### T E X A S C O U R T O F A P P E A L S , T H I R D D I S T R I C T , A T A U S T I N

NO. 03-10-00764- CV

Bell Helicopter Text ron, Inc., Appellan t

v. Sus an Com bs, Com ptroller of P ubl ic Acc ounts of the State of T exas, and Gre g Abbott, Attor ney Ge neral of the State of Texas, App ellees

F ROM TH E DISTRI CT COURT O F TRAVIS CO UNTY, 201 ST JUDICI AL DISTRICT NO. D-1 -GN-0 8-0 0227 9, H ONO RAB LE LO RA J. LI VINGSTO N, JUDGE P RESIDING

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

Be ll Helicopter Textron, Inc. (“B ell ”) ap p eals a take- nothing judgme nt in a sales and use tax ref

und suit under Chapters 112 and 151 of t he Tex as Tax Code. Tex. Tax Code Ann. §§ 112.001-.156, 151.001-.802 (West 2008 & Supp. 2011). Following a tax audit Be ll conducte d 1 under the supervision of a state auditor, Be ll r ece ived a ref und for tax over

pay ments in e ach of the periods cover ed by the audit, along with interest. Dissatisfied with the interest calc ulation, Be ll sued the Comptroller of Pu b l i c Accounts for the State of Texas (“Comptroller” ), alleg ing that the state improper l y netted Be ll’s tax defic iencies in eac h tax period ag ainst its overpa y ments in the

same period befor e calc ulating the interest on eac h overpa y ment. Be ll asser

ted that the Comptroller should have c alculate d interest on the g ross overpa y ment in eac h tax period rather than on the net

In this opinion, we cite to the curr ent versions of the statutes for convenie nce beca use there 1 have be en no interve ning a mendments that are materia l to our disposit ion of this appeal.overpa

y ment. Followingthe first phase of a bifur cate d bench trial, the trial cour t rende red a

takenothing judg ment. We will affirm the trial c ourt’s judg ment.

F ACTUAL AND P ROCEDURAL BACK GR OUND The dispute in this case arises from a “mana g ed audit” Be ll conducte d for the period of J anuar y 1, 2001 throug h J u n e 3 0, 2004. As authorized in section 151.0231 of the tax code, Be ll enter ed into an ag ree ment with the Comptroller to conduct its own audit under the Comptroller’s supervision (“ma nag ed-a udit ag ree ment”). Id. § 151.0231 (West 2008). Pursuant to both s ec tion 151.0231 and the manag ed-a udit ag ree ment, the Comptroller was prohibited from assessing a penalty on any tax defic iency during the audit period absent fra ud or willful tax evasion and had discretion—but was not require d—to “wa ive all or part of the interest that would otherwise

acc rue on a

ny amount identified to be due in [ the] manag ed audit.” Id. I n this case , in communications with Be ll afte r the manag ed-a udit ag ree ment was executed, the Comptroller ag ree d to waive all interest on amounts due (i.e., for underpa y ments), but the audit rev ea l ed that Be ll was in a net overpa y ment position in eac h period in which tax es were due. That is, in eac h monthly tax period, Be ll underpa id on some transac tions and overpa id on other 2 transac tions, but once the underpa y ments for each p er iod wer e offset ag ainst the overpay ments in t h e same period, Be ll was due a ref und for eac h period cover ed by the audit. In deter mining th e

Under the tax code, a taxi ng period is the period of time during which tax acc rues and 2 for which tax is repor

ted (i.e., remitted) to the Comptroller. Tex. Tax Code An n . § § 1 5 1

. 401(a) (pre scr i bing sales and use tax due dates), .402(a) (pre scribing sales and use tax repor t due dates) (West Supp. 2011). It is undisputed that Be ll acc rued and repor ted taxes on a monthly basis during the audit per iod. 2total amount to be ref unded, the Comptroller calc u l at ed t h e interest due based on the net overpa y ment in eac h period. Be ll contends, howeve r, that, in order to g ive eff ect to the Comptroller’s ag ree ment to waive interest on underpa y ments, the Comptroller was require d to calc ulate interest on the g ross amount of the overpa

