Court Opinion

ID: 4066852
Source: CourtListenerOpinion
Date Created: 2016-09-29 22:53:52.77794+00
Date Added: 2024-06-11T14:32:34.180657
License: Public Domain

ACCEPTED
                                                                                      03-14-00771-CV
                                                                                              5422011
                                                                           THIRD COURT OF APPEALS
                                                                                      AUSTIN, TEXAS
                                                                                 5/26/2015 4:15:15 PM
                                                                                    JEFFREY D. KYLE
                                                                                               CLERK
                                   NO. 03-14-00771-CV

                                In the Court of Appeals               FILED IN
                                                               3rd COURT OF APPEALS
                             for the Third Judicial District       AUSTIN, TEXAS
                                     Austin, Texas             5/26/2015 4:15:15 PM
                                                                 JEFFREY D. KYLE
                                                                       Clerk
SANADCO INC., MAHMOUD A. ISBA, BROADWAY GROCERY, INC., SHARIZ, INC. RUBY &
                  SONS STORE, INC., AND RUBINA NOORANI,
                                Appellants,

                                           v.

  THE OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS; GLENN HEGAR, IN HIS
OFFICIAL CAPACITY AS COMPTROLLER OF PUBLIC ACCOUNTS OF THE STATE OF TEXAS;
AND KEN PAXTON IN HIS OFFICIAL CAPACITY AS ATTORNEY GENERAL OF THE STATE OF
                                  TEXAS, ET AL.,
                                     Appellees.
                 On Appeal from Cause No. D-1-GN-13-004352
             The 200th Judicial District Court of Travis County, Texas
                 The Honorable Charles Ramsay, Judge Presiding

                        APPELLEES’ RESPONSIVE BRIEF

KEN PAXTON                                   ROBERT O’KEEFE
Attorney General of Texas                    Chief, Financial and Tax Litigation Division

CHARLES E. ROY                               JACK HOHENGARTEN
First Assistant Attorney General             State Bar No. 09812200
                                             Assistant Attorney General
JAMES E. DAVIS                               Financial Litigation, Tax, and
Deputy Attorney General for Defense          Charitable Trusts Division
Litigation                                   P.O. Box 12548
                                             Austin, Texas 78711 2548
                                             TEL: (512) 475-3503
                                             FAX: (512) 477 2348
                                             jack.hohengarten@texasattorneygeneral.gov
                                             Attorneys for Appellees
TO THE HONORABLE THIRD COURT OF APPEALS:

        Appellees, Office of the Comptroller, Glenn Hegar, in his Official Capacity as

Comptroller of Public Accounts of the State of Texas (“Comptroller”), and Ken Paxton, in

his Official Capacity as Attorney General of Texas, pursuant to Tex. R. App. P. 28 and 38,

file this response:

        This accelerated appeal is governed by Sanadco, Inc. v. Office of the Comptroller,

2015 WL 1478200 (Tex. App.—Austin March 25, 2015, no pet.) (mem. op.)—indeed, this

accelerated appeal is Sanadco v. Office of the Comptroller. While Sanadco I was pending

before this court, and after it had denied their appellate motion for emergency relief, the

taxpayers Sanadco and Mahmoud Isba turned around and filed a second, identical lawsuit

in district court, challenging the Comptroller’s tax determination, and asserting claims

under the APA and UDJA.

        The Honorable Judge Charles Ramsey denied Mahmoud Isba’s application for

temporary injunction and Isba appeals that order. But, as shown below, Isba’s second

suit—and this accelerated appeal of Judge Ramsey’s order—raises no new issues. As

such, it is governed by this court’s opinion in Sanadco I.

Appellees’ Responsive Brief                                                   page ii
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
                                                TABLE OF CONTENTS

Table of Contents .......................................................................................................3

Index of Authorities ...................................................................................................4

Statement of the Case.................................................................................................6

Issue Presented ...........................................................................................................7

Statement of Facts ......................................................................................................8

Summary of the Argument.........................................................................................9

Argument..................................................................................................................10

         A. Appellant Isba failed to pay or make arrangements to pay for the
            reporter’s record, and the absence of that record is dispositive ............... 10

         B. Even assuming arguendo that Isba presented an issue not requiring
            review of the reporter’s record, Sanadco I fully disposes of his
            appeal on jurisdictional grounds. .............................................................15

         C. The waiver of immunity in APA section 2001.171 does not apply,
            because the legislature has set out a specialized procedure for tax
            protest suits. .............................................................................................17

         D. Isba’s filing suit for judicial review does not and cannot vacate the
            Comptroller’s tax determination. .............................................................20

Prayer .......................................................................................................................19

Certificate of Compliance ........................................................................................20

Certificate of Service ...............................................................................................20

Appendix ..................................................................................................................21

Appellees’ Responsive Brief                                                                                            page iii
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
                                         INDEX OF AUTHORITES

Cases
Bryant v. United Shortline Inc. Assur. Services, N.A.,
  972 S.W.2d 26 (Tex.1998)..............................................................................12, 13
Central Power & Light Co. v. Sharp,
  919 S.W.2d 485 (Tex. App.–Austin 1996, writ denied) .......................................17
City of El Paso v. Heinrich,
  284 S.W.3d 366 (Tex.2009) ..................................................................................15
Combs v. Chevron,
  319 S.W.3d 836 (Tex. App.–Austin 2010, pet. denied) .......................................17
CRC–Evans Pipeline Int'l, Inc. v. Myers,
  927 S.W.2d 259 (Tex. App.—Houston [1st Dist.] 1996, no writ) .......................11
Garth v. Staktek Corp.,
  876 S.W.2d 545, 548 (Tex.App.—Austin 1994, writ dism’d w.o.j.) ................... 11
Miller Paper Co. v. Roberts Paper Co.,
  901 S.W.2d 593 (Tex.App.—Amarillo 1995, no writ)...................................11, 12
Millwrights Local Union No. 2484 v. Rust Engineering Co.,
  433 S.W.2d 683 (Tex.1968) ..................................................................................12
In re: Nestle USA, Inc.,
  359 S.W.3d 211 (Tex. 2012)...........................................................................15, 17
Rodriguez v. State,
  970 S.W.2d 133 (Tex.App.—Amarillo 1998, pet. ref'd) ......................................13
Rogers v. Howell,
  592 S.W.2d 402 (Tex.Civ.App.—Dallas 1979, writ ref'd n.r.e.) ..........................12
Schafer v. Conner,
  813 S.W.2d 154 (Tex.1991) ..................................................................................13
Tex. Dep't of Protective & Regulatory Servs. v. Mega Child Care,
  145 S.W.3d 170 (Tex. 2004).................................................................................16
Texas Indus. Gas v. Phoenix Metallurgical Corp.,
  828 S.W.2d 529 (Tex.App.—Houston [1st Dist.] 1992, no writ) ........................11
Texas Logos, L.P. v. Texas Dept. of Transp.,
  241 S.W.3d 105 (Tex.App.–Austin 2007, no pet.) ...............................................14
Texas Natural Res. Conservation Comm'n v. IT–Davy,
  74 S.W.3d 849 (Tex.2002)....................................................................................14
Walling v. Metcalfe,
  863 S.W.2d 56 (Tex.1993)....................................................................................10

Appellees’ Responsive Brief                                                                             page iv
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
Statutes
Tex. Gov’t Code § 2001.171........................................................................14, 15, 16
Tex. Gov’t Code § 2001.173....................................................................................18
Tex. Gov’t Code § 2001.038....................................................................................15
Tex. Civ. Prac. & Rem. Code § 37.001 ...................................................................15
Tex. Tax Code 111.0611(a) .......................................................................................8
Tex. Tax Code 112.054 ............................................................................................18
Tex. Tax Code 112.051-.156 ...................................................................................16

Appellate Rules
Tex. R. App. P 37.3(c) .........................................................................................9, 14
Tex. R. App. P. 35.3(b)(1)-(3) .................................................................................13
Tex. R. App. P. 50(d) ...............................................................................................13

Appellees’ Responsive Brief                                                                                     page v
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
                                      STATEMENT OF THE CASE

Nature of the Case:              This is a suit brought (again) by the Sanadco taxpayers under the
                                 Administrative Procedure Act and the UDJA, alleging two
                                 internal agency memos were APA “rules,” which the
                                 Comptroller failed to adopt in accordance with APA
                                 requirements. See Tex. Gov’t Code §§ 2001.021-.033 (West
                                 2008). The taxpayers also sought declaratory relief, alleging the
                                 Comptroller had engaged in ultra vires acts, and challenged the
                                 constitutionality of several statutes in the Tax Code. Finally,
                                 they sought to enjoin the Comptroller’s administrative
                                 enforcement and collection activities.

Trial Court:                     200th Judicial District Court of Travis County, Texas, The
                                 Honorable Charles Ramsey, Judge Presiding

Course of Proceedings: While Sanadco, Inc. v. Office of the Comptroller, No. 03-11-
                       000462-CV (“Sanadco I”)1 was pending before this Court—and
                       after it had denied their motion for emergency relief2—Sanadco
                       and Isba brought a second, identical suit in district court. As
                       before, they asserted claims under the Administrative Procedure
                       Act and the UDJA, challenging the Comptroller’s final
                       determination of tax liability. 3

        1
          See Appendix, Tab A.
        2
          See Appendix, Tab B.
        3
          See Appendix, Tab C

Appellees’ Responsive Brief                                                          page vi
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
Trial Court Disposition: Isba applied for temporary injunctive relief enjoining all
                         administrative enforcement and collection activities relating to
                         his tax liability. After an evidentiary hearing on October 14,
                         2014, 4 the district court denied Isba’s application for temporary
                         injunction. 5 Appendix, Tab D.

                                           ISSUES PRESENTED

        1.      Is Isba’s failure to pay or make arrangements to pay for preparation of the
                reporter’s record dispositive of this appeal of the order denying temporary
                injunction?

        2.      In view of this court’s March 25, 2015, opinion in Sanadco I, did the district
                court have subject-matter jurisdiction over Isba’s APA and UDJA claims?

        3.      Did the suit for judicial review filed by Sanadco and Isba automatically
                vacate the Comptroller’s final determination, so as to preclude the agency
                from undertaking administrative enforcement activities?

        4
          As shown by this court’s file, Isba failed to pay or make arrangements to pay for the court
reporter’s record of the October 14, 2014 evidentiary hearing before the district court. See Tex. R. App.
P. 37.3(c); Appendix, Tab D.
        5
            See Appendix, Tab E.

Appellees’ Responsive Brief                                                              page vii
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
                              STATEMENT OF FACTS

       The background and facts are correctly stated in this Court’s March 25, 2015

opinion in Sanadco I. The only distinction in this appeal is that it involves the

personal tax liability of Sanadco’s principal Isba.6 Although appellant’s statement

of facts includes assertions relating to Broadway Grocery, Inc., Shariz, Inc., and

Rubi & Sons Store, Inc., none of those taxpayers are before this Court: The

October 14, 2014 hearing and the district court’s November 13, 2014 order

denying temporary injunctive relief related only to Isba.7

                           SUMMARY OF ARGUMENT

       The district court’s order denying Isba’s application for temporary injunction

should be affirmed, because:

       First, given the standard of review for orders denying temporary injunctive

relief, the absence of a reporter's record is dispositive. Whether Isba was entitled to

a temporary injunction depended upon the evidence presented in support of his

application for relief. See Tex. R. App. P 37.3(c). Without a reporter's record, this

Court cannot know what legal arguments were made and what, if any, evidence

was presented to the trial court in support of those arguments. Nor can it assess

       6
         See Appendix, Tab F (F of F Nos. 19-27, C of L Nos. 11, 12, 15-17); Tex. Tax Code §
111.0611(a)(personal liability of corporate officers for fraudulent tax evasion).
       .
       7
         See Appendix, Tab E.
whether Isba satisfied the elements for establishing his right to temporary relief—

particularly, the element of irreparable harm.

         Second, even assuming there remained an issue that did not require the

reporter’s record, this Court’s opinion in Sanadco I has already addressed and

disposed of Isba’s legal arguments—by concluding that the district court lacked

subject-matter jurisdiction over the taxpayer’s APA and UDJA claims.

         Third, as this Court observed in Sanadco I, where a taxpayer who is

challenging the Comptroller’s assessment of taxes and penalties has not complied

with Chapter 112, the APA does not and cannot provide an alternate jurisdictional

basis for such claims. To hold otherwise would effectively read out of the Tax

Code the statutory prerequisites for bringing a tax-protest or refund suits in district

court.     The APA procedure for judicial review would swallow and render

meaningless those prerequisites—an outcome the legislature could not have

intended.

Appellees’ Responsive Brief                                                       page 2
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
                                             ARGUMENT

    A. Appellant Isba failed to pay or make arrangements to pay for the
       reporter’s record, and the absence of that record is dispositive.

    The purpose of a temporary injunction is to preserve the status quo pending a

trial on the merits. See Walling v. Metcalfe, 863 S.W.2d 56, 58 (Tex.1993). In an

appeal from an order granting or denying a request for a temporary injunction,

appellate review is confined to the validity of the order that grants or denies the

injunctive relief. See id.

    The decision to grant or deny the injunction lies within the sound discretion of

the trial court, and will not be disturbed absent a clear abuse of discretion. See id.

This Court may neither substitute its judgment for that of the trial court nor

consider the merits of the lawsuit. See id.; Texas Indus. Gas v. Phoenix

Metallurgical Corp., 828 S.W.2d 529, 532 (Tex.App.—Houston [1st Dist.] 1992,

no writ). Rather, it must view the evidence in the light most favorable to the trial

court's order, indulging every reasonable inference in its favor, and determine

whether the order was so arbitrary as to exceed the bounds of reasonable

discretion. See CRC–Evans Pipeline Int'l, Inc. v. Myers, 927 S.W.2d 259, 262

(Tex. App.—Houston [1st Dist.] 1996, no writ). The Court cannot reverse a trial

Appellees’ Responsive Brief                                                      page 3
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
court's order if the trial court was presented with conflicting evidence and the

record includes evidence that reasonably supports the trial court's decision. See id.

    Next, the purpose of a temporary injunction is to preserve the status quo until a

final hearing on the merits. Miller Paper Co. v. Roberts Paper Co., 901 S.W.2d
593, 597 (Tex.App.—Amarillo 1995, no writ). Furthermore, the applicant is not

entitled to temporary relief until he demonstrates a probable injury and a probable

right of recovery. Garth v. Staktek Corp., 876 S.W.2d 545, 548 (Tex. App.—

Austin 1994, writ dism’d w.o.j.).

    A probable right of recovery is proven by alleging the existence of a right and

presenting evidence tending to illustrate that the right is being denied. Miller

Paper Co. v. Roberts Paper Co., 901 S.W.2d at 597. Probable injury is proven

through evidence of imminent harm, irreparable injury, and the lack of an adequate

legal remedy. Id. Both prongs require the presentation of evidence and, unlike

temporary restraining orders, cannot be based upon sworn pleadings or affidavits

unless the parties so agree. Millwrights Local Union No. 2484 v. Rust Engineering

Co., 433 S.W.2d 683, 685–87 (Tex.1968); Rogers v. Howell, 592 S.W.2d 402, 403

(Tex.Civ.App.—Dallas 1979, writ ref'd n.r.e.).

    Given the standard of review for orders denying temporary injunctive relief, the

absence of a reporter's record is dispositive.     Whether Isba was entitled to a

Appellees’ Responsive Brief                                                      page 4
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
temporary injunction depended upon the evidence presented in support of his

application for relief. Without a reporter’s record, this Court cannot know what, if

any, evidence was presented to the trial court. Nor can it assess whether Isba

satisfied the elements considered by Miller Paper as prerequisites to obtaining

such relief.

    Indeed, the reporter’s record is so pivotal to this Court’s review that its absence

necessitates the presumption that the missing evidence actually supported the trial

court's ruling. See Bryant v. United Shortline Inc. Assur. Services, N.A., 972
S.W.2d 26, 31 (Tex.1998) (Court stating that: “We indulge every presumption in

favor of the trial court’s findings in the absence of a statement of facts.”) True,

Bryant and its predecessors are based on the appellant’s having the burden of

providing the appeals court with a record sufficient to prove error under the

appellate rules in existence before September 1, 1997. See Tex. R. App. P. 50(d)

(repealed September 1, 1997); Schafer v. Conner, 813 S.W.2d 154, 155

(Tex.1991).

    But while the current appellate rules state that the court reporter is responsible

for preparing, certifying, and timely filing the reporter’s record, that responsibility

is expressly conditioned upon the appellant’s filing the notice of appeal, requesting

that the reporter's record be prepared, and paying for or making arrangements to

Appellees’ Responsive Brief                                                       page 5
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
pay for the reporter's record. Tex. R. App. P. 35.3(b)(1)-(3); Rodriguez v. State,

970 S.W.2d 133, 135 (Tex.App.—Amarillo 1998, pet. ref'd) (involving the clerk's

record). Accordingly, if the appellant’s failure to complete the steps required

under rule 35.3(b)(1), (2), and (3) denies the appellate court a sufficient record

with which to review his appeal, Bryant controls.

    Simply put, this Court cannot determine what evidence was before the trial

court, cannot determine whether the trial court abused its discretion, cannot

determine whether Isba proved the existence of a right, cannot determine whether

the Comptroller’s activities resulted in or threatened a denial of that right—and, in

particular, cannot determine whether Isba was threatened with imminent harm and

irreparable injury, and lacked an adequate legal remedy. Accordingly, this court

should presume that the missing record supports the trial court's determination and

forego further review of this dispute as authorized under appellate rule 37.3(c).

    B. Even assuming arguendo that Isba presented an issue not requiring
       review of the reporter’s record, Sanadco I fully disposes of his appeal on
       jurisdictional grounds.

        Although Rule 37.3(c) affords this Court the discretion to decide issues that

    do not depend on the reporter's record, that authorization does not and cannot

    extend to review of the order denying Isba’s application—as that determination

    is clearly dependent upon the presence of the reporter’s record.

Appellees’ Responsive Brief                                                     page 6
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
        In addition, Isba’s legal arguments have already been rejected by this Court

    in Sanadco I. Isba contends that APA section 2001.171, which authorizes

    judicial review of final administrative decisions, provides an alternative

    jurisdictional basis for challenging Comptroller tax determinations.

        But the opinion in Sanadco I has already addressed and disposed of this

argument:

        Sovereign immunity protects the State of Texas, its agencies, and its
        officials from lawsuits unless the legislature expressly gives its
        consent to the suit. Texas Natural Res. Conservation Comm'n v. IT–
        Davy, 74 S.W.3d 849, 853 (Tex.2002). Absent the State's consent to
        suit, a trial court lacks subject-matter jurisdiction. Id. at 855.
        Sovereign immunity not only bars suits for money damages but also
        protects the State against suits to “control state action.” Texas Logos,
        L.P. v. Texas Dept. of Transp., 241 S.W.3d 105, 118 (Tex.App.–
        Austin 2007, no pet.). Therefore, absent an express waiver of
        sovereign immunity, Sanadco's counterclaims are barred.

Sanadco I, 2015 WL 1478200 at * 4.

        After citing the well-established case law governing sovereign immunity, the

court addressed Sanadco’s jurisdictional arguments:

        Sanadco cites two statutes providing limited waivers of immunity—
        the Administrative Procedure Act, see Tex. Gov't Code § 2001.038,
        and the Uniform Declaratory Judgments Act, see Tex. Civ. Prac. &
        Rem.Code § 37.001 et seq.—as well as an exception to waiver, the
        doctrine of ultra vires, see City of El Paso v. Heinrich, 284 S.W.3d
366, 372–73, 380 (Tex.2009), as conferring jurisdiction on the district
        court over its counterclaims. However, as discussed below, we
        conclude that all of these grounds for jurisdiction are preempted by

Appellees’ Responsive Brief                                                        page 7
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
        Chapter 112 of the Tax Code, which the supreme court has held
        provides exclusive remedies for relief from assessed taxes on any
        basis. See Nestle, 359 S.W.3d at 211. Because Sanadco did not
        comply with the mandatory Chapter 112 requirements, the district
        court has no jurisdiction over any of its counterclaims.

Id.

        Although the language quoted above specifically addresses APA section

2001.038, which authorizes challenges to agency rules, the court’s holding and

rationale necessarily extend to APA section 2001.171, as well. Both statutes are

preempted by Tax Code Chapter 112, which specifically waives immunity for

certain taxpayer actions, conditioning the waiver on prerequisites to the taxpayer’s

bringing suit under that chapter. Sanadco I at * 5. Moreover, this precise issue—

the availability of APA section 2001.171 to a taxpayer challenging state taxes—

was addressed in post-submission briefing in Sanadco I.8

            C.    The waiver of immunity in APA section 2001.171 does not apply,
                  because the legislature has set out a specialized procedure for tax
                  protest suits.

        As the Comptroller pointed out in its post-submission briefing in Sanadco I,

APA section 2001.171 does not apply to the Tax Code. The APA provides an

independent right to judicial review only where the agency’s enabling statute

neither specifically authorizes nor prohibits judicial review of the decision. Tex.

        8
            See Appendix, Tab G, at p. 3; and Tab H, at p. 4-7.

Appellees’ Responsive Brief                                                     page 8
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
Dep't of Protective & Regulatory Servs. v. Mega Child Care, 145 S.W.3d 170

(Tex. 2004).

        Here, in clear contrast to Mega Child Care, the Chapter 112 of the Tax Code

specifically sets out the statutory prerequisites for challenging the Comptroller’s

determination of tax liability in district court.

        The legislature has created a limited waiver of sovereign immunity for tax

refund and protest suits, and for tax injunction suits, but mandated specific

prerequisites which must be satisfied prior to filing suit against these specifically

enumerated claims. See Tex. Tax Code Ann. §§112.051-.156 (West 2015).

        The undisputed jurisdictional facts, as shown by Isba’s pleading, are that

neither he nor Sanadco has met the statutory prerequisites in Chapter 112.9

Compliance with the procedural requirements of the tax-protest law is a

jurisdictional prerequisite to suit. Sanadco I at * 5; In re: Nestle USA, Inc. 359
S.W.3d at 211; see also Central Power & Light Co. v. Sharp, 919 S.W.2d 485, 491

(Tex. App.–Austin 1996, writ denied); Combs v. Chevron, 319 S.W.3d 836, 844-45

(Tex. App.–Austin 2010, pet. denied).

        Most importantly, Isba’s argument, if accepted by this court, would

effectively read out of the Tax Code the statutory prerequisites for bringing a tax-

        9
            See Appendix Tab C, at pp. 3-4.

Appellees’ Responsive Brief                                                     page 9
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
protest suit in district court.            The APA procedure for judicial review would

swallow and render meaningless those prerequisites—an outcome the legislature

could not have intended. See Nestle, 359 S.W.3d at 211-12 (Tex. 2012) (holding

that statutory prerequisites for taxpayer suits are conditions on the legislative

waiver of immunity and dismissing original proceeding for want of jurisdiction).

    D. Isba’s filing suit for judicial review does not and cannot vacate the
       Comptroller’s tax determination.

        In addition, Isba argues that his filing suit under the APA automatically

vacated the Comptroller’s final tax determination. Therefore, he reasons, Sanadco

I does not control, because this court emphasized that its holding applied only to

cases in which the taxpayer seeks relief from a tax assessment that has become a

final liability. See Sanadco I at *6, n.9.

        In so arguing, Isba is attempting to selectively read and blend provisions in

the Tax Code with the APA to achieve a procedural result that the legislature did

not intend. First, he points to the Tax Code section 112.054, which provides that

trial of the issues in “suits under this subchapter are de novo.” He then attempts to

blend that section with APA section 2001.173, which provides that if the manner

of review of the agency decision is trial de novo “the reviewing court shall try each

Appellees’ Responsive Brief                                                      page 10
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
issue of fact and law . . . as though there has not been an intervening agency

action.”

        But this argument requires Isba to skip over the fact that he has not complied

with the pre-payment and notice requirements of Subchapter B of Chapter 112, but

rather, is attempting to evade those very prerequisites. Accordingly, his suit cannot

be a “suit[] brought under this subchapter” and perforce cannot be a suit entitled to

de novo review. In short, Isba cannot have it both ways. He cannot argue that he

does not have to comply with the statutory prerequisites of Chapter 112, but that its

de novo standard of review nonetheless governs his challenge to the Comptroller’s

tax assessment.

Appellees’ Responsive Brief                                                     page 11
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
                                                 PRAYER

        In view of the foregoing, the state officials request that this court affirm the

trial court’s order, tax all costs to appellant Isba, and grant such other and further

relief to which the state officials may show themselves entitled.

                                                     Respectfully submitted,

                                                     KEN PAXTON
                                                     Attorney General of Texas

                                                     CHARLES E. ROY
                                                     First Assistant Attorney General

                                                     JAMES E. DAVIS
                                                     Deputy Attorney General for Defense
                                                     Litigation

                                                     ROBERT O’KEEFE
                                                     Chief, Financial and Tax Litigation
                                                     Division

                                                     /s / Jack Hohengarten
                                                     JACK HOHENGARTEN
                                                     State Bar No. 09812200
                                                     Assistant Attorney General
                                                     Financial Litigation, Tax, and
                                                     Charitable Trusts Division
                                                     P.O. Box 12548
                                                     Austin, Texas 78711 2548
                                                     TEL: (512) 475-3503
                                                     FAX: (512) 477 2348
                                                     jack.hohengarten@texasattorneygeneral.gov

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

Appellees’ Responsive Brief                                                                page 12
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
                            CERTIFICATE OF COMPLIANCE

        In compliance with Texas Rule of Appellate Procedure 9.4(i)(2), this brief

contains 2,271 words, excluding the portions of the brief exempted by Rule

9.4(i)(1).

                                 CERTIFICATE OF SERVICE

        I certify that on this 22nd day of May, 2015, a true and correct copy of the

foregoing document, Appellees’ Responsive Brief, has been sent to the attorney for

appellants via e-service and/ or electronic mail, as follows:

Samuel T. Jackson
Law Office of Samuel T. Jackson
P.O. Box 170633
Arlington, TX 76003-0633
jacksonlaw@hotmail.com
                                                 /s / Jack Hohengarten
                                                 Jack Hohengarten

Appellees’ Responsive Brief                                                   page 13
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
                                                 APPENDIX

Tab A
        Memorandum Opinion on Motion for Rehearing in Sanadco I,
        No. 03-11-00462-CV, in the Third Court of Appeals.
Tab B
        Order and Motion for Emergency Relief to Lift the Automatic Stay for a
        Limited Purpose in Sanadco I, No. 03-11-00462-CV, in the Third Court of Appeals.
Tab C
        Plaintiff’s Original Petition for Judicial Review, Declaratory Judgment,
        Temporary Injunction and Request for Disclosure, No. D-1-GN-13-004352,
        Sanadco Inc. v. Hegar, in the 200th Judicial District Court, Travis County
        (“Sanadco II).
Tab D
        Letter regarding payment for Reporter’s Record in Sanadco II,
        No. 03-14-00771-CV, in the Third Court of Appeals.
Tab E
        Order Denying Plaintiff’s Declaratory Judgment and Application for Temporary
        Injunction
        Plaintiffs’ Third Amended Petition for Judicial Review, Declaratory
        Judgment, Temporary Injunction and Request for Disclosure, in Sanadco II,
        No. D-1-GN-13-004352, in the 200th Judicial District Court of
Tab F
        Certification of Public Records for Order Denying Motion for Rehearing on
        Comptroller’s Decision on Hearing Nos. 106,815 and 107,006
        Certification of Public Records for Comptroller’s Decision on Hearing Nos.
        106815 and 107006 with Attachments A – Texas Notification of Hearing
        Results
Tab G
        Appellants’ Post-Submission Letter Brief in Sanadco I, No. 03-11-00462-
        CV, in the Third Court of Appeals.
Tab H
        State Officials’ Response to Appellants’ Post-Submission Brief in Sanadco
        I, No. 03-11-00462-CV, in the Third Court of Appeals.

