Court Opinion

ID: 9911020
Source: CourtListenerOpinion
Date Created: 2023-12-19 11:08:34.018533+00
Date Added: 2024-06-11T12:55:28.401644
License: Public Domain

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

                                     NO. 03-22-00188-CV

 Appellant, RJR Vapor Co., LLC// Cross-Appellants, Glenn Hegar, Comptroller of Public
  Accounts of the State of Texas; the Office of the Comptroller of Public Accounts of the
         State of Texas; and Ken Paxton, Attorney General of the State of Texas
                                             v.

Appellees, Glenn Hegar, Comptroller of Public Accounts of the State of Texas; the Office of
  the Comptroller of Public Accounts of the State of Texas; and Ken Paxton, Attorney
           General of the State of Texas// Cross-Appellee, RJR Vapor Co., LLC

              FROM THE 250TH DISTRICT COURT OF TRAVIS COUNTY
 NO. D-1-GN-20-004023, THE HONORABLE AMY CLARK MEACHUM, JUDGE PRESIDING

                                          OPINION

               The statutory-construction dispute in this tax-refund case requires us to determine

the meaning of the words “tobacco” and “tobacco substitute” and to resolve a dispute over the

difference between “made of” and “made from.” The Tax Code defines “tobacco product” as,

among other things, “an article or product that is made of tobacco or a tobacco substitute and that

is not a cigarette or an e-cigarette as defined by Section 161.081, Health and Safety Code.” Tex.

Tax Code § 155.001(15)(E). The parties join issue over whether oral nicotine products that contain

nicotine isolate manufactured from tobacco are “tobacco products” as defined by the statute.

               Appellant and cross-appellee RJR Vapor Co., LLC sells oral nicotine products in

the form of nicotine pouches and nicotine lozenges under the brand name VELO throughout Texas.

When RJR Vapor introduced the products to Texas, it had concluded that the VELO products are
not subject to the Cigars and Tobacco Products Tax. See generally id. §§ 155.001-.2415 (Cigars

and Tobacco Products Tax). RJR Vapor believed this conclusion was supported by guidance on

the Comptroller’s website stating “[e]ven though nicotine is a component of tobacco, it does not

meet the definition of tobacco.” However, RJR Vapor later received guidance in a general

information letter from the Comptroller that the VELO products are “tobacco products” under

Section 155.001(15) because they contain “nicotine, which is an extract from the tobacco leaf.”

RJR Vapor then began paying the Cigars and Tobacco Products Tax under protest.

               Soon thereafter, RJR Vapor sued appellees and cross-appellants Glenn Hegar,

Comptroller of Public Accounts of the State of Texas; the Office of the Comptroller of Public

Accounts of the State of Texas; and Ken Paxton, Attorney General of the State of Texas

(collectively, “Comptroller”) to recover the payments that it made under protest.           See id.

§§ 112.051-.060. In its suit, RJR Vapor also sought (1) a declaration that the language “made of

tobacco or a tobacco substitute” within Texas Tax Code Section 155.001(15)(E) was

unconstitutional and (2) a permanent injunction prohibiting the Comptroller from relying on that

language to assess or collect the Cigars and Tobacco Products Tax.

               On cross-motions for summary judgment, the trial court held that the products at

issue are not “tobacco products” as defined by Tax Code Section 155.001(15). The trial court

subsequently conducted a bench trial to resolve the refund amount owed to RJR Vapor and whether

RJR Vapor was entitled to declaratory or injunctive relief. The trial court rendered judgment

granting RJR Vapor a refund in the amount of $16,071.68. The trial court also declared in its

judgment that the phrase “made of tobacco or a tobacco substitute” is unconstitutional both facially

and as applied, but it denied RJR Vapor’s request for a permanent injunction.

                                                 2
               For the reasons discussed below, we affirm in part and vacate in part the trial court’s

judgment and dismiss RJR Vapor’s declaratory and injunctive claims for lack of jurisdiction.

                                        BACKGROUND

Statute and Products at Issue

               Texas imposes the Cigars and Tobacco Products Tax on tobacco products. The tax

rates on cigars are different from the tax rates on other tobacco products. Compare Tex. Tax Code

§ 155.021 (tax imposed on cigars), with id. § 155.0211 (tax imposed on tobacco products other

than cigars). The tax on tobacco products other than cigars is imposed “when a permit holder

receives tobacco products other than cigars, for the purpose of making a first sale in this state.”1

Id. § 155.0211(a). As defined by the Tax Code,

       “[t]obacco product” means:

       (A) a cigar;

       (B) smoking tobacco, including granulated, plug-cut, crimp-cut, ready-rubbed, and
           any form of tobacco suitable for smoking in a pipe or as a cigarette;

       (C) chewing tobacco, including Cavendish, Twist, plug, scrap, and any kind of
           tobacco suitable for chewing;

       (D) snuff or other preparations of pulverized tobacco; or

       1    The Tax Code establishes that “[a] person may not engage in business as a distributor,
wholesaler, bonded agent, interstate warehouse, manufacturer, export warehouse, importer, or
retailer [of or for tobacco products] unless the person has applied for and received the applicable
permit from the comptroller.” See Tex. Tax Code § 155.041(a); see also id. § 155.001(1), (6), (7),
(9), (9-a), (10), (14), (16) (defining “bonded agent,” “distributor,” “export warehouse,” “importer,”
“interstate warehouse,” “manufacturer,” “retailer,” “wholesaler” for purposes of Cigars and
Tobacco Products Tax).

                                                 3
       (E) an article or product that is made of tobacco or a tobacco substitute and that
           is not a cigarette or an e-cigarette as defined by Section 161.081, Health and
           Safety Code. 2

Id. § 155.001(15) (emphasis added). At issue here is whether the VELO oral nicotine pouches and

lozenges distributed by RJR Vapor in Texas are taxable “tobacco products” under Section

155.001(15).

