Court Opinion

ID: 9351662
Source: CourtListenerOpinion
Date Created: 2023-01-03 12:08:33.465302+00
Date Added: 2024-06-11T17:01:29.956620
License: Public Domain

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

                                       NO. 03-21-00335-CV

                                 Sidetracked Bar, LLC, Appellant

                                                  v.

             Glen Hegar, Comptroller of Public Accounts of the State of Texas; and
                 Ken Paxton, Attorney General of the State of Texas, Appellees

              FROM THE 201ST DISTRICT COURT OF TRAVIS COUNTY
NO. D-1-GN-18-003755, THE HONORABLE MAYA GUERRA GAMBLE, JUDGE PRESIDING

                                           OPINION

                 This appeal arises from a tax-refund suit that Sidetracked Bar, LLC filed against

the Comptroller and Attorney General after paying state sales taxes under protest.1 See Tex. Tax

Code §§ 112.052 (authorizing taxpayer-refund suits), .053 (designating required parties to suit).

Sidetracked argues that the trial court improperly denied its motion for summary judgment

and improperly granted the Comptroller’s motion for summary judgment, determining that

Sidetracked is not entitled to a refund because its provision of a sweepstakes constituted the sale

of taxable amusement services and that Sidetracked did not prove its entitlement to an applicable

exemption. For the following reasons, we affirm the trial court’s summary judgment.

              APPLICABLE STATUTES AND PROCEDURAL BACKGROUND

                 The Texas sales tax is imposed on the sale of amusement services, among

other items, in this state. Id. §§ 151.051(a) (“A tax is imposed on each sale of a taxable item

       1
           We refer to appellees collectively as “the Comptroller.”
in this state.”), .010 (“‘Taxable item’ means tangible personal property and taxable services.”),

.0101(a)(1) (“‘Taxable services’ means . . . amusement services[.]”).         Amusement services

include “the provision of amusement, entertainment, or recreation.” Id. § 151.0028(a); see also

34 Tex. Admin. Code § 3.298(a)(1) (Comptroller of Pub. Accts., Amusement Servs.) (defining

“amusement services” as “[e]ntertainment, recreation, sport, pastime, diversion, or enjoyment

that is a pleasurable occupation of the senses”). For purposes of the sales tax, a “sale” is defined

broadly as “the performance of a taxable service” “when done or performed for consideration.”

See Tex. Tax Code § 151.005(3). Specifically for amusement services, a sale is defined as one

of four occurrences “when done or performed for consideration.” See id.

               The Comptroller audited Sidetracked for Texas sales taxes for two periods: July

2011 through December 2014 and January 2015 through December 2017. After the Comptroller

assessed sales taxes, penalties, and interest against Sidetracked for each period, Sidetracked paid

the two amounts under protest and filed a tax-refund lawsuit with respect to each. Sidetracked

alleged that it paid under protest $284,083 for the first period and $98,694 for the second period,

and the trial court consolidated the two causes per the parties’ agreed motion. The parties filed

competing motions for summary judgment, after which the trial court granted the Comptroller’s

motion, denied Sidetracked’s, and rendered a take-nothing final judgment. This appeal followed.

                                           EVIDENCE

               The Comptroller moved for a take-nothing summary judgment against

Sidetracked, arguing that Sidetracked was in the business of selling taxable amusement services

to its sweepstakes patrons during the periods at issue and did not meet the requirements for

any applicable exemption. He attached to his motion the following evidence: Sidetracked’s

responses and objections to the Comptroller’s requests for admission and interrogatories;

                                                 2
excerpts from the depositions of Mark Olmstead, who is Sidetracked’s sole owner, and

Tina Lumpkins, the commander for AmVets Post 95 (Post 95), a charity benefitting from the

sweepstakes; and Sidetracked’s federal-income tax returns and Texas franchise-tax reports for

the tax periods at issue.