Appellees’ Responsive Brief                                                 page 14
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
                                                 Tab A

                               Memorandum Opinion
                              On Motion for Rehearing
                           Sanadco I, No. 03-11-00462-CV
                               Third Court of Appeals.

Appellees’ Responsive Brief                                page 1
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
       TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

                                ON MOTION FOR REHEARING

                                       NO. 03-11-00462-CV

 Sanadco Inc., a Texas Corporation; Mahmoud A. Isba, a/k/a Mahmoud Ahmed Abuisba,
    a/k/a Mike Isba; \Malid Abderrahman; Majic Investments,Inc.; Faisal Kahn; Isra
 Enterprises,Inc.; Hattab Al-Shudifat; Haifa Enterprises,Inc.; EID corp.; Mohammed s.
 Al Hajeid; Majdi Rafe Okla Nsairat; and Omar Unlimited,Inc. Individually, Appellants

                                                  v

  The Office of the Comptroller of Public Accounts of the State of Texas; Glenn Hegar,
Individually and in his Official Capacity as Comptroller of Public Accounts of the State of
Texas; and Ken Paxton in his Official Capacity as Attorney General for the State of Texas,
                                         Appellees

     FROM THE DISTRICT COURT OF TRAVIS COUNTY, 9STH JUDICIAL DISTRICT
         NO. D-1-GV-10-000902, HONORABLE TIM SULAK, JUDGE PR_ESIDING

                             MEMORANI) UM OPINION

               We grant the Comptroller's motion for rehearing, withdraw our prior opinion and

judgrnent issued on Septernber 26,2013, and substitute in their place this opinion and judgment

affirming the district court's disrnissal of Sanadco, Inc.'s counterclaims.

               After the Comptroller of Public Accounts performed an audit on a convenience

store owned by Sanadco, the Comptroller and the Attorney General (cumulatively the "Comptroller")

filed suit against Sanadco to recover delinquent taxes. In response, Sanadco filed        various

counterclaims against the Comptroller arguing that the manner in which he calculated the amount
of taxes due was under the terms of an unauth orized.rule, that many of the actions that he engaged

in while conducting his audits were ultra vires, and that the provision of the Tax Code authorizing

audits by sampling and projecting was unconstitutional. After Sanadco filed its counterclaims, the

Comptroller filed a plea to the jurisdiction contending that the district court did not have jurisdiction

over the counterclaims. Subsequent to reviewing the plea and convening       a   hearing, the district court

granted the Comptroller's plea and dismissed Sanadco's counterclaims for lack ofjurisdiction. On

appeal, Sanadco challenges the dismissal of its counterclaims. We aff,rrm the district court's order

granting the Comptroller's plea to the jurisdiction.

                RELEVANT STATUTORY SCHEME AND AUDITING MEMOS

                  Before delving into the background and issues in this case, a brief overview of

the governing framework for this case as well as a brief sytopsis of the actions by the Comptroller

that form the subject of this case is helpful. Under the Tax Code, convenience stores are required

to maintain their sales records for tax purposes, Tex. Tax Code $ I51.025, and the Comptroller is

authorized to examine and audit the records of convenience-store owners, id. $$ I I 1.004, 151.025.

In addition, the Comptroller may use sampling and projection methods for estimating the amount

oftaxes owed if"the taxpayer's records are inadequate or insufficient." Id. ç    11   1.0042(b). Moreover,

if   the Cornptroller "is not satisfied" with the calculated tax owed based on the taxpayer's records,

the Comptroller may determine the amount of tax owed from "other information available to the

comptroller;' Id. ç I 11.008(a).

                  In addition to requiring convenience stores to maintain sales records, the Tax Code

also requires brewers, manufacturers, wholesalers, and distributors of alcoholic beverages to file

                                                    2
reports clironiclingtheirsales to stores and listingthe storesbyname.         Id         l5l.46l-.462. Similarly,
                                                                                    $$

the Tax Code authorizes the Comptroller to request wholesalers and distributors of tobacco

productstofilethesametypeofreports. Id $$ 154.021(addressingcigarettesales), 155.105 (covering

non-cigarette tobacco products). The type of information required              in   these repofts is commonly

referred to as H.B. I 1 information because the reporting requirernents were enacted by House                   Bill
11 (H.8.11) of the 80th legislattxe. see Act of May 3,2007,80th Leg., R.s., ch. 129, g$                   l-3,2007

Tex. Gen. Laws 159, 159-62.

                    Once an audit has been performed, the store owner may request a rcdetermination

from the Comptroller within 30 days of receiving notice of the Comptroller's assessment. Tex. Tax

Code $ 1 I 1.009(a),     (b). In addition, the owner may       also request a hearing on the redetermination,

id. $   11   1.009(c), before the State Office of Administrative Hearings,     id   $    11   1.00455. If no request

for   a redetermination    is filed within 30 days, "the determination is final on the expiration of the

period." Id. ç 111.009(b).

                    As an alternative to requesting   a   redetermination, an individual may pay the assessed

taxes and penalties and file a claim for a refund with the Comptroller or pay the taxes and penalties

underprotestandfilesuitseekingtheirrecovery.t Seerd $$111.104(b),(c), 112.051,.052;seealso

In re Nestle USA, lnc.,359 S.W.3d 207,21I (Tex. 2012) (protest, refund,                        and injunction suits

             I
            There is one more additional, limited remedy in the form of an action for a restraining order
or injunction to prohibit the assessment or collection of a state tax, which action also requires
prepayment of the taxes due or the posting of a bond as well as a pre-suit "statement of the grounds
on which the order or injunction is sought" filed with the attorney general. Tex. Tax Code $ lI2.I0l.
This remedy additionally requires a showing that (1) irreparable injury will result to the applicant
if tlre injunction is not granted , (2) no other adequate remedy is available to the applicant, and (3)
the applicant has a reasonable possibility of prevailing on the merits of the claim. Id. ç 112.10fi.

                                                           J
provide only means to seek relief from taxes assessed under Chapter 112). A tax-refund claim

proceeds to an administrative hearing, after which the Comptroller            will   issue a decision that

becomes final twenty days after service on the taxpayer.     Id $ 1 I 1.105. A tax-refund claimant        who

is dissatisfîed with the decision may file a motion for rehearin g, id. (c), and then   if still   dissatisfied

may file a suit in district court seeking to recover the amount paid within 30 days after the motion

for rehearing is denied,   id   g I l2.I5I(a), (b), (c).

                If pursuing     a protest-payment suit, a taxpayer must f,rle a   written protest detailing

each reason for recovering the payment and submit such protest with payment                of the assessed

taxes and penalties within six months (or other applicable limitations period) after the deficiency

determination becomes      final Id. $g 111.104(c)(3), 112.051(b),     (c).

                Prior to the passage of H.B. 11, the Comptroller issued a meÍto entitled AP 92,

which provided guidance to auditors performing audits of convenience stores. In the memo, the

Comptroller explained that there had been a "lack of uniformity in estimated convenience store

audits" and tliat "mark-up percentages and product mix percentages" were developed to be used in

audits o'when necessitated by lack of reliable records" or       if   a store's "records are unavailable,

inadequate or unreliable." After H.B. 11 passed, the Comptroller issued another memo to audit

personnel entitled AP 122. The new memo updated AP 92 and required auditors to use H.B. I I

information "to produce the most accurate audit results." Sanadco's counterclaims arise from the

issuance of these two memos along with various actions taken by the Comptroller when performing

his audit of Sanadco.

                                                       4
                                        BACKGROUND

               Turning to the facts of this case, Sanadco owns a convenience store, and Mahmoud

Isba operates the store and is designated as a responsible person for Sanadco. The Comptroller

audited Sanadco and determined that Sanadco had underreported its taxable sales for alcohol and

tobacco products. The amount of the deficit was determined using H.B. I        I d,ata. After making his
determination, the Comptroller sent a bill for the estimated amount owed and for interest on that

amount as well as a penalty.

               After receiving notice of the amount due, Sanadco did not seek redetermination

of the assessment, see Tex. Tax Code $ 111.009, or pay any portion of the           assessed taxes and

penaltiesandseekstatutoryreliefvia ataxpayer refundorprotest slit,seeid. $$ 111.104,           lI2.I5l.
Accordingly, the Attorney General filed suit to collect the delinquent taxes. In response, Sanadco

filed an answer and raised several counterclaims seeking declaratory and injunctive relief against

the Cornptroller's collection of the taxes, compensatory damages, and attorney's fees. Those

counterclaims were made against thc Off,rce of the Comptroller, Susan Combs2 in her official

capacity as Comptroller, and Greg AbbotC in his official capacity   as the   Attorney General. Sanadco

later amended its answer and counterclaims, adding as counter-plaintiffs several other individuals

and companies who had been assessed similar taxes.a Unlike Sanadco, the other named counter-

       'Since the events giving rise to this appeal, Glenn Hegar was elected Comptroller.
Accordingly, our references to the Comptroller are to him.
       3 Since the events giving rise to this appeal, Ken Paxton was elected Attorney General.
Accordingly, our references to the Attorney General are to him.
       a For ease of reading, we will generally refer to all of the counter-plaintifß    as Sanadco.

                                                 5
plaintiffs all sought redeterminations of their    assessed taxes through administrative review, but none

of the administrative proceedings had been completed by the time that the individuals were added

to the lawsuit.s

                   Regarding its counterclaims, Sanadco alleged eight complaints relevant to this appeal.

In its first counterclaim, Sanadco asserted that AP 92         and   AP I22 are administrative rules that

were not promulgated in compliance with the requirements of the Administrative Procedure Act.

SeeTex.Gov'tCode$2001.038. Accordingly,sanadcosoughtadeclarationthatthosememosare

invalid administrative rules. In its second counterclaim, Sanadco alleged that the Comptroller

engaged in ultra vires actions when he issued AP 92 and        AP 122 andthereby authorized auditors to

estimate taxes owed by convenience-store owners without "first ascertaining whether adequate

records are available" from the taxpayer to perform an audit. For those reasons, Sanadco sought

declarations assefting that "the Comptroller is not authorized to estimate convenience store audits

using the rnethods described in AP 92 or AP I22 until their proper adoption, and/or that the

authorization of their use is a non-discretionary ultra vires act committed without legal authority."

In its third counterclaim, Sanadco contended that the Comptroller acted without legal authority when

he improperly instructed auditors to use H.B. 11 information for convenience store audits "without

        s Despite their participation in the administrative redetennination process, the additional
counter-plaintiffs later added    as parties   to the suit do not impact our consideration of whether the
trial court had subject-matter jurisdiction over Sanadco's counterclaims, because subject-matter
jurisdiction is determined at the time a suit is filed. See TJFA, L.P. v. Texas Comm'n on Envtl.
 Quality,368 S.W.3d 727,733 (Tex. App.-Austin 2012,pet. denied); Bellv. Moores,832 S.V/.2d
749,753-54 (Tex. App.-Houston [14th Dist.] 1992,writ denied) (at time suit is filed, court either
has jurisdiction or it does not, and jurisdiction cannot subsequently be acquired while suit is
pending); seealsoAetnaCas.&Sur.Co.v.Hillman,796F.2d770,774,776(5thCir. 1986)(federal
rule of civil procedure 15, pertaining to amendment of pleadings, does not permit plaintiff to amend
complaint to substitute new plaintiff in order to cure lack of subject-matter jurisdiction).

                                                       6
first ascertaining whether the determination can be made from the taxpayer's records." Accordingly,

Sanadco insisted that the Comptroller's decision to require the use of      H.B.    11 data is an ultra vires

act and, therefore, sought declarations that the use of H.B. 1 1 information was improper and that

the governing statutes do not allow "the Comptroller to give conclusive effect to the HB             1   I   data."

                 In its fourth counterclaim, Sanadco alleged that the Comptroller improperly authorized

auditors to'ouse an abbreviated procedure which bypassed examination of the taxpayer's records

and authorized an estimation of his tax liability based solely on the invalid H.B. l          l   data, without

first determining the adequacy of the taxpayer's records." For that reason, Sanadco insisted that the

Comptroller was acting ultra vires and sought a declaration that the governing Tax Code provisions

do not authorize the abbreviated procedure. In its fifth counterclaim, Sanadco alleged that the

Comptroller acted ultra vires by authorizing the imposition of aS\o/openalty without proof of fraud

or of an intent to avoid the tax as required by the Tax Code. SeeTex. Tax Code $ I I 1.061(b). In

its sixth counterclaim, Sanadco sought a declaration that the provision of the Tax Code authorizing

sample and projection audits for estimating taxes owed is unconstitutionally vague and is, "by its

nature, a denial of substantive and procedural due process." See id.          ç 111.0042. In its seventh
counterclaim, Sanadco alleged that the Comptroller engaged in an unconstitutional taking when he

improperly collected sales anduse taxes. Lastly, Sanadco challengedthe constitutionality ofthe Tax

Code provision authorizing the Comptroller to impose a ten-percent penalty           if   he believes that the

ooamount
           due for a tax period is jeopardized by delay." See   id   $ I fi .022.

                After Sanadco fìled its counterclaims, the Comptroller filed        a motion      for summary

judgment and a plea to the jurisdiction. After reviewing the pleadings, the plea, and Sanadco's

response to the plea, the district court signed an order granting the Comptroller's plea dismissing

                                                   7
all of Sanadco's counterclaims. The trial court also granted the Comptroller summary judgment

on two of Sanadco's eight counterclaims. On appeal, Sanadco contests both the district court's

order granting the Comptroller's plea and its order granting the Comptroller summary judgment.

                                             STANDARD OF REVIEW

                "A plea to the jurisdiction is a dilatory plea,       the purpose of which is to defeat a cause

of action without regard to whether the claims asserted have merit." Bland Indep. Sch. Dist. v. Blue,

34 S.W.3d 547,554 (Tex. 2000). A party to a lawsuit may challenge a trial court's subject-matter

jurisdiction over   a case by   filing   a plea   . Houston Mun. Emps. Pensiondys. v. Ferrell,248 S.W.3d 151,

156 (Tex. 2007). Determinations regarding whether a trial court has jurisdiction over a case are

questionsoflaw,whichwereviewdenovo.                     TexasDep'tofParl74 S.W.3d 849, 853 (Tex. 2002). Absent the State's consent

to suit, atrial court lacks subject-matter jurisdiction. Id. at 855. Sovereign imrnunity not only bars

suits for money damages but also protects the State against suits to "control state action." Texes

Logos, L.P. v. Texas Dept. of Transp.,241 S.W.3d 105, 118 (Tex. App.-Austin2007, no pet.).

Therefore, absent an express waiver of sovereign immunity, Sanadco's counterclaims are barred.6

        6 The fact that Sanadco is a counter-plaintiff   rather than a plaintiff does not affect our
analysis when reviewing the trial court's ruling on a plea to the jurisdiction, as such determination

                                                             8
                Sanadco cites two statutes providing limited waivers of   immunity-the Administrative

Procedure Act, see Tex. Gov't Code $ 2001.038, and the Uniforrn Declaratory Judgments Act, see

Tex. Civ. Prac. & Rem. Code $ 37.001 et seq.-aswell as an exception to waiver, the doctrine of

ultra vires, see City of El Paso v. Heinrich,284 S.W.3d 366,372-73, 380 (Tex. 2009),as conferring

jurisdiction on the district court over its counterclaims. However, as discussed below, we conclude

that all of these grounds for jurisdiction are preempted by Chapter 112 of the Tax Code, which the

supreme court has held provides exclusive remedies for relief from assessed taxes on any basis.

See   Nestle,359 S.W.3d   atZII.   Because Sanadco did not comply with the mandatory Chapter 112

requirements, the district court has no jurisdiction over any of its counterclaims.

Statutory prerequisites to taxpayer suits

               The Tax Code waives the State's immunity from suit, but only for specif,rcally

enumerated taxpayer actions, each conditiorring waiver on certain administrative             or   other

prerequisites to a taxpayer's bringing a suit or claim thereunder. See Tex. Tax Code $$ 1 12.052

(protest suit),.101 (inyunction suit),.151 (refuüd suit); Nestle,359 S.W.3d at211 (dismissing

mandamus cause for want ofjurisdiction, where taxpayer sought declaration of constifutionality       of

franchise tax, injunction prohibiting its collection, and mandamus relief compelling refund of taxes

already paid, because taxpayer had not complied with statutory prerequisites of Chapter       Ll2 for

considers whether the non-moyant's pleadings affirmatively demonstrate the trial court's jurisdiction
over tlre challenged causes. See Texas Dep't of Parks & Wildlife v. Miranda, 133 S.W.3d 2I7 ,226
(Tex. 2004). Counter-plaintiffs are the functional equivalents of plairitiffs with respect to whether
their claims confèr subject-matter jurisdiction on the trial çotrt. See, e.g., Smith v. Clary Corp.,
917 S.W.2d 796, 798 n.l (Tex. 1996) (court must not only have jurisdiction over amount in
controversy but also must have subject-rnatter jurisdiction over counterclaim).

                                                   9
refund, protest, or injunction suit). Regardless of the taxpayer's claims
                                                                          ,the only permitted taxpayer

actions cliallenging state taxes areo'a suit after payment under protest, suit for injunction after

payment or posting of a bond, and a suit for a refund." Nestle,359 s.w.3d af           2rl.
                In Nestle, the supreme court held that these three statutorily provided taxpayer suits

(along with their respective prerequisites to suit) are the only rneans by which a taxpayer may

challenge "the applicability, assessment, collection, or constitutionality" of a state tax. kJ. at209.

"The only exception is that prepayment of the tax as a prerequisite to suit is excused when it 'would

constitute an unreasonable restraint on the party's right of access to the courts."'1d. (quoting Tex.

Tax Code $ I 12.108); see also In re Allcat Claitns Serv., L.P.,356 S.W.3d 455,479 (Tex. 2011)

("[S]ection I 12.108 explicitly prohibits any court from granting injunctive or declaratory relief or

issuing any writ of mandamus or any other legal or equitable relief not already allowed elsewhere

in Chapter 112."). Besides these three avenues for relief, Chapter I 12 "allows no other actions to

challenge or seek refunds of the taxes to wliich it applies," including declaratory-judgment actions.

Nestle,359 S.W.3d at209-10; see also Strayhorn         t¡.   Raytheon E-Sys., Inc.,10I S.W.3d 558,572

(Tex. App.-Austin 2003, pet. denied) (when statute provides avenue for attacking agency order,

declaratory-judgment action will not lie to provide redundant remedies).

               It is undisputed that   Sanadco did not engage in an administrative redetermination

proceeding or meet any of the statutory requirements for      a   refund claim or protest suit. Sanadco may

not attempt to avoid those administrative and procedural requirements by merely filing counterclaims

to a collection suit brought by tlie Comptroller. If Sanadco were able to pursue its counterclaims

"free of Chapter 112's restrictions," the State's o'entire tax collection scheme" would be disrupted.

                                                  10
Nestle,359 S.W.3d at 2Il ("If      a taxpayer were not required   to lodge its complaints first by protest

or refund claim, the Comptroller would lack notice of the assertion of illegality, perhaps-as this

case   illustrates-for years.").

                 Sanadco had two adequate, available remedies upon the Comptroller's deficiency

determination: (1) a redetermination proceeding or (2) payment of the taxes and pursuit of the

Chapter 1 12 refund or protest procedures. However, Sanadco elected not to pursue either remedy.T

It may not now attempt to circumvent the statutory prerequisites to taxpayer suits by casting its

various challenges to the assessed taxes and penalties as counterclaims seeking declaratory and

injunctive reliefto the Comptroller's collection actions when Sanadco could and should have availed

itself of the exclusive statutory taxpayer-suit procedures. While Sanadco frames its declaratory

requests in terms of the validity or constitutionality of "rules," statutes, and alleged ultra vires

actions, it is not merely seeking to obtain such declarations but to be relieved, thereby, of its tax

assessment and penalty. Chapter 112 of the Tax Code provides an exclusive remedy therefor, and

Nestle explicitly prohibits any attempt at relief from assessed state taxes on any basis except as

provided in the chapter.s

          7 The third Chapter l12
                                   remedy, an action for injunction, is not available to Sanadco under
the circumstances alleged in its pleadings because Sanadco had two other adequate remedies at law
in tlre form of a protest suit and a refirnd suit. ,S¿e Berry v. McDonald,l23 S.W.2d 388, 389 (Tex.
Civ. App.-San Antonio 1938, no writ) (holding taxpayer had adequate and complete legal remedy
under former version of statute providing for protest suit and, therefore, claim seeking relief in form
of enjoining Commissioner of Agriculture from collecting citrus sales tax was improper). However,
even if the injunction remedy under section 1 12. 101 were available to Sanadco, it is undisputed that
Sanadco did not fulfil any of the statutory prerequisites to suit thereunder, including prepayment of
the tax or posting of a bond and filing a pre-suit statement with the Attorney General.

         I
        Further, the Comptroller's claim to collect from Sanadco the delinquent taxes did not waive
immunity for all purposes but only narrowly waived it for counterclaims that both ( 1) were "germane

                                                   ll
                Because Sanadco did not comply with the jurisdictional prerequisites of Chap ter   IIZ,
we hold that the trial court did not have jurisdiction over any of Sanadco's eight counterclaims,

and the trial court did not err in granting the Comptroller's plea to the jurisdiction.e We need not

reach Sanadco's issues about the trial court's surnmary judgment because the Comptroller's plea

to the jurisdiction was directed to all eight of Sanadco's counterclaims, and our jurisdictional

deterrnination is dispositive of all issues on appeal. seeTex. R. App. p. 47 .l.

                                           CONCLUSION

                Having overruled each of Sanadco's issues, we affirm the district court's order

dismissing all of Sanadco's counterclaims on jurisdictional grounds.

to, connected to, and properly defensive to claims asserted by" the Comptroller and (2) operated as
damageoffsetsagainstthemonetaryreliefsoughtbytheComptroller. SeeManbeckv.Austinlndep.
Sch. Dist.,381 S.W.3d 528,533 (Tex.2012). It is without question that the later-joined counter-
plaintiffs' counterclaims did not meet either of these requirements. Also, because the Comptroller's
action sought collection of a particular, final amount of taxes, penalties, and interest-and Sanadco
did not challenge that final amount via any of the available adrninistrative and statutory procedures
already discussed-Sanadco's counterclaims cannot be considered "properly defensive" or offsets
thereto.

        e We limit our holding to cases in which a taxpayer
                                                                 seeks relief from a tax assessment that
has become a final liability and is no longer subject to review through administrative procedures; we
do not hold that Chapter 112 preempts every suit challenging a Comptroller rule or tax statute's
constitutionality. C.f.,Texas Entm'tAss'n,Inc.v. Combs,431 S.W.3d 790,795 (Tex. App.-Austin
2014, pet. denied) (citing Combs v. Texas Entm't Ass'n, Inc., 287 S.W.3d 852, 864-65 (Tex.
App.-Austin,2009), rev'd on other grounds,347 S.W.3d 277 (Tex.201 1)) (on remand, citing with
approval its previous opinion holding that declaratory-judgment action challenging constitutionality
and implementation of new tax statute was not preempted by Chapter 112 of Tax Code); Combs v.
EntertainmentPubl'ns Lnc.,292 S.W.3d 712,723 (Tex. App.-Austin2009, nopet.) (affrrmingtrial
court's denial ofplea to jurisdiction in suit in which taxpayer sought declaratory and injunctive relief
to prevent Comptroller from implementing allegedly invalid rule). Because Sanadco sought
injunctive relief from liability for the tax long after completion ofthe administrative process and the
deficiency assessment had become final, the facts here are distinguishable fiom those cases in which
the taxpayers sought declarations of the validity or constitutionality of rules and statutes and their
threatened enforcement prior to finality of an agency determination.

                                                   T2
                                          David Puryear, Justice

Before Justices Puryear, Henson, and Goodwin
 Justice Henson not participating

Affirmed on Motion for Rehearing

Filed: March 25,2015

                                               13
                                                 Tab B

  Order and Motion for Emergency Relief to Lift the Automatic
                  Stay for a Limited Purpose
               Sanadco I, No. 03-11-00462-CV
                   Third Court of Appeals.

Appellees’ Responsive Brief                               page 2
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
      TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

                                        NO. 03-11-00462-CV

               Sanadco Inc., a'Iexas Corporation, and Mahmoud A. Isba,
        a/k/a Mahmoud Ahmed Abuisba, aikla Mike Isba,Individually, Appellants

                                                   v

                 Susan Combs,Individually, and   in her Offïcial Capacity as
               Comptroller of Public Accounts of the State of Texas, and
      Greg Abbott in his Official Capacity as Attorney General of the State of Texas,
                                           et al., Appellees

     FROM THE DISTRICT COURT OF TRAVIS COUNTY, 9STH JUDICIAL DISTRICT
        NO. D-1-GV-10-OOO9O2, HONORABLE TIM SULAK, JUDGE PRESIDING

                                              ORDER

PER CURIAM

              On   April   16,2012, the appellants filed   a   motion for emergency relief related to their

appeal in cause number 03-11-00462-CV, and the appellees fìled a response on              April 18,2012.

Having reviewed the motion and the response, we deny the motion for emergency relief.

              It is ordered }l4ay 3,2012.

Before Justices Puryear, Henson and Goodwin
ProDoc FaxService           Page 2 of      103

                               NO, 03-11- 00462

                               lln U,llt
                       0[birù 6nu$ nt H.frenld
                                AT               TÐ'(AS

      Sanadco Inc,, Mahmoud A, Isba, Walid Abderrahman, Maiic Investments
      Inc,, Faisal Khan, Isra Enterprises, Inc,, Hattab Al-Shudifat, Haifa
      Enterprises, Inc., EID Corp,, Mohammed S, Al Haieid, Maidi Rafe 0kla
      Nsairat, Omar Unlimited, [nc., and All Others Similarly Situated,
                                                                  APPELLANTS
                                             VS.