               RJR Vapor presented evidence with its summary-judgment motion that the VELO

pouches and lozenges contain many ingredients, including nicotine isolate. 3 The pouches use

porous fleece material to portion the powdered mixture of water, nicotine isolate, sucralose, citric

acid, and flavoring ingredients. They are available in mint or citrus flavors containing two different

amounts of nicotine isolate (2 mg or 4 mg). The lozenges come in hard or soft form, and their

ingredients include isomalt, water, nicotine isolate, flavoring, and sodium chloride. They are

available in four flavors (crema, berry, dark mint, and mint), and all contain a nicotine isolate

content of approximately 1.7 mg. Product users place the products in their mouths and orally

       2   A “cigarette” is defined as “a roll for smoking: (A) that is made of tobacco or tobacco
mixed with another ingredient and wrapped or covered with a material other than tobacco; and
(B) that is not a cigar.” Tex. Health & Safety Code § 161.081(1) (employing same definition found
in Texas Tax Code Section 154.001(2)). “Cigarettes” are taxed under the Cigarette Tax established
in Chapter 154 of the Tax Code. Under the Health & Safety Code, “e-cigarette” means electronic
cigarettes or other devices “that simulate[] smoking by using a mechanical heating element,
battery, or electronic circuit to deliver nicotine or other substances to the individual inhaling from
the device” or “a consumable liquid solution or other material aerosolized or vaporized during the
use of an electronic cigarette or other device described by this subdivision.” Id. § 161.081(1-a)(A).
E-cigarettes are not currently taxed under either the Cigarette Tax or the Cigars and Tobacco
Products Tax.
       3  Among other evidence, RJR Vapor submitted affidavit evidence from three tobacco-
industry experts.

                                                  4
absorb the nicotine isolate and flavors over time (one to two hours for pouches; 15 minutes

for lozenges).

                 According to the affidavit of Dr. Charles Garner, an RJR Vapor employee and

expert, “[t]he manufacturer of [the VELO products] purchases nicotine isolate (which is derived

from tobacco) from third party vendors.” 4 Garner attested that neither RJR Vapor nor the

manufacturer of the VELO products “processes tobacco to make the nicotine isolate incorporated

into [the VELO products].” 5 He attested that RJR Vapor “does not purchase, process, or handle

tobacco at any point in the distribution” of the VELO products.

                 Garner attested that the general process employed by RJR Vapor’s vendors to create

nicotine isolate is as follows:

        a. A tobacco mixture is extracted with water in a batch process. The raw water
           extract is subsequently extracted with an organic solvent. The resulting organic
           phase containing nicotine is separated and diluted, and sulfuric acid is added.
           The nicotine partitions in the water phase forming a 40% nicotine sulfate
           solution. The tobacco waste mixture is disposed of, most often given to farmers
           free of charge to be used as a soil enhancer. The nicotine sulfate solution is sold
           to another vendor for processing to make nicotine isolate.

        b. Purchased nicotine sulfate solution is acidified with sulfuric acid. Some water
           is distilled off from the resulting solution and the residue is filtered. The filtrate
           is extracted with cyclohexane. The aqueous product layer, i.e., aqueous nicotine

        4 Garner is “an expert in toxicology, tobacco product, [oral nicotine product,] and [nicotine

replacement therapy] design and modification, and tobacco product, [oral nicotine product,] and
[nicotine replacement therapy] testing and evaluation.” He has a B.S. in biology, an M.S. in
occupational and environmental health with a focus in toxicology and industrial hygiene, and a
Ph.D. in pharmaceutical sciences with a focus in toxicology and pharmacology; he has worked in
the tobacco industry for over 25 years.
        5   Garner explained that while “[n]icotine is a naturally occurring constituent of tobacco,”
it is also found in “other members of the nightshade (Solanaceae) family of plants, which includes
eggplants, tomatoes, potatoes and peppers.” He further attested that “[o]n a commercial scale,
tobacco plants are the preferred plant for obtaining nicotine isolate due to the relatively high
concentrations of nicotine in tobacco plants.”
                                                   5
           sulfate solution, is treated with a sodium hydroxide solution under heating. The
           mixture is again extracted with cyclohexane. The aqueous layer is then
           discarded. From the organic layer, cyclohexane is distilled off. The remaining
           product is distilled under vacuum, then filtered producing nicotine isolate (with
           a purity of greater than 99%). The nicotine isolate is placed in drums or other
           containers for shipment to [RJR] Vapor LLC.

RJR Vapor’s other two experts confirmed that after the process for making nicotine isolate is

complete, the final product contains no part or traces of the tobacco leaf. Steve Terrell, the director

of product development at Swedish Match, an RJR Vapor competitor, similarly described the steps

of the chemical process used to extract nicotine isolate from tobacco. He attested, “[o]nce the

chemical is extracted from the tobacco, the final product (nicotine isolate) contains no traces or

matter from the tobacco leaf except for the purified nicotine.” Mark Triplett, partner and founder

since 1986 of a tobacco-products consulting firm “that advises tobacco industry and government

leaders on how to establish viable strategies for uniform application of state tobacco laws,” who

has assisted state legislatures in drafting tobacco-products taxation laws, attested that “[o]nce the

nicotine is extracted from tobacco, the final product contains no tobacco leaf.” Triplett further

attested, “Nicotine is not ‘tobacco’—nicotine is merely a chemical that can be found in tobacco.”

The Comptroller’s Guidance

               When RJR Vapor introduced the VELO products to Texas in 2015, its

representatives researched whether the products would be subject to the Cigars and Tobacco

Products Tax and concluded that the products should not be subject to the tax. However, to confirm

that the products were not subject to the tax, RJR Vapor requested a General Information Letter

from the Comptroller in 2018. In January 2019, the Comptroller sent RJR Vapor a General

Information Letter stating that because the products contain nicotine, “which is an extract from the

                                                  6
tobacco leaf,” they meet the statutory definition of a tobacco product. RJR Vapor representatives

subsequently met with the Comptroller’s representatives to explain the novel products and RJR

Vapor’s position that they are not tobacco products as defined by the statute. At that meeting, the

Comptroller’s representatives indicated that the Comptroller’s position remained the same—the

products are taxable.

Procedural History

               In August 2020, RJR Vapor filed its suit against the Comptroller in the trial court,

seeking a refund of the tax paid under protest; declaratory judgment that the VELO products are

not “tobacco products” and thus are not subject to the Cigars and Tobacco Products Tax;

declaratory judgment that the statutory language “made of tobacco or a tobacco substitute” is

unconstitutional, both facially and as applied; and permanent injunctive relief based on its

constitutional claims. 6 Both sides moved for partial summary judgment on the issue of whether

the VELO products are “tobacco products” as defined by Tax Code Section 155.001(15). The trial

court ruled that the products are not “tobacco products.”