                Sidetracked also moved for summary judgment, seeking an order that the

Comptroller must refund the amounts it paid under protest. It argued that it did not provide or

sell any amusement services or, alternatively, that it is entitled to an exemption either because a

charity provided the amusement services or because Sidetracked provided the services through

coin-operated machines operated by its patrons. Sidetracked attached to its motion excerpts from

Lumpkins’s deposition and Olmstead’s affidavit with attached exhibits. The exhibits consisted

of photos of signs posted around the sweepstakes location and of the machines used in the

sweepstakes operation, a copy of the sweepstakes rules, copies of receipts provided to

sweepstakes patrons entitled “Donation Receipt” and indicating a “Donation Amount,” copies of

checks that Post 95 wrote to Sidetracked, and deposit slips for cash deposits that Sidetracked

made to Post 95’s bank account.

                The following undisputed facts derive from the evidence submitted by both

parties, the majority from Olmstead’s deposition:

    •   Sidetracked was a for-profit, limited liability company during the periods at issue, and
        Post 95 is a non-profit organization supporting veterans.

    •   On its federal tax returns for the periods at issue, Sidetracked reported that its “principal
        business activity” was “gambling industries” and that its business activity was
        “sweepstakes.” Some years it indicated its “product or service” was “gambling” and
        other years that it was “gaming.” It similarly stated its “principal business activity” as
        “gaming” on its state franchise-tax returns.

    •   In 2012, Sidetracked (through Olmstead) approached Post 95’s commander, Lumpkins,
        and proposed an arrangement whereby Sidetracked would run a sweepstakes, from which

                                                 3
    Post 95 would receive 10% of the gross proceeds. The arrangement was memorialized in
    a Letter of Intent dated March 3, 2012, signed by Olmstead and Lumpkins. The Letter of
    Intent states that Post 95 “agrees to allow” Sidetracked “to represent to the City of
    Sampson Park that they will be the Charity for a sweepstakes fundraising location,” that
    “all Net Donation to charity will be deposited in Charity bank account,” that “Charity
    will receive 10% [of] all deposits,” and that “Charity will not be responsible for any
    expenses incurred by” Sidetracked, including “any expenses associated with getting
    approvals from the City or any expenses associated with sweepstakes fundraising
    location.” It also stated that “this is not a binding agreement and neither party is
    committing to any financial obligation.”

•   To run the sweepstakes, Sidetracked leased the facilities in its name, owned or leased the
    equipment used for the sweepstakes, and employed the necessary personnel. Post 95 did
    not own or lease the facilities or equipment.

•   Upon entrance into Sidetracked’s facilities, patrons automatically received from
    Sidetracked attendants a magnetic card loaded with 100 free entries to participate in the
    sweepstakes. An entry within Sidetracked’s internal system constituted a “ticket” that
    afforded the holder a chance to win a cash prize.

•   Patrons could load additional entries to their card to continue to participate in the
    sweepstakes in exchange for payments of “donations” to either a Sidetracked attendant or
    by using one of Sidetracked’s “donation station” machines.

•   To continue participating in the sweepstakes that same day, patrons had to make
    “donations” to receive additional entries that would be loaded onto their card. Otherwise,
    the patrons would have to come back another day.

•   Sidetracked employees took patrons’ “donations” (usually cash) at the “POS” [point of
    sale]—essentially a cash register. Each “donation” was $0.01 per entry (thus, customers
    could receive 2,000 entries for $20.00).

•   Patrons were given free coffee, sodas, and snacks to entice them to give “donations.”

•   Upon receipt of the magnetic card, patrons could choose to reveal their entries (i.e.,
    win or lose) in one of two ways: (1) instantly reveal them through “instant validation
    terminals,” or (2) use an “entertainment validation terminal” that displayed a slot-
    machine gaming simulation and hit the “play entry” button after choosing the number of
    entries (one or a few) they would like to play each time.

