# IN THE SUPREME COURT O F TEX AS

4 4 4 4 4 4 4 4 4 4 4 4 

## N O



## . 11-0261

4 4 4 4 4 4 4 4 4 4 4 4 

# S U S A N 

# C O M B S 

# , C O M P T R O L L E R O F 

# P U B L IC 

# A C C O U N T S O F T H E 

# S T A T E O F 

# T E X A S 

# , A N D 

# G R E G 

# A B B O T T 

# , A T T O R N E Y 

# G E N E R A L O F T H E 

# S T A T E O F 

# T E X A S 

# , P E T IT IO N E R S 

# ,

v
. 

# R O A R K 

# A M U S E M E N T 

# & V E N D IN G 

# , L

. P

. , R E S P O N D E N T

4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4



## O N 

## P E T I T I O N F O R 

## R E V I E W F R O M T H E 

## C O U R T O F 

## A P P E A L S F O R T H E 

## T H I R D 

## D I S T R I C T O F 

## T E X A S



### 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4



## Argued October 15, 2012

J U S T I C E 

## W I L L E T T 

## delivere d the opinion of the Court.
Roark Amusement & Vending , L .P. broug ht this tax-refund suit ag ainst the Comptroller of Public Accounts, see king to r ecoup sales taxes it paid on “plush toy ” prizes used to stock its coinopera ted amusement machines. The court of appea ls held the toy s wer e exempt from sales tax under
the Tax Code’s sale-f

or-r esale exemption. W e ag ree and af firm the cour

t of appe als’ judg ment.
I. F actual and Proc edural Backgroun d
The fac ts are undisputed, having been established below in a stipul ati on of fac ts or in
uncontested affida vits

. R o ark owns and leases coin-operate d amusement crane machines that are found i n supermar

kets, restaur ants, and shoppi ng malls throug hout Texa s
. Customers aim to win

## plush toy s by using a joy stick to maneuve r a mecha nical claw t o g rab the toy s and drop them into

a prize chute. Successf

ul customers keep the prizes, and eventua lly all the toy s become proper ty of customers in this manner ( except for those lost, stolen, or dama g ed).
Roark soug ht a ref

und of the sales taxes it paid on the toy s it purcha sed to stock its machines
for the period October 1, 2000 throug h Fe bruar y 29, 2004. I t arg ued that the toy s wer e exempt

1


## under the sale-f

or-r esale exemption discussed below. The Comptroller disputed that the exemption applied.
The trial court g rante d the Comptroller’s motion for summary judgme nt and denied Roark’s
ref und reque st. The court of appea ls reve rsed, concluding the toy s wer e exempt, and rema nded the

case to the trial court for a deter mina tion of the ref

und amount due Roark. We g rante d the 2 

## Comptroller’s petition for re view.
II. Discussion
Our de cision turns on the interplay of var ious Tax C ode provisions found in cha pter 151.

• The Sales Tax Gene rally : Section 151.051(a) imposes a sales tax “on eac h sale of a taxable item in this state.” “‘Ta x able item’ means tang ible persona l proper ty and taxable service s.” 3 

## The plush toy s are “tang ible persona l proper ty ,” a term that captur es “per sonal proper ty that can be s een, weig hed, measured, felt, or t ouched or that is perc eptible t o t h e senses in any

T h e p a r t i e s s t i p u l a t e d t h a t R o a r k p a y s a n o c c u p a t i o n t a x o n t h e m a c h i n e s t h e m s e l v e s u n d e r c h a p t e r 2 1 5 3 o f 1 t h e O c c u p a t i o n s C o d e
. S e e T E X

. O C C

. C O D E § 2 1 5 3

. 4 0 1

. T h e T a x C o d e h a s s i n c e b e e n a m e n d e d i n a m a n n e r t h a t i s n o t r e l e v a n t t o t h e t i m e p e r i o d i n i s s u e i n t h i s c a s e , b u t m a y b e r e l e v a n t t o t h e l e g a l i s s u e s r a i s e d

. S e e A c t o f J u n e 2 8 , 2 0 1 1 , 8 2 d L e g
. , 1 s t C

. S

. , c h

. 4 , § 1 2

. 0 1 , 2 0 1 1 T e x
. G e n
. L a w s 5 2 6 3 ( a d d i n g n e w s u b s e c t i o n ( c ) t o T E X

. T A X C O D E § 1 5 1

. 0 0 6 )

.

