COMPTROLLER OF PUBLIC ACCOUNTS OF THE 

STATE OF TEXAS; AND KEN PAXTON, ATTORNEY GENERAL OF 

THE STATE OF TEXAS, Appellants

V.

CHECKFREE SERVICES CORPORATION, Appellee

On Appeal from the 53rd District Court

Travis County, Texas

Trial Court Cause No. D-1-GN-13-003667

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

CheckFree Services Corporation contracted with several banks to provide 

bill pay services through these banks’ on-line banking services to the banks’

customers. An auditor from the Texas State Comptroller determined that

CheckFree should have collected sales tax on its sales of these services to the 

banks. CheckFree tendered partial payment of assessed sales taxes and interest. 
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Following the conclusion of administrative proceedings that affirmed the auditor’s 

determination and denied CheckFree’s refund claim, CheckFree filed suit against 

the Comptroller and the Texas State Attorney General (collectively, the 

Comptroller) seeking a refund.

After a bench trial, the trial court signed a judgment in favor of CheckFree, 

awarding it a refund of the taxes it paid, plus interest. In a single issue, the 

Comptroller asserts that the trial court erred in concluding that the services 

CheckFree provided to the banks were not taxable data processing services. 

I. Background

The underlying dispute arises from CheckFree’s refund claim for $3 million 

paid in sales taxes on the sale of its bill pay services to three banks during the tax 

period from June 1, 2005 through July 31, 2008. An auditor determined that, 

during this period, CheckFree had engaged in taxable “data processing services”; 

CheckFree paid the $3 million following the audit. CheckFree challenged the 

auditor’s determination through administrative proceedings, but was unsuccessful. 

It then filed suit against the Comptroller, seeking a refund of the $3 million it had 

paid.

The parties filed pre-trial briefing, and the trial court conducted a two-day 

bench trial. After the bench trial, the trial court signed a judgment in favor of 

CheckFree ordering the Comptroller to refund CheckFree the $3 million in sales 

and use tax it had paid and awarding CheckFree statutory interest. The court 

signed detailed findings of fact and conclusions of law. Based on these findings, 

the trial court made numerous legal conclusions that the transactions at issue in this 

case were “bill pay services” that were not taxable “data processing services” as 

defined either by the Texas Tax Code or the Comptroller’s administrative rules. 

The Comptroller timely noticed its appeal of the trial court’s judgment.
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II. Standards of Review1

Findings of fact entered in a case tried to the court are entitled to the same 

force and dignity as a jury’s verdict on jury questions. McNeil Interests, Inc. v. 

Quisenberry, 407 S.W.3d 381, 386 (Tex. App.—Houston [14th Dist.] 2013, no 

pet.) (citing Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex. 1994)). “Where, as 

here, a case is tried without a jury and the trial court issues findings of fact, the 

reviewing court is bound by any unchallenged finding unless the evidence is 

legally insufficient to support it.” Saulsberry v. Ross, No. 14-14-00798-CV, 

–S.W.3d–, 2015 WL 6692271, at *3 (Tex. App.—Houston [14th Dist.] Nov. 3, 

2015, no pet.) (citing Tenaska Energy, Inc. v. Ponderosa Pine Energy, LLC, 437 

S.W.3d 518, 523 (Tex. 2014)); see City of Keller v. Wilson, 168 S.W.3d 802, 827–

28 (Tex. 2005) (describing legal sufficiency standard of review). We review a trial 

court’s conclusions of law drawn from the facts de novo to determine their 

correctness. BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 

2002). 

Further, the Comptroller’s issue concerns statutory construction, a question 

of law that we review de novo. See First Am. Title Ins. Co. v. Combs, 258 S.W.3d 

627, 631 (Tex. 2008). Our primary concern in construing a statute is the express 

statutory language. See Galbraith Eng’g Consultants, Inc. v. Pochucha, 290 

S.W.3d 863, 867 (Tex. 2009). “We thus construe the text according to its plain 

and common meaning unless a contrary intention is apparent from the context or 

unless such a construction leads to absurd results.” Presidio Indep. Sch. Dist. v. 

Scott, 309 S.W.3d 927, 930 (Tex. 2010) (citing City of Rockwall v. Hughes, 246 

 

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This case was transferred to our court from the Third Court of Appeals by order of the 

Supreme Court of Texas. Therefore, we must decide the case in accordance with the Third 

Court’s precedent if our decision would be otherwise inconsistent with its precedent. See Tex. R.