•   Validation terminals consisted of monitors with computers, keyboards, mouses, and card
    readers. Patrons would “spin the wheel” on the game-simulation machines by “clicking
    the mouse.”

                                            4
•   Information regarding how many sweepstakes entries each entrant had, and the validated
    prizes, if any, associated with those entries was stored on the internal network (intranet)
    at the sweepstakes premises.

•   To use a validation terminal, a sweepstakes entrant would “swipe” their magnetic card in
    the card reader located at the validation terminal, which would then display information
    “from the intranet regarding whether the sweepstakes card contains any winning entries,
    and, if so, the validated prizes associated with those entries.”

•   The only function the validation terminals could perform was to validate sweepstakes
    entries, and they were not connected to the Internet.

•   The software running on the validation terminals was developed and maintained by the
    software vendors Blended Solutions and Front Edge Marketing, with whom Sidetracked
    contracted and negotiated the prices for their services.

•   A patron with winning entries was eligible to receive cash prizes and sometimes
    participate in a drawing where Sidetracked would give away items such as a television.

•   Patrons would redeem their winning entries with a Sidetracked attendant, who would pay
    the winnings in cash.

•   At the end of each business day, Sidetracked employees would deposit the day’s proceeds
    into Post 95’s bank account.

•   Lumpkins, on behalf of Post 95, would monitor the charity’s bank account to report any
    discrepancies between it and the weekly invoices that Sidetracked prepared and provided
    her. Through the weekly invoices, Sidetracked directed Post 95 to pay the software
    vendors their approximately 40% share of the sweepstakes proceeds.

•   Sidetracked made all of its money from the sweepstakes, ultimately keeping about 50%
    of the proceeds after Post 95 retained its 10%, paid the software vendors, and returned the
    remaining proceeds to Sidetracked.

•   Sidetracked posted all the signs throughout its facilities and the rules and regulations
    concerning the sweepstakes (which were drafted by Sidetracked’s attorneys).
    Representative signs read, “AmVets thanks you for your donation” and “Charity
    Sweepstakes.”

•   Post 95 did not take any action to promote the sweepstakes, and none of its members
    needed to be present for the sweepstakes or had access to Sidetracked’s facilities outside
    of the sweepstakes operating hours. During the periods at issue, Lumpkins visited the
    sweepstakes premises three to four times.

                                             5
   •   Sidetracked did not obtain the necessary licenses or display the requisite decals for the
       terminals as “coin-operated machines” and did not pay any occupation tax on the “coin-
       operated machines” serving as its validation terminals.

   •   Sidetracked’s relationship with Post 95, the equipment used in the sweepstakes, and
       Sidetracked’s operation of the sweepstakes remained the same throughout the periods at
       issue.

   •   As Olmstead admitted, Sidetracked’s aim, through the sweepstakes, was to provide
       entertainment value for patrons, and patrons were drawn to its facilities to participate in
       the sweepstakes because of the entertainment value being offered. Specifically as to the
       slot-machine simulation displayed on the validation terminals, the aim was to entertain
       the patrons.

   •   The sweepstakes rules and regulations recite the following: “In-store promotional entries
       without a purchase are limited to one request per person per day,” “All Entries can be
       validated instantly or validated through a game for entertainment,” and “Sponsor’s
       liability will be limited to the cost of entering and participating in the Sweepstakes.”

                                        DISCUSSION

Standard of review and statutory construction

              We review a trial court’s summary judgment de novo. Valence Operating Co. v.

Dorsett, 164 S.W.3d 656, 661 (Tex. 2005); see also Tex. R. Civ. P. 166a(c) (outlining

requirements for entitlement to summary judgment).        When both sides move for summary

judgment and the trial court grants one motion and denies the other, the reviewing court should

review both sides’ summary-judgment evidence, determine all questions presented, and render

the judgment that the trial court should have rendered. FM Props. Operating Co. v. City of

Austin, 22 S.W.3d 868, 872 (Tex. 2000). A motion for summary judgment must stand or fall

on the grounds expressly presented in the motion, and a trial court considering such a motion

is restricted to the issues presented in the motion, response, and replies. See Tex. R. Civ.