     The Office of the Comptroller of Public Accounts; Susan Combs, Ín her
     individual and official capacities as Comptroller of Public Accounts for
     the State of Texas; and Greg Abbott in his official capacity as Attorney
     General of the State of Texas
                                                                  APPEttEES

                          Appeal From Cause No D-1-GV-10-000902
                        The 98th Dlstrlct Court 0f Travls Counfy, Texas
                             The Honorable Tim Sulak, Presiding

                         MOTION FOR EMERGENCY RELIEF
               TO LIFT THE AUTOMATIC STAY FOR A TIMITED PURPOSE

                                SAMUET T, IACKSON
                                  sBN 10495700
                                    P.O, BOX 670L33
                              ARTINGTON, TX 76003.0133
                                 TEL: [817) 751-71ss
                                 FAX: [866) 37+-oL64
                            COUNSET FOR APPELLANTS
ProDoc Faxservice                Page 3 of       103

                           IDENTITY OF PARTIES AND COUNSEL

     APPETLANTS:

      Sa¡¡nnco Intc., MauuAuD A. Isne, WeuD ABDERRAnMAN, Mn¡tc h.rvrs'rurl¡Ts INC,,
     Fnlsnl KuRtrl, Isnn ErrlrrRpRlsps, INc,, HATTng AL-SHUDIFAT, Hnlrn ErurrRpnlsrs,
     In¡c,, EID CoRp,, Mognuprup S, Al HRInn, Mn¡u Rere 0xln NsRlnet, Ounn
     Un¡unarrEo, INc., Rn¡n Au Ornrns Slrrtunlv S¡ruRrEp

      COUNSEL FOR APPELLANTS:

                                        tAW OFFICE OF
                                        SAMUET T. IACKSON
                                        P.O, Box 170633
                                        Arlington, Texas 76003-063        3
                                        TEL; [817) 75I'7Iïs
                                        FAX: [866) 374-0164
                                        Email: jacksonlaw(ôhotmail.cont

      REAL PARTIES IN INTEREST:

     Tun Orncn oF THB CouprnollrR oF Punuc Accouxrs; Susnr¡                     Coltns,
     INDTvTDUALLv, AND rN HER oFFICIAL cApAcrry es CouprnoLLER      or PunLrc Accout¡rs
      0F THESrnru on TExRs; AND      GREG A¡Borr, IN Hrs oFFIcrAr cApAcrry Rs ArroR¡¡Ey

      GEruERel oF THE Srnrr or TExRs

      COUNSET FOR REAL PARTIES IN INTEREST:

                                        TACK HOHENGARTEN
                                        Assistant Attorney General
                                        FINANCIAL LITIGATiO N DIVISION
                                        P.0. Box )"2548
                                        Austin, TXTBTLI-2548
                                        TEL; (stz) 475-3503
                                        FAX: (s12) 477 -23+Bl 480-8327

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                                     TABTE OF CONTENTS

      IDENTITY OF PARTIES AND COUNSEL                                                             ',2
                                                                                                    I
      TABLE OF CONTENTS                                                                           ..J

      TABLE OF AUTHORITIES                                                                          5

      STATEMENT OF JURISDICTION                                                                     B

      STATEMENT OF THE CASE                                                                         9

      ISSUES PRESENTED                                                                            10

        L      Did the Comptroller engage in ultra vires çonduct when she persisted in
        pursuing the cancellation of Appellants' sales tax permit after her decision to cancel
        the permit had been timely appealto the district     court?                    .,,,..,...10

        ll.   Was the Comptroller's attempt to collect alleged sales tax liabilitìes while the
        underlying claims were subject to an interlocutory appeal in violation of the
        automatic stay    provisions?,,,,.,,,.                                        ,.,,,...,,,, 10

        lll.  Did the Comptroller engage in ultra vires conduct in excess of her statutory
        authority when she engaged in enforcement procedures to collect sales tax
        assessments while they were pending judicial       review?.,,,.                       ..,... 10

        lV.   When Appellants' administrative procedures were exhausted, did the
        Comptroller's decision become a nullity when Appellants requested de novo judicial
        review?                                                                          10

      STATEMENT OF         FACTS                                                              .,..,11

      ARGUMENT AND AUTHORIT]8S,.,,,,,..,                                                      ....,,r4

        I. The Comptroller's Suspension of Appellants' Sales Tax Permit Violated
        Appellants' Right to Appeal from the Order Suspending the Permit.........,,                15

        il. Tlie Cornptroller's Enforcernont Actions Violated the Automatic Stay
        Provisions of an Interlocutory Appeal .....                                                I7
        III. The Comptroller's Enforcement Actions          are   Ultra l/ires                     18

        and Exceed Her Statr.itory    Aulhority                                                    18

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      CONCLUSION                                                                      22

      PRAYER                                                                          22

      CERTIFICATE OF SERVICE                          Error! Bookmark not defined.

      INDEX TO APPENDIX                               Error! Bookmark not defined,

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                                    TABTE OF AUTHORITIES

      CASES
     Amrhein v. La Madeleine, lnc.,
      206 S.W,3d 173, (Tex.App.-Dallas 2006, no pet.),,,,.,...                               15

     Bunhus v, M & S Macñ. & Supply Co,, lnc.,
       897 S.W,2d 871 (Tex.App,-San Antonio 1995, no pet,)                                   i5

      Çity of San Antonio v. City of Boerne,
        1 1 1 S.W.3d 22 (Tex.2003)                                                        18

      Greene v. Sfafe,
        324 S.W.3d 276 (Tex.App,-Austin 201 0, no pet,)                                      18

     Herrera v. Sfafe,
       No. 03-0'1-0010'l -CV,2002 WL 185476                                             17

      ln Re TASO,
        03-1 1 -00269-CV (Tex.App.-Austin s-6-201 1 )

     Key Western Life /ns. Co. y, Sfafe Bd, of lns.,
      350 S.W,2d 839 (Tex, 1961),., ,.,.,,,                                                  19

      Logal v. Unlted Sfafes,
        195 F,3d 229, (Sth Cir. 1999)                                                  17, 18

      Southern Canal Ç0. v. Sfafe Bd. of Water Engineers,
        31 8 S,W.2d 61 9; 159 Tex, 227 (Tex, 1958)                                           19

      State Bd. of lns. v. Republic Nat'l lns. Ço.,
        384 S.W,2d 3€9 (Tex,Civ,App,          Austin 1964, writ refld n,r,e,),,,,,           19
                                          -
      Sfafe v. Crawford,
        262 S.W,3d 532 (Tex.App.-Austin 2008, no pet.)                                 17, 18

      Subaru of America v. David McDavid Nissan,
       84 S,W.3d 212 (Tex.2002),                                                             I7

      fexas Dept. of Public Safety v. Banks Transp.         Ço.,
        427 S.W,2d 593, (Tex.Sup, 1968)

                                                                                     5lPnqe
     Motion for Eurergency Relief to Lift Automatic Stay for Limite324 S.W.3d 276,288 (Tex.App,-Austin 2010, no pet.)
     (111,010 allows for a de novo review of the party's tax liabllity), Herrera v. .9fafe, No, 03-01-
     00101-CV,2002 WL 185476, at *1 n.4,2002 Tex.App,.-Austin Feb,7,2OO2, no pet,) (not
     designated for publication) (identifying suit under section 111,010 as "de novo action by the
     State to collect delinquent tax"),
               The Administrative Procedure Act (APA) provides that when "the manner of review
     authorized by law for the decision in a contested case                 .,, is by trial de novo, the reviewing
     couft shall try each lssue of fact and law ,,. as though there had not been an interuening
     agency action or decision," T€x. Gov't Code Ann, $ 2001,173(a) frVest 2000), A de novo
     hearing has been defined as "a new and lndependent action in whlch the whole case is gone
     into as if no trial whatever had been had in the court below," Trial de novo is not an "appeal",
     but is a nBW and independent action, Key Wastern Life lns, Co. v. Sfafe Bd. of /ns,, 350
     S,W.2d 839,846 (Tex. 1961).
           Tex. Tax Code Ann. $ 111.0049, and Tex. Tax Code Ann, $ 151.205 authorize a
     taxpayer to appeal the revocation or suspension of a tax permit "in the same manner that
     appeals are made from a final deficiency determination", They are therefore accorded a trial
     de novo and there is no final order upon which the State can proceed to enforce the order until

     o
      g t t t Ot OZ TAX Surt Challcngrng Collection Action
     Venue for anrì jurisdiction of a suit that challenges or is fff the purpose olavoiding a comptoller colleclion action
     or statc tær ìien in any manner is exclusively confened on the clistrict courts o[ Travis Coun¡r.

     '   $ 1 11 0049 TAX Appeats
     A taxpayer may appeal the revocation or suspension of a permit or license under Section I I 1 0046 and i i i.0047
     of this code in the same rnanner that appeals are rnacle from a fnal deficiency cletermuratuon

     ó
         tst zos TAX Appeats
         g
     A  taxpayer may appeal the revocation or suspension of a tax permit in the same manner that appeals are macle
     lrom a ftnal rleficiency determr¡ration.

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     a final decision is reached in the appeal, Accordingly, they should be precluded from pursulng
     the suspension of the sales tax permit until this cause is concluded. Appellants therefore
     request this couri to lift the automatic stay for the limited purpose of staying the execution of
     the suspension order pending a final hearing on the appealfrom such judgment,

         II. The Comptroller's Enforcement Actlons Vlolated the Automatlc Stay
                              Provlslons of an Interlocutory Appeal

             The Texas Civil Practice and Remedies Code expressly provides for an interlocutory
     appeal from an order granting or denying a plea to the jurisdiction by a govêrnmental unit, Tex.
     Civ, Prac. & Rem, Code Ann, S 51,01a(a)(8) (West 2008). When a notice of interlocutory
     appaal under this section is filed, all proceedings in the trial court are automatically stayed
     pending resolution of the appeal, /d. $ 51,014 (b). ln RE TASO, 03-11-00269-CV (Tex,App.-
     Austin 5-6-201 1),That appeal is currently pending in this Court as Case No, 03-1 1-00462-CV.
             Appellants filed its notice of interlocutory appeal on July 25, 2011, Each of the
     enforcement actions taken by the Comptroller commenced after the filing of the notlce. The
     Notice of Bond and subsequant enforcement activi$ against ISBA Enterprises, lnc, was
     commenced on September 20, 2011. 1'he Notice of Hearing to Cancel was commenced by
     letterto Majic lnvestments, lnc. dated January 13,2012,'lhe hearing was held telephonically
     on February 24,2012 and the Comptroller ordered the permit suspended effactive March          5,

     2012,
             When Appeilants commenced this interlocutory appeal by filing its notice of appeal, "all
     other proceedings in the trial courf' were stayed pending resolution of the appeal, Tex, Civ,
     Prac.&Rem.CodeAnn$51,014(b).Anordersignedduringastayisa"legal nullity," Amrhein
     v. La Madeleine, 1nc.,206 S,W,3d 173, 174-75 (Tex.App,-Dallas 2006, no pet,)', Burrhus v. M
     & S Mach. & Supply Co., |nc.,897 S.W,zd 871,873 (Tex.App.-San Antonio 1995, no pet.)
     (holding that appellate deadlines are stayed during pendency of automatic stay imposed by
     insurance code).
             Accordingly, the enforcement actions sought by the Comptroller are void, and any
     further enforcement activity would be in violation of the automatic stay order and must be
     enloinad pending resolution of the interlocutory appeal,

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                      IIL The Cornptroller's Enforcement Actions are Ultra Vires
                                 and Exceed Her Statutory Authorlty

      The Request for Bond is Premature
                The Comptroller is not authorized to collect delinquent sales taxes untll they become
     final, The tax code provides "[t]he amount of a determination made under this code is due and
     payable 20 days after a comptroller's decision in                  a redetermination hearing becomes                flnal".
     Tex, Tax Code Ann, $ 111,0081 (c),7
            The request for bond is pursuant to Tex, Tax Code Ann,                           $ 111.012 (a) (1)B which
     permits the comptroller         io require a taxpayer to provide security for the payment of taxes only
     if the comptroller finds that a fax imposed by this title is insecure. 34 Tex Admin. Code g 3.327
     (d), the regulation interpreting this provision provides:
                       lf the comptroller determines at any time that the amount of the bond on file is
                inadequate or if a permitted retailer is dalinquent in the payment of any state or local
                sa/es or {/.re faxe.s, the comptroller may require a new or additional bond to be posted.

                Relator maintains that the request for bond prior                      to the     establishment        of    any
     delinquency is unlawful pursuant to the provisions of Tex, Tax Code Ann, $                        1 11   .0081(c) which
     provides:

                        The amount of a determination made under this code is due and payable 20
                days after a comptroller's decision in a redetermination hearing becomes final. lf the
                amount of the determination is not paid within 20 days after the day the decision
                became final, a penalty of '10 percent of the amount of the determination, exclusive of
                penalties and interest, shall be added.

                The Comptroller's decision becomes "final" (and ihus                          a   party has       exhausted
     administrative remedies) for purposes of a party's pursuing damages in a trial court for Code-

     t
       5 t t t OOa t TAX When Payment is Re qurecl
        (a) Except as providecl in Subsections þ) and (c) ol this sectiorr thc amor.urt of a determination made under this
     code is due ancl payable 10 days after it becomes frîal. If the amorurt olthe determination is not paid within 10
     days after the clay it became final, a penally ol 10 percent of the amount of the determination, exclusive ol
     penalties and nterest, shall be added.
        þ) This section does not apply to a determination uncler Section ^lll",8??,
        (c) The ârnount ol a cletermination made uncler this code is due a¡ld payable 20 days after a comptrolle/s
     clecision Ln a recleterminalion hearing becomes ftnal Il lhe amou¡rt ol lhe cìetermination is not paicl wrthin 20 days
     alt¿r the day the decision became f-tnal, a penalty ol l0 percent ol the amount of the determi¡ation, exclusive of
     penalties and interest, shall be added.

     I
         ç t t t.Ot Z Secunly lor the Payment of Taxes
         (a) If the compboller fr¡rds lhat a fax imposed by this title is lflsecure, the compfolìer mây requlro a tâxpayer   tro:
         (1) provide se curity lor the payment of taxes:

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      based claims: (1) atter the time to seek substantial-evidence review of the agency decision
     expires, if no affected person seeks such review, see Tex. Rev. Civ, Stat. art.4413(36),                               $
      7,01(a)-(b); or (2) after an affected person who seeks judicial review exhausts the substantial-
     evidence review avenues. Subaru of America v. David McDavid JVlssan, 84 S.W,3d 212 (Tex.
     2002).
              ln the absence of the Gomptroller's finaldecision in the redetermination hearing, no tax
      has yet been imposed and no tax is "due and payable" upon which a delinquency may be
                                        for provision of security prior to a final decision and
     predicated. Accordingly, the request
     subsequent delinquency is void as ultra vires and in excess of the Comptroller's statutory
     authority, Sfafe y, Çravvford,262 S,W,3d 532,546 (Tex,App,.Austin 2008, no pet.) (evidence
     was insufficient io conclusively establish that [Taxpayers] "willfully fail[ed] to pay or cause to
     be paid the tax," because the tax amount had not yet become due); see also Logalv. United
     Sfafes, 195 F,3d 229,232 (Sth Cir, 1999),
              Accordingly the requirement for the payment of bond is void and ISBA should be
     reimbursed for the full cost of the bond, and the settlement agreement reached during the
     pendency of the lnterlocutory appeal should be nullified.
      The Notice to Cancel        is Premature
              The Notice of Hearing to Cancel Permit is issued pursuant to Tex, Tax Code Ann. g
      111.0047s which authorizes tho Comptroller, after notice and hearing,  to revoke or suspend
     any permit or llcense issued to the pÉrson only if the comptroller finds that a person fails to
     complywith any provìsion of this title orwith a rule of the comptrolleradopted underthistitle.
              The Comptroller alleges that the notice is being issued due to Relator's "for failure to
     pay the amount due of $73,600,67 for the (audit) periods September 1, 2005 to April 30, 2009.

     Relator maintains that the request for payment prior to the establishment of its debt is unlawful
     pursuant to the provisions of Tex. Tax Code Ann. S 111,0081 (c) (See fn. 1).

     n
        $ I t t OOqZ Srxpension and Revocfltion of Pennit or License
     (a) If a person fails to comply with any provision of this title or with a rule of the complroller adopted under this
     title. the compholler, afler a hearing, m ay revoke or suspend any perm it or license issued to the person.
     þ) A person whose pemil or lioense the comptrolìer proposes io revoke or suspend under thls seclion is entltlcd
     to 20 days' wrilten notice of the tjme and place of the hearing on the revocation or suspension. At the hearng the
     person must show cause why each permit or license should not be suspended or revoked,
     (c) The compfoller shall give written notice of the revocation or suspension of a permit or license to the holcler of
     the permit or license . (d) Notrces under this seclion may be servecl on the holder of the permit o¡ license personally
     or may be mailed ,c the hoklerrs acldress as shown in thc records of the comphoììer.

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                   ln the absence of a final decision in the redetermination hearing, no tax has yet been
      imposed and no tax is "due and payable" upon which a delinquency may be predicated.
     Accordingly, the requast for payment prior to a final decision and subsequent delinquency                             is

      ultra vires and in excess of the Comptroller's statutory authority, Sfafe v. Crawford, 262
     S.W,3d 532, 540 (Tex.App.-Austin 2008, no pet.) (evidence was insufficlent to conclusively
     establiEh that [Taxpayers] "willfully fail[ed] to pay or cause to be paid th6 tax," because tha tax
     amount had not yet become due); see a/so Loga/ v. United Sfafes, 195 F,3d 229,232 (Sth Cir,
      1   99s).
      The Comptroller's Decísion Has Been Vdcated
                  Appellants have filed a petition for judicial review pursuant to Tex, Gov't Code g$
     2001,7310 and Tex, Gov't Code S 2001 .17411                  in CausE No, D-1-GV-10-000902 in the                  gSth

     District Court of Travis County, Texas for a de novo hearing to determine the validity of the
     deficiency assessments sought               to be      collected    by the      Comptroller      in the    contested
      proceeding. More importantly, because the only question before the District Courl concerns a
     matter of statutory construction, the review of the court's construction of the relevant statutes
     is de novo. See Clfy of ,San Antonio v. City of Boerne,              11   1 S,W,3d   22,25 (Tex. 2003).
                   Further, in suits filed pursuantto Tex, Tax Code Ann, $111.010, officers and directors
     are entitled to a fuli and complete hearing on their tax liability in district court. See Tex, Tax
     Code Ann, $ 111.010 lWest 2008) (authorizing attorney general to file suit to recover taxes).
     The case is tried de novo. Greene v. Sfafe, 324 S,W,3d 276,288 (Tex,App.-Austin 2010, no
     pet,) (1'11,010 allows for a de novo review of the party's tax liability),Herrera y. ,Sfafe, N0.03-
     01-00101-CV,2002 WL 185470, at *1 n. 4,2002 Tex.App,,-Austin Feb.7,2002, no pet,) (not
     to g
            200i173 Gov'T. Triol De Novo Rçview
     (u)   If
            the mrrnner of ¡eview nuftorized by law for the decision in n contested cuse thnt is the subject of complnint is
     by trinl de novo, the revierving court shnll try ench issue of fnct and lew in the ln€rnner that npplies to othe¡ civil
     suits rr this state as though there hacl not been an intervening agency action or decision but may not aclmit in
     eviclence the lact of prior state agency action or the nature of that action 0x00pt io the limitecl cxtent necessâry to
     show cornpliance with stâtutory provisions that vest jwiscliction in the cou¡t,

     t'             GOV'T Review Under Substantial Eviclence Rule or Undefned Scope of Review
          $ 2001 174
     Il the law authorizes revie"v of a cle cision r-n a contcsted case under the substântial evidence rule or ilthe law does
     not deline the scope of .ludrcral revier,v, a cowl may not substitute its.ludgment lor the judgment of the statÉ
     agenc)¡ on the werght of the eviclence on questions committed hr agency cliscretion but: (1) may affirm the agency
     decrsion ul whole or lr partl and (2) shaìl reverse or remand the case for fwlher proceeclurgs ilsubstantial rights ol
     the Relator have been preludrccd because the aclminislratrvc furclings, inferences, conclusions, or rlecisions are:
     (A) rn vioìation of a constrtutional or statutory provision; @) in excess of the agencyrs stafulory authority; (C)
     rnacle tluough unlawful proceclurel (D) aflected by other error of law; @) not reasonably suppofted by substantial
     eviclence considering the ¡e liable and probative evidence ln the record as a whole: or (F) arbrrary or capricious or
     characænzecl by abuse of dlscretron or clearly unwar¡anted exercise of cìiscretlon.

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     designated for publication) (identifying suit under section 111,010 as "de novo action by the
     State to collect delinquent tax").
                   The Administrative Procedure Act (APA) provides that when "the manner of review
     authorized by law for the decision in a contested case  .., ls by trial de novo, the reviewlng
     court shall try each issue of fact and law ,,. as though there had not been an intervening
     agency action or decision," Tex, Gov't Code Ann, $ 2001,173(a) (West 2000). A de novo
     hearing has been defined as "a new and independent action in which the whole case is gone
     into as if no trial whatever had been had in the court below," Trial de novo is not an "appeal",
     but is a new and independent action. Key Western LifE lns. Co. v. Sfafe Ed. of /ns,, 350
     S,W,2d 839,846 (Tex. 1961),
                   The sine qua non of a de novo trial is the nullification of the judgment or order of the
     first tribunal and a retrial of the issues on which the judgment or order was founded, When
     jurisdiction of the second triþunal attaches, the judgment or order of the first tribunal is not
                                     fexas Dept. of Public Safirfy v. Banks Trensp, Co,, 427
     merely suspended, but is nullified.
     S.W.zd 593, (Tex.Sup. 1968); Southern Cenel Co. v. Stafe Bd. of Weter Engineers,318
     S,W,2d 619; 159 Tex.227 (Tex. 1958). Accordingly, "res judicata" and "final judgment" are
     ínapplicable in de novo proceedings because the original administraiive order that is the
     subject of appeal is nullified in a de novo procÉeding. Sfafe Bd. of lns. v. Republic Nat'l lns,
      Co., 384 S,W,2d 369, 372 (Tex,Civ,App,                      Austin 1964, writ ref'd n,r.e.),
                                                              -
                   The filing of this Petition operates to vacata the Comptroller's Decision pursuant to
     Tex, Gov't Çode $ 2001.176 (b)(3)'2, because trial de novo is the manner of review authorized
     by law for suspension of limlted sales, excise and use tax permits,ls Accordlngly,                                  the

     t'
        I ZOO1 . 1 76 GOV'T, Petition Initiating Judicial Rev iew
     (a) A person ultiates ludrciaì review in a conte sted case by liling a petition not latcr than the 30th clay after the
     date on which the clecision that is the sublecl ol complaint is linal ancl appealable.
     (b) Unless otherwise providcd by statute    r

     (1) the petitton must be frled in a Travis CoLurly clistrrct court;
     (2) a copy of the petition must be served on lhe stale agoncy and each party of record tr the proceedings belorc the
     agency; and
     (3) the fiìing oi lhe pettlion vacates a stâte agency clecision for which lrial de novo is the manner ol review
     authorizecl by law but does not af,lect the enforcement of an agency decision for which another manner olreview
     is aulhorized.

     tl   g t OZ   OOZ   TAX Enlorcement ol License   Cance   llatron, Suspension, or Relusal

     (c) An appeal lrom an orcler of the comptroller cancelurg or suspending or refusing the issuance or reissuance of a
     Iicense may be taken lo a clisfict cou¡t ol Travis Courity by the aggrieved license holder or applicant The trial
     shall be cìe novo u¡rder the same rules as ordinary clvil suits, except that: (l) an appeat must be perlected and fited
     within 30 clays altrr the elfective dat¿ of the order, decision, or rulurg of the complroller; (2) lhe trial of the case

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     Comptroller's Decision has not become final and can therefore not form the basis for the
     collection of the tax deficiencles sought to be recovered by the show cause order.

                                                    CONCTUSION

                   The Notice of Hearing to Cancel Relator's sales tax permit or to require the posting of
     bond are in violation of autornatic stay imposed by the interlocutory appeal pending before this
     Court in Case No. 03-11-00462, Further, there is no final order upon which io request payment
     of the alleged tax assessment, because the Cornptroller's decision has been vacated byvirtue
     of the putative class action suit pending before the 98rh Judicial District Court in Travis County
     Texas, seeking de novo review of the Comptroller's decision. Finally, the Notice of Hearing to
     Cancel, prior to entry of a final judgment, is ultra vires and in excess of the Comptroller's
     statutory authority, because she cannot collect on delinquent taxes until 20 days after her
     decision becomes fínal, Her decision cannot become final until the issues relating to the
     judiciai review or finally determined.

                                                       PRAYER

                   WHEREFORE, PREMISES CONSIDERED, Appellants request this Court of Appeals
     to lift the automatic stay imposed in this case for the limited purpose of reviewing the issues
     raised by this motion under lts authorlty pursuant to Tex, R. App, P, 29,6, and declare the
     Appellants rights pending the appeal of the Comptroller's order suspending Appellants' sales
     tax permlt and to enjoin Susan Combs, in her official capacity as Comptroller of                          Public
     Accounts, from engaging in further enforcement activities pending resolution of the underlying
     Motion for Declaratory Judgment and Temporary lnjunction and the pending interlocutory
     a   ppea l.

                   Alternatively, to lift the automatic appeal for the limited purpose of authorizing the trial
     court     to    declare the Appellants rights pending the appeal of the Comptroller's order
     suspendlng Appellants'sales tax permit and to enjoln Susan Combs, in herofficialcapacity as
     Compirollar of Public Accounts,from engaging in further enforcemant activities pending

     shall begtn rvithul 10 ciays after tts filt-trg; ancl (3) the order, decísion, or rulng of the comptroller may be
     suspencled or modifie d by th-e cowt pending a t¡ial on the rnents

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     r€solution ôf the underlying Motion for Declaratory Judgmsni and Temporary lnjunction and
     the pending interlocutory tppÊât.
                                                 Respectfulfy   su þmÌtted,

                                                 f,a.w   Offie of
                                                 Samueft tøcft¡on
                                                 PO Box 170030
                                                 Arlingtorr, TX 76003-063s
                                                 Tel: (817) 751-71s5
                                                 Fax. 866-374-0164
                                                 ATTORN       FOR

                                                        T. Jackson
                                                 Texas Bar No. 1049570

                             CERTJFICATE OF            C   OMPI,IAN       C-E

            Irr compliance with Texas Rules of Appeliate Procedure 51,10, Appellanu cetiff
     by the sþature above, that they have notified or made ¿ clìligent          efff,brt   to notify the
     parties or thei¡ representatrves, by expedited mean$, to advi¡e them that a motion for
     temporary relief has been or wif be fiIed with Relators' Petitiorr for Writ of Mandamus.

                                                 tg_ Sunu¿tt Jací¡sn
                                                 SAMUBL T. JACKSON

                                            TE     F

            In compliance withTex. R. App.P. 10.1 (a) (5), counsel fut the Appellanh certifies
     by his sþature above, that he hæ confer¡ed with counsel for the real parties ín inerest,
     and was advised that the real partiæ fur interest oppose the relieflrequested in thís motron.

                                                                  tst_ Samuetl. Jøcfr¿on

                                                                  SA]VTIIEL T. JACKS       OI.\T

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                                    CERTIFICATE OF SERVICE

            I hereby certi$' by my signahue above that a true    and ccrrect copy of the above and
     foregoing instrument wâs served on the parties or their attorneys via facsimjl€, certi-fi.ed
     mail, rerutn receiptrequested, and/ar hand delivery onAprü 1,5,2012, in accorda"Ece with
     the Texas Rules of Appellate Procedure, to the following:

     JACK HO}TENGATTEN
        istant Attorney GenEral
     ,Ass
     FD{AN CTA], LITIGATTON ÐTViSION
     P.O. Box 12548
     Austin, TX787tt-2548
     13L; (512) 475-3503
     FAX: (512) 47 t -2348 / 480-8327
     Email: j ack,hohelgprten@oag,state,ü,¡s
     ATTORNEY F OR RTSPONDEI\TS

                                                                                         24lPuge
     Mofion for EmergencyRelief to Lift Autom¿tic Stay for Lirnif¿d Purpose
                                                 Tab C

   Plaintiff’s Original Petition for Judicial Review, Declaratory
   Judgment, Temporary Injunction and Request for Disclosure,
   No. D-1-GN-13-004352, Sanadco Inc. v. Hegar, in the 200th
      Judicial District Court, Travis County (“Sanadco II”).