_ _ _ S

. W

. 3 d

_ _ _ ,

_ _ _ . 2

T E X

. T A X C O D E § 1 5 1

. 0 1 0

. 3


### 2

## other manner .” A “taxab l e service ” ref ers to cer

tain service s enumer ated in section 4 

## 151.0101, including “a m u s em ent service s,” which cover s “the provision of amusement, enter tainment, or re cre ation.” 5



## • The Sale-F or-Resa le Ex emption: Provisions fo und in subchapte r H set out numerous exemptions

. Section 151.302(a) states: “The sale for re s al e o f a taxable item is exempted from the taxes imposed by this chapte r.” This provision is qualified by section 151.302(b), which states: “Ta

ng ible persona l proper

ty used to perf

orm a taxable service is not considere d resold unless the care, c ustody , and control of t he tangible personal property is transfe rre d to the purcha ser of the service .” A “sale fo r resa le” is further ref ined in section 151.006. Section 151.006(a) (3) provides that a sale for resa le includes a sale of “tang ible persona l proper ty to a purcha ser who acquir es the proper ty for the purpose of transfe rring it

. . . as an integ ral pa

rt of a ta x able se rvice .”

• Coin-Opera ted Machine s Specifica lly : Section 151.335 cre ates an exemption for coinopera ted machines. Section 151.335(a) states: “Amuseme nt and persona l service s provided throug h coin-ope rate d machines that are opera ted by the consumer are exempt from the taxes imposed by this chapte r.” Howeve r, section 151.335(b) states: “This section does not apply to the sale of ta

ng ible persona l property

. . . throug h the use of a

coin-ope rate d machine.”
When construing a statute, our chief objective is eff ectua t i n g t h e L eg islature’s intent, and ordinarily , the truest manifestation of what lawmake rs intended is what they enac ted. This voted-on 6 

## lang uag e is what constitutes the law, and when a statute’s words are unambig uous and y ield but one interpre tation, “the judge ’s inquiry is at an end.” We g ive such statutes their plain meaning without 7



## resor t to rules of construction or extrinsi c aids

. On t h e o t h er hand, “[i] f a statute is vag ue or 8

I d

. § 1 5 1

. 0 0 9

. 4

I d

. § 1 5 1

. 0 0 2 8

. 5

F i r s t A m
. T i t l e I

n s
. C o
. v
. C o m b s , 2 5 8 S

. W

. 3 d 6 2 7 , 6 3 2 ( T e x
. 2 0 0 8 )

. 6

A l e x S h e s h u n o

f f M g m t

. S e r v s
. , L

. P

. v
. J

o h n s o n , 2 0 9 S

. W

. 3 d 6 4 4 , 6 5 1

– 5 2 ( T e x
. 2 0 0 6 )

. 7

T e x
. L o t t e r

y C o m m ’ n v
. F i r s t S t a t e B a n k o f D e Q u e e n , 3 2 5 S

. W

. 3 d 6 2 8 , 6 3 5 , 6 3 7 ( T e x
. 2 0 1 0 ) ( b r a n d i n g s u c h 8

r e l i a n c e “ i m p r o p e r , ” b e c a u s e “ [ w ] h e n a s t a t u t e ’ s l a n g u a g e i s c l e a r a n d u n a m b i g u o u s , i t i s i n a p p r o p r i a t e t o r e s o r t t o r u l e s o f c o n s t r u c t i o n o r e x t r i n s i c a i d s t o c o n s t r u e t h e l a n g u a g e ” ( q u o t i n g C i t y o f R o c k w a l l v
. H u g h e s , 2 4 6 S

. W

. 3 d 6 2 1 , 6 2 6 ( T e x
. 2 0 0 8 ) ) )

. 