P. 166a(c); McConnell v. Southside Indep. Sch. Dist., 858 S.W.2d 337, 341–42 (Tex. 1993).

                                                6
               When adjudicating a party’s entitlement to summary judgment requires statutory

construction, as here, we seek to ascertain and effectuate the legislature’s intent in enacting the

statute. See Southwest Royalties, Inc. v. Hegar, 500 S.W.3d 400, 404 (Tex. 2016); Upjohn Co. v.

Rylander, 38 S.W.3d 600, 607 (Tex. App.—Austin 2000, pet. denied). “We start with the

text because it is the best indication of the Legislature’s intent.” Ojo v. Farmers Grp., Inc.,

356 S.W.3d 421, 435 (Tex. 2011). We examine the language used in the statute, in the context

of the entire act, and we read every word, phrase, and expression presuming that the legislature

chose each word for a purpose and purposefully omitted words not chosen. See City of Dallas v.

TCI W. End, Inc., 463 S.W.3d 53, 55 (Tex. 2015); Upjohn, 38 S.W.3d at 607. When a statute is

unambiguous, we do not turn to extrinsic aids or canons of construction to construe it—we

simply follow the unambiguous language. See City of Richardson v. Oncor Elec. Delivery Co.,

539 S.W.3d 252, 261 (Tex. 2018); Combs v. Roark Amusement & Vending, L.P., 422 S.W.3d

632, 635 (Tex. 2013); Ojo, 356 S.W.3d at 435–36.

               In determining a statute’s meaning, we consider the statute as a whole rather than

construing specific provisions in isolation. In re Ford Motor Co., 442 S.W.3d 265, 280 (Tex.

2014). Undefined terms are afforded their ordinary meaning unless a different or more precise

definition is apparent from the context of the statute, see Tex. Gov’t Code § 311.011(a); TGS-

NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 439 (Tex. 2011), because we cannot give

an undefined term a meaning that is disharmonious or inconsistent with other provisions in the

statute, see Texas Dep’t of Transp. v. Needham, 82 S.W.3d 314, 318 (Tex. 2002).              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, 500 S.W.3d at 405.

                                                7
Sidetracked’s issues

               Sidetracked presents two appellate issues to support its contention that the trial

court erred in denying its summary-judgment motion and granting the Comptroller’s. First, it

argues that it did not make any “sales” of amusement services because it either (1) did not

provide any amusement services at all or (2) did not engage in a statutorily enumerated activity

constituting the sale of amusement services. See Tex. Tax Code § 151.005(3). Secondly, it

argues that—even if it did make sales of amusement services—it proved its entitlement to two

exemptions: one for amusement services provided exclusively by a non-profit organization,

see id. § 151.3101(a)(3), and another since-repealed exemption for amusement provided by

coin-operated machines operated by the consumer, see Act of July 3, 1984, 68th Leg., 2d C.S.,

ch. 31, art. 7, § 15, 1984 Tex. Gen. Laws 193, 225 (repealed 2019) (Former Section 151.335(a));

see also Tex. Tax Code § 151.301 (“If a taxable item is exempted from the taxes imposed by this

chapter, [its] sale . . . is not subject to the sales tax . . . if the item meets the qualifications for

exemption as provided in this subchapter.”).2 The Comptroller responds by reasserting the

arguments made in its summary-judgment motion: the “donations” Sidetracked received were in

fact “sales of admissions” affording patrons additional entries into the sweepstakes and use of the

validation machines, see Tex. Tax Code § 151.005(3), and Sidetracked did not prove its

entitlement to either claimed exemption.

