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

NO. 03-0 6 -00 328 -CV

M F C F ina nc e Co m panyof Te xa s , A ppe lla nt

v. Ca r ole K e e to n St r ay hor n, C om pt r oll e r of P ublic Ac c ount s o f the St at e of Te xa s, and Greg A bbott, Attor ney Ge neral of the State of Texas , Appellees

F ROM THE DISTRICT CO URT OF TRAVIS COUNTY , 345TH JUDICIAL DISTRICT NO. D-1- GN-00- 0026 53 , HO NORAB LE MARGARET A. COO P ER , JUDGE PRESIDI NG

M E M O R

A N D U M O P I N I O N This is an appea l from a summary judgm ent in a tax refund suit to rec over motor
ve hic le sa le s ta x w ith int e re st. Th e iss ue pr e se nte d is wh e the r a c omp any that pu rc ha se d in sta llm e ntsales contr acts fr om retail motor vehicle deale rs could ava il itself of the bad debt ref und statute afte r the ob lig or s d e fa

ult e d. We w ill a ff

ir m th e dis tr ic t c ourt ’s jud g me nt.
BACK GR OUND MFC Fina

nce Company

of Texas, a subsidiary

of Merc ury

Financ e Company , was in the business of buying installment-sa les ag ree ments from motor vehicle deale r s . Si x teen thousand such contra cts purcha sed by MFC are at issue in this case . Under eac h of these c ontrac ts, the motor vehicle pur chase rs made down pay ments and/or trade -ins and ag ree d to pa y the dea ler the r emainder of the purcha se price , plus inter est, fee s, and sales tax, in installments over periods r an gi n g fromWe substitute Susan Combs, in her officia l c apac ity , as succe ssor to Caro l e K ee ton 1 Stray horn, Comptroller of Public Acc ounts of the State of Te x as. SeeTex. R. App. P . 7. F or c on ve nie nc e , wh e re statut or y langua g e c ite d o r r e fe rr e d to is u nc ha ng e d, we wi ll c ite 2 to the curr ent ver sion of the statute. 2 3 to 4 8 m o n t h s . The de aler s retaine d liens on the vehicle s. Each installment pay ment included, amongother c omponents, a portion of the principal amount owed on the debt, as well as the sa les tax owed on the purcha se price
.

Up on re c e ipt of e a c h in sta llm e nt pay

me nt, the de a le rs we re the n o bli g a te d to re mit the sales tax amount to the comptroller. SeeTex. Tax Code Ann. § 152.047(e ) (West Supp. 2007). 1 2 Howeve r, the tax code provide s that if the dealer assigns or transfe rs i ts right to pay ments under a contra ct, it is then require d to pa y in f ull the total a

mount of sales tax re maining due on the sale of the vehicle
. See id. § 152.047(g ) (West Supp. 2007). When p u rc hasing the installment-sales
a g re e me nts , MF C wo uld pa y e a c h de a le r a lum

p- sum a mou

nt re fl e c tin g the va lue of futur e pa y me nts (i ncl ud in g the p ri nci pal , i nt eres t, andsal es t ax com po nen ts ) di sco un tedfor th e ri skMFC assumed—that the oblig or would def ault. I n exchang e, the de al er assi g ned its rig hts, tit le, and int e re st i n th e c on tr a c t to MF C.

Under eac h of the sixt een thousa nd installment contracts at issue here , the obligor d efaulted. The ve hicles we re r epossessed a nd sold, and the unpaid portion that re mained af ter the re sale, includingthe cor respondingportion of the motor vehic le t ax o we d, was e ntere d as bad de bt on MFC’s books and re po rt ed as a l oss on MFC’s fe dera l income tax returns from 1996 throug h 1999.3 I n Marc h 1999, MFC filed a ref und claim with t h e compt roller f or sales taxes paid but never c ollected. See Act of May 6, 1983, 68th L eg ., R.S., ch. 235, art. 7, § 6, 1983 Tex. Gen. L aws 983, 1043-44 ( amende d 1999) (c urre nt version at Te x . Tax Code Ann. § 151.426( c) (West 2002)). The total refund r eques t ed fo r all tax y ear s at issue was $4,726,696.19. The comptroller de nied MFC’s r efund c laim. After timely filing its m o t i o n fo r rehear ing w ith the comptroller, the c omptroller denied MF C’s motions, and MFC appealed to the district cour t. The part ies fi ledcros s m ot io ns for su mm ary