               The trial court subsequently conducted a trial to resolve the refund due to RJR

Vapor, the constitutionality of the phrase “made of tobacco or a tobacco substitute” contained in

Section 155.001(15), and RJR Vapor’s right to permanent injunctive relief. At trial, the parties

stipulated to the amount of refund due to RJR Vapor. After hearing testimony from three witnesses

presented by RJR Vapor, the trial court rendered its final judgment granting RJR Vapor a refund in

the amount of $16,071.68. In the (corrected) final judgment signed on April 4, 2022, the trial court

       6  Based on the January 2019 General Information Letter and the guidance from the
Comptroller’s representatives, RJR Vapor began paying the Cigars and Tobacco Products Tax
under protest beginning in June 2020.
                                                 7
ruled that the phrase “made of tobacco or a tobacco substitute” is unconstitutional both facially

and as applied, but it denied RJR Vapor’s request for a permanent injunction. The trial court later

issued findings of fact and conclusions of law. This appeal and cross-appeal followed.

                                            ANALYSIS

                We turn first to the issues raised by the Comptroller in the cross-appeal, because

our disposition of those issues will determine whether we need to reach the sole issue raised by

RJR Vapor—whether the trial court erred by denying RJR Vapor’s request for permanent injunctive

relief after determining that the challenged phrase in Section 155.001(15)(E) is unconstitutional.

In the cross-appeal, the Comptroller requests that we reverse the trial court’s summary judgment

and render judgment that the VELO pouches and lozenges are taxable “tobacco products,” as

defined in Section 155.001(15)(E). The Comptroller further requests that we reverse the trial

court’s constitutional declarations and render judgment that Section 155.001(15)(E) is

constitutional on its face, as applied to VELO pouches and lozenges, and as enforced by the

Comptroller. Alternatively, to the extent RJR Vapor’s claim under the Equal and Uniform Clause

is not a challenge to the validity of a statute, the Comptroller asks this Court to dismiss the claim

for lack of jurisdiction.

                If, however, we affirm the partial summary judgment that the VELO products are

not taxable “tobacco products,” the Comptroller asks that we render judgment that RJR Vapor’s

constitutional claims are moot and vacate the trial court’s judgment on those claims.

I.      Are the VELO products taxable products as defined by Section 155.001(15)(E)?

                We begin our analysis with the question at the heart of this appeal: Are the VELO

nicotine pouches and lozenges “tobacco products”—that is, are they “made of tobacco or a tobacco

                                                 8
substitute”? The Comptroller contends that the VELO products are “made of tobacco or a tobacco

substitute” because they contain nicotine isolate, which the Comptroller asserts is processed

tobacco or a product of tobacco, and thus, the products are “made of tobacco.” Alternatively, the

Comptroller asserts that the VELO products are “made of . . . a tobacco substitute” because

nicotine isolate is used in place of tobacco, as evidenced by RJR Vapor’s promotion of the products

as a cleaner alternative to other tobacco products such as snuff and chewing tobacco, which also

contain nicotine. In response, RJR Vapor argues that the nicotine isolate in its VELO products is

not “tobacco” within the plain meaning of that word because the nicotine isolate (and therefore the

VELO products) contains no tobacco leaf, and thus the products are not “made of tobacco.” RJR

Vapor also contends that its products are not “made of a tobacco substitute” either under the plain

meaning of the words “tobacco substitute” or as that phrase is used as a term of art within the

tobacco industry.

       A.      Standard of review

               We review summary judgments de novo. Barbara Techs. Corp. v. State Farm

Lloyds, 589 S.W.3d 806, 811 (Tex. 2019). When both parties move for summary judgment on the

same issue, we consider the summary-judgment evidence presented by both parties, determine all

questions presented, and render the judgment that the trial court should have rendered if we

conclude that the trial court erred. Id. (citing Valence Operating Co. v. Dorsett, 164 S.W.3d 656,

661 (Tex. 2005)). Here, the parties sought partial summary judgment on the issue of whether the

VELO products are “tobacco products” as defined by Tax Code Section 155.001(15). Based on

the trial court’s holding that the VELO products are not “tobacco products” under the Tax Code,

                                                9
the trial court further held that RJR Vapor is entitled to a refund of the Cigars and Tobacco Products

Tax paid.

               The taxpayer bears the burden of proving entitlement to a tax refund. Hegar

v. Health Care Serv. Corp., 652 S.W.3d 39, 43 (Tex. 2022). When the material facts are undisputed,

we interpret the statute de novo. Id.

               “As in any statutory interpretation case, ‘[o]ur objective is to ascertain and give

effect to the Legislature’s intent.’” Id. (quoting In re D.S., 602 S.W.3d 504, 514 (Tex. 2020)). To

do so, we enforce the plain meaning of statutory text, “unless a different meaning is supplied by

statutory definition, is apparent from the context, or the plain meaning would lead to an absurd or

nonsensical result.” Beeman v. Livingston, 468 S.W.3d 534, 538 (Tex. 2015); see also Texas Dep’t

of Transp. v. City of Sunset Valley, 146 S.W.3d 637, 642 (Tex. 2004) (“If the statutory language is

unambiguous, we must interpret it according to its terms, giving meaning to the language

consistent with other provisions in the statute.”). We consider statutes as a whole, not their isolated

provisions. TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 439 (Tex. 2011). Words

and phrases must be “read in context and construed according to the rules of grammar and common

usage.” Tex. Gov’t Code § 311.011(a). We presume that the Legislature selects the language in a

statute with care and that it includes each word for a purpose and purposefully omits words not

included. TGS-NOPEC, 340 S.W.3d at 439.