Whether Sidetracked provided amusement services

       2
         While not applicable to this dispute, in the act repealing the exemption, the legislature
also amended Section 151.0028, which defines “amusement services,” to add Subsection (c),
expressly excluding “services provided through coin-operated machines that are operated by the
consumer” from the definition of “amusement services.” See Act of May 21, 2019, 86th Leg.,
R.S., ch. 638, §§ 1, 5, 2019 Tex. Gen. Laws 1875, 1875, 1876; compare Tex. Tax Code
§ 151.0028 (current statute), with Act of July 3, 1984, 68th Leg., 2d C.S., ch. 31, art. 7, § 3, 1984
Tex. Gen. Laws 193, 222 (amended 2019).

                                                   8
               Because sales taxes are imposed, relevantly here, only on the “sale” of amusement

services, see id. §§ 151.010, .0101(a)(1), .051(a), we first consider the threshold question of

whether Sidetracked provided any “amusement services” during the periods at issue, see id.

§ 151.0028(a) (defining amusement services). The Comptroller argues that Sidetracked provided

the following “amusement services”: use of the slot-machine-style validation terminals, through

which patrons “continued their enjoyment” of the sweepstakes by revealing whether their

additional entries were winners.     Sidetracked counters that it did not provide “amusement

services” to patrons but only “entertaining enticements” to Post 95’s potential donors and

“advertising and promotion services” to Post 95—the true “provider” of the sweepstakes and

thus amusement.

               Olmstead admitted that the aim of the sweepstakes was to provide entertainment

for patrons, who were drawn to Sidetracked’s facilities to participate in the sweepstakes because

of its entertainment value, and that the slot-machine simulations on the validation terminals were

intended to entertain patrons.     Also, the sweepstakes rules specifically noted that patrons

could validate their entries “through a game for entertainment.”         The Tax Code defines

“amusement services” as “the provision of amusement, entertainment, or recreation.” Id.; see

also 34 Tex. Admin. Code § 3.298(a)(1) (defining “amusement services” as “[e]ntertainment,

recreation, sport, pastime, diversion, or enjoyment that is a pleasurable occupation of the

senses”).   Furthermore, the Tax Code specifies that the Comptroller “shall have exclusive

jurisdiction to interpret” the term “taxable services,” and, further, that the term “amusement

services” expressly falls under the term “taxable services.” See Tex. Tax Code § 151.0101(b).

We conclude on the basis of the undisputed evidence that patrons’ swiping of their magnetic

cards (loaded with entries) at the validation terminals and playing of the slot-machine games to

                                                9
discover whether any of their entries were winners constituted amusement.                See Roark

Amusement & Vending, 422 S.W.3d at 636–38 (determining that plush-toy crane machines’ offer

of “intrigue” and “the possibility of winning” constituted amusing activity).

               Furthermore, the undisputed evidence establishes that Sidetracked, not Post 95,

was the provider of that amusement: (a) it indicated on its tax returns that its business or products

as “sweepstakes,” “gambling,” and “gaming”; (b) it leased or owned the premises and the

machines used in the sweepstakes operation; (c) it employed the necessary personnel to run the

sweepstakes operation; (d) it contracted with the software companies who managed and

maintained the validation terminals; (e) it posted the signage at the sweepstakes premises, and its

attorneys drafted the sweepstakes rules; and (f) Post 95 members did not need to be on the

premises while the sweepstakes was operating, and in fact could not be on site when it was not.

Thus, the evidence established, as a matter of law, that Sidetracked provided “amusement

services” under Section 151.0028(a). However, that is not the end of the inquiry; we next

consider the parties’ arguments about whether Sidetracked made “sales” of amusement services,

see Tex. Tax Code § 151.005(3), and thus whether either party was entitled to summary

judgment on that basis.