ju dgmen t. I n i ts mo ti on for su m mary

ju dgmen t, MFC argued that it was e ntitled to a refund of the motor vehicle sales tax under the tax code ’s bad debt statute, while the comptroller argued that MFC has no statutory rig ht to a ref

und. I n addition to the parties’ statutory

construction issues, the comptroller’ s motion i ncluded a no-evide nce ground. The comptroller a

rgued that ther e wa s no evidenc e t h at t he dea lers qualifie d as seller -financ iers under the tax code or that the de aler s had re mitted the tax to the comp t ro l l er . Wit hout specify ing the g rounds, t he dis trict court gra nted the comptroller ’s summary judgme nt and denied MF C’s motion fo r p art ia l summa

ry jud g me nt. MF C a

pp e a ls.
DI SCU SSIO N Stand ard of review

When the parties f

i le cr oss-motions for summary judgme nt and the trial c ourt g ran ts o n e mo ti o nan d

d e n ie s th e o th e r , ana

p p e ll a te c o u rt s h o u ld

r e v ie w th e s u mm ar

y ju dg ment evidenc e supporting eac h motion and deter mine all questions pr esente d. FM Props. Operating Co.

v . Ci ty of A us tin , 22 S.W .3d 868, 872 (Tex. 2000). The a ppellate c ourt “should re nder the judgme nt that the trial court should have rende red.” Id. I f t he trial court’s orde r does not spec ify the g rounds4

up on wh ic h it g ra nte d s umm ary

jud g me nt, the a

pp e llate c ourt

“ mus t affi rm su mma

ry jud g me nt i f any of the summary

judgme nt gr ounds are meritorious.” Id. The issues in this case tur n principally

on s t at u t o ry

construction. Statutory construction presents a question of l aw that we review de novo. State v. Shumak e , 199 S.W .3d 279, 284 (Tex. 2006). We seek to disce rn the leg islature’s intent, a s manifested f irst and fore most in t he statutory text
. Id. We asce rtain the leg islature’s intent from the plain mea ning of the words c hosen when possible. Id. To that end, we consider statutory lang uag e in context, not in isolation. Jones v. Fowler , 9 69 S.W. 2d

42 9, 43 2 ( Te x. 19 88 ); see Tex. Gov’t Code Ann. § 311.011(a) (West 2005). Statutes are to be rea d as a whole and interpre ted to g ive eff ect to eve ry

part. City

of S an An ton io v. City of Boerne , 1 11 S.W. 3d 22 , 2 6 ( Te x. 20 03 ). We a lso pr e sume that th e le g isl a tur e a c te d w ith knowledg e of the background law. A ck er v. T exas W ater Comm’n , 790 S.W .2d 299, 301 (Tex. 1990). Words and phrase s that have a cquire d a tec hnical or pa rticular me aningshall be
c on str ue d a c c or din g ly . T e x. Go v’ t Co de Ann. § 3 11 .0 11 (b ). Whe n a sc e rt a ini ngle g isl a tiv e int e nt,
we m ay als o consider the objective of the law, its history , and the c onsequenc es of a particula r construction. Id. ; see also id. § 311.023(1), ( 3), (5) (West 2005). Appli cability of

the bad d ebt re fu nd s tatute MFC ar g ues that bec ause a portion of the total s ales tax due on the installment sales in qu e s ti o n w a s in c lu d e d a s a c o mp o n e n t o f e a c h in s ta ll me n t p ay me n t, a p o rti o n o f