### 3

## ambig uous, we defe r to the ag ency ' s interpre tation unless it is plainly err oneous or inconsistent with

the lang uag e of the statute.” 9


## We ag ree with Roark that under a plain-mea ning revie w of the rele vant statutes, it qualifies
for a sales-ta x exemption on the plush toy s that fill its cra ne machines. T h e m ac hines provide a taxable amusement service under sections 151.0028 and 151.0101, in that they provide for
“amuse ment, enter

tainment, or rec rea

tion” under section 151.0028. The toy s are subject to the salefor- resa le exemption beca use under s ec t i o n 151.006(3), the toy s are “tang ible persona l proper ty ” acquir ed by Roark “for the purpose of transfe rring ” the toy s “as an integ ral part of a taxable service .”
I ndeed, the toy s a

r e mor e than integ ral to the machines’ amusement service —they are indispensable

. There would be no point (or profit) to the game—a nd thus no g ame—if customers h ad no chanc e of winning a toy . Roark conte nds in its principal brief, and the Comptroller does not dispute, that “[c]ust omers would not pay to play an empty machine (i.e., t hey would not pay to move a cra ne’s
claw around an empty g lass case ), nor would they pay to play if the machines contained toy s that

wer e impossible to retrieve .”
The Comptroller makes two arg uments that are incompatible with the statutory text , and thus

unpersua sive. 1 0


## A. Do Roar k’s Crane Mac hin es P rovide a “Taxable Service”?

T e x
. D e p ’ t o f I n s
. v
. A m
. N

a t ’ l I n s
. C o
. ,

_ _ _ S

. W

. 3 d

_ _ _ ,

_ _ _ ( T e x
. 2 0 1 2 )

. 9

S e e F i r s t A m
. T i t l e I n s
. C o
. , 2 5 8 S

. W

. 3 d a t 6 3 2 ( d e f e r r i n g t o C o m p t r o l l e r ’ s i n t e r p r e t a t i o n “ s o l o n g a s t h e 10
c o n s t r u c t i o n i s r e a s o n a b l e a n d d o e s n o t c o n t r a d i c t t h e p l a i n l a n g u a g e o f t h e s t a t u t e ” ( q u o t i n g T a r r a n t A p

p r a i s a l D i s t

. v
. M o o r e , 8 4 5 S

. W

. 2 d 8 2 0 , 8 2 3 ( T e x
. 1 9 9 3 ) ) )

. 

### 4

## The Comptroller arg ues that the sale-f or-r esale exemption fails b ec au s e t he amusement
service provided by Roark is not a “taxable service ” under section 151.006(3). That is, since section 151.335(a) exempts amusement service s provided by coin-ope rate d machines, the service here is not
taxable. We disag ree wi t h this construction, and instead find persua sive the court of appea ls’ analy sis of this is sue. Taxable service is a define d term under chapte r 151. I f a term is expressly define d by statute

we must follow that definition. Section 151.0101 define s “taxable service ” to include “amuse ment 1 1


## services , ” whether provided by coin-ope rate d machines or otherwise. The fac t that section 151.335(a) sets out an exe mption for amusement service s provided by coin-ope rate d machines does

not alter the fac t that the machines provide a taxable service as define d in section 151.0101. I ndeed,
there would be no need to provide an exemption for this particula r service if it wer e not a ta x ab l e service in t h e first instance. As noted above, under section 151.010, “taxable item” ref ers to “tang ible persona l proper

ty and taxable service s.” Section 151.301, the first provision of subchapte r H, which se ts out ex emptions, provides: “I f a taxable it em is exe mpted from the taxes imposed by
thi s ch ap t er , t h e sale, storag e, use, or ot her consumption of t he it em i s not subject t o the s ales tax imposed by Section 151.051 of this c ode

. . .” (empha sis a dded). This se ction confirms that unde r chapte r 151 an item e x empt from taxation may never theless be included in the universe of taxable

S e e T E X

. G O V ’ T C O D E § 3 1 1

. 0 1 1 ( b ) ( “ W o r d s a n d p h r a s e s t h a t h a v e a c q u i r e d a t e c h n i c a l o r p a r t i c u l a r 11

m e a n i n g , w h e t h e r b y l e g i s l a t i v e d e f i n i t i o n o r o t h e r w i s e , s h a l l b e c o n s t r u e d a c c o r d i n g l y
. ” )

.