Whether Sidetracked made taxable sales

               In its summary-judgment motion, the Comptroller argued that Sidetracked made

taxable “sales” because it “collected admission fees” as consideration for its provision of

amusement services—the second of the four statutorily specified activities constituting sales of

amusement services. See id.. We thus consider whether the evidence established, as a matter of

law, that Sidetracked “collected admission fees” as consideration for its provision of amusement

                                                 10
services. Resolution of this issue requires us to construe the phrase “collection of an admission

fee” in Section 151.005(3).

              That statute outlines four specific activities constituting “sales” of admission

services:

       “Sale” or “purchase” means any of the following when done or performed for
       consideration:

       ...

       (3) the performance of a taxable service, the charge for an extended warranty or
       service contract for the performance of a taxable service, or, in the case of an
       amusement service, [1] a transfer of title to or possession of a ticket or other
       admission document, [2] the collection of an admission fee, whether by
       individual performance, subscription series, or membership privilege, [3] the
       collection of dues or a fee, charge, assessment, including an initiation fee, by a
       club or organization for membership or a special privilege, status, or membership
       classification in the club or organization, or [4] the use of a coin-operated
       machine[.]

Id. § 151.005 (emphases added).

              The Tax Code does not define the term “admission fee,” and we therefore give the

term its plain and common meaning, as is appropriate within the context of the statute and

consistent with the statute’s other provisions. See Tex. Gov’t Code § 311.011(a); TGS-NOPEC

Geophysical Co., 340 S.W.3d at 439; McIntyre v. Ramirez, 109 S.W.3d 741, 745 (Tex. 2003);

Needham, 82 S.W.3d at 318. The dictionary defines “admission” as, relevantly, “the right or

permission to enter a place, a group, etc.,” using the example of “countries denied admission to

NATO.” See Merriam-Webster Online Dictionary, https://www.merriam-webster.com/dictionary/

admission (last visited Dec. 27, 2022). The transitive verb “enter” means, relevantly, “to come

or go into [as in a room]” or “to become a member of or an active participant in [as in a

university or a race].” See id., https://www.merriam-webster.com/dictionary/enter (last visited

                                               11
Dec. 27, 2022). And a fee is “a sum paid or charged for a service” or “a fixed charge.” See id.,

https://www.merriam-webster.com/dictionary/fee (last visited Dec. 27, 2022). Employing these

definitions, we thus construe the term “admission fee” in the context of the statute, which

contemplates the payment of an “admission fee” in exchange for another’s provision of

amusement services.      See Tex. Tax Code § 151.005.          Therefore, we consider whether the

evidence established that the “donations” Sidetracked collected from patrons constituted fees

they paid for the right to (1) enter a place where Sidetracked provided amusement services,

(2) become a member of a group allowed to access Sidetracked’s amusement services, or

(3) become an active participant in the amusement services that Sidetracked provided.

                The undisputed evidence conclusively establishes that after their initial free

entries were redeemed, patrons could no longer engage in the amusing activity of playing the

slot-machine-type games and discovering whether their sweepstakes entries were winners

without paying for additional entries.       By making so-called “donations,” the patrons were

entitled to further active participation in the amusing activity of the sweepstakes—by swiping

their cards, choosing how many entries to “play” at a time, “spinning” the wheel with the

computer mouse, and discovering whether their entries were winners. Although Sidetracked

characterizes the payments for additional entries as “donations,” and even though the signage

and “receipts” given to patrons cast the payments as “donations,” we must consider the objective

reality of the transactions at issue rather than the labels placed upon them by Sidetracked. See

Roark Amusement & Vending, 422 S.W.3d at 637 & n.14; see also Boulware v. United States,

552 U.S. 421, 429 (2008) (“The colorful behavior described in the allegations requires a

reminder that tax classifications . . . turn on ‘the objective realities of a transaction rather than the

particular form the parties employed.’”).