y ments in eac h period before subtracting the underpa y ments. Be cause the audit reve aled no tax period in which Be ll was in a net underpa y ment position, the netting approa ch the Comptroller utiliz ed re sulted in Bell’s r ece iving the sa me amount of intere st on overpay ments that it would have rec eived if the Comptroller had not a g ree d to w aive interest on tax defic iencies. Thus, Be ll asser

ts that it was deprive d of the statutory and contra ctual benef it of the manag ed-a

udit

arr ang ement and the Comptroller’s ag ree ment to waive interest. Be ll contends that, in ord er to g ive full eff

ect to the C omptroller’s agr eeme nt to waive interest (i.e., to ensure a financial benefit to Be ll for conduc ting the ma nag ed audit), the C omptroller was require d to (1) ca lculate the gross

o v erp ay ment and interest on the overpa y ment for eac h tax period, (2) calc ulate th e gro s s underpa y ment and interest on the g ross underpa y ment for eac h period, and (3) waive the interest on the under pay ment befor e off

setting the under- and over pay ments. The following example illust rate s the parties’ respe c ti v e p o s it io n s c o n c e r n in g in te r est calc ulation. Assuming a $100 overpa y ment and a $100 underpa

y ment in the same tax period and an interest rate of 10% applicable to both, the Comptroller would net the two cate g ories of pay ments, 3 conclude that taxes wer e properly paid for the overa ll period, and neither assess interest on a

T h e i n t er es t rate applicable to tax defic iencies and tax ref unds was the same for all 3 periods cover ed by the audit. See Tex. Tax. Code Ann. § 111.064(c) (West Supp. 2011). Effe ctive September 1, 2005, howeve r, the interest rate applicable to refu n d s m ay be lower than the rate applicable to deficie ncies. Id. § 111.064(a)

. 3defic iency nor pay interest o n an o v erpay ment. Under Be ll’s theory , in contra st, the Comptroller would owe B ell $10 in interest base d on the followingmethodology :

STE P 1 : $100 overpa y ment + $10 intere st = $110 overpa y ment due to B ell

STE P 2 : $100 underpa y ment + $10 interest – $10 interest pursuant to interest wa iver ag ree ment = $100 under

pay ment due fr om Be ll STE P 3 : $110 overpa y ment (including i n t er es t )

– $ 100 underpa y ment = $10 due to Be ll

Be cause the Comptroller did not agree with Bell’s proposed methodology , Be ll filed t he underlying tax -re fund sui t afte r ex hausting its administ rative r emedies. B ell complained that the netting method employ ed by the Comptroller to calc ul ate interest on Be ll’s tax ref und

was inconsistent with the lang uag e of the tax code and wa s not specifie d in the manag ed-a udit ag ree ment. Be ll further asser ted that the Comptroller’s method o l o gy was an invalid rule under the Administrative Procedur es Act (APA). Tex. Gov’t Code Ann. §§ 2001.001-.902 (West 2008 & Supp. 2011). The C o m p t ro ller counter ed that the netting methodology applied in this case was a uniform policy applicable to all taxpay ers for at least thirt y y ea rs and was derive d from the plain lang uag e of the applicable tax provisions. The Comptroll er d en i ed rely ing on any administrative policy , proce dure, or

interpre tation that constituted a “rule ” under the APA. Id. § 2001.003(6). Wit h the parties’ ag ree ment, the trial court order ed a bifurca ted bench trial, defe rring to a separ ate trial the amount to be ref unded, if any . Following the conclusion of the first phase, the trial court rende red final judgme nt in the Comptroller’s favor

. In its finding s of fac t and conclusions of law, the trial court deter mined that the Comptroller proper ly construed the tax code and complied with the manag ed-a

udit a g ree ment. The court further conclude d that the Comptroller’s method of 4calc ulating ref und interest on a period b asis was rea sonable and in compliance with the tax code and the mana g ed-a

udit ag ree ment. On appea l to this Court, Be ll asse rt s t h e fol lowing issues: (1) whether the Comptroller’s methodology for calculating interest on tax ref unds in a manag ed s al es and use tax audit complied with the waiver of interest authorized in section 151.0231(g ) of the tax code; (2) whether the trial court’ s fi n d ings of fac t 3, 4, and 5 wer e based on the court’s err oneous interpre tation of section 151.0231(g ); (3) whether the trial court’s finding s of fac t 3, 5, and 6 wer e finding s of fact or conclusions of law; (4) whether the C omptroller’s methodology for calculating interest on tax ref

unds complied with section 151.508 of the tax code; (5) whether the Comptroller’s methodology for calc ulating interest on tax ref unds is an ag ency rule under the APA; and (6) whether the Comptroller’s methodology for calc ulating interest on tax ref unds is invalid beca

use it was not adopted throug h rule-ma

king a s require d by

the APA.