### 5

## items. Taxable items in turn include taxable service s, an d t ax ab l e service s include amusement 1 2


## service s, under the provisions discussed above. Simi larly , section 151.005 define s a “sale ” or “purc hase” to include “the perf o rm an ce o f a t ax able service

. . . or, in the case of an amuseme nt
service

. . . the use of a coin-ope rate d machine” (empha sis added)

. Ag ain, even though amusement
service s provided v i a co i n -oper ated machines are later exempted in section 151.335(a) , the
definitional lang uag e of chapte r 151 itself confirms that the perf ormanc e of an amusement service throug h a coin-ope rate d machine—the prec ise situation prese nted here —is a taxable service

. Ex amining chapte r 1 5 1 as a cohesive , integ rate d whole confirms that Roark’s construction is the

corr ect one

. 1 3


## B. Is the Chance to Win an “In tegr al P art of a Taxabl e Servic e”?
Alterna tively , in looking to lang uag e in section 151.006(a) (3), requiring that the transfe r of
toy s be an “integ ral part” of the s ervic e provided, the Comptroller arg ues that the sale-f or-r esale exemption in section 151.006(3) does not apply unless a t oy is convey ed eac h and ever y time a
customer play s the g ame. The Comptroller urg es that section 151.302(b) imposes such a

S e e a l s o 7

- E l e v e n , I

n c
. v
. C o m b s , 3 1 1 S

. W

. 3 d 6 7 6 , 6 9 0 ( T e x
. A p p
. — A u s t i n 2 0 1 0 , p e t

. d e n i e d ) ( “ T h e s a l e - f o r 12

r e s a l e s t a t u t e s i m p l y r e q u i r e s t h a t t h e s e r v i c e t o w h i c h t h e t r a n s f e r o f t a n g i b l e p e r s o n a l p r o p e r t y i s i n t e g r a l b e a t a x a b l e s e r v i c e

— n o t t h a t i t a c t u a l l y b e t a x e d i n t h e p a r t i c u l a r i n s t a n c e i n q u e s t i o n
. ” )

.

S e e C i t y o f S a n A n t o n i o v
. C i t

y o f B o e r n e , 1 1 1 S

. W

. 3 d 2 2 , 2 5 ( T e x
. 2 0 0 3 ) ( “ W e d e t e r m i n e l e g i s l a t i v e i n t e n t 13 f r o m t h e e n t i r e a c t a n d n o t j u s t i t s i s o l a t e d p o r t i o n s
. T h u s , w e r e a d t h e s t a t u t e a s a w h o l e a n d i n t e r p r e t i t t o g i v e e f f e c t t o e v e r y p a r t

. ” ) ( c i t a t i o n s a n d i n t e r n a l q u o t a t i o n m a r k s o m i t t e d ) ; H e l e n a C h e m
. C o
. v
. W i l k i n s , 4 7 S

. W

. 3 d 4 8 6 , 4 9 3 ( T e x
. 2 0 0 1 ) ( “ A d d i t i o n a l l y , w e m u s t a l w a y s c o n s i d e r t h e s t a t u t e a s a w h o l e r a t h e r t h a n i t s i s o l a t e d p r o v i s i o n s
. W e s h o u l d n o t g i v e o n e p r o v i s i o n a m e a n i n g o u t o f h a r m o n y o r i n c o n s i s t e n t w i t h o t h e r p r o v i s i o n s , a l t h o u g h i t m i g h t b e s u s c e p t i b l e t o s u c h a c o n s t r u c t i o n s t a n d i n g a l o n e
. ” ) ( c i t a t i o n o m i t t e d )

. T h e C o m p t r o l l e r l i k e w i s e u r g e s t h e C o u r t t o v i e w t h e C o d e a s a w h o l e , a r g u i n g f

o r e x a m p l e i n h e r p r i n c i p a l b r i e f t h a t s e c t i o n s 1 5 1