                                                   12
               The objective reality of Sidetracked’s operations during the periods at issue is

that it charged patrons consideration in exchange for additional entries into the sweepstakes,

providing them a chance to win a cash prize, and further access to the validation terminals, which

meets the definition of “amusement.” See Roark Amusement & Vending, 422 S.W.3d at 637.

Sidetracked’s employees took patrons’ payments in exchange for loading their cards with

additional entries, or patrons loaded their cards with extra sweepstakes entries themselves at

so-called “donation stations.” While a percentage of Sidetracked’s proceeds were ultimately

donated to Post 95—after Sidetracked deposited all its gross proceeds into Post 95’s account and

then 10% was retained by Post 95—such donations do not alter the reality that it performed the

amusement services for consideration in the form of patrons’ payments for sweepstakes entries.

We accordingly conclude that Sidetracked’s charging of patrons for additional sweepstakes

entries constituted its collection of “admission fees,” see Tex. Tax Code § 151.005(3), and

Sidetracked thus made sales of amusement services during the tax periods at issue, see id.

§ 151.0028(a). We overrule Sidetracked’s first issue.

Whether Sidetracked proved its entitlement to an exemption

               In its summary-judgment motion, Sidetracked argued that it was entitled to

two exemptions from the sales tax. The first exemption provides, “Amusement services are

exempted from . . . [sales] taxes . . . only if exclusively provided . . . by a nonprofit corporation

or association.” See id. § 151.3101(a)(3). The second exemption, effective during the periods at

issue but repealed in 2019, provides, “Amusement and personal services provided through coin-

operated machines that are operated by the consumer are exempt from the taxes imposed by this

chapter.” See Act of July 3, 1984, 68th Leg., 2d C.S., ch. 31, art. 7, § 15, 1984 Tex. Gen. Laws

193, 225 (repealed 2019) (Former Tex. Tax Code § 151.335(a)).

                                                 13
                 Because a taxpayer has the burden to “clearly show” that an exemption applies,

see Southwest Royalties, 500 S.W.3d at 404, Sidetracked was entitled to summary judgment only

if it conclusively established each element of either exemption. Cf. KCM Fin. LLC v. Bradshaw,

457 S.W.3d 70, 79 (Tex. 2015) (noting that party who conclusively establishes all elements

of affirmative defense is entitled to summary judgment).         On the basis of the undisputed

evidence, and remembering that tax exemptions are narrowly construed, see Southwest Royalties,

500 S.W.3d at 404, we conclude that the evidence conclusively established that Sidetracked is

not entitled to either exemption and that the Comptroller was entitled to summary judgment as a

matter of law.

                 Sidetracked bases its argument about the first exemption on the theory that it was

Post 95 that provided the amusement services, not itself. However, as explained above, the

evidence conclusively established that Sidetracked provided the amusement services—the

equipment, the premises, the employees, the software vendors, the signage, the sweepstakes

rules—and Post 95 merely received the sweepstakes operation’s gross proceeds—deposited by

Sidetracked employees into its account—and then reallocated them pursuant to the parties’

agreement. Further, to the extent that Post 95 could be viewed as having any role in the

provision of the amusement services, the record belies the contention that Post 95 was the

“exclusive” provider of the services, as required by the exemption.          See Tex. Tax Code

§ 151.3101(a)(3). Accordingly, the trial court did not err in determining that Sidetracked did not

meet its summary-judgment burden to establish its entitlement to the Section 151.3101(a)(3)

exemption and that the Comptroller was entitled to summary judgment regarding the exemption.

                 We conclude similarly as to the second exemption, which applies only to

amusement services provided “through coin-operated machines that are operated by the

                                                 14
consumer.” See Former Tex. Tax Code § 151.335(a). Sidetracked’s validation terminals were

operated by magnetic cards containing patrons’ eligible sweepstakes entries, and validation

(either instant or via slot-machine games) was the only function the terminals performed. The

validation terminals thus met the definition in the Occupations Code of “coin-operated

machines.”3 See Tex. Occ. Code § 2153.002(a) (defining “coin-operated machine” as “any kind

of machine or device operated by or with a coin or other United States currency, metal slug,

token, electronic card, or check, including a music or skill or pleasure coin-operated machine”

(emphasis added)).