MFC’s purcha se price p ai d t o the dea lers fr om which MFC purc hased the installment contract ref lected a nticipated sale s tax collections under the contra ct, and MF C is entitl ed to a r efund of any portion of this amount that it di d not collect from the obl igor s under e ach c ontrac t. I t relies on5

the bad de bt refund statute, which is f ound in c hapter 151 of the tax code, the code ’s g ener al sales tax chapter. At re levant times, it provided: (c) A re tailer is entitled to cre dit or reimburseme nt for taxes paid on the portion of: (1) an ac count det er m i n ed to be worthless a nd actua lly

char g ed off

for fede ral income tax purposes; or ( 2 ) the r e m a i n i n g u np a i d s a l e s p r i c e o f a t a xa b l e i t e m w h e n t h e i t e m is re po sse sse d und e r a

c on dit ion a l sa le s c on tr a c t. art. 7, § 6, 1983 Te x . Gen. L aws at 1043-44. The c omptroller ar g ues—an d MFC does not dispute—that MFC is not a “re tailer” under c hapter 151 of the tax c o d e and the bad debt r efund statute. See Tex. Tax Code Ann. § 151.008(a ) (West 2002) (def ining a “seller ” or “r etailer ” as “ a pe rs on e ng a g e d in the bu sin e ss of makin g sa le s of ta xab le ite ms of a kin d the re c e ipt s fr om t he sa le of whi ch are in c lud e d in

the me a sure of

the sa le s o r u se ta x impo se d b y thi s c ha pte r” ). I t is a lso
un dis pute d th a t MF C di d n ot i tse lf re mit sa le s tax to the c omp tr oll e r. I ns te a d, MF C a sse rt s th a t it
c an c la im the ba d d e bt r e fu nd a s an a ssi g ne e of the mot or ve hic le re ta ile rs or

de a le rs wh o o ri g ina lly
e xec ute d th e ins ta llm e nt s a le s c on tr a c ts. Th e c omp tr oll e r r e sp on ds tha t be c a us e the mot or

ve hic le de a le rs ne ve r h a d o r c ou ld h ave a ri g ht t o a ba d d e bt r e fu

nd , th e y ha d n o s uc h r ig ht t o ass ig n to MF C. MFC re plies that (1) the de aler s qualify as “sel l er -f

i n an cier s” under

chapte r 152 of the tax code; (2) c hap ter 152’s pr ovisions gover ning se ller-f

inancier s incorporate the bad de bt provision from chapte r 151 so as to entitle seller -financ iers to re funds under the bad debt statute; and (3) unde r
c omm on -l aw p ri nc ipl e s, the mot or ve hic le de a le rs c ou ld a ssi g n th e ir ba d d e bt r e fu

nd ri g hts to M F C.SeeAct of A pril 6, 1993, 73rd L eg ., R
. S
. , ch
. 2 9 , § 4, 1993 Tex. Gen. L aws 66, 3 66-67 (amended 2007) (cur rent ve rsion at Tex. Tax C o de Ann. § 152.047( a) ( West S upp. 2007)); Te x. Tax Code Ann. § 1 52 .0 65 (We st 2 002) (r e qu ir inga se lle r- fi na

nc ie r t o h old

a mot or ve hic le sales tax permit issued by the comptroller)
. 6 Assuming without deciding that, as MFC c ontends, the motor-ve hicle dea lers qualify as “se ller-f

inancier s,” MFC’s theor

y hinge s on the following provision of cha pter 152: 3
Col le c tio n o f T a x on Se lle r- F ina nc e d Sa le (a) Ex cept a s inconsistent with this chapter a nd rules adopte d under this cha pter, the seller of

a motor vehicle shall repor t a nd pay the tax imposed on a seller

financ ed sale to the comptroller on the se ller’s re ceipts fr om seller-f inance d sales in the same manner as the sa l es t ax is repor

ted and pa id by

a re tailer under Chapte r 151.
SeeAct of A

pril 6, 1993, 73rd L eg ., R
. S
. , ch
. 29, § 4, 1993 Tex. Gen. L aws 66, 66-67 (ame nded 2007) ( curr ent ver sion at Tex. Tax Code Ann. § 152.047(a) (W est Supp. 2007)). MFC urg es that this provision incorporate s chapte r 151’s ba d debt re fund provision bec ause the re is no bad debt ref

und provision in chapte r 152 with which sec tion 151.426 would be “inconsistent.” Howeve r, the c omptroller points to other provisions of chapte r 15 2 t h at are inconsistent with the exis tence of a c laim by

a seller -financ ier for

a bad de bt refund. The tax code require s the seller of a motor vehic le to repor

