IN THE SUPREME COURT OF TEXAS

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NO. 11-0261

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SUSAN COMBS, COMPTROLLER OF PUBLIC ACCOUNTS OF THE STATE OF TEXAS,

AND GREG ABBOTT, ATTORNEY GENERAL OF THE STATE OF TEXAS,

PETITIONERS,

v.

ROARK AMUSEMENT & VENDING, L.P., RESPONDENT

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ON PETITION FOR REVIEW FROM THE

COURT OF APPEALS FOR THE THIRD DISTRICT OF TEXAS

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Argued October 15, 2012

JUSTICE WILLETT delivered the opinion of the Court.

Roark Amusement & Vending, L.P. brought this tax-refund suit against the Comptroller of

Public Accounts, seeking to recoup sales taxes it paid on “plush toy” prizes used to stock its coinoperated amusement machines. The court of appeals held the toys were exempt from sales tax under

the Tax Code’s sale-for-resale exemption. We agree and affirm the court of appeals’ judgment.

I. Factual and Procedural Background

The facts are undisputed, having been established below in a stipulation of facts or in

uncontested affidavits. Roark owns and leases coin-operated amusement crane machines that are

found in supermarkets, restaurants, and shopping malls throughout Texas. Customers aim to win
plush toys by using a joystick to maneuver a mechanical claw to grab the toys and drop them into

a prize chute. Successful customers keep the prizes, and eventually all the toys become property of

customers in this manner (except for those lost, stolen, or damaged).

Roark sought a refund of the sales taxes it paid on the toys it purchased to stock its machines

for the period October 1, 2000 through February 29, 2004. It argued that the toys were exempt 1

under the sale-for-resale exemption discussed below. The Comptroller disputed that the exemption

applied.

The trial court granted the Comptroller’s motion for summary judgment and denied Roark’s

refund request. The court of appeals reversed, concluding the toys were exempt, and remanded the

case to the trial court for a determination of the refund amount due Roark. We granted the 2

Comptroller’s petition for review.

II. Discussion

Our decision turns on the interplay of various Tax Code provisions found in chapter 151.

• The Sales Tax Generally: Section 151.051(a) imposes a sales tax “on each sale of a taxable

item in this state.” “‘Taxable item’ means tangible personal property and taxable services.”3

The plush toys are “tangible personal property,” a term that captures “personal property that

can be seen, weighed, measured, felt, or touched or that is perceptible to the senses in any

The parties stipulated that Roark pays an occupation tax on the machines themselves under chapter 2153 of

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the Occupations Code. See TEX. OCC. CODE § 2153.401. The Tax Code has since been amended in a manner that is

not relevant to the time period in issue in this case, but may be relevant to the legal issues raised. See Act of June 28,

2011, 82d Leg., 1st C.S., ch. 4, § 12.01, 2011 Tex. Gen. Laws 5263 (adding new subsection (c) to TEX. TAX CODE

§ 151.006).

___ S.W.3d ___, ___.

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TEX. TAX CODE § 151.010.

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other manner.” A “taxable service” refers to certain services enumerated in section 4

151.0101, including “amusement services,” which covers “the provision of amusement,

entertainment, or recreation.”5

• The Sale-For-Resale Exemption: Provisions found in subchapter H set out numerous

exemptions. Section 151.302(a) states: “The sale for resale of a taxable item is exempted

from the taxes imposed by this chapter.” This provision is qualified by section 151.302(b),

which states: “Tangible personal property used to perform a taxable service is not considered

resold unless the care, custody, and control of the tangible personal property is transferred

to the purchaser of the service.” A “sale for resale” is further refined in section 151.006. 

Section 151.006(a)(3) provides that a sale for resale includes a sale of “tangible personal

property to a purchaser who acquires the property for the purpose of transferring it . . . as an

integral part of a taxable service.”

• Coin-Operated Machines Specifically: Section 151.335 creates an exemption for coinoperated machines. Section 151.335(a)states: “Amusement and personal services provided

through coin-operated machines that are operated bythe consumer are exempt from the taxes

imposed by this chapter.” However, section 151.335(b) states: “This section does not apply

to the sale of tangible personal property . . . through the use of a coin-operated machine.”

When construing a statute, our chief objective is effectuating the Legislature’s intent, and

ordinarily, the truest manifestation of what lawmakers intended is what they enacted. This voted-on 6

language is what constitutes the law, and when a statute’s words are unambiguous and yield but one

interpretation, “the judge’s inquiry is at an end.” We give such statutes their plain meaning without 7

resort to rules of construction or extrinsic aids. On the other hand, “[i]f a statute is vague or 8

Id. § 151.009.

4

Id. § 151.0028.

5

First Am. Title Ins. Co. v. Combs, 258 S.W.3d 627, 632 (Tex. 2008).

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Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 651–52 (Tex. 2006).

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Tex. Lottery Comm’n v. First State Bank of DeQueen, 325 S.W.3d 628, 635, 637 (Tex. 2010) (branding such

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reliance “improper,” because “[w]hen a statute’s language is clear and unambiguous, it is inappropriate to resort to rules

of construction or extrinsic aids to construe the language” (quoting City of Rockwall v. Hughes, 246 S.W.3d 621, 626

(Tex. 2008))).