App. P. 41.3.
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S.W.3d 621, 625–26 (Tex. 2008)). We “‘read the statute as a whole and interpret it 

to give effect to every part.’” Railroad Comm’n of Tex. v. Tex. Citizens for a Safe 

Future & Clean Water, 336 S.W.3d 619, 628 (Tex. 2011) (quoting City of San 

Antonio v. City of Boerne, 111 S.W.3d 22, 25 (Tex. 2003)). 

We construe administrative rules, which have the same force and effect as 

statutes, in the same manner as statutes. Rodriguez v. Serv. Lloyds Ins. Co., 997 

S.W.2d 248, 254 (Tex. 1999). Unambiguous comptroller rules must be construed 

in accordance with their plain language. See Cirrus Exploration Co. v. Combs, 427 

S.W.3d 464, 471 (Tex. App.—Austin 2014, pet. denied). Finally, “[t]axing 

statutes are construed strictly against the taxing authority and liberally for the 

taxpayer.” See Morris v. Houston Indep. Sch. Dist., 388 S.W.3d 310, 313 (Tex.

2012). 

III. Applicable Law

Although the Comptroller has been granted exclusive jurisdiction to interpret 

what “taxable services,” including “data processing services,” means,2the 

Comptroller may not interpret this term in a manner contrary to the tax code. See, 

e.g., Combs v. Home & Garden Party, Ltd., No. 03-09-00673-CV, 2010 WL 

4367054, at *5 (Tex. App.—Austin Nov. 3, 2010, no pet.) (mem. op.) (citing 

DuPont Photomasks, Inc. v. Strayhorn, 219 S.W.3d 414, 419 (Tex. App.—Austin 

2006, pet. denied)). Through section 151.0035 of the Texas Tax Code, the 

Legislature has provided examples of what the term “data processing service” 

includes:

“Data processing service” includes word processing, data entry, data 

retrieval, data search, information compilation, payroll and business 

accounting data production, . . . and other computerized data and 

 

2

See Tex. Tax Code § 151.0101(b).
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information storage or manipulation. “Data processing service” also 

includes the use of a computer or computer time for data processing 

whether the processing is performed by the provider of the computer 

or computer time or by the purchaser or other beneficiary of the 

service. . . .

Tex. Tax. Code § 151.0035. 

As part of its role to interpret what may be taxed as “data processing 

services” under the Code, the Comptroller has enacted Rule 3.330(a)(1) to define

what “data processing services” are. See 34 Tex. Admin. Code § 3.330(a)(1). This 

subsection provides in pertinent part:

Data processing services--the processing of information for the 

purpose of compiling and producing records of transactions, 

maintaining information, and entering and retrieving information. It 

specifically includes word processing, payroll and business 

accounting, and computerized data and information storage or 

manipulation. The charge for data processing services is taxable 

regardless of the ownership of the computer. Examples of data 

processing services include entering inventory control data for a 

company, maintaining records of employee work time, filing payroll 

tax returns, preparing W-2 forms, and computing and preparing 

payroll checks. 

Id. The Comptroller has also defined what “data processing services” are not:

Data processing does not include the use of a computer by a provider 

of other services when the computer is used to facilitate the 

performance of the service or the application of the knowledge of the 

physical sciences, accounting principles, and tax laws, e.g., the use of 

a computer to provide interpretive or enhancement geophysical 

services or the use of a computer by a CPA firm, enrolled agent, or 

bookkeeping firm to produce a financial report, prepare federal 

income tax, state franchise or sales tax returns, or charges for 

temporary secretarial personnel who as part of their function use word 

processing equipment. 

Id.
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With the appropriate standard of review and applicable law in mind, we turn 

to the Comptroller’s sole issue: whether the trial court erred in determining that 

the services that CheckFree provided were not taxable data processing services 

under the Texas Tax Code and the Comptroller’s administrative rules.

IV. Discussion

As the plaintiff in a tax-refund case, CheckFree had the burden of proving, 

by a preponderance of the evidence, that it is entitled to a refund of the sales tax it 

paid on the services it provided to the banks because those services were not 

subject to a tax. See Roark Amusement & Vending, L.P. v. Combs, No. 03-10-

00105-CV, 2011 WL 255535, at *2 (Tex. App.—Austin Jan. 26, 2011) (mem. op.), 

aff’d, Combs v. Roark Amusement & Vending, L.P., 422 S.W.3d 632 (Tex. 2013); 

GATX Terminals Corp. v. Rylander, 78 S.W.3d 630, 634 (Tex. App.—Austin 

2002, no pet.). 

In an effort to meet this burden, CheckFree presented two witnesses: 

Russell Kohl, the senior vice president of tax and treasury of CheckFree’s parent 

company, Fiserv Corporation, and Mary Beth Lawson, the vice president of 

product management for Fiserv.3 Both Kohl and Lawson testified live and via 

excerpts from depositions that were read into the trial transcript.