               Sidetracked admitted in discovery that it did not register its machines, obtain the

requisite licenses, or pay occupation taxes on them.4 The Occupations Code makes it a criminal

offense to own, lease, or maintain a coin-operated machine that is not registered or licensed, see

id. §§ 2153.151, .356, or to violate any of the statutes or Comptroller rules applying to coin-

operated machines, see id. § 2153.355. Additionally, the Comptroller—who is charged with

administering the registration and licensing requirements, see id. § 2153.051(a), (b)—may assess

civil penalties for violations of the requirements, see id. § 2153.354. We decline to hold that

Sidetracked “clearly showed” its entitlement to a sales-tax exemption for coin-operated machines

that it admittedly illegally owned and operated. Cf. R.H. Sterns Co. of Boston, Mass. v. United

       3
         Although not dispositive, we note that both sides appear to agree that Sidetracked’s
machines were “coin-operated machines” under the Tax Code. We assume without deciding that
Sidetracked’s validation machines were “coin-operated machines” under the Tax Code, which—
unlike the Occupations Code—does not define the term. See generally Tex. Tax Code
§§ 151.001–151.801 (Chapter 151 of Tax Code, entitled “Limited Sales, Excise, and Use Tax”).
       4
          In its response to the Comptroller’s cross-motion for summary judgment, Sidetracked
stated that it did not register the machines because it “believed in good faith that . . . its services
were fully exempt from tax, and, as a result, no such licenses . . . were required.” However, a
taxpayer’s belief that it is exempt from taxes does not excuse it from compliance with the
requirements for coin-operated machines. Cf. Osterberg v. Peca, 12 S.W.3d 31, 38 (Tex. 2000)
(noting “deeply rooted” rule that “ignorance or mistake of law is not a defense”).

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States, 291 U.S. 54, 61–62 (1934) (noting “ultimate” principle that “no one shall be permitted to

found any claim upon his own inequity or take advantage of his own wrong”). Further, the

Comptroller was entitled to summary judgment because there is no material fact issue about

Sidetracked’s unlawful ownership and operation of the machines. We overrule Sidetracked’s

second issue.

Whether Sidetracked is entitled to a refund of the taxes assessed on its payments to Post 95

                In a final “further alternative” argument, Sidetracked contends that—to the extent

it made any taxable sales—it “should be assessed only on the amounts [it] received” and not on

the amounts it “never received” because they “were retained” by Post 95 pursuant to the parties’

agreement. In other words, it argues that it should not be taxed on the amounts it purportedly

donated to Post 95 (i.e., 10% of its gross receipts). It prays that this Court “grant summary

judgment in [its] favor and allow [it] to recover . . . the portion of the payment attributed to tax

assessed on amounts [it] never actually received.”

                However, the undisputed evidence establishes that Sidetracked did receive all of

the amounts at issue paid by patrons (whether labeled as “donations” or otherwise) participating

in the sweepstakes—it then deposited those amounts into Post 95’s bank account, and Post 95

retained 10% before returning a portion of the funds to Sidetracked and paying a portion to the

software companies. Sidetracked does not identify any Tax Code provision exempting from the

assessment of sales taxes any proceeds received from taxable sales but thereafter paid to other

entities, including charities. We are not persuaded by Sidetracked’s final argument and conclude

that the trial court properly determined that it is not entitled to any refund on this record.

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                                      CONCLUSION

              Having overruled Sidetracked’s issues, we affirm the trial court’s final summary

judgment.

                                            __________________________________________
                                            Thomas J. Baker, Justice

Before Justices Goodwin, Baker, and Smith

Affirmed

Filed: December 29, 2022

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