Affirmed and Memorandum Opinion filed April 19 , 2016.

In The 

## Fourteenth Court of Appeals

NO. 14

- 15

- 00027

- CV

GLENN HE GAR, COMPTROLLER OF PUBLIC ACCOUNTS OF T HE STATE OF TEXAS; AND KEN PAXTON, ATTORNEY GENERAL OF

THE STATE OF TEXAS , Appellant s

V.
CHE CKFREE SERVICES CORP ORATION , 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 t he 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 asses sed sales taxes and interest.2

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 (collecti vely, 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 assert s that the trial court erred in concl uding 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 thre e 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 th e 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
b ench 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 f

indings 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

.34 II. Standard s of Review 1

F indings 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)). “ W here, as here, a case is tried without a ju ry 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.

— Houst on [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 rev iew 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 concern s 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. 2 009). “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. 201 0) (citing City of Rockwall v. Hughes , 246

1 This case was transferred to our court from the Third Court of Appeals by order of the Supreme Court of Texas. T herefore, we must decide the case in accordance with the Third Court ’ s precedent if ou r decision would be otherwise inconsistent with its precedent. See Tex. R. App. P. 41.3.5

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 (T ex. 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 stric tly 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, 2 the 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 Photom a sks, Inc. v. Strayhorn , 219 S.W.3d 414, 419 (Tex. App.

— Austin 2006, pet. denied) )

. Through section 151.0 0 35 of the Texas Tax Code, the Legislature has provided examples of what the term “data processing serv ice”
include s : “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).6

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, t he 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 wo rd 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 ente ring 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 no t : Data processing does not include t he 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 la ws, 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.7

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 m eet 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 L awson 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 deliver y 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 pro vided 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.8

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
bi ll 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 user s 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 ca ses, 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 emp loyed 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 rece ive bill summaries from some payees and schedule payments. For other payees, users entered payment data, including payee information, payment9

amounts, and payment due dates into CheckFree ’ s system. Once admitted to a user interface, users could access Ch eckFree ’ 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 pa per and electronic transactions; processing charges
for new subscriber set

- ups; processing charges for non

- sufficient funds, stop payments, and claims; su bscriber fees for active and in active 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 “ e ssence 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.3 d at 637 & n.14 (explaining that the “economic realities underlying the transactions in issue”10

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 th e Comptroller ’ s rule, the trial court was required to determin e whether CheckFree does something
more than “ compiling and producing records of transactions, maintaining information, and entering and retrieving information
, ” such as providing physical
scien ce, 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 t rial 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 testimo ny 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, tr easury, anti

- money laundering, and accounting

.

 CheckFree employs over 3,000 associates and professionals necessary to facilitate the bill pay service.

 The se professionals manage the actual bill pay process and make decisions at multiple stages of the bil l pay process.

 The se professionals are responsible for critical monitoring and detection of fraud, money laundering, and other financial risks.

 The se professionals are also responsible for compliance with complex government regulations

.11

 A team deals wit h errors and other customer service issues that arise after bill payment occurs.

 The se professionals are not a minor part of the bill pay service delivery; instead, they are the “secret sauce” of the service

. Because t his evidence supports the trial cour t ’ s finding
, we are bound by it. See Saulsberry
, 2015 WL 6692271, at *3 (explai n ing that we are bound by unchallenged fact finding unl ess the evidence is legally insufficient to support it).

T he 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 t he 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 a re 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 audited12

an d 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 Cod e § 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 custome rs

– 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).

T he Comptroller would have us ignor e the tri a l 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 servic es 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 he re , we nonetheless must defer to the trial court ’ s unchallenged fact findings regarding the nature of the
activities in this case. And t hese findings, detailed above , establish that CheckFree provides a professional service

— facilitated by the use of compu ters 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.13

In sum, w e must strictly construe taxing statutes against the Comptro ller 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 Comptrolle r ’ 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 § 15 1. 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 reaso ns, 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

P anel consists of Justices Jamison, McCally, and Wise.