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ambiguous, we defer to the agency's interpretation unless it is plainly erroneous or inconsistent with

the language of the statute.”9

We agree with Roark that under a plain-meaning review of the relevant statutes, it qualifies

for a sales-tax exemption on the plush toys that fill its crane machines. The machines provide a

taxable amusement service under sections 151.0028 and 151.0101, in that they provide for

“amusement, entertainment, or recreation” under section 151.0028. The toys are subject to the salefor-resale exemption because under section 151.006(3), the toys are “tangible personal property”

acquired byRoark “forthe purpose of transferring” the toys “as an integral part of a taxable service.” 

Indeed, the toys aremore than integral to the machines’ amusement service—theyare indispensable. 

There would be no point (or profit) to the game—and thus no game—if customers had no chance

of winning a toy. Roark contends in its principal brief, and the Comptroller does not dispute, that

“[c]ustomers would not pay to play an empty machine (i.e., they would not pay to move a crane’s

claw around an empty glass case), nor would they pay to play if the machines contained toys that

were impossible to retrieve.”

The Comptroller makes two arguments that are incompatible with the statutory text, and thus

unpersuasive.10

A. Do Roark’s Crane Machines Provide a “Taxable Service”?

Tex. Dep’t of Ins. v. Am. Nat’l Ins. Co., ___ S.W.3d ___, ___ (Tex. 2012).

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See First Am. Title Ins. Co., 258 S.W.3d at 632 (deferring to Comptroller’s interpretation “so long as the

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construction is reasonable and does not contradict the plain language of the statute” (quoting Tarrant Appraisal Dist.

v. Moore, 845 S.W.2d 820, 823 (Tex. 1993))).

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The Comptroller argues that the sale-for-resale exemption fails because the amusement

service provided byRoark is not a “taxable service” under section 151.006(3). That is, since section

151.335(a) exempts amusement services provided bycoin-operated machines, the service here is not

taxable. We disagree with this construction, and instead find persuasive the court of appeals’

analysis of this issue.

Taxable service is a defined term under chapter 151. If a term is expressly defined by statute

we must follow that definition. Section 151.0101 defines “taxable service” to include “amusement 11

services,” whether provided by coin-operated machines or otherwise. The fact that section

151.335(a)sets out an exemption for amusement services provided by coin-operated machines does

not alter the fact that the machines provide a taxable service as defined in section 151.0101. Indeed,

there would be no need to provide an exemption for this particular service if it were not a taxable

service in the first instance. As noted above, under section 151.010, “taxable item” refers to

“tangible personal property and taxable services.” Section 151.301, the first provision of subchapter

H, which sets out exemptions, provides: “If a taxable item is exempted from the taxes imposed by

this chapter, the sale, storage, use, or other consumption of the item is not subject to the sales tax

imposed by Section 151.051 of this code . . .” (emphasis added). This section confirms that under

chapter 151 an item exempt from taxation may nevertheless be included in the universe of taxable

See TEX. GOV’T CODE § 311.011(b) (“Words and phrases that have acquired a technical or particular

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meaning, whether by legislative definition or otherwise, shall be construed accordingly.”).

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items. Taxable items in turn include taxable services, and taxable services include amusement 12

services, under the provisions discussed above. Similarly, section 151.005 defines a “sale” or

“purchase” to include “the performance of a taxable service . . . or, in the case of an amusement

service . . . the use of a coin-operated machine” (emphasis added). Again, even though amusement

services provided via coin-operated machines are later exempted in section 151.335(a), the

definitional language of chapter 151 itself confirms that the performance of an amusement service

through a coin-operated machine—the precise situation presented here—is a taxable service. 

Examining chapter 151 as a cohesive, integrated whole confirms that Roark’s construction is the

correct one.

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B. Is the Chance to Win an “Integral Part of a Taxable Service”?

Alternatively, in looking to language in section 151.006(a)(3), requiring that the transfer of

toys be an “integral part” of the service provided, the Comptroller argues that the sale-for-resale

exemption in section 151.006(3) does not apply unless a toy is conveyed each and every time a

customer plays the game. The Comptroller urges that section 151.302(b) imposes such a

See also 7-Eleven, Inc. v. Combs, 311 S.W.3d 676, 690 (Tex. App.—Austin 2010, pet. denied) (“The sale-for12

resale statute simply requires that the service to which the transfer of tangible personal property is integral be a taxable

service—not that it actually be taxed in the particular instance in question.”).

See City of San Antonio v. City of Boerne, 111 S.W.3d 22, 25 (Tex. 2003) (“We determine legislative intent

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from the entire act and not just its isolated portions. Thus, we read the statute as a whole and interpret it to give effect

to every part.”) (citations and internal quotation marks omitted); Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, 493 (Tex.