Kohl and Lawson described CheckFree’s services, largely focusing on three 

types of activities that CheckFree provides to the banks: (1) the electronic delivery 

platform that CheckFree used to facilitate the performance of the bill pay service 

provided to the bank’s customers, (2) the actual bill pay service, and (3) other

aspects of the transactions, such as invoices, reports, and customer service that 

were provided to the banks and the bank’s customers. Lawson explained that the 

 

3 During the majority of the time of the audit, Lawson was the director of platform 

services for CheckFree.
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technology platform through which the bill pay services operated was neither sold 

nor licensed to the banks. 

Pursuant to agreements with the banks, CheckFree provided an electronic 

bill pay service to the bank’s customers (the users). The banks were responsible 

for obtaining user authorizations to enroll in the bill pay services. By means of the 

bill pay service, the users could initiate and authorize payments from their accounts 

to selected payees. The users were approved and enrolled by CheckFree, and 

CheckFree conducted a “soft credit check” on the users. CheckFree agreed to 

execute the delivery of all payments as instructed by the users, except in certain 

cases such as when users provided incorrect instructions or had insufficient funds. 

CheckFree determined the method of payment, generally using the Automated 

Clearing House (ACH) to debit the users’ accounts and credit the payees’ accounts, 

but in about twenty percent of the cases, CheckFree provided paper checks to 

payees. 

CheckFree provided the banks with a dedicated connection that was owned 

and operated by CheckFree. CheckFree monitored and supported the network 

hardware, software, and mainframe operations. CheckFree employed thousands of 

professionals who monitored transactions to prevent fraud and to ensure 

compliance with banking regulations. CheckFree also provided professional 

support directly to the banks’ users in cases where payments were not made as 

instructed. CheckFree prepared numerous reports for the banks, containing 

detailed information regarding the users and payments that were processed during 

the report periods.

By linking to CheckFree’s system through the banks’ online banking portals, 

users could receive bill summaries from some payees and schedule payments. For 

other payees, users entered payment data, including payee information, payment 
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amounts, and payment due dates into CheckFree’s system. Once admitted to a user 

interface, users could access CheckFree’s portal to add payees, make payments, 

view pending payments, and perform other tasks related to bill payment. 

CheckFree retained the users’ billing and payment data for retrieval by the users 

for ninety days. CheckFree retained the data pursuant to banking regulations for 

seven years. 

The contracts with each of the banks were entitled “CheckFree Services 

Corporation Electronic Commerce Service Agreement” and were very similar, 

although the type of services provided by CheckFree varied slightly for each bank. 

For example, two of the banks entered into agreements with CheckFree for 

implementation of CheckFree’s electronic commerce system to access only 

CheckFree’s electronic bill payment service, but the third bank opted to implement 

CheckFree’s electronic commerce system to access CheckFree’s electronic bill 

payment service as well as CheckFree’s electronic banking services. Services to 

the banks for which taxes were assessed included invoiced charges for monthly 

infrastructure fees; fees for paper and electronic transactions; processing charges 

for new subscriber set-ups; processing charges for non-sufficient funds, stop 

payments, and claims; subscriber fees for active and inactive users; subscriber fees 

for banking and bill pay; monthly minimum charges; service hosting fees; 

processing charges for telecommunications minutes and VPN lines; and transaction 

fees for excess payments and excess sessions. 

Based upon this evidence, the trial court’s findings and conclusions properly 

focused on the “essence of the transaction” at issue, rather than simply the 

involvement of a computer, to determine the nature of the services CheckFree 

provided. Cf. Roark Amusement & Vending, 422 S.W.3d at 637 & n.14 

(explaining that the “economic realities underlying the transactions in issue” 
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should not be disregarded in determining the plain meaning of taxing statutes and 

noting the long-standing tradition of focusing on the “essence” or “object” of a 

transaction to determine whether a tax is due). In accord with the Comptroller’s 

rule, the trial court was required to determine whether CheckFree does something 

more than “compiling and producing records of transactions, maintaining 

information, and entering and retrieving information,” such as providing physical 

science, legal, or accounting services based on the information—i.e., providing 

professional services that are facilitated by the use of a computer. See id.

Here, in addition to the numerous findings describing the general nature of 

CheckFree’s services, the trial court made the following unchallenged finding:

“CheckFree has thousands of skilled and/or certified professionals who collaborate 

in the performance of these professional services centered around bill payment.” 

The finding is supported by the testimony of Lawson and Kohl regarding the role 

of the professionals employed by CheckFree:

 Bill pay service is a professional service requiring accredited or certified

professionals across several areas including ACH processing, financial crime 

investigation, treasury, anti-money laundering, and accounting.