               “Words that in isolation are amenable to two textually permissible interpretations

are often not ambiguous in context.” Health Care Serv. Corp., 652 S.W.3d at 43. “If an undefined

term has multiple common meanings, it is not necessarily ambiguous; rather, we will apply the

definition most consistent with the context of the statutory scheme.” Southwest Royalties, Inc.

v. Hegar, 500 S.W.3d 400, 405-06 (Tex. 2016). “[O]ur inquiry is not whether the statute has an

                                                  10
ambiguous scope, but whether the language itself is ambiguous.” Health Care Serv. Corp.,

652 S.W.3d at 43. If the language of the statute proves ambiguous, however, we apply the ancient

presumption in favor of the taxpayer: “The reach of an ambiguous tax statute must be construed

‘strictly against the taxing authority and liberally for the taxpayer.’” TracFone Wireless, Inc.

v. Commission on State Emergency Commc’ns, 397 S.W.3d 173, 182 (Tex. 2013) (quoting Morris

v. Houston Indep. Sch. Dist., 388 S.W.3d 310, 313 (Tex. 2012) (per curiam)); see also Health Care

Serv. Corp., 652 S.W.3d at 43. “[A]gency deference does not displace strict construction when the

dispute is not over how much tax is due but, more fundamentally, whether the tax applies at all.”

TracFone Wireless, 397 S.W.3d at 182-83.

       B.      Are the VELO products “made of tobacco”?

               As an initial matter, we consider the plain meaning of the word “tobacco.” The

Legislature did not define “tobacco.” The Comptroller argues that the statute differentiates

between “raw tobacco” and processed tobacco by defining raw tobacco as “any part of the tobacco

plant, including the tobacco leaf or stem, that is harvested from the ground and is not a tobacco

product as the term is defined in this chapter.” Tex. Tax Code § 155.001(13-a). Thus, the

Comptroller argues, the tobacco in a taxable “tobacco product” refers to processed tobacco as

opposed to raw tobacco, and moreover, the processing of the tobacco is implicit in the concept of

a “tobacco product.” The Comptroller contends that the nicotine isolate in the VELO products is

“tobacco” because it is tobacco “that has been processed to concentrate its native nicotine.”

               RJR Vapor, on the other hand, urges that the plain meaning of the word “tobacco”

is the leaf of the tobacco plant, relying on several dictionary definitions that include descriptions

of the leaf of the tobacco plant as one of the meanings of “tobacco.” For example, it cites

                                                 11
Merriam-Webster, which includes “the leaves of cultivated tobacco prepared for use in smoking

or chewing or as snuff” and “manufactured products of tobacco (such as cigars or cigarettes)” as

definitions, and the Compact Oxford English Dictionary, which includes “the dried nicotine-rich

leaves of an American plant, used for smoking or chewing” as a definition.                 Tobacco,

MERRIAM-WEBSTER.COM, last visited December 4, 2023; Tobacco, COMPACT OXFORD ENGLISH

DICTIONARY (3rd ed. 2008). Accordingly, RJR Vapor contends that these definitions demonstrate

that the plain meaning of the word “tobacco” is the leaf of the tobacco plant. RJR Vapor argues

that the VELO products therefore do not contain tobacco because while the powdered form of

nicotine isolate in the VELO products is manufactured from tobacco, it could theoretically be

manufactured from any plant in the nightshade family, and as its experts attested, the VELO

products contain no tobacco leaves or any other portion of the tobacco plant.

               The Comptroller contends that the nicotine isolate in the VELO products is

“tobacco” under the Tax Code because it is manufactured from tobacco, while RJR Vapor contends

that it is not because no part of the tobacco plant remains in the nicotine isolate once the

manufacturing process for separating the nicotine isolate from the tobacco plant is complete.

Although when construing statutes we normally give an undefined term, like “tobacco” is here, its

ordinary meaning, “the meaning must be in harmony and consistent with other statutory terms and

‘[i]f a different, more limited, or precise definition is apparent from the term’s use in the context

of the statute, we apply that meaning.’” Southwest Royalties, 500 S.W.3d at 405 (quoting State

v. $1,760.00 in U.S. Currency, 406 S.W.3d 177, 180 (Tex. 2013)). In this situation, we must

examine the context of the Cigars and Tobacco Products Tax to determine what definition of

“tobacco” is most consistent with the statutory scheme and whether nicotine isolate qualifies as

“tobacco.” See id.

                                                 12
               The other tobacco products covered by the Cigars and Tobacco Products Tax all

contain “the leaves of cultivated tobacco prepared for use in smoking or chewing or as snuff.”

Tobacco, MERRIAM-WEBSTER.COM, last visited December 4, 2023; see Tex. Tax Code

§ 155.001(15)(A)-(D) (establishing cigars, smoking tobacco, chewing tobacco, and “snuff or other

preparations of pulverized tobacco” as “tobacco products”). Although the Comptroller is correct

that the statute distinguishes between “raw tobacco” and “tobacco products” and that the concept

of “tobacco products” necessarily incorporates “tobacco” that has been prepared or processed in

some way, that does not resolve either the question of how “tobacco” should be defined or the

question of whether nicotine isolate is “tobacco.” Reading Section 155.001(15)(E) in context with

the other tobacco products described in Section 155.001(15), we conclude that the definition of

“tobacco” that is most consistent with the statutory scheme is the leaves of cultivated tobacco

plants that are prepared for use in smoking or chewing or as snuff.

               Under this definition, the nicotine isolate in the VELO products does not qualify as

“tobacco.” While the nicotine isolate in the products is extracted from tobacco, no tobacco leaves

or other parts of the tobacco plant remain as part of the nicotine isolate by the end of the

manufacturing process. 7 RJR Vapor submitted evidence, and the parties agree, that this process

results in nicotine isolate that has a purity greater than 99%. While the Comptroller contends that

the nicotine isolate is “tobacco” “because it is tobacco that has been processed to concentrate its

native nicotine,” and “[t]his processed tobacco is an ingredient in VELO products,” the evidence

reflects that the VELO products do not contain “tobacco” as that term is used in the statute, i.e.,

       7    Moreover, RJR Vapor presented evidence that nicotine isolate could also be
manufactured from other plants containing nicotine, like eggplants and tomatoes. In its isolate
form, no part of the plant from which the nicotine came remains. A consumer cannot identify the
plant source of the nicotine in the VELO products because no plant parts are in the products.
                                                13
tobacco leaves prepared for oral use. Instead, they contain nicotine isolate, which is extracted from

tobacco by a process that separates it from the tobacco plant and in which the tobacco waste is

discarded. To put it simply, “tobacco” and “nicotine” are not synonymous. Nicotine is a chemical

found in tobacco, but no part of the tobacco plant remains in nicotine isolate after the extraction

process is complete.