2001) (“Additionally, we must always consider the statute as a whole rather than its isolated provisions. We should not

give one provision a meaning out of harmony or inconsistent with other provisions, although it might be susceptible to

such a construction standing alone.”) (citation omitted). The Comptroller likewise urges the Court to view the Code as

a whole, arguing for example in her principal brief that sections 151.006 and 151.302, discussed above, “are necessarily

read in tandem,” and advocating what she sees as “a reasonable and harmonious implementation of tax code sections

151.006, 151.302, and 151.335.”

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requirement by stating that tangible personal property is not considered resold unless the care,

custody, and control of the property is “transferred to the purchaser of the service.” We disagree. 

These provisions do not impose, either explicitly or implicitly, any such extra-statutoryrequirement,

and we decline to engraft one—revising the statute under the guise of interpreting it.

We believe that in the area of tax law, like other areas of economic regulation, a plainmeaning determination should not disregard the economic realities underlying the transactions in

issue. Here, the summary-judgment evidence shows that all the toys placed in Roark’s machines 14

eventually become customers’ property, except for those lost, stolen, or damaged. Further, the

economic reality of the game is such that customers simply would not part with their money but for

the possibility of winning a toy. In this practical sense, under section 151.006(a)(3), the transfer of

toys is “an integral part” of the amusement service offered by Roark’s machines. The Comptroller

acknowledged at oral argument that no one would play the game without the possibility of winning

a toy. Nothing in section 151.302(b) suggests that every single customer must walk awaywith a toy. 

That provision requires that “care, custody, and control of the tangible personal property” be

The United States Supreme Court has long observed that statutory determinations in tax disputes should

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reflect the economic realities of the transactions in issue. See, e.g., Boulware v. United States, 552 U.S. 421, 429 (2008)

(“The colorful behavior described in the allegations requires a reminder that tax classifications like ‘dividend’ and ‘return

of capital’ turn on ‘the objective economic realities of a transaction rather than . . . the particular form the parties

employed.’”) (citation omitted); Frank Lyon Co. v. United States, 435 U.S. 561, 573 (1978) (“In applying this doctrine

of substance over form, the Court has looked to the objective economic realities of a transaction rather than to the

particular form the parties employed. The Court has never regarded ‘the simple expedient of drawing up papers’ . . .

as controlling for tax purposes when the objective economic realities are to the contrary.”) (citation omitted); Comm’r

v. Sw. Exploration Co., 350 U.S. 308, 315 (1956) (noting that “the tax law deals in economic realities, not legal

abstractions”). We have similarly recognized, in deciding whether a tax is due, that we should consider the “essence of

the transaction” or “the true object of [the] transaction” in issue. Bullock v. Statistical Tabulating Corp., 549 S.W.2d

166, 167–68 (Tex. 1977).

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“transferred to the purchaser of the service.” This transfer in fact occurs and is integral to the success

of the game as an amusement service.

The Comptroller’s argument that reference to “the purchaser” rather than a purchaser requires

that the customer must always, inexorably win a toy simply puts too much weight on the commonest

article of speech. The wording of the statute and the economic realities of the transaction do not

require this “everyone’s a winner” result. Indeed the game would lose all intrigue, and thus all

profitability, if customers won each and every time. No profit-seeking businessperson would

rationally offer such a sure thing. The game would cease to be a game, and thus cease to amuse, and

thus cease altogether.

The Comptroller contends that her position is set out in Comptroller Rule 3.301(b)(2),15

which provides: “The operators of games, or other concessions, in which each participant does not

receive some merchandise or prize, become the consumers of merchandise 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 purchased for

use by them.” As explained in her principal brief, the Comptroller’s position is that, under Rule

3.301(b)(2), “when each participant does not receive a prize, the game operator—or

concessionaire—is not a retailer, but a consumer of the items it purchases to provide its service; such

game operators are therefore not eligible to claim the resale exemption on purchases of toy prizes.” 

Roark disputes that this Rule applies to its machines, describing it as outdated or alternatively

invalid, and arguing that other rules apply instead, specifically Rules 3.301(c)(1) (“For an

34 TEX. ADMIN. CODE § 3.301(b)(2).

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explanation of the taxability of an item purchased for use as a prize when the winning of the prizes

depends upon chance or skill, see § 3.298(f)(1) of this title (relating to Amusement Services).”),

3.298(f)(1) (“Sellers of service may issue a resale certificate in lieu of tax to suppliers of tangible

personal property only if care, custody, and control of the property is transferred to the client.”), and

3.298(f)(2) (“A service will be considered an integral part of a taxable service if the service

purchased is essential to the performance of the taxable service, and without which the taxable

service could not be rendered.”). The Comptroller disputes the applicability of these Rules to this 16

case. Regardless of which Comptroller Rule applies, the Comptroller cannot through rulemaking

impose taxes that are not due under the Tax Code; the question of statutory construction presented

in this case ultimately is one left to the courts.

III. Conclusion

We affirm the court of appeals’ judgment and remand the case to the trial court for further

proceedings consistent with this opinion.

_______________________________________

Don R. Willett

Justice

OPINION DELIVERED: March 8, 2013

Id. §§ 3.301(c)(1), 3.298(f)(1)–(2).

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