DISCUSSIO N The controlling issue in this case is whether the Comptroller proper ly calc ulated interest on Be ll’s ne t ove rpay ment of sales and use taxes or instead should have calc ulated interest

on the g ross amount of the o v erp ay ment befor e offse tting any underpa y ments from the same tax period. Resolution of this issue require s us to construe the pertinent provisions of the tax code. The proper construction of a statute is a question of law that we revie w de novo. First Am. Titl e Ins. Co. v. Combs , 258 S.W .3d 627, 632 (Tex. 2008).

Our primary objective in construing statutes is to g ive eff ect to the le g is la

tu r e ’s intent, which we seek “first and fore most” in the statutory text

. Id

. Absent leg islative definition, we rely on the plain meaning of the text unless a differ ent meaning is appar ent from the context or application 5of t he plain lang uag e would lead to absurd re s u lts. City of Rock wall v. Hughes , 246 S.W .3d 621, 625-26 (T ex . 2008). “Words and phrase s shall be rea d in context and construed acc ording to the rules of g rammar and common usag e,” Tex. Gov’t Code Ann. § 311.011 (West 2005), and we look to the entire act in deter

mining the leg islature’s intent with respe ct to specific provisions. Railroad Comm’n v. Texas Citi

zens for a Safe Future & Clean W ater , 336 S.W .3d 619, 628 (T ex . 2 0 1 1 ). Although we must g ive “ser ious considera tion” to the construction of a statute by the administrative ag ency char g ed with its enfor ceme nt, we do not defe r to an ag ency interpre tation unless the statute is ambig uous. See id. at 624. Wit h these well-e stablished principles in mind, we turn to the statutory construction issues pre sented in this case

.

Be ll asser ts that the Comptroller’s interest-c alculation methodology fails to comply with Texas Tax Code sectio n 1 5 1.0231(g ), conce rning waiver of interest in manag ed audits, and section 151.508, conc erningoffse ts. Section 151.0231(g ) provides in pe rtinent part:

Unless the [m anag ed] audit or information revie wed by the com p t ro l ler under Subsection (f) disc loses fra ud or wilful eva sion of the tax, the comptroller may not assess a penalty and may waive all or part of the interest that would otherwise accrue on any amount identified to be due in a manag ed audit.

Tex. Tax. Code Ann. § 151.0231(g ) (West 2008) (empha sis added)

. Be ll contends that the “on any 4 amount identified to be due” languag e in this section require s g ranulation of interest calc ulation on a transac tion-by -transa ction basis rathe r than on a tax-period basis. We disag ree . Among other things, Be ll ignor es the lang uag e in section 151.0231(g ) that the waiver extends only to interest that would

The lang uag e in the manag ed-a udit ag ree ment is sub s t anti vely simil ar but not identical 4 t o t h e l anguag e in section 151.0231(g ). Be ll does not contend that the differ ence s in langua ge are materia l. 6“ac crue ” on amounts that are “due.” I f i n t er es t would not acc rue and no taxes are due, there is

nothing to be waived. There fore , proper construction of section 151.0231(g ) require s examination of the tax code provisions g overning interest ac crua l and tax due dates. The same is true of sec tion 151.508, which provides:

I n making a deter

mination [of tax liability ], t h e co m p troller may offse t an overpa y ment for one or more periods ag ainst an underpa y ment, penalty , and interest acc rued on the underpa

y ment for the same period or one or more other periods. Any interest ac crue d on the over pay ment shall be included in the of fset.