               The Comptroller also contends, based on this processing of tobacco to extract the

nicotine isolate from the plant, that the VELO products are “made of” tobacco. The Comptroller

asserts that the nicotine isolate is “tobacco” because the tobacco “has been processed to concentrate

its native nicotine.” 8 RJR Vapor argued on summary judgment and continues to urge on appeal

that even though the nicotine isolate in the VELO products comes from tobacco plants, the VELO

products are not “made of” tobacco. Instead, RJR Vapor contends, at best, the nicotine isolate in

the products suggests only that the products are “made from” tobacco.

               Courts must construe statutes according to the rules of grammar and common

usage. See Tex. Gov’t Code § 311.011(a). According to these rules, the phrases “made of” and

“made from” convey different meanings. As the Cambridge Dictionary explains, “We use made

of when we talk about the basic material or qualities of something. It has a meaning similar to

“composed of . . . .” 9 And “[w]e often use made from when we talk about how something is

       8   We note that RJR Vapor presented summary-judgment evidence that the Comptroller
took a contrary position on the Comptroller’s website when providing guidance about whether
e-cigarettes were tobacco products (before the Legislature specifically excepted them out of the
“tobacco product” definition in 2019). The website stated, “E-cigarettes containing nicotine are
not subject to the tobacco tax. Even though nicotine is a component of tobacco, it does not meet
the definition of tobacco.” (Emphasis added.)
       9  Grammar entry for made from, made of, made out of, made with, CAMBRIDGE
DICTIONARY, https://dictionary.cambridge.org/us/grammar/british-grammar/made-from-made-of-
made-out-of-made-with (last visited December 4, 2023).
                                                 14
manufactured.” 10 RJR Vapor cites a number of print and online usage experts who concur with

this explanation and further describe the distinction between “made of” and “made from.” To

expand on the Cambridge Dictionary usage explanation, when an object is “made of” a substance,

that substance stays fundamentally the same when the object is made. To give a few examples,

books are made of paper, a jacket is made of leather, and a shirt is made of polyester. Alternatively,

when an object is “made from” a substance, that substance is changed, typically through some sort

of chemical or mechanical process, to make the object. Thus, paper is made from trees, leather is

made from cows’ hides, and polyester is made from oil.

                  We presume that the Legislature purposefully used “made of” instead of “made

from” in its definition of “tobacco product” and that it purposefully omitted “nicotine” from its

definition. See TGS-NOPEC, 340 S.W.3d at 439. The Legislature could choose to define “tobacco

product” more similarly to the federal government’s definition, but it has not. See 21 U.S.C.A.

§ 321(rr)(1) (West) (defining “tobacco product” as “any product made or derived from tobacco, or

containing nicotine from any source, that is intended for human consumption, including any

component, part, or accessory of a tobacco product (except for raw materials other than tobacco

used in manufacturing a component, part, or accessory of a tobacco product)” (emphasis added)).

Likewise, the Legislature has demonstrated in its definition of “hemp” that it knows how to outline

the parameters of products derived from a plant and to make the definition expansive when it wants

to. See Tex. Agric. Code § 121.001 (defining “hemp” as “the plant Cannabis sativa L. and any part

of that plant, including the seeds of the plant and all derivatives, extracts, cannabinoids, isomers,

acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol

       10   Id.
                                                 15
concentration of not more than 0.3 percent on a dry weight basis” (emphasis added)). We take

statutes as we find them and refrain from rewriting text chosen by the Legislature. Pedernal

Energy, LLC v. Bruington Eng’g, Ltd., 536 S.W.3d 487, 492 (Tex. 2017). “[W]hen the language

of a statute is clear, it is not the judicial prerogative to go behind or around that language through

the guise of construing it to reach what the parties or we might believe is a better result.” 11 Texas

Lottery Comm’n v. First State Bank of DeQueen, 325 S.W.3d 628, 640 (Tex. 2010).

               We conclude that the VELO products are not “made of tobacco.” The nicotine

isolate in the products is neither “tobacco” under the plain meaning of the word nor “made of”

tobacco because even when it is derived from tobacco, no part of the tobacco plant remains in the

isolate—the isolate is a chemically pure substance that has been separated from the plant parts,

and the plant waste has been discarded.

       11   We acknowledge the Comptroller’s concern that a decision that nicotine isolate is not a
“tobacco product” within the meaning of Section 155.001(15) may cause oral nicotine products
like the VELO products not to be regulated under the Health and Safety Code, which incorporates
the Tax Code’s definition of “tobacco product” for regulatory purposes. However, in the absence
of some indication in either code that the Legislature intended “tobacco” to mean “nicotine,” we
are obliged to construe the word according to its plain meaning. See Texas Lottery Comm’n v.
First State Bank of DeQueen, 325 S.W.3d 628, 637 (Tex. 2010) (“Courts are not responsible for
omissions in legislation, but we are responsible for a true and fair interpretation of the law as it is
written. . . . [We] are not empowered to ‘fix’ the mistake by disregarding direct and clear statutory
language that does not create an absurdity.” (citations omitted)).
        We likewise note that bills have been introduced in the Legislature to tax “nicotine
products,” but in the absence of passage of those bills, we decline to speculate on whether they are
intended to codify or clarify existing law or to create new law. See Entergy Gulf States, Inc. v.
Summers, 282 S.W.3d 433, 443 (Tex. 2009) (Generally, “we attach no controlling significance to
the Legislature’s failure to enact [legislation].” (alteration in original) (quoting Texas Emp.
Comm’n v. Holberg, 440 S.W.2d 38, 42 (Tex. 1969))).

                                                  16
       C.      Are the VELO products “made of . . . a tobacco substitute”?

               Again, we begin by examining the plain and common meaning of the phrase

“tobacco substitute.” We have already determined that the word “tobacco” as used in the Cigars

and Tobacco Products Tax is “the leaves of cultivated tobacco prepared for use in smoking or

chewing or as snuff.” Tobacco, MERRIAM-WEBSTER.COM, last visited December 4, 2023. A

“substitute” is defined as “a person or thing that takes the place or function of another.” Substitute,

MERRIAM-WEBSTER.COM, last visited December 4, 2023. Thus, a “tobacco substitute” must be

something that takes the place or function of “tobacco”; that is, the leaves of cultivated tobacco

prepared for use in smoking or chewing or as snuff.