Appellees’ Responsive Brief                                    page 3
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
                                                                   1212712013 6:02:24 PM
                                                                            Amalia Rodriguez-Mendoza
                                                                                         District Clerk
                                                                                         fravis Gounty
                                                                                      D-1-GN-13-004352
                                         D-1-GN-13-004352
                           CAUSE NO,

SANADCO INC, A TEXAS CORPORATION,         S         IN THE DISTRICT COURT
AND MAHMOUD AHMED ISBA                              s
                            PIointffi,              s
                                                    s
                                                    s
     VS                                             s
                                                    s
SUSAN COMBS, IN HER INDIVIDUAT                      s       TRAVIS COUNTY, TEXAS
AND OFFICIAT CAPACITY                               s
AS COMPTROTLER OF PUBLIC ACCOUNTS,                  s
                                                    s
OFFICE OF COMPTROTTER OF PUBLIC                     s
ACCOUNTS FOR THE STATE OF TEXAS,                    s
                                                    s
AND GREGGABBOTT IN HIS OFFICIAT                     s
CAPACITYAS ATTORNEY GENERAL OF                      s
THE STATE OF TEXAS                                  s
                                                          2OOTH
                            Defendants              s                luDrcrAt     DISTRTcT

          PTAINTIFFS' ORIGINAT PETITION FOR JUDICIAL REVIEW, DECTARATORY
           IUDGMENT, TEMPORARY INJUNCTION AND REQUEST FOR DISCLOSURE

     COME NOW SANADCO INC. and MAHMOUD AHMED ISBA, Plaintiffs,                who file this
Original Petition for judicial Review, Declaratory f udgment and Temporary Injunction from
a pending Comptroller's Decision in a contested case proceeding before the State Office of
Administrative Hearings, complaining of SUSAN COMBS, in her individual and official
capacity as Texas Comptroller of Public Accounts, and GREG ABBOTT, in his ofïicial capacity
as Texas Attorney General f"Defendants"), and for cause would respectfully show the
following:
                                               I.
                              DISCOVERY CONTROL PT-AN
   1,. Plaintiffs desìgnate this case as a Level 3 case requiring a discovery control plan
       tailored to the circumstances of this particular suit pursuant to Texas Rule of
         Civil Procedure 190,4

                                                   II.
                                    REQUEST FOR DISCLOSURE

    2.   Pursuant to Texas Rules of Procedure 194, Plaintiffs request that Defendants
         disclose, within 50 days of service of this request, all of the information or material
         described in Rule 794.2.
                                                  III.
                                               PARTIES

    3.   Sanadco Inc., Plaintiff, is a private Texas Corporation, duly organized and existing
         under the laws ofthe State ofTexas, engaged in the operation ofa convenience store
         whose principal place of business is located at 3801 East Rosedale St., Fort Worth,
         Texas 761,05-1,732,and whose Taxpayer No. is

    4.   Mahmoud A. Isba, Plaintiff, is an individual who resides in Arlington, Tarrant County
         TX and operates the convenience store owned by Sanadco Inc.,located at 3801 East
         Rosedale St., Fort Worth, Texas 76105-7732, and whose Taxpayer No. is

    5.   Defendant, Susan Combs [hereinafter referred to as ["Comptroller"), joined herein
         as a necessary party in her and official capacity as Texas Comptroller of Public
         Accounts, and in her individual capacity for purposes of certain of Plaintiffs' claims
         that certain described actions as set forth below are ultra vires and she was acting
         beyond the scope of her lawful authority. Susan Combs is a public official who is
         charged with the collection of Limited Sales, Excise and Use Taxes pursuant to the
         Texas Tax Code and may be served by personal service aT 1,1,L East l-7th Street,
         Austin, Texas 7877 4.

    6.   Defendant, Gregg Abbott in his official capacily as the Attorney General of Texas,
         joined herein as a necessary party in his official capacity, is a state agency as defined
         by Tnx, Gov'r, Conn Aruru. g2_t01!03 [7), having statewide jurisdiction which makes
         rules and determines contested cases and may be served by personalservice ar.209
         West 14th Street, Bth Floor, Austin, Texas 7870L.

-2-ll':r¡1rl
                                                tv.
                                  JURISDICTION AND VENUE

    7.   This is an action seeking declaratory and injunctive relief from a contested case
         proceeding pending issuance of the Comptroller's Decision before the State Office of
         Administrative Hearings (SOAH) against Sanadco, Inc,, and Mahmoud Ahmed Isba
         in SOAH DOCKET NO. XXX-XX-XXXX.26, TCPA HRG No. 1,04,445, and SOAH DOCKET
         N0. 304-13 -4212.26, TCPA HRG No, 707,006, respectively, and joined for the sake
         of efficiency, [Exhibit A)

    B, This court   has subject matter jurisdiction to determine the validity of AP 92 and AP
         I22, and enter declaratory relief pursuant to TEX, GOV'T. CODE ANN, [2.00L03B,
         wherein sovereign immunity has been waived when it is alleged that a rule or its
         threatened application interferes with or impairs, or threatens to interfere with or
         impair, a legal right or privilege of the plaintiff,

    9.   This Court has subject matter jurisdiction pursuant to the Uniform Declaratory
         Judgments Act, TEX, CIV, PRAC. & REM. CODE ANN, S 37.00L et seq,, by which
         sovereign immunity has been waived and authorizes Plaintiffs to obtain a
         declaration ofrights, status, or other legal relations affected by a statute; and against
         a state official who engages in ultra vires acts without legal or statutory authority,
         or refuses to perform a purely ministerial act. City of EI Paso v. Heinrich, ¿84 SJ ¿.3d
         366 370 [Tex. 2009).

    10, This Court has subject matter     jurisdiction pursuant to TEX. GOV'T CODE ANN. SS
         T\ALLI1, ZOfl_UZ3 and 20t1.J74, seeking judicial review from a pending final
         decision in a contested case before the State Office of Administrative Hearings. Seq
         Lindig v, !ohnson Cit"v. 03-08-00574-CV (Tex. App.-Austin 70-21"-2009). (a
         premature petition for judicial review may be cured if there is a claim over which
         the court obtained juriscliction under its general jurisdictional authority,)

    11. This Court has subject   matter jurisdiction pursuant to TEX. CONST. AßIJ-S-I=!..

                                                V,
                                      SUMMARY OF FACTS

    72. On  August 17 , 2004, after the Comptroller became aware of lack of uniformity in
         convenience store audits, she issued a policy memorandum implementing new
         procedures for convenience store audits entitled Audit Policy 92lAP92 )[Exhibit B),

-3-lí):r¡1r:
               directing all auditors, inter alia, to conduct a shelf test during convenience store
               audits if the taxpayer is still in business, and use the percentages designated in AP92
               as the mark-up for beer and tobacco products if the records of a convenience store
               are "unavailable, inadequate, or unreliable" and if the actual mark-up percentage
               could not be ascertained by other means.

         13. Effective September     l, 2007, the Texas Legislature enacted legislation directing
               each wholesaler or distributor of beer, wine, malt liquor or tobacco products to file
               a report with the Comptroller detailing the monthly net sales made to the retailer
               by the wholesaler or distributor, including the quantity and units of beer, wine, malt
               liquorand tobacco products sold to the retailer. [Tex. Tax Code S 151.433 [b) [4)t
               and Tex. Tax Code S 155.105.2 The data provided as a result of the legislation is
               commonly referred to as HB 1,1, data, but no directives regarding its use
               accompanied the legislation. The first reports became available on January 1, 2008.

         L4,   After HB 11 became effective, the Comptroller revised APg2 with APL 22 (Exhibit C),
               effective luly 22,2009, by revising the audit procedures and determination of mark-
               up percentages and incorporating H811, instructing that this data must be the
               starting point for all convenience store audits whether used as internal control
               verification or as data used to estimate the audit,

r t S t.+ll. Reports by Wholesalels and f)istr'ibutors of Beer, Wiue, and Malt Liqrrcr
  ç
(b) The comptroller may, when considered necessary by the cornptroller tbr the adrninistration of a tax under this
clrapter, require each wholesaler or clistributor of beer, wine, ol rnalt liqnol to file with the cornptroller a report each
nronth 997
             S.W.2d 248, 255 [Tex. 1,999). These procedures include providing notice,
             publication, and public comment on the proposed rule, 1d. [citing Tex. Gov't Code
             Ann. SS 2001,.023-.030). The process assures notice to the public and affected
             persons and an opportunity to be heard on matters that affect them. Id.

       31.Unless a rule is promulgated and adopted in accordance with the requirements of
          the APA, it is invalÍd and unenforceable. Tex. Gov't, Code Ann. SS 2-0f11-Q35,s
          aq01.0!46 and Z0û1.,0057, Neither AP 92 nor AP I22 as it reìates to HB 1,7,were

5$ 2001.035. Substantial Compliance Requilernent; Tirne Lirnit on Pl'ocedulal Cìhallenge
(a) A rule is voidable unless a state agency ado¡rts it in substantial cornpliance with Seotions 2001.0225 tlirough
2001.034.

6S                                Adopt Rnles of Plactice and Index Rnles, Orders, and Decisions
      2001 .004 Requilernent to
In addition to other leqniternents under'law,   a state agency shall:
(l) adopt rules of practice stating the nature antl requircments of all available formal antl inft¡r'rnal ploocdules;
(2) index, cross-index to statntc, and rn¿rke available for public ir:rspection all lule s anId.

     34.              Suits to require state officials to comply with statutory or constitutional
              provisions are not prohibited by sovereign immunity. Heinrich, ZB4-5l4lJd at372.
              To fall within the ultra vires exception to sovereign immunity, a suit "must allege,
              and ultimately prove, that the officer acted without legal authority or failed to
              perform a purely ministerial act." ld. [citations omitted). "Thus, ultra vires suits do
              not attempt to exert control over the state
                                                           - they altempt to reassert the control of
              the state. Stated another way, these suits do not seek to alter government policy but

(a) A statc agcncy rulc, ordcL, or dccision rnadc or issucd on or aflcr Janttary I, 197 6, is not valid or cffcctivc against
a pcrsol'r or party, and rnay not bc invokcd by an agcncy, until thc agcncy has iudcxcd thc lulc, orId. Thus, for a statute not to be unconstitutionally vague, it must be
         sufficiently clear in at least three respects: [1) a person of ordinary intelligence must
         be given a reasonable opportunity to know what is prohibited; (2) the law must
         establish determinate guidelines for law enforcement; and [3) if First Amendment
         freedoms are implicated, the law must be sufficiently definite to avoid chiìling
         protected expression. Id. at 108-09; Long v. State, 931, S,W.2d 285, 287
         [Tex.Crim.App. L996).

    66.           A court will find a rule unconstitutionally vague, in violation of due process,
         if it does not give fair notice of what conduct may be punished, and invites arbitrary
         and discriminatory enforcement by its lack of guidance for those charged with its
         enforcement. U.S,C.A, Const.Amend. L4. Vista Healthcare V. Texas,03-09-001"7B-CV
         [Tex.App,-Austin B-26-2010). This statute fails to establish guidelines for its
         application and does not give fair notice to the taxpayer of the prohibited conduct,

-16-lij;i¡.1   r'
          lending itself     to discriminatory         enforcement.        It is therefore       unconstitutionally
          vague and must be stricken.

    67.           Plaintiffs seek a declaratory judgment against the Office of the Comptroller
          of Public Accounts, Susan Combs, in her official capacity as Comptroller of Public
          Accounts for the State of Texas and Gregg Abbott, in his official capacity as the
          Attorney General for the State of Texas, pursuant to the Uniform Declaratory
          Judgments Act, Tex. Civ. Prac, & Rem. Code Aruru. S 37.004 et seq., construing Tex. Tax
          Code $ 717.0042, declaring that this statute is unconstitutional on its face and as
          applied to Plaintiffs because it is, by its nature, a denial of substantive and
          procedural due process and is constitutionally vague because it permits the audit to
          be made merely on undefined subjective criteria, and without providing any
          guidelines for the administration thereof.

                                                 COMPTAINT VII

Tex. Tax Code S111.022, authorizing a feopardy Determination without guidelines,
is Unconstitutional on its face and as applied.

    68.              Defendant, Cross-Plaintiffs ("Plaintiffs") incorporates                         the preceding
          paragraphs by reference as if the same were set forth fully and verbatim herein.

     69.          Tex. Tax Code $ 111.022e authorizes the Comptroller to impose an additional
          10%   jeopardy   determination penalty against a deficiency determination, which
          comes due immediately, if she "believes" that the collection of a tax required to be
          paid to the state or the amount due for a tax period is jeopardized by delay.

    70.         The statute is purely discretionary because it establishes no parameters by
          which the Comptroller is to make this determination except for her undefined

e
  5 t t t.OZZ TAX. Jeopaldy Deterrnination
(a) IlÌthe cornptroller believes that the collection ofa tax lequiled to be paid to the state ol the arnount due Ior a tax
period is jeopardized by delay, the compholler shall issue a detelrnination stating the amotuìt and that the tax
collection is in jeopardy. The amor¡nt lequired to be paid to the state or due for the tax peliod is due and payable
irnmediately.
(b) A 408 U.S. 104,
          1.08,92 S.Ct. 2294,33 L.Ed,zd 222 (7972). "Second, if arbitrary and discriminatory
          enforcement is to be prevented, Iaws must provide explicit standarcls for those who
          apply [hem." /d, Thus, for a statute not to be unconstitutionally vague, it must be
          sufficiently clear in at least three respects: [1) a person of ordinary intelligence must
          be given a reasonable opportunity to know what is prohibited; [2) the law must
          establish determinate guidelines for law enforcement; and [3) if First Amendment
          freedoms are implicated, the law must be sufficiently definite to avoid chilling
          protected expression. Id. at 108-09; Long v, State, 931 S.W,zd 285, 287
          [Tex.Crim,App. 1996).

    72             A court will find a rule unconstitutionally vague, in violation of due process,
          if it does not give fair notice of what conduct may be punished, and invites arbitrary
          and discriminatory enforcement by its lack of guidance for those charged with its
          enforcement. U,S.C,A, Const.Amend.14, Vista Healthcare V. Texas,03-09-00178-CV
          (Tex.App,-Ausrin 8-26-2010). This statute fails to establish guidelines for its
          application and does not give fair notice to the taxpayer of the prohibited conduct,
          lending itself to discriminatory enforcement. It is therefore unconstitutionally
          vague and must be stricken.

    73.          Plaintiffs seek a declaratory judgment against the Office of the Comptroller
          of Public Accounts, Susan Combs, in her official capacity as Comptroller of Public
          Accounts for the State of Texas and Gregg Abbott, in his official capacity as the
          Attorney General for the State of Texas, pursuant to the Uniform Declaratory
          Judgments Act, Tex, Civ. Prac. & Rem. Code A¡¡n. S 37,004 et seq., construing Tex. Tax
          Code $ IIL022 and declaring that the statute is unconstitutional on its face and as
          applied to Plaintiffs because it is, by its nature, a denial of substantive and
          procedural due process and unconstitutionally vague because it permits the
          feopardy Determination to be made merely on undefined subjective criteria, and
          without providing any guidelines for the administration thereof.

                                          COMPTAINT     VIII

The Comptroller has taken Plaintiffs' property for public use without just
compensation by collecting the foregoing illegal, unenforceable or invalid taxes
pursuant to her official duties under Tex, Tax Code Ann.            S   111,001.

-18-li';ty.r:
      74         Plaintiff incorporates the preceding paragraphs by reference as if the same
           were set forth fully and verbatim herein.

      75.          Pursuant to her authority under Tex, Tax Code Ann. S--1.L1-0-0ato the
           Comptroller collected illegal, invalid and unenforceable sales and use taxes from
           Plaintiffs without their consent, and deposited such collections into the State's
           general revenue fund pursuant to Tex. Tax Code Ann. S 101.009[a),11 thereby
           intentionaìly engaging in authorized conduct constituting a taking of Plaintiffs'
           properry for public use without adequate compensation.

      76                The Texas Constitution waives sovereign immunity from suit for                                an
           unconstitutional takings claim. Tex, Const. art, I, S 1,7.Lz ; See Steelev. Cíty of Houston,
           603 S.W,zd 786,797 (Tex, 1980). To establish a takings claim, the complainant must
           prove 1) that the State intentionally performed certain acts, 2) that the acts resulted
           in a "taking" of property, and 3) that the property was taken for public use. General
           Servs. Comm'n v. Little-Tex Insulation Co.,39 S,W.3d 591, 598 [Tex. 2001-). Plaintiffs
           maintain they have satisfied that burden by the foregoing pleadings.

      77           Plaintiffs seek a declaratory judgment against the Office of the Comptroller
           of Public Accounts, Susan Combs, in her official capacity as Comptroller of Public
           Accounts for the State of Texas and Gregg Abbott, in his official capacity as the
           Attorney General for the State of Texas, pursuant to Tex. Const. art, I, S 17 and the
           Uniform Declaratory fudgments Act, Tex. Civ, Prac. & Rem, Code Ann. S 37,004 ef
           seq,, declaring that the Comptroller's collection of these taxes was an intentional act

10
  ç 1 I 1.001 Cìomptloller to Collect Taxes
The comptroller shall collect the taxes in.rpose<1 by this title except as othelwise plovided try this title

r1 10i.009(zr) Allocation and Tlansfel clf Net Revenuçs
  $
(a) E,xcept as provicled by Sul:rsection (b) of this section, all revenues collected florn the taxes irnposed by the
chaptels of this titlc and by Clhapter 8, Title 132, Revised Civil Statutes of Texas, 1925, as atnended, af-tel deiluction
of the portion allocatcd ttrr collection, enfbrccrnent, and adrninistration purposes, shall flrst be deposited in the
general re\¡cnue lund. After thc initial deposit, translèr's fl'orn the genelal revenue fund to other ftuds shall be rnade
at the time, in the rnanner, and in the amorìnts provided by law.

12                                                                                                                     of
     Sec, 17   Taking, damaging or destloying property for pulllic use; special privileges and imrnunities; control
lrlivileges    an284 S.W.3d 366 (Tex, 2009);306*S.\V.3d 256 [Tex. 2010)
         [respectively).
                 The Supreme Court determined that "while governmental immunity
      generally bars suits for retrospective money relief, it does not preclude prospective
      injunctive remedies in official-capacity suits against government actors who violate
      statutory or constitutional provisions." Heinrí.ch,284 S.W.3d at 368-69, ln Heinrich,
      the supreme court confirmed that "suits to require state officials to comply with
      statutory or constitutional provisions are not prohibited by sovereign immunity, even
      if a declaration to that effect compels the payment of money." Heinrich,2B4 S.W,3d at
      372. Reconveyance,306 S.W.3d at 434.
                 Further, if valid challenges to the Department's rules under the APA are
      raised, then it is not necessary to determine whether the Appellees have properly
      alleged ultra vires claims because the trial court's subject-matter jurisdiction is
      established by section 2001,038 of the APA. See Tex. Gov't Code Ann. S 2001,038.
      Section 2001,038 allows a party to bring a declaratory-judgment action challenging
      the validity or applicability of an agency rule if it is alleged that the rule or its
      threatened application interferes with or impairs a legal right or privilege of the
      plaintiff. See id. Section 2001.038 is considered a legislative grant of subject-matter
      jurisdiction, so that valid claims raised pursuant to that provision are not barred by
      sovereign immunity. See Combs v. Entertainment Publ'ns, |nc.,292 S.W.3d 7L2,720
      [Tex.App.-Austin 2009, no pet,) [collecting cases). Tex. Dept. of Pub. Safety v. Salazar,
      304 S,W,3d 896 [Tex.App. [3rd] 2010).

-20-lllii¡1 i'
                           VtL Exhaustion Of Administrative Remedies Not Required

      79.            The general rule in Texas is that courts do not interfere with the statutorily
            conferred duties and functions of an administrative agenry. Westheimer lndep. Sch.
            Dist. v. Brockette,567 S,W.zd 7B0,7BS [Tex. 1978). However, courts may intervene
              in administratíve proceedings when an agency              exercises   authority beyond its
         statutorily conferred powers.ld. This exception to the exhaustion of administrative
         remedies doctrine is a variation of the rule that where the administrative agency
         lacks jurisdiction, a trial court may intercede before administrative remedies are
         exhausted. See City of Houston v. Williams, 99 J.W.3cl 209, 777 (Tex.App.-Houston
          [14th Dist.] 2003, no pet.). "ln such a case, the purposes underlying the exhaustion
         of remedies rule are not applicable, judicial and administrative efficacies are not
         served, and agency polices and expertise is irrelevant if the agency's final action will
         be a nullity ." MAG-T, L.P.,1,67 S.W,3d at 625.
      BO           "ln order to maintain an action against the Comptroller for a refund of taxes,
         a party must meet the procedural requirements of the tax protest law. Compliance
         with these procedures is a jurisdictional prerequisite for the trial court to hear and
         decidethemeritsofataxrefundsuit." CentralPower&LightCo.v.Sharp,919S.W.zd
          485,491. [Tex,App.-Austin 1996, writ denied) (citations omitted). Combs v. Chevron,
         1nc., 3 19, 5.W"3d€36 [Tex.App, [3rd] 2010),
      B1          However, when an agency promulgates a rule without complying with the
         statutory rule-making procedures, the rule is invalid,.Tee APA S 2001.035 (a); El Paso
         Hosp. Dist,,247 tw.3d at7L5. The APA allows a person to challenge the validity or
         applicability of an agency rule pursuant to a declaratory judgment action if it is
         allegecl that the rule or its threatened application interferes with or impairs a legal
         right or privilege of the plaintiff. APA $ 2001,038[a). Thus Counter-Plaintiffs do not
         seek declaratory relief regarding the tax refund itself, but regarding the validity of
         the rule promulgated by the Comptroller in violation of the APA, for which the
         Iegislature has expressly permitted suit by a declaratory-judgment action. See APA
         S 2001.038 . Combs v. Entertainment Publ'ns, lnc., ¿g?lJ ¿,3d U2,720. Since this is
         not a suit for a refund pursuant to Tex, Tax Code Ann, $ 111-:l-04 its requirements
         are not relevant to Plaintiffs' right to seek injunctive relief.

                                                 VlIL Attorney's Fees

      Pursuant to Tex Gov't Code Ann $ 2006,01,313 and Tex, Civ. Prac. & Rem, Code Ann,
S 37.009, request is made for all costs and reasonable and necessary attorney's fees

13
     5 zooe   .ol:   GOV'T. Iì.cquilcmcnts f997
     S.W.2d   248,255 [Tex. 1999). These procedures include providing notice, publication,
     and public comment on the proposed rule. Id. (citing Tex. Gov't Code Ann. SS 2001.023-
     .030), The process assures notice to the public and affected persons and an opportunity
     to be heard on matters that affect them. Id.
                  Unless   a rule is promulgated and adopted in accordance with the
     requirements      of the APA, it is invalid and unenforceable, Tex. Gov't, Code Ann. $$
     2001.035,1 200L.0042 and 2001.0053. Neither AP92nor AP1,22 as                           it relates to HB 11,

tg ZOOt.O:S, Substarrtial Cìompliance Rec¡rirement; Tirne Lirnit on Procedural fìhallenge
(a) A rnle is voidable unless a state agcncy adopts it in substantial compliauce with Sections 2001.0225 through
2001.034.

'5 ZOOt.OO+ Rcquircmcnt to Arlopt Rulcs of Plactioc and Indcx Rulcs, Ordcrs, and Dccisions
In a<)
                                              www.soah.state.tx.us
                                                                           Pursurnt to
                                                                    Tex.    t Code

                               soAH DOCKET NO. 304'13-42rr'26
                                 TCPA HEARING NO. 106'815
                                  TAXPAYER NO.

                                                    s           BEFORE TIIE STATE OFFICE
SANADCO,INC.'
    Petitioner                                      $
                                                    $
                                                                                oN'
v                                                   s
                                                    s
TEXAS COMPTROLLER OF PUBLIC                         s
ACCOUNTS,                                            $
                                                       s        ADMINISTRATIVE ITEARING           S
          ResPoudent

                                soAH DOCKET NO. 304-ß4212.26
                                  TCPA IIEARING NO. 107'OOó
                                   TAXPAYER NO.

                                                                 BEF'ORE TI{E STATE OFFICE
MAHMOUD AHMED ISBA'                                     $
    Petitioner                                          s
                                                        s
                                                        $
                                                                                  OF
v
                                                        $
    TEXÄS COMPTROLLER OF' PTIBLIC                       s
    ACCOUNTS,                                            $
           ResPondent                                    $       ADMINISTRATIVE HEARINGS

                                    PROPOSAL FOR DECTSION

           Sanadco, Inc. (Petitioner SI) was audited    for sales and use tax compliance by the Texas
                                                     assessed tax, a l0% penalty' an additional
    Comptroller of Public Accounts (Comptroller) and
                                                                       personal liability against
    50% penalty, atrd, accrued interest. The Comptroller also assessed
                                                           Code $ 111'0611 as the president of
    Mahmoud Ahmed Isba (Petitioner Isba) under Tax
    petitioner sI. Petitioners contest their audit assessments on the same grounds, including
                                                                                              the

                                                       unenforceable because the estimate was based
    contentions that the audit assessment is void and
                                                                 the present audit overlaps a previous
    on audít procedures that constituted invalid rules, and that
                                                                               contentions' In this
    final audit assessment. comptroller stâtr (stafî) rejects the Petitioners'
                                                                      (ALJ) recornmends that the
    Proposal for Decision (PFD), the Administrative Law Judge
                                                       be affirmed, except that the markup percentâge
     corporate assessment against Petitioner sI should
                                                                       CONFIDENTIAL
                                                                          Pur.cunnt to
                                                                                     2003.104

soAH DocKET       NOS. 304-13.121 1.26       PROPOSAL FOR DECISION                              PAGE 2
& 30,1-13-{2r2,26.26
TCPA DOCKET NOS loó,E15 & 107,006

used in calculating the estimated tobacco sales should be adjusted and that the additional fraud
penalty should be applied only to the report periods February 1, 2007 through April 30, 2008.
The ALJ also recommends that the personal liability assessment against Petitioner Isba should be
limited to the re¡rort periods May 1, 2007, through April 30, 2008.

               I.   PROCEDUR.A.L HISTORY, NOTICE AND JURISDICTION

        On May 10, 2013, Staff referred the cases to the State Office of Administative Hearings
(SOAH) for oral hearings. ALJ Peter Brooks ordered the cases joined because the cases involve
related parties, and common facts and issues of   law. Staff was   xepresented by Assistant General

Counsel Isreal Miller and Petitionsrs were represented by Attorney Samuel T. Jackson. The case
convened on September 9, 2013. "fhe ALJ closed the record on November 12,2Q13. There are
no contested issues of notice or jurisdiction. Therefore, these matters are set out in the Findings
of Fact and Conclusions of Law.

                                 II.   REASONS F'OR DECISION

A.      Evidence Presented

        Staffsubmitted the following exhibits in SOAH Docket No. 304-13 -4211.26

        I       Sixty-Day Letter;
        ,)
                Texas Notification of Audit Results;

        J.      Penalty and Interest Waiver lü/orksheet;

        4.      Audit Report; and

         5.     Audit Plan, which includes Audit Refenal Report for Additional Penalty
                                                                        I

                                                                     CONFIDENTTAL
                                                                        Pursuant to
                                                                 Tex. Govtt       2003.104

                                             PROPOSAL FOR DECISION                           PAGE 3
soAH DOCKET NOS.      30+13-4211.26
& XXX-XX-XXXX.26.26
TCPÀ DOCKET NOS 10ó,815 & 107'006

       Staffsubmitæd the foltowing exhibits in SOAH DocketNo. 304'13-4212'26

               Texas Notification of Personal Liability for Fraudulent Tax Eva^sion;

       2       Audit Exam, including correspondence and e-mail communications from the
               Revenue Accounting Division; the calculated Message, Adjustnent, and
               Allocation Reports; Íax Summary, Status, Balance, Audit, and Tax Allocation
               Basis Inquiriei; and Personal Liability Fraudulent Tax Evasion Worksheeq

       J       sales and use tax Returns        for report   periods   April 2007, May 2008,
               December 2008, February 2008, and January 2009; and

       4.      State Filings (Statement of Change of Registered Offrce/Agent, dated
               May 5,2006; and Texas Franchise Tax Public lnforrnation Reports sigrred
               May 10,2006, March 13, 2008, and February 26,2009.