. 0 0 6 a n d 1 5 1

. 3 0 2 , d i s c u s s e d a b o v e , “ a r e n e c e s s a r i l y r e a d i n t a n d e m , ” a n d a d v o c a t i n g w h a t s h e s e e s a s “ a r e a s o n a b l e a n d h a r m o n i o u s i m p l e m e n t a t i o n o f t a x c o d e s e c t i o n s 1 5 1

. 0 0 6 , 1 5 1

. 3 0 2 , a n d 1 5 1

. 3 3 5

. ”


### 6

## require ment by stating that tang ible persona l proper ty is n o t co n s i d ere d resold unless the car e, custody , and contr ol of the prope rty is “transfe rre d to the purcha ser of the service .” We disa g ree
. These provisions do not impose, either expli citly or implicitl y , any such extra-statutory require ment,
and we decline to e ng raf

t one—re vising the statute unde r the g uise of interpr eting it.
We believe that in the are a of tax law, like ot h er are as of economic reg ulation, a plainmeaning deter

mination should not disreg ard the economic rea lities underly ing the transact i o n s in
issue. Her e, the summary -judg ment evidenc e shows that all the toy s place d in Roa rk’s machines 1 4



## eventua lly become cu s t o m ers’ proper ty , except for those lost, stolen, or damag ed. Fur ther, the
economic rea lity of the g ame is such that customers simply would not part with their money but for
the possibili ty of winning a toy

. I n this prac tical sense, under section 151.006(a) (3), the transfe r of
toy s is “an integ ral part” of the amusement service offe red by Roark’s machines. The Comptroller
acknow ledg ed at oral arg ument that no one would play the g ame without the possibili ty of winning

a toy

. Nothing in section 151.302(b) sug g ests that ever y single customer must walk awa y with a toy

. That provision require s that “ca re, custody , and control o f the tang ible persona l proper ty ” be

T h e U n i t e d S t a t e s S u p r e m e C o u r t h a s l o n g o b s e r v e d t h a t s t a t u t o r y d e t e r m i n a t i o n s i n t a x d i s p u t e s s h o u l d 14

r e f l e c t t h e e c o n o m i c r e a l i t i e s o f t h e t r a n s a c t i o n s i n i s s u e
. S e e , e
. g
. , B o u l w a r e v
. U n i t e d S t a t e s , 5 5 2 U

. S

. 4 2 1 , 4 2 9 ( 2 0 0 8 ) ( “ T h e c o l o r f

u l b e h a v i o r d e s c r i b e d i n t h e a l l e g a t i o n s r e q u i r e s a r e m i n d e r t h a t t a x c l a s s i f i c a t i o n s l i k e ‘ d i v i d e n d ’ a n d ‘ r e t u r n o f c a p i t a l ’ t u r n o n ‘ t h e o b j e c t i v e e c o n o m i c r e a l i t i e s o f a t r a n s a c t i o n r a t h e r t h a n
. . . t h e p a r t i c u l a r f o r m t h e p a r t i e s e m p l o y e d

. ’ ” ) ( c i t a t i o n o m i t t e d ) ; F r a n k L y o n C o
. v
. U n i t e d S t a t e s , 4 3 5 U

. S

. 5 6 1 , 5 7 3 ( 1 9 7 8 ) ( “ I n a p p l y i n g t h i s d o c t r i n e o f s u b s t a n c e o v e r f

o r m , t h e C o u r t h a s l o o k e d t o t h e o b j e c t i v e e c o n o m i c r e a l i t i e s o f a t r a n s a c t i o n r a t h e r t h a n t o t h e p a r t i c u l a r f

o r m t h e p a r t i e s e m p l o y e d

. T h e C o u r t h a s n e v e r r e g a r d e d ‘ t h e s i m p l e e x p e d i e n t o f d r a w i n g u p p a p e r s ’

. . . a s c o n t r o l l i n g f

o r t a x p u r p o s e s w h e n t h e o b j e c t i v e e c o n o m i c r e a l i t i e s a r e t o t h e c o n t r a r y
. ” ) ( c i t a t i o n o m i t t e d ) ; C o m m ’ r v
. S w
. E x

p l o r a t i o n C o
. , 3 5 0 U

. S

. 3 0 8 , 3 1 5 ( 1 9 5 6 ) ( n o t i n g t h a t “ t h e t a x l a w d e a l s i n e c o n o m i c r e a l i t i e s , n o t l e g a l
a b s t r a c t i o n s ” )