               The Comptroller asserts that the nicotine isolate in the VELO products is a

substitute for tobacco “because it replaces more traditional forms of tobacco as a source of

nicotine.” The thrust of the Comptroller’s argument is that because nicotine is addictive, a tobacco

user seeking a substitute product will seek out only products containing nicotine, and thus, the

nicotine isolate in the VELO products acts as a substitute for tobacco. The Comptroller contends

that RJR Vapor itself promotes the VELO products as an alternative to tobacco and submitted RJR

Vapor’s marketing materials promoting the brand in this way as summary-judgment evidence.

Those materials show that RJR Vapor markets the products as “tobacco-leaf free” and as similar

to tobacco products like dip, snuff, or chewing tobacco but less obtrusive to others around the

product user. The Comptroller points in particular to a chart in RJR Vapor’s marketing materials

comparing three different product options: VELO, snus (a smokeless moist powder tobacco

pouch), and dip (also known as snuff; a shredded, moistened smokeless tobacco product). The

chart shows that the only similarities between the three products are that they are all smoke-free

and contain nicotine. While this chart shows that consumers have different choices available to

                                                  17
them for the consumption of smoke-free nicotine, it does not establish that nicotine isolate is a

substitute for tobacco, especially as that term is used within the larger context of the Cigars and

Tobacco Products Tax.

               As we explained in our discussion of “tobacco” above, the other tobacco products

taxed under the statute all contain “the leaves of cultivated tobacco prepared for use in smoking or

chewing or as snuff.” Tobacco, MERRIAM-WEBSTER.COM, last visited December 4, 2023; see Tex.

Tax Code § 155.001(15)(A)-(D) (establishing cigars, smoking tobacco, chewing tobacco, and

“snuff or other preparations of pulverized tobacco” as “tobacco products”). Considering the

context of the other products covered by the tax, and based on the plain meaning of the text, we

cannot conclude that the Legislature’s intent is to tax products that do not contain a substitute for

tobacco leaves. See Sunstate Equip. Co. v. Hegar, 601 S.W.3d 685, 690 (Tex. 2020) (“Unless the

statute provides a separate definition, we presume that the Legislature meant to use the ordinary

meaning of a word, with each term ‘interpreted consistently in every part of [the] act.’” (quoting

Texas Dep’t of Transp. v. Needham, 82 S.W.3d 314, 318 (Tex. 2002) (citation omitted)). The

process of making nicotine isolate removes all parts of the tobacco leaf, leaving only the

concentrated chemical compound of nicotine. The Comptroller’s argument that nicotine isolate is

a substitute for tobacco leaves requires us to assume that nicotine is the only reason consumers use

tobacco products. The number and variety of tobacco products on the market disproves that

assumption. If consumers cared only about obtaining nicotine, then the source would not matter. 12

       12  By way of analogy, caffeine is another addictive substance that consumers seek out in
many different forms. Coffee, tea, sodas, and energy drinks are all products containing caffeine,
each with its devoted fans but each with different flavor profiles and effects. The analogy is not a
perfect one because the caffeine in those products comes from different sources, but it illustrates
the idea that something more goes into a consumer’s choice of product than the desire for the
concentrated chemical it contains.
                                                 18
Moreover, we presume that the Legislature purposefully omitted any words not included in the

statute, and as previously noted, the Legislature omitted any reference to nicotine in the Cigars and

Tobacco Products Tax. See TGS-NOPEC, 340 S.W.3d at 439.

                We conclude that nicotine isolate cannot replace tobacco leaves in a product

because nicotine isolate does not have the same qualities as tobacco leaves. This conclusion is

further supported by RJR Vapor’s summary-judgment evidence introduced through its experts that

the industry defines a “tobacco substitute” as follows:

       formed of readily available materials . . . which is low in tars and relatively free of
       nicotine; which is low in poly-cyclics and carbonyls and is thus characterized by
       good taste and aroma; which can be mixed in wide proportions with cured tobacco
       without noticeable change in the smoking characteristics of the resulting products;
       which has strength, feel and mass integrity characteristics of conventionally cured
       tobacco to enable processing with conventional equipment and conventional
       materials in the manufacture of cigars and cigarettes; and in which there is little if
       any deviation in the smoking characteristics, taste, and aroma from conventional
       cured tobacco. 13

(Emphases added.) Both Garner and Triplett attested that the tobacco industry began using the

term “tobacco substitute” in the 1960s to describe materials that could be used as a replacement

for tobacco leaves in cigarettes. 14 RJR Vapor also relies on evidence of the health organization

       13   MARSHALL SITTIG, Tobacco Substitutes, in CHEMICAL TECH. REV. NO. 67 1, 1-2 (1976).
       14   Garner attested as follows:

       The primary purpose of tobacco substitutes is to replace some of the tobacco in
       cigarettes with the objective of reducing the yield of toxic compounds that are
       inherently produced when tobacco is burned, while maintaining the taste and
       sensory aspects of tobacco smoke. The most significant efforts to develop tobacco
       substitutes were undertaken by cigarette manufacturers, private industry,
       government and the public health community between the 1960s and 1980s.
                                                 19
Physicians for a Smoke-Free Canada’s definition of “tobacco substitute,” which similarly

describes a variety of nontobacco cigarette filler materials that have been used to replace tobacco

leaves in cigarettes. 15 Triplett attested that there are a variety of other plants that have been used

as a “tobacco substitute” for smoking, including hemp cigarettes, clove cigarettes, herbal

cigarettes, and lettuce cigarettes.

                When “[w]ords and phrases . . . have acquired a technical or particular meaning,

whether by legislative definition or otherwise,” we must construe them according to that meaning.