Id. § 151.508 (West 2008). As Be ll corr ectly observe s, this section contemplates that overpa y ments and underpa

y ments can occur in the same period. This section further acknow ledg es that there may be interest acc rued on eac h component as well as a penalty , but not nece ssarily in the same period. Moreove r, althoug h the decision to offse t the underpa y ment, penalty , and acc rued interest is discretionar

y , the s tatute di rec ts that, if the C omptroller elects to offse t, “any i n t er est acc rued” on overpa y ments must be included in the offset. Ag ain, t he key word in this section is “ac crue d.” I f there is no interest that has ac crue d, there is no interest to be included in a n offse t. Be cause neither section 151.0231 nor section 151.508 speaks to interest ac crua l or t ax due dates, statutory construction principles dictate that we look elsewhe re within the t ax co d e to discern the proper constructio n of these statutes. In conducting this inquiry , it become s clea r that the only rea sonable interpre tation of these provisions is that underpa y ments and overpa

y ments in the same period will not have acc rued any in t er es t at the time the tax code specifie s for mandatory offse ts; there fore , there is no interest to be waived and no interest to include in the offse t. The Comptroller’s netting method is not only a re asonable construction of the rele vant tax code provisions, it i s dictated by the plain languag e of the statute.

7S ec t i o n 151.512 of the tax code specifie s that delinquent sales and use taxe s

beg in acc ruing interest six ty day s afte r the tax beca me “due and pay able” to the state. Id. § 151.512 (West 2008). Subject to some exceptions not applicable or claimed in this case , sales and use taxes

are “due and pay able to the comptroller on or befor e the 20th day of the month following the end of

eac h cale ndar month.” Id. § 151.401(a) (West Supp. 2011). Simi larly , section 111.064 provides that interest on a tax ref

und or cre dit is due for an amount “er roneously paid for a period” beg inning on the later of six ty day s afte r the date of pay ment or the due date of the t ax re p o rt

. Id. § 11.064(a) (West Supp. 2011). Tax repor ts for sales and use taxes are due on the same date that taxes ar e due and pay able as specifie d in section 151.401. Id. § 151.402 (West Supp. 2011) (tax repor t is due

same date t h at t ax p ay

ment for period is due). At the ear liest, there fore , interest beg ins acc ruing

on tax defic iencies and tax ref unds eighty day s afte r t he end of t he tax period. Be fore the intere st

acc rual date arr ives, howeve r, another provision of the tax code mandates that any overpa y ment be applied to the under

pay ment. Section 111.104, which g overns tax refunds, state s: (a) I f the comptroller finds that an amount of tax, penalty , or interest has been unlawfully or err oneously collecte d, the comptroller shall credit the amount against any other amount when due and payable by the taxpay er from whom the amount was collecte d. The rema inder of the amount, if any , may be ref unded to the taxpay er from money appropr iated for

tax refund purposes.

. . . . (e) This section applies to all taxes and license fee s collecte d or administered by the comptroller, e x cept the state prope rty tax.

Id. § 111.104(a) , (e) (West 2008) (e mphasis added)

. The plain languag e of this mandatory offse t provision is that any tax overpa y ment must be applied ag ainst a tax defic iency as of the date the tax defic iency beca

me “due and pay able,” which occur s in the case of overpa y ments and underpa

y ments 8in the same tax period befor e interest on either the overpa y ment or underpa

y ment beg ins to acc rue. Nothing in sections 151.0231 and 151.508 chang es thes e b a s ic c o mp uta ti o n a l p rinciples, and nothing in these provisions or the manag ed-a u d i t agre ement g uara

ntees Be ll a financ ial benef it from conductinga mana g ed audit. I n this case , the onl y rea son the Comptroller’s discre tionary interest waiver did not confe r a benef it on Be ll is beca

use Be ll did not actua lly owe any amounts upon which interest would other

wise ac crue . We hold that the Comptroller’s interest calc ulation comports with the plain meaning

o f t he rele vant tax code provisions; there fore , issues one and four are overr uled, and we need no t addre ss the rema ining issues.

CONCLUSION

For the re asons stated, the tria l court’s judg ment is affirme d.

_________________________________________ J . Woodfin J ones, Chief Just ice Be fore Chief J ustice Jones, J ustices Pemberton a nd Henson Affir med Filed: De cembe r 29, 2011

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