       Staff attached to its Response to Petitioner's Post-Hearing Brief the following exhibits

       6       Copy of Msmorandgm Opinion issued in Sanadco, Inc. v. Comptroller,
               No.OS-tl-00462-CV, 2Ol3 Tex. App. LEXIS 12013 (Tex. App' - Austin
               September 26, 2013); and

        7      Appellee's Motion      for   Rehearing and Reconsideration      en banc filed       in
                Sanadco, /nc.

        petitioner SI produced during the hearing its responses        to Staffs      Second Set   of
        Intenogatories, Requests for Admissions and Requests for Production. Petitioner did not
        offer any other evidence during the hearing, but did attach to its Post-Hearing Brief the
        following exhibits:

           1    The Examination performed by the Comptroller's Business Activity Research
                Team (BART) for the exam period January l, 2008 through March 31, 2009,
                including, the Accounts Examiner Coversheet; correspondence and e-mail
                communications from BART; the Texas Notification of Exam Results; the
                Message, Adjustrnent, and Allocation Reports; Petitioner's Alcohol and Tobacco
                                  q
                                                                                                 þ,

                                                                                        CONFIDENTIAL
                                                                                            Pursugnt to
                                                                                         Gov't         2003.104

                                                                                                                  PAGE 4
                     NOS. 304-13*{211'2ó                     PROPOSAL FOR DECISION
soAH DOCKET
& 304-13-421226.26
iCp¿ uocxeT Nos to6"8l5 &               107'ü)6

                                                             2009; and                            ITS Work    Manager
                    Purchases for January 2008 th¡ough March
                    Comments;

         2,PlaintiffsoriginalPetition,Sanadco,Inc.,20]13Tex'App.LEXISl20l3;
                                                                       sønadco' Inc' 2013 Tex'
         3.         Defendant's First Amended Answer and counterclaim,
                    APP. LEXIS 12013; and

                                                                            Plea' sanadco' Inc"
         4.         Counter-Defendant's original Answer and Jtlrisdictional
                    2013 Tex. APP. LEXIS 12013

                                                            the listed documents is admitted                           as
          There were no evidentiary objections, and each of
 part ofthe contested oase record'

                                                                 case hearing was that of
       The only witness testimony presented during the contested
                                                     the Comptoller auditor who performed
 Dennis Ëastman, the aud.it supervisor who supewised
 PetitionerSl,saudit.Sta.ffpresentedthetestimonyofMr'Êasnnan.

 B.       Adiustments

           staffhas not agleed to adjust any of the contested audit assessments.

  C.       F¡cts Estsblished and Issues Presented

                                                                         during the audit period
        Petitioner Sl operated a convenis¡rce store in Fort Worth, Texas
                                                                    owns the convenience store'
  February 1,2007 through JunE 30,2009. Petitioner SI no longer
  Petitioner SI was subjecæd to a desk audit performed by
                                                                BART for the exam period of
                                                         assessed a tax liability of $23'593'60'
  January l, 2008 through March 31, 2009. It was
                                                                   penalty, and accrued interest'
  consisting of tax, the 10% standard penalty, the additional 50%
                                                               alcohol and tobacco purchases for
  The exam was promptedl by a comparison of Petitioner SI's

   I Petitioner's   Exhibit   1, letter dated July   2,2009 from BART advising Petitioner sl of assessment'
                                                                                     CONFIDENTIAL
                                                                                       Pursu¡nt to
                                                                                Tex, G       Code    2003.104

                                                                                                                PAGE 5
                 NOS. 304-l$4211'26                    PROPOSAL FOR DECISION
soAH DOCKET
& 30+13-4212.26.26
TCPA DOCKET NOS l0ó'815 & 107'00ó

                                                    and alcohol vendors pursr¡fint HB 11'2 The
the exam period feported by Petitioner SI's tobacpo
                                                   period exce€ded the reported taxable sales for
HB 1 I tobacco and alcohol pufchases for the exfim
the same period by s268,056 to $76,976, BART
                                             relied on the HB I I data and the comptroller's
                                                           assessment' Petitioner sI did not
Audit Division Policy Memo 122 (AP t22) in estimating the
                   for redetermination contesting the             assessment, consequently, the assessment
fìle a   request
                                                                                      General.s The
became    final. The sales      and uso tax delinquency was certified to the Attorney
                                                    the delinquency from Petitioners SI and Isba'a
Aftorney General filed a lawsuit seeking to collect
                                                                       However' the trial court
Petitioners filed various counterclaims against the Comptoller'
                                                         ofjurisdiction. Petitioners        appealed the dismissal'
dismissed Petitioners' counterclaims for lack
                                                                         directives in AP 92 and
The Appeals court sustained Petitioners' claim rhat the comptroller's
                                                                     jurisdiction over sanadco's
Ap lzzwere in fact rules and also concluded that the trial court had
 clairn that     gz and AP 122 were invalid rules and thal thertfote, the trial court erred in
            ^P                                               App' LEXIS 12013'
 dismissing this cotrnterclaim. ,See Sanadco, Inc',2Q13 Tex'

                                                                           sales and use tax
        The Comptroller subsequently conducted an audit of Petitioner SI's
                                                         June 30, 2009. Petitioner sI did not
 compliance for the audit period February 1,2007 ttuough
                                                                    a Notification of Estimation
 respond to the auditor's requests for records.5 The auditor issued
 procedures for St¿te Tax Audit (Notification of Estimation) dated January 27,2011, advising
 petitioner Sl that the audit would be estimated using HB 1l data, and that the AP 122 procedures
                                                                                     SI no longer
 would   be followed.6 When the auditor initiated the audit fieldwork Petitioner
 operated the convenience store. Therefore, the auditor could
                                                              not perform a shelftest and instead

  2 Wholesalers and distributors of beer, wine, malt liquor, cigarettes, cigars,
                                                                                    and tobacco products are required to
                                  monthly  basis, to  the  Comptroller. These electronic rePorts are required by Tex. Tax
  submit electronic reports, on a
                                                                              of Tex' I{B  I l, 80rt' Leg., R.S., 2007. The
  Code $$ 151.462, 154.212, and 155,105, which were enacted as Part
  vendor records are commonly referred   to as HB    I I records.
  3 pçtitioner,s Exhibit 2, Texas Certificate to Attorney General of Sales and Use Tax Delinquency
  a Petitioner's Exhibit 2, Plaintiff s Original Petition'
  5 Staffs Exhibit 4 (Petitioner St), Audit Report'
  6 Id.
                                                                             CONFIDENTIAL
                                                                                Punu¡nt to
                                                                             Gov't Code   2003,104

                                                                                                     PAGE 6
                                                     PROPOSAL FIORDECISION
SOAH DOCKET NOS. 301-13''1211'2é
& 30+l$4212.26.26
icp¡ pocxpT Nos loó'srs & lo?'orló

                                 percentages            of I l8'44% and 124'07% fesp€ctively for tobacco
used the induslry avGrage markup
                                                                                   purchases
                              Ap 122.? The auditor totared the tobacco and arcohor
and alcohol purchases set out in
                                      data for the report periods January 1' 2008' tbrough
made by Petitioner sI using the HB l1
June30,2009'Thetotalalcoholandtobaccopurchasesweremultipliedbytheirrespective
                                                                                         invoices
                                         percenøge was calculated, because no purchase
markup percentages.s No product-mix
were available. Therefore, the standar d AP
                                             lzzproduct-mix percentage of 54o/o for tobacco and
                                                                                            a 5%
alcohol products was applied to arrive    at estimated taxable sales' The auditor afforde'd
                                             wæ given for reported Exable sales' The adjusted
allowance for spoilage and theft, and credit
                                                            in the BART exam for the repod
tuable sales were then reduced by the amounts assessed
                1, 2008 throt,gh March 31, 2009, and the resulting
                                                                   additional taxable sales were
 periods January
                                                      at the tax due for the period January 1' 2008'
 then multiplied by the applieable tÐ( rates to anive
 through June 30, 2009'e

                                             data available for the periods preceding January 1,
                                                                                                 2008, the
           As there wris no HB       1   t
                                                    the report periods January 1' 2008' through
 auditor estimated the additional taxable sales for
                                                 monthly net estimated taxable sales' The post'
 June 30, 2009 by first determining the average

 December 31, 200'î total net estimated taxable sales
                                                            of s728,443'I7 were divided by the
 I g report periods to arrive at a monthly average
                                                   of $40,469'06.10 The additional taxable sales for

 the pre-January 1, 2008 report periods were calculated
                                                            by giving credit for the ta:Id., andstaffs Exbibit 4 (Petitioner Sl), Exam 208)
  I Id,
  e staffs Exhibit 3 (Petitioner SI), Audit Report, Exam 20'

   'o StoffsExhibit 4 (Petitioner Sl), Audit Report, Exam 208

   "   Staffs Exhibit 3 (Petitioner SI), Audit Report Exam 20'
                                                                               CONT'TDENTTAL
                                                                                 Pursu¡nt to
                                                                               Gov't Code          IM

                                                         PROPOSAL F'ORDECISION                          PAGE 7
soaH DOCKET NOS. 304-13-421 1.26
& 30/Lr3-4212.26.26
TCPA DOCKET NOS loó,815 & 107'006

          Since no contact was made during the audit with an officer, owner' or representative
                                                                                                            of
petitioner SI, the auditor did not record in the Audit Plan or in the Audit Refenal Report for
                                                                                      owner, or
Additional Penalty any information regarding the role played by an officer, director,
                                                                              and filing of the sales
employee of petitioner SI in the operation of the store or in the preparation

and use tâx returns and the remittance              of   sales and use tax payments. The only substantive

information reganding Petitioner Isba's activities is found in Petitioner SI's responses
                                                                                         to Staffs

Second Set of Interrogatories, Requests for Admissions and Requests for Production.
petitioner sI admitted that Petitioner Isba signed checks for remitting sales and use tax payments

during the audit period.l2 petitionff Isba is identified as the person responsible for depositing the
store's sales proceeds, ordering the store's inventory, and paying for the storg's inventory
purchases.
            13
               Petitioner Isba was also identified as the person who received the monthly bank
statements.l4 Ho*e'lrer, according to Petitioner SI's answers to the interrogatories,
petitioner Isba's responsibility for these t¿sks ended when on May 1, 2008, he entered into an

agreement to sell Sanadco, Inc. to his employees, Yassien Siam and Sandra Salazar' Mr' Siam
thereafter assumed responsibility for these tasks from May 1, 2008, until the end of the audit
period.

           Petitioner SI, in the responses to Staffs lnterrogatory No.          l,   stated that Petitioner Isba

 was the sole owner, officer, or manager through May l, 2008. Petitioner Isba signed
 petitioner SI's 2006 Texas Franchise Tax Public Information Report (PIR) as president of

 Sanadco.rs The PIR is dated May 10, 2006. Although Petitioner SI's 2008 PIR identified
 petitioner Isba as the corporate presiden! the form is signed by a Mike Isba.l6 The PIR is dated

 12
      Petitioncr SI's Admission No. 2.
 13
      Petitioner SI's Answers to Interrogatories Nos. 4, 5, anct 6.
 r{ Fetitiouer SI's Answer to Interrogatory No. 7,
 It   Staffs Exhibit 4 (Petitioner Isba).
 t6 td.
                                                                                     CONF'IDENTTAL
                                                                                       Pursu¡nt to
                                                                               Tex, Gov't        2003.104

                                                       PROPOSAL FOR DECISION                                PAGE   E
soAH DOCKET NOS. 3M-13-¿2r1.2ó
& 304-134212.26.26
TCPA DOCT(ET NOS 106,815 & 107'00ó

                                pIR identifies Petitioner Isba as the president' but                 it   bea¡s the
March 13,200g. Thç 200g
                                                     dated February 26,2009'
signature Isba" without a given name.tT The PIR is

                    2011, the Comptroller issued to Petitioner SI a Texas
                                                                          Notification of Audit
             On     April l,
                                                                50% fraud penalty, and accrued
Results assessing tæ<, the standard l0% penalty, the additional

interest, totaling $112,381.02, with $64,336.87 attributable
                                                             to                 tax'   The overall error rate for

petitioner SI was 66.45yo,which was calculated by dividing the tax assessed by the sr¡m of the
                                                            redetermination.
tær reported and assessed.lt Petition"t SI timely requested

                                                                                         2011' against
        The Comptroller also issued a jeopardy determination on March 30'
petitioner lsbao pursuant to Tax Code $ I t I .061 I , assessing personal liability for the tu liability

 of Petitioner sI for the pcriod May              l, 2007, th¡ough   June 30, 2009'1e The personal liability

 assessment consisted of tan, the standard 10%
                                               penal8, the additional 50% penalty, and accrued
                                                                            against Petitioner Isba
 interest through the date of notification. The personal liability assessed
 totaled $95,620.96, with $55,168.87 afiributable                  to tâx. Petitioner Isba timely          requested

 redetermination'

                                                                                  glounds:
             Both Petitioners SI and Isba contested their assessments on the same

              1          The imposition of additional fraud penalties should be deleted because Petitioner
                         providei substantial records, and the underpayment was not the result of fraud or
                         à t oowing or   willful intent to evade tæId.
  rs Petitioner Sl's Penaþ and lnterest Waiver Worksheet'
  ,e staffs Exhibit I (Petitioner Isba). Texa.s Notification of Personal   Liabilþ
                                                                       CONF'TDENTIAL
                                                                         Pursu¡nt to
                                                                   Tex. Gov't Code   2003.104

                                                                                                PAGE 9
                      XXX-XX-XXXX.26          PROPOSAL FORDECISION
soAH DOCKET NOS'
& 304-1$.4212.26.26
TCPA DOCKET NOS 106,E15 & 107'006

                The auditor,s exclusive ì¡se of HB I I information
                                                                   and estimated markups to
       J
                                                                       when Petitioner had
                determine the tax tiauitity for beer and cigarettes,
                                                                 markups, was improper;
                ãåcumentation regarding thó actual purchases and

                The auditor's calculations regarding markups were
                                                                  well beyond nationâl avemges
       4.
                and those contemplated under AP 122;

                                                                 jeopardy determination was flawed'
       5        The imposition of additional penalties for the
                because the statute uutftotititg such penalti"i is
                                                                     unconstitutionally vague for its
                failure to establish guidetines for its imposition;

                                                                          inventory;
       6.       The audit should be revised to exclude previously audited

                                                                           audit procedures that
        7.      The audit is void as unenforceable because it was based on
                constitute invalid rules; and

                 The subject audit overlap, u pr"uious final audit, consisting of a
                                                                                    BART exam for
           I
                 the period January 1, 2008 through Ma¡ch 3 1 , 2009'

 D.        AnalYsis ¡nd Recommendation

           1.    SOAH Docket No.304-13-421L.2626 (Petitioner SI)

       rilhen records are inadequâte to reflect the taxpayer's business operations, the
 Cornptroller is authorized to estimate a torpayer's liability based on
                                                                        the best information

 avaitable. Tex. Tax code $ 11 1.0042(d). An estimaæd audit w¿¡s appropriate
                                                                                 in this case
                                                                      has held that estimated
 because petitioner SI did not have complete records. The Comptroller

  audits based on HB I I vendor records and AP 122 procedures meet
                                                                         the best information
                                                                            see comptoller's
  available requirement when taxpayer records are incomplete or urueliable'
  DecisionNo. 103,gg2(2011). Theevidencethatsøffsubmittedestablishesthattheauditwas
                                                                     procedures were followed'
  based on the best information available and that established audit
                                                                                    therefore, bear
  Consequently, the audit is entitled to a presumption of correctnçss. Petitioners,
  the burden of proof to show by a preponderance of the evidence that the audit results
                                                                                        are

  insonect. 34 Tex. Admin. Code $ I '40(2XB)'
                                                                                     CONFIDENTIAL
                                                                                       Pursusnt to
                                                                              Ter.        Code

                                                                                                           PAGE 10
                     NOS. 304-134211'2ó              PROPOSAL FOR DECISION
soAH DOCKET
& XXX-XX-XXXX.26.26
TCPA DOCKET NOS 106'S15 & 107'006

                                                                              there were sumcient
           Several   of the cont€ntion$ are based on Petitioners' claim that
                       for the auditor to perfonn an audit without relying on
                                                                               HB 1l data and the
records available
                                                                                         assertion that
AP lLTestimating procedures.           The audit work papers do not support Petitioners'
                                                  issued letters (dated october 22' 2009 and
records were provided to the auditor, The auditor

July28,20t0)requestingtherecordsrequiredtoconducttheaudit,includingpurchaseinvoices
                                               The faiture to produce records is also refe¡enced
and sales records but there was no rerpon"".20
                                                                  by the auditor.zl Moreover,
in rhe Notification of Estimation and Sixfy-Day Letter issued
                                                   did not offer any of the records it claimed it
Petitioner dwing the soAH contested case hearing
had available.

                                                                   by the auditor exceeded the
        Petitioners also asserted that the markup pefcentages used
                                                        The auditor used the markup percentage
 national averages and those contemplated by AP 122.
                                                                              provides that the
 of ]24.\|o/odesignated in AP 122 for alcohol purchases.u AP 122 expressly
                                                                                       used for
 average convenience store   markup percentage of 124'07o/o assigned to 2007 is to be
                                                              The same provision applies for
 subsequent years until new markup percentages are available'
         products. The markup pffcçntage of 118.02% assigned to 2007
                                                                          is to be used for
 tobacco
                                                              The auditor, instead' rxed the
 subsequent years until new markup porcentages are available'
 markup percentage o,t        ttt.U%      that is reserved for    2006.8 No explanation was found in                   the

  audit work papers or in       staffs    pleadings fbr deviating from this directive' consequently, the
                                                                         percentage of I l8'02%
  ALJ frnds that the auditor erred and recommends that the conect markup
                                                                   estimated tobacco sales' The
  should be used in marking up the tobacco pruchases to calculate
                                                              a minor effect on the calculation of
  application of the correct markup percentage will have only
                                                                sales total $100,550'67 versus the
  the estimated tobacco sales. The a-djusted estimated tobacco
                                                   of lll.Mo/o.     The   ALI   calculated that the application             of
  $100,908.51 resulting f¡om the markup

  ro staffs Exhibit 4 (petirioner sI), Audit Report, Exhibits ll and III.
  rt Sþff s Exhibir 1 (petiriorrer Sl), Sixty-Day Letter and Staffs Exhibit 4 (Petitioner SI), Audit Report, Exhibit   l'
  æ Søffs Exhibit4 (Petitioner Sl), Exam 208'
  ts Id.
                                                                            CONFTDENTIAL
                                                                              Pursuant to
                                                                     Te¡.        Code   2003.101

                                                PROPOSAL F'OR DECISION                         PAGE   II
soAH DOCKET      NOS. 304-13-421 1.26
& 30+13-4212,26,76
TCPA DOCKET NOS 10ó,815 & 107'006

                                          products would reduce the assessment of tax from
the correct markup percentâge for tobacco
$64,3 36.90 to approximately $64,3 05'00

                                                                 be disregarded because it is bæed
       Next Petitioners assert that the audit assessment should
                                                          the appellate couft's recent decision in
on invalid estimating procedures. Petitioners rely on
                                                              any precedential value placed on the
Sanadco, Inc.,2013 Tex. App. LEXIS 12013. However,
decision is premature, as the decision has not become
                                                            final' Appeltee has filed motions for
en banc reconsideration and for rehearing. The
                                                     court has yet to rule on the motions' The
                                                            plenary power expires' Sce Oscar
appellate court's decision becomes final when the court's
                                                      S.W. 3d772 (Tex' App' * waco 2006' pet'
Renda contructing, Inc. v. H&S Supply co., \nc.,195
              the court will lose plenary power thirty days after the cout ovemrles
                                                                                    the motion
 denied). And
 forrehearingandenäancreconsiderâtion'Tex'RuleApp.P'19.1(b).

         petitioners also contend that the subject audit should be restricted to the report periods
                                                                           March 31,2009' Thus'
 that fall outside of the BART exam period of January 1,2008 through
 according    to Petitioners, the audit assessment should be restricted to the report periods
 February   l,   2007 through December 31, 2007, and         April   l'   2009 through June 30' 2009'
                                                                         the liability due druing the
 Petitioners, in effect, are arguing that Stâffis estopped ûom reargUing
                                                                                      bar of collaterai
 period previously examined by BART. However, a party seeking to assert the
 estoppel must establish that:   "(l)   the facts sought to be litigated in the second action were fully
                                                                                   judgment in the first
  and  fairly titigated in the first action; (2) those facts were essential to the
                                                                                   Sysco Food Servs' v'
  action; and (3) the parties were cast as adversaries in the first action'"
                                                                      Also see comptroller's
  Trapnell,8g0 s.w. 2d796,801-802 (Tex. 1994), citations omitted; and
  Decision No, I 00,190 QOlz)-

          The BART exam of Petitioner SI's convenience store differs in several significant
                                                                                            ways

  from the subsequent sales and use tax audit of the      s¿une convenience    store. As the BART exam
                                                                       purchases, no product-mix
  focused exclusively on Petitioner SI's alcohol and tobacco sales and
                                                                                        Pursuent to
                                                                                      Govtt Code

                                                                                                             PAGE 12
                                                         PROPOSAL FOR DECISION
SOAH DOCKET NOS' 304-13-42rl'26
&   XXX-XX-XXXX,26.26
iCpl bocxBT            Nos 1oó'8ls & lo7'ooó

percentagewasapplìed.However,aproduct-mixpercentagewasneededwhenPetitionerSlwas
                                                                                 food and general
subsequently audited for sales
                                 of other products such as candy' soft drinks'
                                                                                        theft in the
                          petitioner sr was afforded a 5% a[owance for spoilage and
merchandise. In addition
                                                                    judgment in eacrr contested tax
                                    facts were not essentíar to the
sares and use tÐ( audit. The same

case.'[hus,theComptrollerwasnotestoppedbytheresultsoftheBARIexamfromthe
                                                                       especially since
                                and use øx audit of the same taxpayer'
subsequently performing a sales
                                      exaln were deleted from the calculation
                                                                              of additional
taxable sales determined in the BART
                                                                                         (2013)                     and
 taxable sales in the sales and use tax
                                        ar¡'dit see comptroller's Decision Nos' lo7 '579

    104,445 and t05,726 (2012)'

               TheComprollerisauthorizedtoassessanadditional50%penaltyunderTex.TaxCode
                                                                                           tax'
                                                 commitæd fraud or had the intent to evade
                         she determines th¿t a taxpayer
    $   lll.061(b) if
                                                                                           penalty
                                                  and convincing evidence that the fraud
    staff has the bruden of establishing by clear
                                                   Clear and convincing evidence is proof that
                                                                                               will
    applies. see 34Tex. Admin. code $ '40(lxB)'
                                     t

    produceafirmbelieforconvictionastothetruthoftheallegationssoughttobeestablished,but
                                                                                           (2000);
                                                   see compüoller's Decision No' 37'946
    which need not be unequivocal or undisputed'
                                                                                   See also, llebb
    State v' ,â'ddington,588 S.w.2d 569,
                                         570 (Tex. 1979), on remand, 435 U.s. 967.
                                               F.2d 366 (1968) (fraud with the intent to
                                                                                         evade tax
    v. Commissioner of Internal Revenue,3g4
     requiresactual,intentionalwrongdoingwithaspecificpurposetoevade)'

                                                        the audit period is 66'450/o' The revised overall
             As noted above, the overall effor rate for

     enor rate decreased, almost unperceptively,
                                                    to 66'44% once the error rate is recalculated using
                                                   prior Comptoller decisions gross undeneporting of
     the a.ssessed tax arnount of $64,305'24 In
                                                   or gfeater, has been found                sufficiently irrdicative of
        taxable sales, defined as an error of 25Yo
                                                      of the fraud penalty' particularly when there were
        intent to evade the tax to warrant assessment

        b                                                                 assessed tax and reported tåx ($9ó'790'61)'
            'Ihe recalculated formula is assessed tax ($64,305) sum ofthe
                                                               +
                                                                                 CONF1DENTIAL
                                                                                    Pursuant to
                                                                             Ter" Govtt       2003.1M

                                                      PROPOSAL FOR DECISION                              PAGE 13
soAH DOCKET         NOS. 30+13-4211.26
& 304-r&4212.26.26
TCPA DOCKET NOS 106,815 & 107'006

other factors or no plausible explanâtion.           See,   e.g., Comptroller's Decision No. 43,248 (2004)'

Also   see Tex, Tax Code       $ 1l 1.205(b),

                                                                                to justifu imposition
          Such gross undeneporting, however, is not in and of itself sufficient
                                                                      tåxpayers, the Comptroller
of the fraud penalty on corporate taxpayers. In the case of corporate
recognizes that a corporation is a separate legal entity that is conFolled
                                                                             by its officers and

directors and that the requisite intent of a corporation is detemrined from
                                                                                the actions of the

officers or directors. \ilhen an offrcer is proven to have been directly involved in the fraudulent
activities, the additional penalty against a corporation has been upheld, because a
                                                                                    corporate

officer's fraudulent actions can be attributed to the corporation, ^See Compholler's Decision
Nos. 105,418       &   104,471 (2011),44,891 (2005) and44,528               (2005),   The question is to what

degree petitioner tsba, the company's president, was awaxe or should have been aware
                                                                                     of the

uncleneporting of tax. See e. g., Comptoller's Decision No. 103,204 and 104,238 (2012)-

           The only substantive evidence              in the record directly establishing the exænt of
 petitioner Isba's involvement in the operation and rnânagement of the convenience store, in fhe

 preparation and filing of the sales and use tax retums, and remittance of the tâ( payments during
 the audit period is found in the answers propounded to Staff s discovery. There also æe the five
 checks remitting payment signed            by Petitioner Isba that were proffered by Staff.zs The ALJ,
 based sotely on the statements made            in   response   to Staffs discovery, finds that Petitioner Isba
 purchased and paid for the taxable inventory, made the daily deposits, and received the bank

 statements,,signed the sales tâx returns, and paid the sales and use taxes. The                  ALI,   therefore,

 concludcs that Petitioner Isba was involved in, aware                 of   or should have been aware of        the

 underreporting        of   sales   ta:<. However, the same inforrration that supports this              conclusion

 expressly limits Petitioner Isba's involvement to the period preceding May                  l,   2008, when he
                       qmcemenr tn cell the husiness ærd o¡re of the buyers assumçd responsibility for
 ^*ra.a¡t inrn
 ç¡lLvlçu       an
          ¡lÀrv 4r

 perforrring these tasks, Staff has not addressed or refuted any part of Petitioner S['s responses to
 t'   Staffls Exhibit4 (Petitioner Isba).
                                                                          Pursu¡nt to
                                                                   Tex.             2003.r04

                                                                                           PAGE 14
                                              PROPOSAL FOR DECISION
soAH DOCKET NOS. 304'13-4211'26
& 30¡l-13-4212,.26'26
lciii   iiocrnT   Nos lo6,8ls & 107'006

                                                                    Isba's involvement to the
              requests, including the staæments limiting Petitioner
its discovery
                            l 2008'
report periods preceding May '

               AIJ   COncludes that the r€cofd
                                                 is suffrcient to establish' by clear and convincing
         The
                                                                      attributable to the company'
                                 the part of Petitioner Isba that are
 evidence, fraudulent actions on
 butonlyfortheperiodFebn.raryl,200T,throughApril30,200S'TheALItherefore
                                 50% fraud penalty should be dismissed
                                                                       for the period
 recomrnends that the additional
                                    audit period'
 May 1, 2008 through the end of the

                                                           penalties for jeopardy determination are
 petitioners arso argue thât the irnposition of additional
                                                                                          contention
                   vague.   The   ALJ   lacks the jurisdiction to consider Petitioner's
 unconstitutional
                                    the jeopardy determination statute'
                                                                           The courts have nrled that
 regarding the constitutionality of
  theComptrollerlacksjurisdictiontonrleontheconstitutionalityofastatutethatsheadmìnisters'
  SeeTex,StateBd.ofPharmacyv.IlalgreenTexasCo.,520S'u/.2d845(Tex.App.-Austin
  l975,writrefdn.r.e.)AlsoseeComptroller'sDecisionNo.t05,82l(2013).