Tex. Gov’t Code § 311.011(b). “[W]hen a term unknown to the law has a particular or technical

meaning as applied to some art, science or trade, the court will look to the particular craft in order

to ascertain its proper significance.” E.g., Texas Health Harris Methodist Hosp. Fort Worth

v. Featherly, 648 S.W.3d 556, 567 (Tex. App.—Fort Worth 2022, pet. denied) (quoting State

v. Kaiser, 822 S.W.2d 697, 700 (Tex. App.—Fort Worth 1991, pet. ref’d)); Lloyd A. Fry Roofing

Co. v. State, 541 S.W.2d 639, 642 (Tex. App.—Dallas 1976, writ ref’d n.r.e.) (noting that when “a

technical term is not defined in the statute, courts have interpreted the statutes in the light of the

testimony of expert witnesses familiar with the particular art, science, or trade”).

                In this case, under both the plain meaning and the technical meaning advocated by

RJR Vapor, we construe “tobacco substitute” to mean something to take the place or function of

        Scientists within the tobacco industry investigated hundreds of plants including
        vegetables, grains, and carbonaceous materials, in search of tobacco substitutes.
        15Tobacco substitute, Nontobacco smoking material, DICTIONARY OF TOBACCO TERMS,
Physicians for a Smoke-Free Canada (1999).

                                                  20
tobacco leaves and conclude that nicotine isolate is not a “tobacco substitute.” Accordingly, we

conclude that the VELO products are not “made of . . . a tobacco substitute.” 16

               Having concluded that the VELO products are neither made of tobacco or a tobacco

substitute, we hold that they are not taxable tobacco products as defined by Section 155.001(15)

and affirm the trial court’s ruling on partial summary judgment that was incorporated in the final

judgment. We overrule the Comptroller’s first issue on cross-appeal.

II.    Are RJR Vapor’s constitutional challenges to the statute moot because Section
       155.001(15)(E) does not apply to the VELO products?

               We turn next to the Comptroller’s fifth issue on cross-appeal and consider whether

our holding that the VELO products are not subject to the Cigars and Tobacco Products Tax renders

RJR Vapor’s constitutional claims moot.17 We review de novo the application of the mootness

doctrine. Heckman v. Williamson County, 369 S.W.3d 137, 149-50 (Tex. 2012). “The mootness

       16     To the extent that the Comptroller argues that the VELO products are a “product that
is . . . a tobacco substitute,” as opposed to a “product that is made of . . . a tobacco substitute,” we
disagree with that reading of the statutory language. Tex. Tax Code § 155.001(15)(E). “When
there is a straightforward, parallel construction that involves all nouns or verbs in a series, a
prepositive or postpositive modifier normally applies to the entire series,” a principle known as
the series-qualifier canon. Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation
of Legal Texts 147 (2012). In this case, “made of” applies to both “tobacco” and “a tobacco
substitute.” In addition, as discussed above, because the VELO products do not contain tobacco
leaves or any substance that takes the place or function of tobacco leaves, they cannot be a tobacco
substitute under Section 155.001(15)(E).
       17  The Comptroller contended in its amended second plea to the jurisdiction that the trial
court’s summary-judgment ruling that the VELO products are not “tobacco products” under the
statute had rendered RJR Vapor’s constitutional claims moot and not justiciable. It further argued
that the UDJA did not authorize RJR Vapor’s requested declaratory relief because that statute
authorizes only those “whose rights, status, or other legal relations are affected by a statute” to
seek a determination of the construction or validity of that statute. Tex. Civ. Prac. & Rem. Code
§ 37.004(a). The trial court denied the Comptroller’s plea to the jurisdiction.

                                                  21
doctrine applies to cases in which a justiciable controversy exists between the parties at the time

the case arose, but the live controversy ceases because of subsequent events.” Matthews v. Kountze

Indep. Sch. Dist., 484 S.W.3d 416, 418 (Tex. 2016). A case can become moot at any time, including

on appeal. See Heckman, 369 S.W.3d at 166-67.

               When a case becomes moot, the court loses jurisdiction and cannot hear the case

because any decision would constitute an advisory opinion.             State ex rel. Best v. Harper,

562 S.W.3d 1, 6 (Tex. 2018). However, “[a] case is not rendered moot simply because some of the

issues become moot during the appellate process.” In re Kellogg Brown & Root, Inc., 166 S.W.3d

732, 737 (Tex. 2005) (orig. proceeding). “If only some claims or issues become moot, the case

remains ‘live,’ at least as to other claims or issues that are not moot.” State ex rel. Best, 562 S.W.3d

at 6. Thus, we may consider whether our holding on one issue has rendered other issues moot

on appeal.

               In essence, the Comptroller argues that because we have determined that the VELO

products are not subject to the Cigars and Tobacco Products Tax, RJR Vapor no longer suffers an

actual or threatened restriction under the statute, and thus it no longer has standing to maintain its

constitutional challenges to Section 155.001(15)(E) or request injunctive relief from application

of the tax, rendering those claims moot. See Texas Workers’ Comp. Comm’n v. Garcia, 893 S.W.2d

504, 517-18 (Tex. 1995) (explaining that standing, “a necessary component of subject matter

jurisdiction, requires a) a real controversy between the parties, which b) will be actually determined

by the judicial declaration sought” (citing Texas Ass’n of Bus. v. Texas Air Control Bd., 852 S.W.2d

440, 446 (Tex. 1993))). We are duty-bound to determine whether RJR Vapor has standing to

maintain these claims on appeal because “standing is a ‘prerequisite to subject-matter jurisdiction,

and subject-matter jurisdiction is essential to a court’s power to decide a case.’” Garcia v. City of

                                                  22
Willis, 593 S.W.3d 201, 206 (Tex. 2019) (quoting Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547,

553-54 (Tex. 2000)). Otherwise, we risk issuing an advisory opinion, which would violate both

separation-of-powers principles and the open-courts provision of our Texas Constitution. Id.

                To challenge the constitutionality of a statute, in addition to suffering some actual

or threatened restriction under that statute, “the plaintiff must contend that the statute

unconstitutionally restricts the plaintiff’s rights, not somebody else’s.” Garcia, 893 S.W.2d at 518.

In this case, RJR Vapor has asserted both a facial challenge and an as-applied challenge to the

statue. Under its facial challenge, it “contends that the statute, by its terms, always operates

unconstitutionally,” and thus, it is necessarily contending that the statute operates

unconstitutionally as to it. Id. Under its as-applied challenge, RJR Vapor argues that even if the

statute is generally constitutional, it operates unconstitutionally as to RJR Vapor’s VELO products.