. W e h a v e s i m i l a r l y r e c o g n i z e d , i n d e c i d i n g w h e t h e r a t a x i s d u e , t h a t w e s h o u l d c o n s i d e r t h e “ e s s e n c e o f t h e t r a n s a c t i o n ” o r “ t h e t r u e o b j e c t o f [ t h e ] t r a n s a c t i o n ” i n i s s u e
. B u l l o c k v
. S t a t i s t i c a l T a b u l a t i n g C o r

p
. , 5 4 9 S

. W

. 2 d 1 6 6 , 1 6 7

– 6 8 ( T e x
. 1 9 7 7 )

. 

### 7

## “tra

nsfer red to the purcha ser of the service .” This transfe r in fac t occur s and is integ ral to the succe ss of the g ame a s an amuseme nt service

. The Comptroller’s arg

u me n t th a t r e f e r e n c e to “ th e p u

r chase r” rathe r than a purcha ser require s
that the customer must alway s, inexorably win a toy simply puts too much weig ht on the commonest
article of speec h. The wording of the statute and the economic realities of the transac tion do not require this “eve ry one’s a winner” result. I ndeed the g ame wo u l d lose all intrigue , and thus all profitability , if customers won eac h and ever y time. No profit-seeki n g b u s i n essper son would rationally offe r such a sure thing. The g ame would cea se to be a g ame, and thus cea se to amuse, and
thus cea se altog ether

. The Comptroller contends that her position is set out in Comptroller Rule 3.301(b)( 2), 1 5


## which provides: “The opera tors of g ames, or other conce ssions, in which eac h participa nt does not

rec eive some merc handise or prize, become the consumers of merc handise so used by them and are liable to the State of Texas for tax based on the sales price or use of the taxable items purcha sed for

use by them.” As explained in her principal brief, the Comptroller’s position is that, under Rule 3.301(b)( 2), “whe n eac h participa nt does not rec eive a prize, t h e g ame opera tor—or

conce ssionaire—is not a reta iler, but a consumer of the items it purcha ses to provide its service ; such

g ame opera tors are there fore not elig ible to claim the resa le exemption on purcha ses of toy prizes.”
Roark disputes that this Rule applies to its machines, descr ibing it as outdat ed o r alterna tively invalid, and arg uing that other rules apply ins t ea d , specific ally Rules 3.301(c) (1) (“F or an

3 4 T E X

. A D M IN

. C O D E § 3

. 3 0 1 ( b ) ( 2 )

. 15


### 8

## explanation of the taxabili ty of an item purcha sed for use as a prize when the winning of the prizes

depends upon chanc e or skill, see § 3.298(f) (1) of this title (re lat i n g t o Am u s ement Service s).”) , 3.298(f) (1 ) (“ S ell ers of service may issue a resale certificate i n lieu of t ax to suppliers of t ang ible

persona l proper

ty only if car e, custody , and control of the proper ty is transfe rre d to the client.”) , and 3.298(f) (2) (“A service will be considere d an integ ral part of a taxa ble service if the service purcha sed is essential to the perf ormanc e of the taxable service , and without which the taxable
service could not be rende red.” ). The Comptroller disputes the applicability of these Rules to this 1 6



## case
. Reg ardle ss of which Comptroller Rule applies, the C omptroller cannot throug h rulemaking impose taxes that are not due under the Tax Code; the question of statutory construction prese nted in this case ultimately

is one left to the cour

ts.
III. Conclusi on
We aff irm the cour

t of appe als’ judg ment and re mand the ca se to the trial cour t for further

proce eding s consistent with this opi nion.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Don R. Wi llett J ustice

OP INION DELIVERED: Marc h 8, 2013

I d

. § § 3

. 3 0 1 ( c ) ( 1 ) , 3

. 2 9 8 ( f ) ( 1 )

– ( 2 )

. 16


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