 CheckFree employs over 3,000 associates and professionals necessary to 

facilitate the bill pay service. 

 These professionals manage the actual bill pay process and make decisions at 

multiple stages of the bill pay process. 

 These professionals are responsible for critical monitoring and detection of

fraud, money laundering, and other financial risks. 

 These professionals are also responsible for compliance with complex 

government regulations.
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 A team deals with errors and other customer service issues that arise after bill 

payment occurs. 

 These professionals are not a minor part of the bill pay service delivery; instead, 

they are the “secret sauce” of the service. 

Because this evidence supports the trial court’s finding, we are bound by it. See

Saulsberry, 2015 WL 6692271, at *3 (explaining that we are bound by

unchallenged fact finding unless the evidence is legally insufficient to support it). 

The Comptroller also has not challenged the following findings by the trial 

court: 

The delivery platform for the bill pay service, the Electronic 

Commerce System, also called the Genesis System, and other 

technology including software and equipment used to facilitate the 

performance of the bill pay service is not the service that CheckFree 

sells to the financial institutions. Rather, the technology and 

equipment are part of the delivery platform for the service, or the 

inputs that produce the service, but they are not the service.

***

Lawson and Kohl explained the distinction between bill pay and data 

processing: the activities the Comptroller labels as data processing 

are actually incidental activities facilitating the delivery of bill pay 

services and are not the actual service.

The functions or activities that are incidental to the bill pay service, 

such as, invoices, reports, and customer service, are not the service 

that CheckFree sells to the financial institutions.

These findings are likewise supported by legally sufficient evidence; thus we are 

bound by them. See id. 

Additionally, none of the transactions for which CheckFree was audited and 

paid taxes fall clearly within the activities enumerated in either the applicable 

statute or agency rule. In other words, none of the services CheckFree was audited 
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and paid taxes for consist of “the processing of information for the purpose of

compiling and producing records of transactions, maintaining information, [or] 

entering and retrieving information.” 34 Tex. Admin. Code § 3.330(a)(1)

(emphasis added). Nor do any of these services consist of “word processing, data 

entry, data retrieval, data search, information compilation, payroll and business 

accounting data production, . . . [or] other computerized data and information 

storage or manipulation.” Tex. Tax Code § 151.0035. To the contrary, the trial 

court’s findings, excerpted above, establish that, to the extent that CheckFree 

provided any of these services, they were ancillary to the professional bill pay 

services provided by CheckFree for the bank’s customers–the electronic commerce 

services that the bank purchased from CheckFree. See Roark Amusement & 

Vending, 422 S.W.3d at 637–38 (focusing on “economic realities” underlying 

transaction to determine whether tax was due).

The Comptroller would have us ignore the trial court’s factual findings in 

this case and conclude that, because the users of the bill pay service input data into 

CheckFree’s system, which CheckFree relied on to ultimately pay their bills, 

CheckFree was selling taxable data processing services to the banks. But we may 

not simply ignore the trial court’s findings; they are entitled to the same force and 

dignity as a jury’s verdict. See McNeil Interests, 407 S.W.3d at 386. Despite our 

de novo review of the statute and agency rule at issue here, we nonetheless must 

defer to the trial court’s unchallenged fact findings regarding the nature of the 

activities in this case. And these findings, detailed above, establish that CheckFree 

provides a professional service—facilitated by the use of computers and an 

electronic commerce system—that requires the oversight and management of 

thousands of certified specialists to achieve the goal of paying the bills of the 

banks’ customers. 
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In sum, we must strictly construe taxing statutes against the Comptroller and 

liberally in favor of CheckFree. See Morris, 388 S.W.3d at 313. Under these 

circumstances, we determine that the trial court’s unchallenged findings support 

the trial court’s conclusion that CheckFree’s services do not fall within the 

Comptroller’s definition of data processing services because that definition 

specifically excludes providers of other professional services who use a computer 

to facilitate the performance of their services. See 34 Tex. Admin. Code § 

3.330(a)(1); Tex. Tax Code § 151.0101(b) (providing the Comptroller with 

exclusive jurisdiction to interpret what taxable services, including data processing 

services, means); see also Tex. Tax. Code § 151.0035 (providing examples of 

“data processing service”). 

For the foregoing reasons, we overrule the Comptroller’s sole issue on 

appeal.

V. Conclusion

We have overruled the Comptroller’s single appellate issue. The judgment 

of the trial court is affirmed.

/s/ Sharon McCally

Justice

Panel consists of Justices Jamison, McCally, and Wise.