See id. at 518 n.16. Under both types of challenges, because RJR Vapor is contending that

Section 155.001(15)(E) operates unconstitutionally as to it, it must demonstrate that it is suffering

some actual or threatened restriction under the challenged statute to establish its standing to seek

declaratory and injunctive relief. See id. at 518; see also City of Willis, 593 S.W.3d at 206 (“A

plaintiff has standing to seek prospective relief only if he pleads facts establishing an injury that is

‘concrete and particularized, actual or imminent, not hypothetical.’” (quoting Heckman,

369 S.W.3d at 155)). The Comptroller contends that RJR Vapor cannot show a concrete, actual or

imminent injury now that we have determined that the VELO products are not taxable tobacco

products under Section 155.001(15).

                In response, RJR Vapor asserts that its constitutional claims are not moot even if

the VELO products are not taxable tobacco products because the UDJA provides prospective relief

rather than the retrospective relief available under Chapter 112 of the Tax Code and thus its UDJA

                                                  23
claims do not seek a redundant remedy. However, this argument does not address RJR Vapor’s

lack of standing to maintain its constitutional claims. While it is well settled that “[a] request for

a declaratory judgment regarding the constitutional validity of an agency action is distinct from,

and therefore not redundant to, a challenge to the correctness of the agency’s action,” in light of

our decision that the statute does not apply to the VELO products, RJR Vapor cannot establish that

it is suffering any actual or threatened injury from application of the Cigars and Tobacco Products

Tax. Austin Eng’g Co.. v. Combs, No. 03-10-00323-CV, 2011 WL 3371557, at *9 (Tex. App.—

Austin Aug. 5, 2011, no pet.) (mem. op.) (declining to address Austin Engineering’s constitutional

claims “as those claims may subsequently be rendered moot by proceedings in the trial court”

because court was remanding to trial court for determination of fact question on issue of whether

tax exemption applied to Austin Engineering). To the extent that RJR Vapor argues that it has a

“concrete interest” in obtaining prospective relief because Chapter 112 of the Tax Code only

provides retrospective relief, we conclude it cannot show a need for prospective relief when we

have held that the Cigars and Tobacco Products Tax does not apply to the VELO products.

               RJR Vapor further argues that its constitutional claims cannot be moot because the

Comptroller likely will appeal any decision granting RJR Vapor a refund. In support, it cites the

Texas Supreme Court’s statement in Matthews that a party’s “stance is a significant factor in the

mootness analysis, and one which prevents its mootness argument from carrying much weight.”

484 S.W.3d at 419. However, the facts in Matthews differ from the facts before us in this case. In

Mathews, the Texas Supreme Court analyzed whether a school district’s voluntary cessation of the

challenged conduct rendered the challenging parties’ claims for prospective declaratory and

injunctive relief moot.    Id. at 417-20.    The court held that the school district’s voluntary

abandonment of its challenged policy provided no assurance that the district would not reinstate

                                                 24
its policy in the future, and thus it had not carried its burden of persuading the court that the

challenged conduct could not reasonably be expected to recur in the future. Id. at 418-20.

               In this case, the Comptroller has not voluntarily abandoned its interpretation of

Section 155.001(15)(E) and its application of the Cigars and Tobacco Products Tax to the VELO

products. Instead, we have ruled as a matter of law that the statute does not apply to the VELO

products. Therefore, going forward, the Comptroller’s application of the Cigars and Tobacco

Products Tax will be constrained by this Court’s interpretation of the statute. 18 See, e.g., Houston

Belt & Terminal Ry. Co. v. City of Houston, 487 S.W.3d 154, 163 (Tex. 2016) (“[A]s a general rule,

‘a public officer has no discretion or authority to misinterpret the law.’” (quoting In re Smith,

333 S.W.3d 582, 585 (Tex. 2011) (orig. proceeding))).

               We conclude that because we have held that the VELO products are not subject to

the Cigars and Tobacco Products Tax, RJR Vapor is no longer suffering any actual or threatened

restriction under the statute, and therefore, it has no standing to pursue its constitutional claims.

Accordingly, we hold that RJR Vapor’s claims for prospective declaratory and injunctive relief

based on its constitutional challenges to the phrase “made of tobacco or a tobacco substitute” have

been rendered moot by our holding that the phrase does not apply to the VELO products and thus

they are not taxable tobacco products. We sustain the Comptroller’s fifth issue presented on

cross-appeal. We vacate the trial court’s judgment on the moot issues and dismiss RJR Vapor’s

claims for declaratory and injunctive relief for lack of jurisdiction. See Heckman, 369 S.W.3d

at 162.

          While RJR Vapor is correct that the Comptroller may seek review of our opinion at the
          18

Texas Supreme Court, we nevertheless may not issue an advisory opinion on RJR Vapor’s claims
for prospective relief. See Garcia v. City of Willis, 593 S.W.3d 201, 206-08 (Tex. 2019).

                                                 25
                Having determined that RJR Vapor’s claims for prospective relief have been

rendered moot by our holding that Section 155.001(15)(E) does not apply to the VELO products,

and that we therefore lack jurisdiction over those claims, we also lack jurisdiction to consider the

Comptroller’s three issues challenging the trial court’s ruling that the language “made of tobacco

or a tobacco substitute” is unconstitutional or RJR Vapor’s sole appellate issue that the trial court

erred by denying its request for permanent injunctive relief.

                                          CONCLUSION

                We affirm that portion of the trial court’s judgment concluding that the phrase

“made of tobacco or a tobacco substitute” within Tax Code Section 155.001(15)(E) does not apply

to the VELO products and thus they are not taxable tobacco products. We also affirm that portion

of the trial court’s judgment requiring the Comptroller to issue a refund with interest to RJR Vapor.

We vacate the portions of the trial court’s judgment declaring the phrase “made of tobacco or a

tobacco substitute” unconstitutional within Tax Code Section 155.001(15)(E) and denying RJR

Vapor’s request for a permanent injunction. We dismiss RJR Vapor’s claims for declaratory and

injunctive relief for want of jurisdiction.

                                              __________________________________________
                                              Gisela D. Triana, Justice

Before Justices Baker, Triana, and Kelly

Affirmed in Part, Vacated in Part, Dismissed in Part

Filed: December 14, 2023

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