t and pay to the comptroller motor vehicle sales tax on a seller- financ ed sale
. Id. The seller need only remit these tax es as the proce eds of the sa le are rec eived. Tex. Tax Code Ann. § 152.047(e)
. This statutory framework, a s the c omp tr oll e r o bs e rv e s, is i nc on sis te nt w iththe po ssi bil ity of a ba d debt refund

c la im. B e c a

us e the seller is re q u i re d to remit motor vehicle taxes only as proc eeds a

re r ece ived, it would not pay7

sa le s ta xes that it ha d no t c oll e c te d and that mig ht late r be c ome the ba sis fo r a ba d de bt re fu nd c la im. Chapter 152, in other

words, conte mplates that if proc eeds a re not re ceive d, taxes are not paid. Onl y i f t h e s eller a ssigns or tr ansfe rs its right to re ceive pay ment does all sales tax become due immediately
. Id. § 1 52 .0 47 (g ). W hen th e se lle r r e c e ive s p ay me nt f or tr ans fe r o f i ts ri g ht t o p ay

me nt, it i s r e qu ir e d to rem it all taxes du e on the ve hic le a t th a t ti me . E ve n in thi s situation, however, no r ight to a ba d debt re fund ar i ses bec ause the seller r emits tax es only afte r
a ssi g nin g and

be ingpa id f

or his ri g ht t o r e c e ive futur e pa y me nts
. Her e, the de aler s ty

pically sold their rig hts to rec eive pa y ment to MFC at a f

ive to ten pe rc e nt d isc ount. I n r e tur n, MF C a ssume d th e ri sk that pu rc ha se rs wo uld

ult imate ly

be un a ble to make pa y ment on the contra cts. Those pa y ments repr esente d not only sales procee ds but also sales taxes. T h e d is c o u n te d p r ic e M F C p a id r e f le c te d th e r is k th a t th e s e p ay me n ts mi g h t n ot occur
. MFC’s cla im in effec t seeks compe nsation for a loss for which it assumed the r isk in it s transac tions wi th m oto r v e hic le de a le rs .

MFC also e mp h a s iz e s th a

t m o tor vehicle le ssors are entitled to bad debt re funds under a st atute si milar to the tax code provision g overningseller- financ iers. As noted, se ction 152.047(a) of the ta x co de , g ov e rn ingse lle r- fi na nc ie rs , p ro vid e s:
Ex cept a s i n co n sistent with thi s chapte r and r ules adopted unde r this chapter , the seller of a motor vehic le shall re p ort and pa y the tax im posed on a se ller-f inance d sa le to t he c omp tr oll e r o n th e se lle r’ s r e c e ipt s f ro m se lle r- fi na

nc e d s a le s in th e same manner as the sale s tax is reporte d and paid by a re tailer unde r Chapter

151. § 4 , 1 99 3 T e x. Ge n. L aws a t 66 -6 7. Se c tio n 1 52 .0 45 (a ) o f t he tax cod e, g ov e rn ingmot or ve hic le le sso rs , s imi larl y

pr ov ide s:8

Ex cept a s inconsistent with thi s chapte r and r ules adopted unde r thi s ch ap t er , an owner of a motor vehicle subje ct to the tax on gross re ntal rec eipts shall report a nd pay the t ax to t he comptroller in the same manne r as the L imited Sales, Ex cise a nd Use Tax is reporte d and paid by reta ilers under

Chapter 151 of

this code.
Tex. Tax Code Ann. § 1 5 2
. 045(a) (West 2002). The c omptroller’s rule acc ompanying se ction 15 2. 04 5 s tate s:
A re tailer who ha s previously paid motor vehicle gr oss renta l rec eipts tax may take a deduct i o n o r s ee k a cr edit for the tax paid on the g ross renta l rec eipts that are deter mined uncollectible if the uncollectible amount is ente r e d on the re tailer’s books a s a ba d d e bt a

nd c la ime d a s a

de du c tio n f

or fe de ra l in c ome ta x pur

po se s.
34 Te x. Ad

min . Co de § 3 .7 8( c )( 1) (B ) ( Wes t 19 96 ). Th e c omp tr oll e r ha s no t a do pte d a sim ila r r ule
a s to se lle r- fi na