           2.SoAHDocketNo.304-13.42|2.26(Petitioncrlsba)

           TaxCode$lll.06llimposespersonalliabilityonanofñcer'manager'ordirectorofa
                                                                                                    in a
                                              director, or partner' took an action or participated
   corpOration who "as an officer, managef'
                                                                                   personal riability is
                                     plan to evade the payment of ta)r due exceeding the amount of ta¡< repofted by
                                                   and (3)"
     25o/o ormore' Tex. Tax Code $ 111'061l(bxl)
                                                                          CONF'IDENTtAL
                                                                             Pursuånt to
                                                                      Ter. Govtt            r04

                                                 PROPOSAL FOR, DECISION                       PAGE 15
soAH DOCKET       NOS. 30+13-4211.26
& 30+13-421226.26
TCPA DOCKET NOS 106,E15 & 107'006

                                                                  imposition of the additional
       The same facts that the ALJ ¡elied on in recommending
                                                 personal liability' First' there was an overall
50% penatty support upholding the assessment of
gross undeneporting of the tax, which resulted' even after
                                                            taking into account the adjustment
                                                                                 establishes that
recommended   by the ALJ, in an enor rate of 66.45%, Moreover, the record
                                                                                       signing of
petitioner Isba was involved in the operation and management of the store and in the

the sales and use tax returns and remittance of the
                                                     tax payments' He ordered and paid for the
                                                            the bank ståtements, and signed both
taxable inventory, deposited the store's receipts, received
                                                                 the comptoller' However' the
the sales tax fetl¡rns and the checks remitting payments to
                                                              evidence only for the period
evidence establishes this involvement by clear and convincing
         1, 2007 ttuough, April 30, 2008. This record is suffrcient
                                                                     to affrrm the personal
February
                          for that period, and the ALJ       recommends that the personal liability
 liability   assessment
                                                   1, 2008, th,rough June 30, 2009'
 assessment should be dismissed for the period May

         3.        Reconmendations

        The ALJ recommends that the audit assessment against PEtitioner
                                                                            SI should be affrrmed,
                                                                        of estimated tobacco sales
 but subject to the recommended adjusunents correcting the calculation
 and limiting the additional penalty to the period February
                                                            1,2007 through April 30, 2008' In the

     of the personal liabitity assessment against Petitioner Isbg the ALI recommends
                                                                                         that the
 case
                                                                  adjustment in the underlying
 assessmsnt should be affrrmed subject to the recommended
                                                            personal liability assessment for the
 corporate assessment and recommended dismissal of the
 petiod May 1, 2008 through June 30, 2009'

                                        III.   FINDINGS OF F'ACT

             êo-oã¡n
             r)t¡IT.aULU)
                          In¡
                          r¡¡w. lÞcrirìnner
                                \¡ v!¡uu¡¡v¡
                                             SI\
                                             e^/ onerated
                                                 vl¿v'F!r- a
                                                           È convenicncç
                                                             r *-        storç in Fort Worth, Texas during
             the audit period February 1,2007 through June 30, 2009'

                                                                                                             t--"
                                                                                     Pursu¡nt to
                                                                           Tex.                    104

                                                                                                     PAGE T6
                             304-1H2rt'26             PROPOSAL FOR DECISTON
soAH DOCKET          NOS'
& 30¡l-13-4212,26'26
îðpÁ uocxBT Nos             loó,81s & lo7'006

                                                                    by the Business Activity Research
             petitioner sl was subjected to a desk audit -performed                               exam
2.
                                       îä'dñortlq     oipoutit,qcóunts (comptroller) for the
             Team @ART) of the                                             *¿ T:îùd a tax  liabilitv of
             period of January.1,^;ôöä          ,ÑshMarchãr, zoog
                                                                                     50%  penalty'  and
             $23,593.60, consrsnng of
                                       tax, the 10% ttt"¿'tãi;Jty' the additional
             accrued interest.

                                                a comparison of Petitioner sl's
                                                                                alcohol and tobacco
             The BART exafn was prompted by                            tobacco  and alcohol vendors
             purchases for the .,..tti^ö;;ãì"iort"a
                                                    Uyittition"t SI's
             under HB 11.
                                                                                                tobacco
                                                     wine, malt liquor, cigarettes' cigars' and
             wholesalers and disnibutors of beet,
 4.
             products are required ì" ,"UÃi, elecüonic
                                                            ***, on'u *ontñly basis, to the Compiloller'

             These elecfionic reports are required-by
                                                           i;;.'Tæ< code $$ tst.+02, 154'212, and
                                                                                R.S., 2007' The vendor
             155.105, which      *"r*îrrl[ã *  i,"n 9-f f*x. ftg tt, 80th Leg-,
              ;;;;üäre commonlv          referred to as HB 11 records'

                                                         for the exam period exceeded the reported
              The HB I I tobacco and alcohol purchases
  5
                                                            to $76,9?o tenr relied on the FIB 1l
              t¿,xable sales for tr,. ää.*p.ri"å'ti SXgp56
                                                               Memo 122 (AP 122) 1n estimating the
              data and the Comptroñilï"ai, Division'Policy
              assessment.
                                                                                      the assessment'
     6        petitioner SI did not file a request for redetermination contesting
                                            beca¡ne final and the sales and use
                                                                                 tax delinquency was
              consequently, tt.
                                  ^iårt-"",
              ceÍified to the Attomey General. The Attorney
                                                             General filed a lawsuit seeking to collect

              the delinquencv A'oo, í.Utioners SI and
                                                      lsba- See Sanadco, Inc' v' Comptroller' No' 03-
                                                   iExrs   12013 (Tex. Ap,p,   -   Austin september 26, 2013).
               u-00462-cv, 20r3î;;.          ñ;.
                                                                      state' However' the fiial court
               Petitioners filed various counterclaims again{ jr:risdiction'
                                                                 -the
      7                                                                       which decision Petitioners
               dismissed PetitioneJã*a"r"tui*s
                                                    for laãk of
                                                            Petitioners' claim that the comptroller's
               appealed. Th" App"i;î;,I{ sustained
               directives in AP 92'and AP lzzwere
                                                     in fact rules and also concluded that the trial court
                                                       tnat eu¿it Division Policy Memoranda (AP)
                                                                                                       92
               had jurisdiction ou*i J*r¿"oi .raim                                     in dismissing  this
                                                                 the rrial corut erred
                artd 122*rr. iou"üdîle* -¿ that, theiefore,
               *.rnl"rctui* . See Sanadco, Inc',2013  Tex'  App'  LEXIS 12013'

                                                                                 and use tax compliance for the
         I      Petitioner   sI was ar¡dited by the comptoller for sales                  records.
                audit period,    *o   tr," u"ãitoi estimated the audit due to incomplete

         9      PetitionerSldidnotrespondtotheauditor'Srequestsforlecords'Theauditorissueda
                                                                                     of Estimation)
                Notification   nrã-utiãn pro""d*"s for State Tax Audit (Notification
                                 "f
                                                                                    Pursu¡nt to
                                                                              T   Gov't Code 2003.1

                                                                                                      PAGE 17
                                                    PROPOSALFOR DECISION
soAH DOCKET NOS. 304'13-421 126
& 30+1$'4212.26.26
icï¡      pocrBT Nos 106,815 & 107'006

                                             Petitioner sl that        the audit would be estimated using
            dated January 27, 2011, advising
                                                       would be foliowed'
            HB 1l data, and that th;AP 122lrocedures

l0          WhentheauditorinitiatedtheauditfieldworkPetitionerSlnolongeroperatedthe
                                                                perform a shelf test and instead used
                                               auditor .oJJ
            convenience ,aorr. rr,.i"iore, the              "ot
            theindustryaveragçmarkuppercenla9!|-orrrt.qaxand1i24.07%respectivelyfor
                                                           AP 122'
            ;ú"t* ;á alcohoipurchases         set out in

                                                alcohol purchases made by?etitioner
                                                                                    sI using the HB
 11.        The auditor totaled the tobacco and
                                                                   June i0, 2009' The total alcohol
            1l data for rhe reporr periods January 1, 2d0C üt*gh markup psrcentages'
            and tobacco  p*"t **rÇre marked up by their respective
                            AP lLlproduct-mix       percentage   o!    for tobacco and alcohol products
                                                                      s+ot;
 12          The standard
             was applied    ,o ur.ii."ut               þxabl; sales, because no purchase records were
                                         "stimatd
             available.

                                                        spoilage and theft to determine net estimated
 13          The auditor afforded a 57o altowance for
             ,*;tl"ã"s.    Credit was given for reported torable sales'

                                                       then reduced by the amounts assessed in the
  L4         The resulting adjusted taxable sales were                                    anive at
             BART exam for     th.;;p;  periods January l, 2008 ttrough March 31,2009.to
             the additional taxable sales'

                                                          by the applicable tax rates to determine the
             The additional tÐ(able sales were multiplied
                                                frorn January i,' zoos througþ June 30 2009.
  15
              tax due for rhe     ;;;;       ;"riods
                                                           the periods preceding January 1,2008, the
  16          As there was no HB 11 data available for
              auditor estimated ttt" u¿¿itional ta¡RESIDING

                           MEMORAND I]M OPINION

               After the Comptroller of Public Accounts performed an audit on a convenience

store owned by Sanadco Inc,, the Comptroller and the Attorney Ceneral (cumulatively the

"Comptroller") filed suit against Sanadco to recover delinquent taxes. In response, Sanadco filed

various counterclaims against the Comptroller arguing that the manner in which she calculated

the amount of taxes due was under the terms of an unauthorized rule, that many of'the actions that

she engaged in while conducting her audits were ultra vires, and that the provision o1'the tax

cocle authorizing audits by sampling ancl projecting was unconstitutional.        After Sanaclco filed its

counterclaims, the Comptroller filed   a plea to the   jurisdiction contending that the district court did

                                                                      EXHIBIT    H
not have jurisdiction over the counterclaims. Subsequent to reviewing the plea and convening a

hearing, the district court dismissed Sanadco's counterclaims lbr lack        ofjurisdiction. On appeal,

Sanadco challenges the dismissal of its counterclaims, and we     will   reverse the portion of the district

court's order dismissing Sanadco's rule challenge, affirm the remainder of the district court's order

dismissing Sanadco's other counterclaims, and remand the case fbr further proceedings.

              RELEVANT STATUTORY SCHEME AND AUDITING MEMOS

                Before delving into the background and issues in this case, a brief overview of

the governing framework for this case as well as a brief synopsis of the actions by the Comptroller

tliat fbrm the subject o1'this case is helpful. Under the tax code, convenience stores are required to

maintain their sales records for tax purposes, Tex. Tax Code        $    151.025, and the Comptroller is

authorized to examine and audit the records of convenience-store owners, id. $$           15   L025,111.004.

In addition, the Cornptroller may use sampling and projection rnethods f-or estirnating the amount

of taxes owed if "the taxpayer's records are inadequate or insufficienl." Id. $   11   L0042(b). Moreover,

if the Comptroller "is not satisfied" with the calculated tax owed       based on the taxpayer's records,

the Comptroller rnay determine the amount of tax owed liom "other inf-ormation available to the

comptroller."   Id   $ 1l1,008(a).

                In addition to rcquiring convenience stores to maintain sales records, the tax code

also requires brewers, manutäcturers, wholesalers, and clistributors ol'alcoholic beverages to 1ìle

rcports chronicling their sales to stores and listing the stores by name. 1d $ $ l5 1,46I-.462. Similarly,

the tax code authorizes the Comptroller to request wholesalers and distributors of tobacco products

to lìle the sarne type ofreports. 1d $$ 154 (addressing cigarette sales), 155. 105 (covering non-cigarette

                                                    2
tobacco products). Thc type of inf'ormation rcquircd in thcsc rcports is commonly rcferrcd to                         as

H.B. I I information because the reporting requirements were enacted by House Bill I I of                             the

80th legislature.                 Act of May 3,2007,80th. Leg., R.S., ch. 129,       SS$   \-3,2007 Tex. Gen. Laws
                           ^S¿e

159,159-62.

                      Once an audit has been perfbrmed, the store owner may request a redetermination

fiom the Comptroller within 30 days of receiving notice of the Comptroller's assessment, Tex. Tax

Codc $ 111.009(a), (b), In addition, thc owncr may also rcqucst a hcaring on thc rcdctcrmination,

id g t t l.009(c),         before the State Office of Administrative Hearings, id. $        11   1.00455. If no request

1-'or   a redetermination is         filed within 30 days, "the determination is final on the expiration of the

period."     Id   ç   11   1.009(b). As an alternative to requesting    a   redetermination, an individual may also

pay the assessed taxes along with a written protest and then file a suit challenging Ihe                       tax,   Id.

$$ 112.0s 1(a), (b), .052,

                      Prior to the passage olHouse      Bill   I 1, the Comptroller issued   a   memo entitled AP 92,

which provided guidance to auditors performing audits of convenience stores. In the memo, the

Comptroller explained that there had been a "lack of'unil'ormity in estimated convenience store

audits" and that "mark-up percentages and product mix percentages" were developed to be usecl in

audits "when necessitated by lack               of reliable records" or iI'a store's "records are unavailable,

inadequate or unreliable," Afier House               Bill   11 passed, the Comptroller issued another memo to

audit personnel entitled             AP 122. The new memo updated AP 92               and required auditors to use

H.B. 1 I information "to produce the most accurate audit results." The issuance of these two memos

along with various actions taken by the Comptroller when perfbrming convenience-store audits

lorm the basis lor this case.

                                                               J
                                            BACKGROUND

               Turning to the f'acts of this case, Sanaclco owns a convenience store, ancl Mahmoud

Isba operates the store and is designated as a responsible person 1òr Sanadco. The Comptroller

audited Sanadco and determined that Sanadco had underreported its taxable sales fbr alcohol and

tobacco proclucts. The amount of the cleficit was cletermined using H.B.        1   I data. After making her

deterunination, the Comptroller sent a     bill for   the estimated amount owed and for interest on that

amount as well as a penalty.

               After receiving notice of the amount clue, Sanaclco clid not file an aclministrative

challenge to the assessment, nor did it pay the amount due. Accordingly, the Attorney General

fìled suit to collect the delinquent taxes. In response, Sanadco liled an answer and raised several

counterclaims l-or declaratory   relief.   Those counterclaims were macle against the Offìce of the

Comptroller, Susan Combs in her     of   ficial capacity    as Comptroller, and Greg   Abbott in his official

capacity as the Attorney General. In its response, Sanadco also natned as counter-plaintilfìs other

inclividuals ancl companies who had been assessed similar taxes. Those other inclivicluals and

companies are Walid Abclerrahman; Majic Investments, Inc,; Faisal Kahn; Isra Enterprises, Inc.;

Hattab Al-Shudil'at; Hailà Enterprises, Tnc.; EID Corp.; Moharnmed S. AlHajeid; Majdi Rafe Okla

Nsairat; and Omar Unlimited, Inc.r Unlike Sanadco, the other namecl counter-plaintiffs all sought

redeterminations of their assessed taxes through administrative teview, but none ol'the administrativc

proceedings had been cornpleted by the time that the individuals were added to the lawsuit.

       t For casc ol'rcading, wc will gcncrally rclcr to all of'thc countcr-plaintifïs as Sanadco.
                                                        4
                     Regarding its counterclaims, Sanadco alleged six complaints relevant to this appeal,

In its lirst counterclaim, Sanadco asserted that AP 92 and AP I22 are administrative rules but that

theywere not promulgated in compliance with the requirements of the administrative procedure act.

Accordingly, Sanadco sought a declaration that those memos are invalid administrative rules. In its

second counterclaim, Sanadco alleged that the Comptroller engaged in ultra vires actions when she

issued            92 and AP   I22   and thereby authorized auditors to estimate taxes owed by convenience-
          ^P
                              o'frrst
store owners without                    ascertaining whether adequate records are available" from the taxpayer

to perfbrrn an audit. For those reasons, Sanadco sought declarations asserling that "the Cornptroller

is not authorized to estimate convcnicnce stole auclits using the methods clescribed in AP 92 or

AP 122 until their proper adoption, and/or that the authorization of their use is a non-discretionary

ultra vires act committed without legal authority," In its third counterclairn, Sanadco contended that

the Comptroller actedwithout legal authoritywhen she improperly instructed auditors to use H.B. I                      1

information f'or convenience store audits "without first ascertaining whether the determination can

be rnade    fiom the taxpayer's records." Accordingly, Sanadco insisted that the Comptroller's decision

to require the use of H.B. I            1   data is an ultra vires act and, therefore, sought cleclarations that the use

of   Il.B, l1 infbrmation       was irnproper and that the governing stalutes do not allow "the Comptroller

to give conclusive eÍlect to the HBI                 I   data."z In its f'ourth counterclaim, Sanadco alleged tliat the

Comptroller improperly authorized auclitors to "use an abbreviated proceclure which b¡.passed

        2 In this counterclaim, Sanadco also sought a declaration that the Comptroller's decision
to recluire the use of H.B. I I infbrmation constituted an impermissible and invalid rule, Because
that declaratory relief would seem {.o parallel the assertions made in Sanadco's lìrst counterclaim,
our analysis regarding the lirst counterclaim is intendecl to address the declaration regarding H.B.
l1   as   well.

                                                                   5
examination of the taxpayer's records and authorized an estimation of his tax liability based solely

on the invalid H. B.   11   data, without first determining the adequacy of the taxpayer's records." For that

reason, Sanadco insisted that the Comptroller was acting ultra vires and sought a declaration that the

governing tax code provisions do not authorize the abbreviated procedure. In its fiflh counterclaim,

Sanadco alleged that the Comptrolleractedultravires byauthorizing the imposition ol'a 50% penalty

without proof of fraud or of an intent to avoid the tax as required by the tax code.               ^S¿e
                                                                                                          Tex. Tax

Code $ I 1 1.061(b), In its sixth counterclaim, Sanadco sought a declaration that the provision of the

tax code authorizing sample and projection audits f'or estimating taxes owed is unconstitutionally

vague and is, "by its nature,     a   denial of substantive and procedural clue process."   ,Se¿   id   $ 1 t 1.0042.

                After Sanadco filed its counterclaims, the Comptroller filed a plea to the jurisdiction.

In her plea and brief in support o1'the plea, the Cornptroller argued that the district court did not

have jurisdiction over Sanadco's counterclaims because Sanaclco dicl not allege a proper rule

challenge, because the claims are barred by sovereign immunity, because Sanadco and the other

named counter-plaintifß fäiled to exhaust their adrninistrative remedies bef'ore filing suit, because

some of the counterclaims were not ripe for review, and because Sanaclco ancl the other counter-

plaintifß did not have standing to challenge the allegedly unconstitutional tax statute.

                After reviewing the pleadings, the plea, and Sanadco's response to the plea, the

district court signed an order granting the Comptroller's p1ea.3 On appeal, Sanaclco contests the

        3 In addition to the six counterclaims mentioned above, Sanadco also alleged the f'ollowing
 additional counterclainrs: (l) that the Comptroller engaged in an unconstitutional taking when
 she improperly collecf ed sales and use taxes, and (2) that the tax code provision authorizing the
 Comptroller to impose a ten percent penalty if she believes that "the amount due lòr a tax period is
jeopardized by delay" is unconstitutional.

                                                          6
district court's order granting the Comptroller's plea and, in six issues, challenges the district court's

disrnissal of its six counterclaims.a

                                        STANDARD OF REVIEW

                "A plea to the juriscliction is a dilatory plea, the purpose of which is to defeat a cause

of action without regard to whether the claims asserted have merit." Bland Indep. Sch. Dist. v. Blue,

34 S.W.3d 547 , 554 (Tex, 2000). A party to a lawsuit rnay challenge a trial court's subject-matter

                    filing containing thc Comptroller's plca to thc jurisdiction also servcd as a
        The rcsponsivc
motion for summaryjudgment. [n the plea porlion of the filing, the Comptroller souglrt dismissal
of the six counterclaims discussed in the body of the opinion but did not discuss the two additional
countcrclaims. In the summary-judgment portion, the Comptrollcr sought judgmcnt in hcr lavor
regarding the two additional counterclaims as well as some of the other counterclaims. In a separate
order, the district court granted the motion fbr summaryjudgment.

         In two issues on appeal, Sanadco argues that the district court erred by dismissing the
two additional counterclaims listed above. However, those additional claims were disposed of'by
 summaryjuclgmcnt. The lcgislaturc has cmpowcrcd appcllatc rcvicw of a trial Çourt's intcrlocutory
 order granting a plea to the juriscliction by a governmental unit, see Tex. Civ. Prac, & Rem. Code
 $ 5l.Ola(a), but has not empowered us with authority over interlocutory orders granting a
 govarnmcntal unit's motion for summary judgmcnt. Accordingly, in this appcal, wc onfy adclrcss
 the six counterclaims listed in the body of the opinion that were attacked and dismissed on
jurisdictional grounds.

         4 In its counterclaims, Sanadco filed suit against the Comptroller in her individual capacity
and sought to initiate a class action on behalf of individuals who had similarly been assessed taxes.
In her plea to the jurisdiction and brief in supporl of the plea, the Comptroller sought dismissal of
Sanadco's claims against her in her individual capacity on the ground that Sanadco had failed to
"plead any Iäcts that would expose [her] to individual liability" and because the pleadings
demonstrate that Sanadc o "cannot plead any làcts that would give rise to such liability." Similarly,
the Comptroller requested that the district court dismiss the class action claims for several reasons,
including that none of the convenience-store owners had "satisfied the statutory prerequisite to filing
a class action under" the tax code. ,See Tex. Tax Code $ I12.055 (allowing lbr class actions by
persons who have paid their taxes under protest). The district court granted the Comptroller's plea
in its entirety, and Sanadco cloes not challenge the dismissal of its claims against the Comptroller
in her individual capacity or of its class-action claims. Accordingly, those claims are not considered
in this appeal and remain dismissed.

                                                    7
jurisdiction overacasebyfilingaplea. I"{ou.stonMun. Em¡ts. Pension,5"y,s. ,. Ferrell,248 S.W.3d 151,

156 (Tex. 2007). Determinations regarding whether a trial coutt has juriscliction over a case are

questionsoflaw. TexasDep'toÍ'Parks&Wildli/Þv.Miranda,133S.W.3dZI7,225-26(Tex.2004).

Subject matterjurisdiction is a question of law that appellate courts review de novo, State v. IIolland,

221 S.W.3d 639, 642 (Tex. 2007), ancl may be raised for the first time in an interlocutory appeal,

Rusk State Hosp. v. Black,392 S.W,3d 88, 95-96 (Tex. 2012). Moreover, appellate courts must

consider their jurisdiction 'oeven if that consideration is sua sponte." Freedom Cr¡mmc'ns., Inc.           v.

Coronado,372 S.W.3cl 621,624 (Tex. 2012) (per curiam).

                On appeal, we review de novo a trial court's decision to grant a plea to the jurisdiction.

Ferrell,248 S.W.3d at 156.    [n perftrrrning this   jurisdictional analysis, courts look to the "plaintif'f"s

petition to determine whether the fàcts pled aflirmatively demonstrate that juriscliction exists,"

I{olland,221 S.W.3d at642. "If the pleadings are insuffìcient to establish jurisdiction but do not

affirrnatively dernonstrate an incurable defèct, the plaintiff should be alÍbrded the opportunity to

repleacl." Id. at 643. However, if "the pleadings alTìrmatively negate the existence ofjurisdiction,

then a plea to the jurisdiction may be granted without allowing the plaintiffs an opportunity to

amend." Miranda,133 S.W.3d a|227.

                                             DISCUSSION

                As mentionecl above, Sanadco challenges the dismissal of its six counterclaims in

six separate issues on appeal

                                                       8
Sanadcoos      First lssue

                   In its first issue on appeal, Sanadco urges that the district court erred by clismissing

its counterclaim regarding AP 92 and             122. In its counterclaim, Sanadco sought a declaration
                                            ^P
that the memos are invalid administrative rules, Essentially, Sanadco contends that the memos

required the Comptroller's auditors to use certain methods when perf'orming audits                   of all

convenience stores and that the Comptroller used the procedures specified in the memos when

performing the audits at issue in this case. In challenging the district court's order, Sanadco insists

that the memos constituted administrative rules as defined by the adrninistrative procedure act but

thattheruleswerenotacloptedincompliancewiththeact. SeeTex,Gov'tCode$$2001.021-.041:,

see ctlsc¡   rd $ 2001.003(6) (defining "rule"). Accordingly,    Sanadco contends that the district court

had jurisdiction to consider its challenge       to the rules because the adrninistrative procedure     act

empowers a parly to seek a declaration challenging the validity or applicability of a rule, see         i.d.

$ 2001.038,     including one not adopted in compliance with the act, see El Paso Cnty. Ilosp. Dist.     v.

Texas Health &      IIuman Servs. Comm'n,247 S.W.3d 709,715 (Tex. 2008),

                   In supporting the district court's dismissal of this counterclaim, the Comptroller

contends that the provision of the administrative procedure act authorizing rulc challenges does

not apply in this case because the memos do not qualify as rules under the act, As suppott f.or this

proposition, the Comptroller argues that the memos are simply statements regarcling the internal

management of the agency and do not impose any duties or requirements on convenience-store

owners. On the contrary, the Comptroller insists that the memos are designed to irnprove the

accuracy of auclits by requiring auclitors, not taxpayers, to use certain aucliting methocls. Fuilhermore,

                                                      9
thc Comptrollcr urgcs that although the mcmos may hclp auditors asccrtain whcthcr taxpaycrs owc

money, the taxpayer may challenge the determination. Accorctingly, the Comptroller insists that any

ell.ect on a taxpayer caused by the implementation of AP 92 and AP 122 would only be binding alter

an aclministrativc hcaring, which shc contends supports thc conclusion that thosc mcmos arc not rulcs,

                  Because we believe that AP 92 and            AP I22 are rules, we must conclude that              the

district court erredby dismissing Sanadco's first counterclaim. Under the administrative procedure

act, a rulc is dcfincd as
                            ooa
                                  statç agcnoy statcmcnt of gcncral applicability          that: (i) implcmcnts,

interprets, or prescribes law or policy; or (ii) describes the procedure or practice requirements of                  a

state agency." Tex.    Gov't Code     $   2001.003(6)(A), For rule determinations, 'ogeneral applicability"

rel'ers   to statements affecting the interest of the public and does not refer to statements                    issued

whendeterminingtherightsofindividuals. Combsv.EntertainmentPubl'ns,Irtc.,292S.W.3d712,

72I (Tex. App.-Austin 2009, no pet.). Further, the statutory definition "includes the amendment

or repeal of a prior rule" but excludes "a statemenf" regarding only the internal management or

organization of a state agency and not         af   fecting private rights or procedures." Tex. Gov't Code

$ 2001.003(6XB)-(C). In determining whether an agency statement is a rule, courts consider "the

intent of the agency, the prescriptive nature of the guidelines, and the context in which the statement

was made." Entertainment Publ'ns,292 S.W.3d at722.

                  AP 92 states that lbrmulas were developed l-or estimating couveniencc-store audits

to promote uniformity. Essentially, the memo sets out mark-up percentages that were to be used

in all cascs where "records are unavailable, inadequate or unreliable." Similarly, AP 122 provides

                                                                                               oolnust
guidelines l'or convenience-store audits and instructs that H.8.        1   1   inlorrnation             be the starting

point" f'or all convenience-store audits conducted after the date of the memo.

                                                          l0
                By their language, both memos are statements implementing, interpreting, or

prescribing law or policy . CJ: id. at727 (concluding that letters by Comptroller indicating her intention

to apply statute in all cases "involving brochure fundraising firms" without regard to individual

factors were rules). The directives in the memo apply to audits perf'ormed on all convenience-store

owners and not just to the named counter-plaintifß, and the memos, particularly AP 122, reveal the

Comptroller's intention to apply particular information and methods when performing all audits of

çonvenience stores in all future cases and regardless of any individual circumstances. ,See Triniry

Settlement Serv,s., LLC v. Texas State Sec. Bd , No. 03-10-0063g-CV, 2013 Tex. App. LEXIS 9487,

at *15-16 (Tex.   App.-Austin Aug. 7,2013,       no pet. h.) (concluding that agency statement did not

qualily as rule because it applied only to particular company and because agency did not express

intention to apply statement to all future cases).

                Another factor weighing in favor of a determination that the memos are rules is

Sanadco's allegation that the Comptroller is in fäct generally using directives and fbrmulas in those

melnos when perf'onning audits on convenience stores and that the Cornptroller used the memos

during the auclits of the convenience stores at issue in this case. In other wclrds, the memos had a

tangible efïect and were not simply advisory statements. See Brinkley v.         Texa,s   Lottery Comm'n,

986 S.W.2d 764,770 (Tex.      App.-Austin     1999, no pet.) (explaining that letters liorn Commission

setting lbrth criteria by which licensees coulcl determine     if their eight-liner   machines were legal

were not rules because they were merely informal views bearing upon internal agency management

in absence oÍ statute giving letters legal eflèct or attempt by agency to enlbrce statement against

licensee). Civen that the nÌemos hacl çífects on convenience stores at large, we also cannot agree

                                                     ll
with the Comptroller's asseftion that thc memos were only statements directed to auditing personnel

"regarding only the internal management or organization" of the Comptroller's ofTìce.              ,See   Tex. Gov't

Code $ 2001.003(6)(C); cJ: Texas           Mut Ins. Co. v. í/isîa Cmty. Med. Ctr., LLP,275 S.W.3d           538, 555

(Tex. App.-Austin 2008, pet. denied) (determining that staff report concerning inconsistent

implementation of rule was not itself rule because repoft was presented to agency but agency

took no official action regarding report and because it simply presented possible correction to

stop inconsistency),

                   Although we need not thoroughly pursue the issue here, we are also persuaded

that   AP 122 is a rule      because that memo requires the use of          H.B. 1l information as a primary

tool f'or estimating taxes regardless of'the condition of the taxpayer's records. That requirement is

noteworthy because          it   seems   like a departure fiom the provisions of the tax code authorizing

estimating techniques when the taxpayer's records are somehow inadequate ancl when the

Comptroller is "not satisfied" with         a tax report that has been   filed "or the amount of the tax required

to be   paid."   ,S¿e   Tex. Tax Code $$ l1 L0042,.008;see also El Pa,so Cnty. Hosp. Dist.,247 S.W.3d

aI714 (concluding that agency letter setting cutofïdate f'or seeking reimbursement was rule because

it was statement of general applicability, affected all hospitals, and implemented agency policy by

rnodilying pre-existing base-year rule). This type ol modilìcation to prior practices and governing

fiameworks woul1   S.W.3d 532, 546 (Tex,

App,-Austin    201 I, pet. denied) (describing distinction as   "elusive"). Although the legislature has

attempted to distinguish the two through legislation, making the distinction is ofìen not an e asy task,

particularly given the varied functions that agencies are charged with undertaking. In discussing the

dilliculty in rnaking these determinations, this Court has explained that the core concept to consider

is whether the agency statement has "a binding effect on private parties." Slay,351 S.W.3d at 546;

see ctlso id. at 546,548 (concluding that evidence supported     trial court's determination that agency

statement was not rule because there was evidence that agency commissioners "were not bound

to follow fstatement's] methoclology when exercising their legislatively conf'errecl cliscretion to

impose penalties"), Although this is an extremely close case, we believe that the record as it has been

developed at this stage of the lawsuit cornpels a conclusion that the memos at issue have suflicient

elfeci on private parties to render ifiem rules.

                                                   13
                 In light of the preceding, we conclude that the directives in AP 92 and AP 122 aretn

fàctrules. Forthatreason,wemustalsoconcludethatthedistrictcourthadjurisdictionoverSanadco's

claim that AP 92 ancl AP 122 were invalicl rules and that, therei'ore, the district court erred by

dismissing Sanadco's first counterclaim. Accordingly, we sustain Sanadco's first issue on appeal.

Sanadcoos Second,      Third, Fourth, and Fifth Issues

                 In its second, third, and fburth     issues, Sanadco challenges the dismissal        of its

requestecl declaratory relief regarding actions taken by the Comptroller that it contencls are ultra vires

acts, Specifically, Sanadco urges that the following actions by the Comptroller are not supported

by any governing law: the Cornptroller's decision to require auditors to estimate taxes owed by

using the methods described in AP 92 and AP 122 and to authorize her auditors to use H,B.                 11

information to conduct abbreviated tax audits. In asserting that these actions     are ultra vires, Sanadco

points to section   lIL0042 of the tax code, which allows auditors      to use sampling auditing methods

when a taxpayer's records are unsatisfactory. See Tex, Tax Code $ 111.0042. Similarly, Sanadco

refers to a rule in the administrative code that authorizes the Comptroller to use          "a sample   and

projection auditing method to determine tax liability" when       a taxpayer's records are unsatisl-actory,

See 34 Tex. Aclmin. Cocle $ 3.282(c),     (d). In light of the statutory provision   and the rule, Sanadco

insists that the Comptroller's decision to perform the audits in the manner described is contrary to

the governing   law. In its fifïh issue, Sanadco challenges the disrnissal of his declaratory claim alleging

that the Comptroller actecl ultra vires by authorizing a 50j/u penalty lòr fraud. Specifically, Sanaclco

insists that although subsection 111.061(b) of the tax code authorizes the Comptroller to impose

penalties, the provision lirnits its imposition to circurnstances in which it is determined that a fäilure

                                                     t4
to pay the tax o'due was a result of fraud or an intent to evade the tax" or that the taxpayer engaged

infiaudulentconducttoafÏèctthe"outcomeofanaudit." SeeTex.TaxCocle$ 111.061(b), Relying

on that statute, Sanadco insists that the Comptroller did not make the requisite determinations before

imposing the fiaud penalty on convenience-store owners.

                 Furthetmore, Sanadco contends that even though none of the named counter-plaintiff's

had   fully exhausted their administrative remeclies regarcling the Comptroller's tax assessments, the

district court still had jurisdiction to consider these declaratory complaints because parties are not

requiredtoexhausttheiradrninistrativeremediesl'orproperlypleadedultra-viresclaims.        Accordingl¡

Sanadco insists that the district court hacl juriscliction over its declaratory claims requesting the

Comptroller to comply with the governing statutes and rules.

                 Generally speaking, a party must exhaust all of its administrative remedies bel'ore

seeking   judicial review of an agency determinalion. Friends of Canyon Lake, Inc. v- Guadalupe-

Blanco Riyer Auth., 96 S.W.3d 519, 525 (Tex. App,-Austin 2002, pet. denied); cf. Burgess             v.

Gallery Model [Iomes, Inc., 101 S.W.3d 550,558 (Tex. App,-Houston               Ist   Dist.] 2003, pet.

deniecl) (explaining that Comptroller has exclusive juriscliction to rcsolve tax refunds and that party

must exhaust such remedy bel'ore filing refund suit); c/. Tex. Gov't Code $ 2001 . 17 I (empowering

person who has exhausted his administrative remedies and who is aggrieved by final agency decision

to seek juclicial review). Exhaustion of aclministrative remeclies is necessary in orcler to waive

sovereign immunity, which otherwise typically forecloses suits against government offîcials.       ,See

As,signees oÍ'Best Buy v. Combs,395 S.W.3d 847      ,869 (Tex. App.-Austin 2013, pet. liled). In its

bricf, Sanaclco correctly points out that the supreme çourt has recognized an exception to          the

                                                   l5
general rule for claims alleging that government       ofïcials have engaged in ultra vires acts,   See

City of'El Paso v. Heinrich,284 S.W.3d 366, 372-73, 380 (Tex. 2009) (explaining that with one

exception, "governmental immunityprotects government ofl.rcers sued in their official capacities to

the extent that it protects their employers" and that suits filed against government officials seeking

"to require state ofTìcials to comply with statutory or constitutional provisions are not prohibited by

sovereign immunity"); Appraisal Revietv Bd. oJ'Harci.s Cn.Íy. v. O'Connor &. Assocs.,267 S.W.3d

413,418-19 (Tex. App,-Houston [14th Dist,] 2008, no pet.) (outlining exception to exhaustion

lequirement fbr ultra vires clairns and stating that generally courts may only interlère with duties   o1'

agencywhen officials exceedstatutorily conferredpowers eventhough administrative remedies have

not been exhausted).

               However, we do not believe that the exception applies to Sanadco's claims. In

order to fall within the exception, a party must allege that the oflicial "acted wholly outside [his]

jurisdiction," and allegations that an agency official fuiled to fully comply "with all of the

intricacies" of the governing statutes and rules are insufïicient to confèr jurisdiction. Friends of

Canyon Loke,96 S,W.3d at 528; see O'Connor & A,ssocs.,267 S.W,3d at            4I9. As a preliminary

matter, we note that the H.B.   l1 information   that the Comptroller used for calculating the audits

was infbnnation that the legislature required wholesalers to provide regarding their sales of alcohol

and tobacco proclucts to convenience-store owners. See Tex. Tax Clocle $$ 151.462, 154.212.

Moreover, the bill analysis fbr H.B. 1 I reveals that the law was enacted because of 'ogrowing concern

over fiaud among convenience store owners in the area of sales tax reporting" and that the legislature

                                                  t6
was requiring the inf'ormation in order to help the Comptroller perform her audits of convenience

stores. Senate Comm. on Bus. & Cìommerce, Bill Analysis, Tex, H.B. 11, 80th Leg., R.S. (2007).

                 In acldition, the legislature has specifìcally empowered the Comptroller to perform

tax audits of convenience stores.     ,See   Tex. Tax Code   $   $ I 1 1.001 (empowering Comptroller to collect

sales taxes), .004-.0041 (authorizing Comptroller to examine records of taxpayers), Importantly, the

legislature has also allowed the Comptroller to estimate the amount of taxes due in certain

circumstances.   ,S¿e   id    $$ I I1.0042 (allowing Comptroller to use sampling auditing techniques           if
certain conditions are met), .008 (authorizing Cornptroller to use other infbrmation                  if   she is

dissatisliecl with tax reporl), Moreover, the tax code clirects the Comptroller to impose a penalty            o1'

50% ol'the taxes due     if   the Comptroller concludes that a taxpayer's f-ailure to pay was the "result

of fiaud or an intent to evade the tax." Id. ri I l I .061(b).

                 Although Sanaclco may disagree with the manner in which the Comptroller is

perf'orming her duties and her decision to use legislativelyprescribed information for estimating the

amount owed in her audits, we cannot agree that Sanadco has alleged complaints about actions

wholly outsicle of the Comptroller's authority. Allegations that the Comptroller is not complying

completely with every statutory requirement when performing the duties that she is authorized to

perlbrrn are not sufTicient to invoke the ultra-vires exception. See Creedmor¡r-Maha Water Srrpply

Corp. v. Texa,c Cotnnl'n olt Envtl. Quality,307 S.W.3d 505, 517-18 (Tex.               App.-Austin    2010, no

pet.) (determining that allegations that agency rcached incorrect result when exercising its delegated

authoritydoes notconstituteultra-vires clairns); O'Connor &Assocs.,267 S.W.3d at4l9 (explaining

that assertions that agency hcarings clicl not fully comply with statutory procedural requiremcnts

                                                       ll
were not enough to invoke ultra-vires exception); Friends of' Canyon Lake, Inc. ,96 S.W.3d at 528

(concluding that arguments that agency did not provide required notice and inf'ormation during

application process were insufficient to invoke exception); cf. Texas Comm'n of Licensing &

Regtilatìon v. Model Search Am., [nc.,953 S.W.2d 289,292 (Tex.            App,-Austin     1997, no   writ)

(relating that claim that agency had authority to interpret statute but had interpreted provision

incorrectly was insufficient to involce ultra-vires exception because possibility that agency might

interpret provision incorrectly does not destroy agency's ability to make that determination).

                In light of the fäct that Sanadco's petition làiled to demonstrate that the named

counter-plaintil'fs had failed to exhaust their administrative remedies and in light of our cletermination

that Sanadco's allegations did not properly invoke the ultra-vires exception to the exhaustion

requirement, we must conclude that Sanadco's petition did not invoke the jurisdiction of the district

court to consider its requested declaratory relief, For these reasons, we eannot conclude that the

district couft erred by dismissing Sanadco's requested declaratory relief, and therefore, we overrule

Sanadco's second, third, lburth, and    fìfth issues on appeal.   See Creedmoor-Maha Water Supply

Corp.,307 S.W.3cl at 515 (noting that party does not avoid jurisdictional limitation by hling claim

under unif'orm declaratory.judgment act and that act is not general waiver of immunity).s

        s
          On appeal, Sanadco contends that exhaustion of administrative remedies was not warranted
in this case because its claims ¡rresented pure questions o1'law and were based on uncontested facts.
Assuming without deciding that Sanadco invokes a viable exception to the exhaustion-of-remedies
cloctrine, we disagree with Sanaclco's assertion that the reliel'that it sought only involved pure
questions o1'law. In addition to seeking declarations regarding whether certain procedures by the
Comptloller complied with relevant governing law, Sanadco also sought in its counterclaims to
have the counter-plaintiffs be relieved of the obligation to pay their respective taxes, to recover
compensatory damages liom the Comptroller as well as interest and attorney's fèes, and to
obtain a judgment directing the Comptroller "to account . . . for all of the damages caused to" the

                                                    l8
Sanadco's Sixth Issue

                In its final issue on appeal, Sanaclco asserts that the district court erred by clismissing

onjurisdictional grounds the counterclaim that section I11.0042 of the tax code is unconstitutional.

That provísion authorizes the Comptroller to use sarnpling auditing methods if'certain criteria

are   met. Tex. Tax Cocle $ 11L0042. In its sixth counterclaim, Sanadco sought               a declaration that

the provision is unconstitutionally vague as written and as applied to the counter-plaintifï's.

                In order    1'or a   trial court to have juriscliction over a declaratory-judgment claim,      a

party must allege "a justiciable controversy as to the rights and status of parties actually before the

courl for adjudication, and the declaration sought must actually resolve the controversy." Brooks

v. Northglen A.s,t'n,141 S.W,3d 158, 163-64 (Tex. 2004). "A justiciable controversy is one in

which   a real and substantial controversy exists     involving   a genuine   conflict of tangible interests and

notmerelyatheoreticaldispute." TexasDep'tof'Pub. Safetvv. Moore,985 S,W.2d 149, 153 (Tex.

App.-Austin     I 998, no   pet.). 11'there is no çase or controversy, then any declaration issued by a trial

court woulcl constitute an impermissible advisory opinion. Broolcs,l4l S.W.3d at 164,

                Although Sanadco urges the statute's unconstitutionality, neither his 1ìling containing

the counterclaim nor his appellate briefìs contain any allegation regarding a dispute between the

Comptroller   ancl the named   counter-plaintiffs involving the statute in question. In parlicular, Sanaclco

does not assert that the Comptroller used or threatened to use the sampling methods authorized in

countcr-plaintif'f's. CJ. I{arri:t Cnty. Apprai:sal Di,st. v. ETC Mktg.,399 S.W.3d 364, 368 (Tcx.
App.-Houston [14th Dist.] 2013, pet. filed) (disagreeing with assertions that claims were just
questions of law and that exhaustion requiremcnt did not need to be met because parly was seeking
to havc its tax asscssmcnts sct asidc and could not, thcrcforc, bc pursuing purc qucstion ollaw).

                                                        T9
the provision when perl'orrning the audits for any of'the counter-plaintiffs, To the contrary, Sanadco's

filings in the district court and in his appellate briefi all allege that the Comptroller improperly

used H.B. I 1 inforrnationwhen performing audits. Accordingly, Sanadco did not plead any conflict

regarding the statute, and there was no justiciable controversybetween the named counter-plaintiffs

and the Comptroller. For that reason, we cannot conclude that the clistrict court erred by dismissing

its requested declaratory reliefl and therefbre, we overrule Sanadco's sixth issue on appeal.

                                            CONCLUSION

                Having overruled Sanadco's second, third, fourth, f'rfïh, and sixth issues, we affirm

the portion ofthe district court's orcler dismissing   onjurisdictional grouncls the following declaratory

counterclaims urged by   S   anadco : that the Comptroller acted ultra vires by implementing AP 92 and

AP 122, that the Comptroller acted ultra vires by requiring the use of H.B. I 1 information during

audits of convenience stores, that the Comptroller actecl ultra vires by authorizingabbreviatecl audits

andby giving preclusive ei'fect to H.B. I 1 information during those audits, that the Comptroller acted

ultra vires by authorizing the imposition of a lraud penalty without requiring a determination that

all the statutory criteria   hacl been met, and that section 111,0042       is unconstitutional. Having

sustained Sanadco's fÌrst issue on appeal, we reverse that portion          of the clistrict court's order

disrnissing the counterclaim asserting that AP 92 and AP 122 were improperly promulgated rules,

Accordingly, we remand the case for proceeclings consistent with this opinion.

                                                       20
                                            David Puryear, Justice

Befbre Justices Puryear, Henson, and Goodwin
 Jusl"ice Henson not participating

Aff,rrmed in Part; Reversed and Rernanded in Part

Filed:   September 26,2013

                                               21
                           Amalia       Rod rig   uez-Mendoza
                               District Clerk, Travis County
                           Travis County Courthouse Complex
                                    P. O. Box 679003
                                  Austin, Texas 78767

Date: November 3, 2008

TO: All attorneys of record in cases pending in Travis County District Couft

NOTICE OF ENTRY OF NEW E-FILE MANDATE ORDER

The 2008 Court Order Regarding E-filing is effective as of November 1, 2008. You can
view this order by selecting the link near the top of the following web page:

htto: //www.co.travis.bx. us/district clerUdefault.asp

If you have not yet established an e-filing account, please refer to Texas Online's eFiling
Main Information at:

http : //www.texasonline.com/oortal/tol/en/info

We are asking that you establish your account as soon as possible, but a grace period
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If you have any questions regarding the e-filing process or the order's application to
any of your pending cases, you may call 512-854-FILE (512-854-3453) for assistance

Thank you

     ia Rod
                                   9úry-
Travis County District Clerk

Travis County District Clerk's Offìce
Civil Division

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                                     bankruptcy, and social security disability)

                           Thls service is certlfled as a lawyer referral servlcs ar requlred by lhe State ol Texag
                                        under Chapler 952, Occupatione Codo. Certlllcale No. 9303

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                                                 Tab D

              Letter regarding payment for Reporter’s Record
                      Sanadco II, No. 03-14-00771-CV
                          Third Court of Appeals.

Appellees’ Responsive Brief                                    page 4
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
                                                                                                     I Il.li (:()t,\'

                                       Counr oF AppEALS
                                            Tuno Drsrrucr or TexRs
                                            P,O, BOX I 2s47, AUSI'[N. TEXAS 7871 l_2547
                                                   www. tx0ourts. gov/3r'dcoa.aspx
                                                           (stz) 463_t733

JEFF L. ROSE, CHIEF JUSTICE                                                         JEIìIII{EY D, KYLE, CLERK
DAVID I'UIìYEAR, JUSTICE
BOB PEMBEIì'TON, JUSTICI':
MELISSA cOODWIN, JUSI ICIl
SCO]I' K. ITIËLD, JUS]'ICE
CINDY OLSON I]OURLAND, JUSl'ICE
                                         February 10,2015

Mr. Samuel T. Jackson
Law Office of Samuel T. Jackson
P. O. Box 170633
Arlington, TX 76003
* DELIVERED VIA E-MAIL *

RE:     Court of Appeals Number: 03-14-00771-CV
        Trial Court Case Number: D-1-GN-13 -004352

Style    Sanadco Inc., a Texas Corporation; Mahrnoud Ahrned Isba; Broadway Grocery, Inc.;
         and Shariz, Inc.
         v. Susan Combs, in Her Individual and Offrcial Capacity as Comptroller of Public
         Accounts; Office of Cornptroller of Public Accounts for The State Of Texas; and Gregg
         Abbott in His Official Capacity as Attorney General of The State Of Texas

Dear Counsel

        The reporter's record was due in this Court on December 15,2014 and is overdue. The
Court has been informed by Sheri Linder, the court reporter, that appellant has neithcr paid, nor
made arrangements for payment, for the reporter's record. Accordingly, the reporter's record will
not be filed.
        If appellant does not notify this Court that payment arrangements have been made for the
record, or otherwise responcl to this notice on or before Friday. February 20, 2015, the Court will
consider the appeal without the reporter's record. See Tex. R. App. P. 37.3(c). If the appeal is
submitted for decision without a reporter's record, appellant will be expected to file a brief on or
before March 12,2015.

                                                      Very truly yours,

                                                      JEFFREY D. KYLE, CLERK

                                                      BY                            .(t).

                                                              Amy Strother, Deputy Clerk

cc      Mr. Jack Hohengarten
                                                 Tab E

     Order Denying Plaintiff’s Declaratory Judgment and
    Application for Temporary Injunction Plaintiffs’ Third
  Amended Petition for Judicial Review, Declaratory Judgment,
      Temporary Injunction and Request for Disclosure
             Sanadco II, No. D-1-GN-13-004352
     200th Judicial District Court of Travis County, Texas

Appellees’ Responsive Brief                               page 5
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
                                                                         F¡fed in The          ilictritlt {i#un
                                                                             e¿f   i¡'¿.¡vis eçrunfil,
                                                                                                         "içyr¡:'

                                                                                        i i ¿¡-ilir l) M--
                                                                                     r'tt}'l
                                          NO. D-1-cN-13-004352
                                                                         t\t**ß-ll         l-
    SANADCO INC, A TEXAS CORPORATION                                     nffi "tr;i¡'Eiüìitri;'äio--..A'rl'
                                                                                                   i ' î ii'        r

    AND MAHMOUD AHMED ISBA                                $       IN THE DISTRICT COURT OF
                                                          $
              Plaintiff's,
                                                          $
                                                          $
    V
                                                          $
                                                          $
    SUSAN COMBS, IN HER TNDIVIDUAL
                                                          $
    AND OFFICIAL CAPACITY
                                                          $
    AS COMPTROLLER OF PUBLIC,
                                                          $          TRAVIS COUNTY. TEXAS
    ACCOUNTS
                                                          $
                                                          $
    OFFICE OF COMPTROLLER OF
                                                          $
    PUBLIC ACCOLINTS FOR THE STATE
                                                          $
    OF TEXAS,
                                                          $
                                                          $
    AND GREG ABBOTT, IN HIS
                                                          $
    OFFICIAL CAPACITY AS ATTORNEY
                                                          $
    GENERAL OF THE STATE OF TEXAS
                                                          $
              Defendants
                                                          $          2OOth   JUDICIAL DISTRICT

                                                           SD
                              AP         TI               T             CTI

I             oN
              October l4th, 2014, this Court heard Mahmoud Ahmed lsba's application for
, temporary injunction. After considering the pleadings on file, the evidence,
                                                                               and the arguments
    of counsel, the Court hnds that the application is without merit and should be DENIED.
           ACCORDINGLY, Mahmoud Ahmed Isba's application for temporary injunction                              is
    denied.

                                              *'l.g-tt'
              SIGNED on the        tT   day   of Qs"Let,e/,2014

                                                      HON ORABLE CHARLES RAMSAY
                                                                                              í¡,¡-l'-Ì -|4
ProDoc FaxService                Pâge Z of         Z7

                               CAUSE NO.       D-1-GN-l3-4352

     SANADCO INC, A TEXAS CORPORATION,                  s       IN THE DISTRICT COURT
     MAHMOUD AHMED ISBA, BROADWAY                       s
     GROCERY,INC., SHARIZ,INC., AND RUBY &              s
     SONS STORE, INC., AND RUBINA NOORANI,              $
                                 PIaíntiffs,            s
                                                        s
                                                        s
         VS                                             s
                                                        $
     SUSAN COMBs,IN HER INDIVIDUAT                      s        TR,AVIS COUNTY, TEXAS
     AND OFFICIAL CAPACITY                              $
     A5 COMPTROTTER OF PUBTIC ACCOUNTS,                 s
                                                        s
     OFFICE OF COMPTROLLER OF PUBLIC                    s
     ACCOUNTS FOR THE STATE OF TEXAS,                   $
                                                        $
     AND GREGG ABBOTT IN HIS OFFICIAL                   s
     CAPACITYAS ATTORNEY GENERAL OF                     $
     THE STATE OF TEXAS                                 $
                                 Defendants             s       z 0OTH IUDTCTAT DTSTRT CT

                 PLAINTIFFS' THIRD AMENDED PETITION FOR JUDICIAL REVIEW,
                      DECI,,ARAT O RY J U D G MENT, TEM P ORARY I NIUNCTI ON
                                 AND REQUEST FOR DISCTOSURE

          COME NOW SANADCO INC. anrl MAHMOUD AHMED ISBA, et al, Plaintiffs, who file
     this Second Anended Petition for fudicial Review, Declaratory Judgment and Tetnporary
     Injunction from a pending Conrptroller's Decision in a conlested case proceeding before
     the State Ollice of Arlninistrative Hearings, and joining Plainliffs RUBI & SONS STORE,
     INC. and RUBINA NOORANI, and Mahmoud A. Isba, complaining of SUSAN COMBS, in
     her individual and official capacity as Texas Cornptroller ol Public Accounts, and GREG
     ABBOTT, in his ofTìcial capacity as Texas Attorney Ceneral ("Defendants"), and f'ol' cause
     woulct respecttully show the fbllowing:
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                                                         I.
                                      DISCOVERY CONTROL PIAN
        1.   Plaintiff.s designate tlri.s case as a Leveì 2 ca.se requiring a cliscovery control plan
             tâilored [o the circumstances ôf this particular suit pursuânt to Texas Rule of
             Civil Proceclure L90.4.

                                                         II.
                                         REQUEST FOR DISCTOSURE

       2.    Pursuant to Texas Rules of Procedure 194, Plaintiffs reqr.rest that Def'endants
             disclose, within S0 days of service of this request, all of the intbrmation or material
             described in Rule L94.7,.
                                                      I II.

                                                     PARTIES

        3           Sanadco Inc., PlaintifT, is a private Texas Corporation, duly organized and
             existing under the laws of the State of Texas, engaged in the operation of a
             convenience store whose principal place of business is located at 3801 East
             Rosedale St., Fort Worth, Texas 76L05-1732, artd whose Taxpayer No. is

       4            Mahrnoud A. Isba, Plaintifl, is an individual wlto resides in Arlington,
             Tarrant County TX and operâtes the convenience store owned by Sanadco Inc.,
             located at 3801 East F-oseclale St-, Fort Worth, Texas 76L05-1'732, and whose
             Taxpayer No. is

        5           Broadway Grocery Inc., Plaintifi is a private Texas Corporation, duly
             organizecl and existittg under the laws of the State of Texas, engaged in the
             operation of a convenience store whose principal place of business is located at
             8342 Broaclway St., San Atrtonio, Texas 78209-2009, atrd whose Taxpayer No. is

        6.           Shariz, l¡rc., PlaintitÏ, is a private Texas Corporation, duly orgattized and
             existing u¡rder tlre laws of the State of Texas, engaged in the operation of a
             conveuience store whose principal place of bttsiness is located at 143L0 Taslnania
             Ct., Strgarland,TX77498, and whose Taxpayer No. is

        7            Plaintifls Rulli & Sons Stole, lnc. and Rutrina Noorani joirr tìri-- petitittn on alÌ
             cìairl.- as Pctitroners in a suit currerrtly on file with the State Oflice tll

                                                 ?age 2 ol 26
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             Adnri¡ristrative Hearing.s who have not yet exhausted their aclruitristrative
             remedies, but an audit has been initiated by the Conrptroller of Public Acct¡unts.

       B.           Mahmourt A. Isl¡a, Plaintiff, as owner ând ôperâftr Òf Nevine Food Store #2,
             located ât 163L E Vickery Blvcl,, Ft. Worth, TX, joins this Petition on all claims as
             the Petitiorrer in Case No. 1"10,485 with lhe State Office of Administratrative
             Hearings for audit periods Merclt 1", 2009 thru Septetnber 30, 20I2.