nc ie rs . MFC urg es that bec ause of the textual si milarities betwee n sections 152.045(a ) and 15 2. 04 7( a ), the c omp tr oll e r i s r e qu ir e d to int e rp re t th e tw o p ro vis ion s in the same wa

y and pe rm it seller- financ iers to take a

bad debt de duction for the sales t axes paid on installments pay ments that become uncollectible. However , we a re r equire d to consider se ctions 152.045(a) and 152.047(a ) not in isolation, but in context with the statutory scheme as a whole. City of S an An ton io , 111 S.W .3d at 26. As explained above , the leg islature has made seller- financ iers re sponsible for re porting and paying motor ve hicle sale s tax only as proc eeds a

re r ece ived, a statutory

s cheme that does not contemplate c laims for bad de bt refunds. Te x . Tax Code An n . § 1 5 2
. 0 4 7(g ). In contra st, the leg islature has require d motor vehicle lessors to a dd the tax to its re ntal char g e. Id. § 152.045. The tax becomes “a part of the rental c harg e” a nd “a de bt owed to the motor vehic le owner by the per son renting the vehicle.” Id. T h u s , t h e t ax m u s tb e r em i t t edb y t h e l es s o r a tt h e t i m e t h e r en t al ch ar geI n light of these diffe renc es in the statutory scheme s g overningmotor vehicle se llers and 4 motor vehicle le ssors, we likewise reje ct M FC’s arg uments based on “leg islative acc eptanc e” of the comptroller’ s interpre tation of s ec t i o n 152.045(a) . We simi larly conclude that the comptroller’ s dif fe ri ngint e rp re tatio ns are ne ith e r u nr e a so na ble or un c on sti tut ion a l. 9 is in cu rred, which is not nece ssarily at the same time that the lessor re ceive s pay ment from the lessee. Conseque ntly , the leg islature conte mplated that a motor ve hicle lessor, unlike asellerfi na nc ie r, c ou ld p ay

sa le s tax on r e nta ls y e t ultim a te ly no t be a ble to r e c ov e r t

he ta x fr om t

he le sse e s. These dif fer ence s in the statutes g overning motor vehicle lessors versus seller -financ iers support the comptroller’ s differ ent interpre tations of what, in isolation, appea rs to be simil ar lang uag e in sec tion 152.045 and 152.047. 4

B e c a us e the de a le rs have no c la im t o a ba d d e bt r e fu

nd un de r t he ta x c od e , n o c la im
can be assig ned to MFC. See G ulf Ins. Co. v. Burns Motors, Inc. , 22 S.W .3d 417, 420 (Tex. 2000) (explaining that the assig nee stands in the shoes of the assig nor and may asser t only those rig hts that the assig nor could as s er t ). T he district cour t did not err in g rantingsummary judgme nt for the
c omp tr oll e r o n th is g ro un d a nd de nyingMF C’ s mo tio n f or pa rt ia l summa

ry jud g me nt.
Other issues MFC ar g ues that t he comptroller ’s summary judgme nt arguments are based on subsequent ame ndments to the tax code rather than the ver sion that gove rns this case. T he for eg oing analy sis is based on the law in effec t at the time MFC’s re fund cla im arose. We ac cording ly need
no t r e a c h th e pa

rt ie s’ c on te nti on s r e g ard ingthe imp lic a tio ns of the su bs e qu e nt a

me ndme nts
. MFC furthe r asse rts that th e d i s t rict cour t erre d in gr anting the comptroller’ s noevidenc e motion for summary judgme nt beca

use MFC has produce d some evidenc e that the de aler s10

wer e seller -financ iers and tha t they remitted the tax to the comptroller. B eca use we have a ssumed in our ana ly sis that the dealer s were seller- financ iers and did r emit sales taxes , we n ee d not rea ch the se c on te nti on s.
CO NC LU SION

We a ff ir m th e jud g me nt o f t

he dis tr ic t c ourt
.

__________________________________________ Bob Pembe rton, J ustice Be fore J ustices Patterson, Pember ton and Waldrop Affir med Filed: May

1, 2008