       9.           Defendant, Su.san Comb.s (hereinafter referred t997 S.W.2d 248, 255 (Tex. 1999). These procedures include providing notice,
             publication, and public conlment on the proposed rule. /d. fciting Tex. Gov't Code
             Ann. $$ 200L,023-.030). The process assr¡res notice to the public ancl atfected
             persons and an opportunity to be heard on matters that aff-ect them. /d.

        39.         Unless a rule is pronmlgated and adopted in accordance with the
             requirements of the APA, it is invalid and unentbrceable, Tex. Gov't. Code Ann. $$
             2001.035, 2001,004 and 2001,005. Neither AP 92 nor AP 122 as it relates to HB
             11, were ever aclopted as rnanclated by the APA and are therefore invalid and
             unetrforseal:le whetr appìied ttl ctllrvenience stttre auclit-^.

        40           Pl¡intiffs seek a cleclaratory juclgment against Susan Comhs in                          her
             indiviclual and officiaì capacities as (ìomptroller of Public Accounts for tlre State of
             Tèxås, pursuânt to Tex. Gov't. Cocle Ann. $ 2001.038 and the Uniform Declaratory
             Jucìgments Act, Tex. Civ. Prac. & Rem. Code Ann, 5 37.001 et seq., which waive
             sovereign immnnity, declaring that the Cornptroller's mèmorânda, clesignated as
             AP 92, AP 722 (incorporaling HB ) 1J, are invaìid adrninisfrative rttles hecanse they
             were not adopted in accorclance with the requiremenls of the APA fotlnd at Tex.
             Gov't Code Ann. $iì 200i-.035 ancl 2001.004. El Paso Hosp. Disf. v. Texas Health &
             Huntan         Cotnnt'n. 247 5.W,3d 7 09 , 7L4 (Tex. 2008) (quoting Railroad Comtn'n
             v. WBD Oíl & Gas Co.. 1,04 S.W.3cl 69, 79 (Tex. 2003)); Combs v. Entertainment
             Publ'ns,Inc.,292 S.W.3d 712,720 [Tex.App.-Attstin Z009, no pet.)

                                                COMPLAINT II

     The comptroller acted ultra vires because she acted without legal authority by
     implementing and enforcing AP 92, AP l2.Z and HB 11 before performing the purely
     ministerial act of arlopting them as Rules in conrpliance with the nondiscretionary,
     purely ministerial rule-making procedures nrandated by the APA.

        4L         Plaintilf.s rncrlr¡torate the ¡rrececling paragr:ìphs hy reference       ¿ìs if,   the   .sarr¡e

             were set lorth fully and verbati m hereill,

        42           The Conr¡rtroller is r:lrarged witli establi^shing rlethocl.s frlr adnrinisterrng
                                                  Page 9 of 2Ci
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          antl ackt¡:ting necessary rules frlr the collection of taxes arrtl tlther revenues. Ter
          Tax Code Ann. S 111.002[a). Specifically, the Conrptr<¡ller has statutot'y authority
          to "arìo¡:t, repeaì, rlr ameud suclr rr-rìe.s to reflect change.s in the power rtf this state
          ro collect taxes anci enforce the provisions of this title." Id'

       43.        Suits to require stale officials to comply with statutory or constitutionâl
          provisions âre ltot prohibitecl by sovereign imntuttity. Heínrích,284 S.W.3d at 372.
          To fall within the u/tra vires exception to sovereign immunity, a suit "must allege,
          and ultimately prove, that the officel acted without legal authority or tailed to
          perfbrm a purely rni¡risterial act." Id. (citations omittedJ. "Tltus, ultra víres suits do
          not attempt to exert control over the state - they atternpt to Ìeassert the control
          of the state. Stated another way, these suits do not seek to alter govertlment policy
          but rather to e¡rtbrce existing policy." /d.

       ++.        Unless   a rule is      promulgated and aclopted i¡r accordance with the
          requirements- of the APA, it i"- invalid and une¡rforceable. Tex. Gov't. Code Ann. $$
          Tex. Gov't. Cr¡de Ann. $S 2001.035,2001.Û04 and Aq01.0Q!' The Comptrollerhas
          no legal ar.rthrtrity to elrfrlrce agency rr-rles heftlre they are adopted in accr¡rdance
          with the APA. Such adoption r.s marrrJatury and nclncliscretir)näry. The
          Comptroller's failure to comply with this tninisterial, nondiscretionâry act was
          lherefore an ultra vires acl. This Corlrt is respectfully requested to enjoin the use of
          AP 92 and AP 122 unlil they are properly adopted as rules pursuant to the
          requiretnents of the APA.

        45.       Plaintift's seek a declaratory iudgrnent against Susan Combs in her
          individual and official capacities as Comptroller of Public Accounts for the State of
          Texas, pursuant to Tex. Gov't. Code Ann. $ 2001.038 and the Uniforrn Declaratory
          |udgments Act, Tex. Civ. Prac. & Rem. Code Ann. S 37.001 et seq., declarittg that the
          ComptroÌler is not ârìthorized lo estimate convenience store auclits ttsing the
          lrethçcls prei^ct'¡herì by AP 92 or AP 122 until their ¡tro¡ter adtrptitlrr, and/or that
          tlre authorization of tlreir u.se is a non-c.liscretittnary uìtra vires act ctlmmitted
          without legal authority which conflicts with relevatrt prtlvisions rlf the Tax Code
          and the Cornptroller's adrninistrative regulatiotrs. El Paso Hosp, Ditt. v. lexas
               th &. Hu             Comm'n 247 5.W.3d,709,714 [Tex, Z00B) [quoting Rçilroad
                 'tl v. WBD             (].9     104 S.W,3d 69, 79 [Tex. 2003)); Contbs v.
               rtainment Publ'          292  S.W.3cl 712,720 [Tex.App.-Austin 2009, no pet.J

                                            COMPLAINT IV

                                              Page 10 of 2ó
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     The Cornptroller acted ultra vires and in excess of her statutory authority when she
     unilaterally established "gross underreporting" ¿ts ân irrebuttable presumption of
     proof to impose the additional SOYo penalty instead of proof of fraud or intênt to
     avoid the tax as required by Tex. Tax Code Ann. $ 111'061[b).

        46.           PlaÍntilfs incorporate the preceding pârâgraphs by reference as if the sarne
                wÈre set forth fully and verbatim herein.

        47.            Tex, Tax Code $ 111.06Lfir) authorizes the Cornptroller to impose a penalty
                of 50% f'or tiaud, or intent to   evacle the tax, in addition to the deficiency
                determination.  When  the  Comptroller  seeks to impose a 50 percentadditional
                penalqy it must show clear and convincing evidence of traud or intent to evade tax.
                TEX. TAX CODE Section 111.061[b) and 34 TEX. ADMIN. CODE Sectio¡r 1.40 [1] [Bl

        48.             Fraud implies "bad faith, intentional wrollg, and a sinister motive, and the
                intent required to be showetl is tl-rat tìrere was .specific intent trl evade tax believecl
                tr¡ he rrwing," CInc., 145 S.W.3d at 1.73 [Tex. 2004),
              inclutling the following:

                    i.   The Comptroller's failure or refusal to perform the purely nlinisterial act of
                         adopting AP 92 and AP 1-22 âs âgency rules, âs mandated by Tex. Gov't Code
                         S 2001 ët seq.
                   ii, The Comptroller's artthorizatiotl atrd etrforcement of                                policies     and
                         procedures that hacl not beelr prornulgated as agency rules, as rnattdated by
                         Tex. Gov't. Code An¡r. SQ 2001-.035, 200L.004 and 200L.005 including the
                         use of AP 92, AP 1.22 and HB 1L clata.

      (a) In an aclniinistrative acljudicatory proceeding ot'a civiì action I'esulting tioul o con:plaiut issued Lry a sfate
     rgcncy àgainsr rt small busincss uirrlcr thc agcncy's adn:inistrativc ()r rùÈ,ul¡ìt()ry functions, thc snrall busincss moy
     be awal'decl reasonal¡le íittonìey fÞes an<ì coult costs ifl
       ( l) it is a sr¡all businr;ss at thc tinrc it lrcc0Ìrcs d party t0 thc ¡rrocucrling r,r¡ ncti<)n;
       (2) ir prevaila in the proceeding ot'nction; nnd
       (3) thc l¡-r.rr;cctlirrg r¡r uctio¡r wal groundlcsl ar¡tl brought:
         (A) in bud laith; rir
         (B) lbr prrrposes o1' harasstlretrt'

                                                          PageIT of26
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                iii. The Comptroller'.s ar,ttht¡rization ttl concìuct "de.sk" audits and giving
                     ct¡nclusive effect to HB11 clata without deternrirring tìre adec¡uacy of
                      l:laintiffs'recorcl.s in coutravention ttf Tex. Tax Cocìe Ann, $ 111,0042 and 34
                      I

                      Tex. Adnin. Code Section 3.281(cJ.
                iv.   The Conrptroller's authorization, in excess of her stâtutory authority, to
                      conduct estimated audits i¡l contravention of Tex. Tax Code Ann. $
                      111.0042 which specifically restricts the Cornptroller to either detailed or
                      sample and projection auctits when sales tax reports have been filed. The
                      only time the Comptroller is statutorily authorizecl to estìmate an audit is
                      wlrere the taxpayer /ails to Jìle a sales tax report. Tex. Tax Code Ann. $
                      151.503.
                v.    The Comptroller's unauthorized, ultra vires reduction of the burden of
                      proof required to impose an adclitional 50%' penalqy from "fraud, or intent
                      to avoid the tax" as required ìryTex. Tax Code Ann. $ 111.061[b), to "gross
                      underreporting" of Zí%t of the tax clue as developecl by agency decisions
                      ahsent it.s promuìgatitln as^ a rule utrder tlie APA.

        4.          Plaintiffs have plead il c¿rL¡se of action agairrst the Comptroller. As
             previou.sly outlined in tlris ¡retitittn, Pìaintiff ¡^eeks a decìaratitln under Tex, Gov't.
             Code Ann. 5 2001.038 that AP 92 and AP L22 are invalid. Plaintiff seeks a
             declaralion also ttnder Tex. Civ. Prac. & Rem. Code õ 37.004 that the Com ptroller
             exceedect her statutory authorily under Sections 11,1,0042 ancl 11L.06L of the
             Tcxas Tax Cocte in authorizing êstinìâtecl nudits anrl the additionnl 50% penalty.

        5.           The Cornptroller's ultra vires conduct in excess of her statutory authority
             conti¡rues to create invalict, uneliforceable, fiauduletrt and illegal audits resulting
             in excessive and distorted cteticiencies uporì convenience store owners and
             operators subjecting them to tlle fbllowing pre-hearing enfbrcemeltt retnedies:

                              i,   Irnposition of a jeopardy cletermination fl-oln which taxes can be
                                   inrmediately and forcibly collected without filing a collectiou suit.
                                   Tex. Tax Code Ann, Ç 111.022.
                             ¡i.   Perfection   of a lien on all        non-exetrtPt Property, real ancl
                                   per.sonaì, merely by filing a tax lien notice    with the apprrlpriate
                                   county clerk. Tex. Tax Code Ann       113                attaclrilrg to all
                                   afl-er-acqr-rireiì property r-¡ntil the taxes are pairì, Tex. Tax Cr¡de
                                   Ann.      11" 3.10 5  renrlering the [axpayer's property virtually
                                   unsalable.

                                                   Page L8 of 26
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                          iii.               of the taxpayer's balrk accr¡urrt¡- ancl freezing of
                                 Garni.shnrent
                                 property hekl hy thirtl ¡rarties without tlre requirement of a
                                 hearing. See Tex. Tax Code Ann. $S 1 11,021, 113.103.
                          iv, Seizure and âuctiôning of lhe taxpayer's proper[y, or, after
                                 affording a hearing, revoldng the taxpayer's sales tax perrnit. See
                                 Tex. Tax Cocle Ann. SF 111.0047. 11_1.017-.019
                           v.    Enjoining ft¡rther sales of goods or services after revoking the
                                 sales tax perrnit, etfectively closing a business. Te><-Jax Code
                                 Ann. $ 151..26Z(a).
                          vi.    Unílateral imposition of a bond to secure payment of the
                                 defìciency under the threat of revocation of the sales tax permit
                                 and et'fectively closure of the business without a hearing. Tex.
                                 Tax Ccde Aru $ 111.012
                         vii.    Refusal to renew sales tax permit due to clelinquency o¡. refusal
                                 to pay the tax. Tex. Tax Code Ann, S 11.1,0046.
                         viii.   Corrtinuecl accurnuìation of rJaily irrterest rrntil a final jr,rdgment is
                                 reached.
                          ix.    The.se renredie.s are cumuìative, and may tlrerefctre be imposecl
                                 simultaneously upon the taxpayer.

       6.          It is probable that Plaintilfs will prevail agains[ Defenclants on the merits
            and oblain permanent injunctive and declaratory relief prohibiting the use of the
            policies and proceclure incorporated in AP 92 and AP l_22 because it is
            inclisputable that they are adrninistrative rules as defined by the APA as
            statements of statewide application; that prescribe law or poìicy; and describes
            the procedure or practice requirements of the agency. Further, the Third Court of
            Appeals has already rendered a ctecisiolt fì'oln the acceleratecl appeal declaring
            that AP 92 and AP 1,22 were invalicl adrninistrative rules subject to the provisions
            of tlie APA, because they had r-rot been properly adopted nncler the rnanclatory
            requirements of the APA. ackson v.           the C     troller Public Acco        No.
            03-11-00462 [Austin App.j [Sept. ZB,2073).

       7. If thc Plaintiff.s'
                           A¡rplication fr¡r Temporary Injunctirlri rs not grarrted, irreparable
            harnr is imminent ìrecau.se denying tlre reqr-rest frlr the injurrctive relief will
            irnmediately.subject defelrdants to the enforcenrent procedure.s orrtlined in
            palagreiph 44 abclve witlrout [renefit oF a hearing, ba.sed sriìely tin t]re auditr¡r.s'
            unconfirmecl deficiency determinations.

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       B.   The Plaintiffs    will therefore ¡rotentially
                                                     face the imnrecliate imposition of ¡:ro¡rerty
            liens; seizure and sale of proFerty  ancl  ¡:roper-ty rigìrts^; immecliate garnir-hnrent
            and freezitrg of banking accounts; .suspen.sion or revocatir¡n of saìes and use tax
            permits; imposition of cnerous bond or security requirernents; accrual of interest,
            and potential loss ând clestrllction of their businesses without access to judicial
            intervention for which Defendants have no adequate remedy at law. (See {[ a -
            L1, incorporaled herein by reference).

       9.   Plaintift's lrave no adequate remedy at law because the Comptroller is not subject
            to damages claims and these enforcement procedures are not subject to pre-
            deprivation hearings because any judicial remecly available is by appeal to the
            Distlict Court after the enforcement procedures have already been applied. Tex.
            Tax Code Ann. $$ 1.l. L.0049, 162.007 . By the time these remedies are accessed, the
            taxpayers will have already lost their permits, their right to engage in business,
            and the probable loss or sale of their- business a¡rd assets.

       10. Plaintiffs ruc¡ve the Court to set this request frrr a temporäry injunclion hearing,
            and after the hearing, enter a temporary injurrction grantirrg the relief requested
            herein ancl further enjr:ining Defendants from corrducting any audits incing allegations making   the following
           declaratir¡nli âs to Plaintiff.s' rights:
              â.           ihat the Cornptroller's memos AP 92 and AP 722 on Augusl 17,2004,
                  and July 22,2009 respectively, establishing and irnplementing procedures
                    for the conduct of conveniencè stôre audits, are invalid administrative
                    rules, anrl that the Cornptroller's authorization o[ their use without
                    complying with the APA requiremenls was ultra vires ancl exceecled the
                    scope of her statutory authority, and that her failure to comply with the
                    requirements of the APA was a f'ailure to perf'orrn a purely ministerial, non-
                    discretionary act, thereby entitling PlaintifÏ's to declaratory and injunctive
                    relief fîorn the collection of these illegal, invalicl ancl unenfbrceable taxes,
                    penalties and interest;
               b.           that the Corr-rptroller's rnemo of Juty 22, 2009, implementing and
                    establishing procedures for tlie use of HB11 data, is an invalid
                    administrative rule, and that the Comptroller's authorization of its use
                    without conrplying wrtlr the APA requirements wa.s â non-dir^cretionary,
                    ultra vires act which exceecled the .scope of her statutory authrlrity, anrl that
                    lrer failure to comply with the requirements of the APA was a failure t<¡
                    perfornr a pr-rrely ministerial, non-discretiurrary act, thereby entitling
                    Plaintiffs and Class to cleclaralory and injunctive relief from the collection
                    ol these illegal, invalic-l and unenforceable taxes, penalties and interest;

                                              Page 2L of 26
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             c.        that Tex. Tax Cocle $ 151.462 and 155,105 do not authorize the
               Com¡rtroìler to contluct clesk audit.s giving conclu^sive ef,fect to the HB11
               data i¡r determinirrg Plaintiffs'tax deficiency witlrout examirratron of
               Plaintiffs' business records, and that doing so is ultra vires anr-l in excess of
               the Cornptroller's sf¿ìtutory authority, thereby entitling Plaintiffs and Class
               to declaratory and injunctive relief from the collectiôn of these illegal,
               invalid and unenforceable tâxes, penalties ancl interest ;
            rl         that the Cornptroller is not authorizecl to estimate the rnarkup of
               alcohol and tobacco proclucts or to concluct audits of convenience stores
               under the requirements of AP 92 or AP l-22 without first adopting them as
               Rules pursnant to the requirements of the APA, ancl that doing so is a non-
               discretionaly and ultra vires acl in excess ot- her statutory authority,
               thereby entitling Plaintiffs and Class to declaratory and injunctive relief
               from the collection of these illegal, invalid and unenforcealrle taxes,
                  penalties and interesÇ
             e           tl'"t@isunctlnstitutitrnaìrlnits.faceandas
                  appliecl tr¡ Plaintiffs hecau.se it permits the auditor tr¡ deternrine whether
                  records are adet¡uate basecl solely r¡n ulrdefined sulrjective criteria, and
                  without ¡:rroviding any guicleliner^ for its administration lenrìing itself to
                  cliscriminatory application, lhereby entitling Plaintiffs to declaratory anrl
                  injunclive relief   fronl tlle    collection   ol   these illegal, invalid and
                  unenforceabìe laxes, penallies and interest;
             f.          that Tex. Tax Cod e 6 1I']...O22 is unconstilutional on its face and as
                  apptied to Plaintiffs because il permits the feopardy Determinâtion to be
                  made merely on the Comptroller's undefined subjective criteria, and
                  withont providing any guidelines for its administration lencting itself to
                  discrirninatory application thereby entitling Plaintiffs ancl Class to
                  declaratory and injunctive relief frorn the collection of these illegal, invalid
                  and unenforceable taxes, penalties ancl interest.
            o
            b.           that the Comptroller is not ar¡thorizecl to unilaterally reduce rhe
                  burden of proof, or to shift the bltrden of proof in estabìishing fraud as
                  required by Tex. Tax Code Ann. Ç 111,061.. ancl that such conduct is non-
                  cliscretionary and ultra vires and iu exce.ss of her statr-rtory autholity,
                  thereby entitling Plaintiff.s and Cla.ss to declaratory and injurrctive relief
                  from the collectiorr of the.se itlegal, invalid and unenlorceabìe taxes,
                  penalties and iuterest.
             h,          that the Comptroller has engaged in intentional conrluct resulling in
                  the talId.

                                                                                  9
tågr trg   ot   3¿6t

                                       I                                                                         I
                          Nert Pctitionñt ülcrt thlt thc ar¡dlt a,iscsrmctrt rhould bc dlsrega¡ded becansc it h based
                 on invalid estinadng proccducr. Paitiocr¡ rely on thc appellate cou¡t's receot dod¡ion in
                  Sandco, Inc.,ãJt3 Tor App. LE¡l$¡ 1æ13. Ilowcver. auypræedcntlal valrrc placcd m tho
                  dccisim ir prunatuio' ar tho deci¡io¡ h¡¡ ¡ot bccous ffnal. Appcllcs h¡s ñled üotlotrs for
                  an åønc¡ccmsidcradqs and          fq ¡üeuh& Thc coruth¡s ]rÊtto n¡ls o¡ tbc motions. Th¡
                  ap,pellate   col¡¡t'¡ decisim   beconw fi¡¡l when the court'g plenry powor enpinos. ,Íe¿ Oscæ
                  Renfu Contmctlng ilrc. v. H&It Sttpply Cd, tgí S.W. 3d 7U¿ (Ter. ADp.-Wm 2fF6, peL
                  dcnid).      And thÉ court   will   loso pleorry   powr 30 days aftr thc cor¡rt ovc¡n¡lss      thc   uotion for
                  rchcartng E¡d ¿¡t bøtc       ¡cco¡sldsadø. Ter.        R. App. P.   lg,fft).

                          Paldoncrs al,so contend th¡t thc snbjccr ardlt shouldbo ¡cstrl¿:tcd to tho rÉTqt psrtodr
                  ûst f¡ll oursidc of tho BART cxam pøiod of January l, 2008, thm¡Eh Ma¡ch 31, 2009.                       ïtru,
                  aßcoûdl¡g to Petitioner¡, tbc audit as¡Gssrrcot should be restrlctcd to tho nport pcdodt
                  Fcbn¡¡ry \.z0úl,througb [lcccobcr3L,1W, and Apnl 1, 2009, thrurgbluoc 30,2009.
                  Pctidonss,     h cftct,   are   ugulng ùat St¡ff i¡ cstoppcd from nargutng thc llabitity duc during tho
                  period prcviotsly c¡autncd bV          BAtr(f. Ho$rwcr,     B                     bc ü collater¡l
                                                                                  paúy scr$úg to arscrt thÊ
                  estoppel mut etebllsh th¡B 'U) th! facE sougbt to bo litigatcd in thc sccond rctim wcro fully
                  md frfuly litlgated h tbo ftst scdolr; @) thoro fects rryÊre esscnd¡l to thc judgmeot tB tbÉ ñrst
                   acdoq md (3) tho pardos wcro cast as ¡dvcrr¡ric¡ l¡tbo first aßtioû' ,Sylco Food Íeru. u
                   7Iaprcll,890 S.$t 2d 796,801 (Ter. 1994),cüaìont                øúnd: ¡ndáI¡o      sac   Comprollar's
                   Decisíon No. l00,f 90 (2012).

                           Iho B¡{RT cxam of Pedtionn SIs convtnicnco storp dlffers i¡ scvcral rignificrot ways
                   Ëom the stùseqtcut sales md r¡se tnr audit of th¡ san! oonyenicnae sto¡e. As thc BART o¡am
                   focr¡scd cxclttsivoly on Peddoær SI's alcohol a¡d rcbaaco salcr and purc.hasetr               !o product-uix
                   pctcÊutage    wt!   epplied" Howevtr, a pmduæ-mix pcrceutagÊ wa¡ nccded              rrybeo   Petítlon¡r SI was
                   nrbscqreotly il¡ditcd    fc    ¡al¡s of other poducts sr¡cb as c¡ndy, roft drinlr, fmd and gcoeral
                   ¡n¡¡chmdi¡c. I¡ addidon Pctitioner SI was afr¡dcd a 5% allowa¡cc for spoilagc and thÉfr in the
                   sslet etrd use   t¡¡ audiL Tto      sanË faas weru not csrcod¡l to thc        judgmø i¡   each    ontestcd taf,
                   cæo. rhus, tho Conptroller w¡s mt e¡topp€d by thc rc¡r¡lß of thc BART c¡¡m from
                   subaequcotly pedoruing a galc¡ ¡¡d rus ta¡ ar¡dit of thc ssmt tsrpÊyer, especiatly si¡co tbo

                                                                             ÍÛ
'agÉr   20 6t   3¡¡6,

                                          t                                                                                          I
                  ta¡able sal€s det€rm¡ncd itr lhc BART exan w€r€ dcleted from the calcr¡luion of                                     ddltional
                  tnr¡blo salca is tb€ ¡ale¡ ¡nd ¡¡¡e tar ardit                  S¿¿ Compùoûler's Decision Nm               .   ltl ,579 (2013) B¡d
                   104,445 a¡d 105126 (2012).

                             Conptolls i¡ autho¡izcd to u$css n additio¡¡l 5096 pcr¡¡tty unds Ten..Tal Codo
                              Thc
                   Aü" $ 111.061(b) if ¡hc detcrnincs that a tarpaycr commined Êaud or had tbs Inæot to evadc
                   tf,.     Strtr hÄ ths bu¡deu of establishing by derr and convlndng cvidcncc ûat                                   tb   Êa¡¡d peoalty
                   rpplies. See 34Tex,         Ad¡dn        CodË 0 1.40(1XB).           Cleu rnd cmvhcing evideoce                   ic proof thnt    will
                   producc a firm bolid or conviction ¡s to thc tnrth of thc allcgodous sougþt to bc eståblhhcq but
                   whtch necd not bc          uncçirncal or mdisputcd.               Sae   Compbollrr's Decisioû No. 3?,946 GmOÌ
                    Sutcv. Addlngto45SE S.W2d 569, fl0(tcx"                             1f/9) (pcccrui¡m)toînËñondç¡141 U.S.418.

                               A¡ noted above, thc overall           €N¡aß   ratÊ for ths ûrdit p€aiod          b 66.459t.      1t¡       rwised ovcratl
                   €mtr rltc dccrcase{ rluoot unperccptiveln to 66.44% oncc tho ccu ratc ir rcc¡lcul¡tcd using
                    thc qsecsscd     t¡r auoutrt of $64305.¿ ln ptor Comptollcr                                  of
                                                                                                       dcclsions grosr undonqordry
                    t¡xeblo cslcs. dcfiúGd ar an cror of 25ft or grcctcr, har bccn frr¡nd ¡ufñcicntly hdtcativo of
                    ín¡cot to cv¡dc tho lax to wûrant rssossrrot of the frürd pcû¡lty, padcululywhs¡ th¡ro wcre
                    olher facton or m plaurible erplanatlon Seq e.go Com:ptsoller's Desision No .432A9 (2004).
                    Also ¡cs Ter. Tar Codo            A¡u        $ 111.2050).

                                Such gross undcrcporting horcver,                  i¡ not in a¡d of ltself sr¡ffldeût           to   jrsttfy tnposltlm
                    of tbe frard penalty otr cor¡þratc tupa¡lcn.                   I¡   tho casc of corporaE ts¡paycm, tbc                  Couprollu
                    recog¡ízer rhnt ¡ çoqpsrat'p¡ ís a scparaæ tegrl eotity th* ts coatrolledby its offioen and
                    d¡tcctors a¡d th¡t thc rcqt¡lsito irtE¡lt of             a   corporadon is dctcm¡scd üom tbc a¡üo¡¡ of tho
                        officem or dheclo¡¡. 'Slheû an officer is provcn !o havc becn dhoctly involrred                              i¡   thc fra¡¡duleot
                        activities, tho   rddltiust penrlty agninst a corporation bas beca uphcld, bcøruo                             a   oûrlþratc
                        officcr't ft¡r¡dr¡lcot acdons can bo au¡ibr¡tcd to thc corymatiou                       Sec   Compboller's Ilecision
                        No¡. 105,148 &, 104,471 (2011),44.891 (2005) otrd ++"52t (2005). Tto çmtton is to whd,
                        degræ Fedtionrr Isba, the oonpuJt's presidmt was awårs or should h¡ve bem swqg of tbe
                        nnderæ,porting of     ta¡.   ,S¿¿   e,   g, Comptrollcdc Deci¡iotr No. 103,204 and 104¿38 (2012),
                        2f lba rcc¡lcr¡l¡td fmu¡¡l¡   t¡ rsrcr¡cd ¡¡¡ ($úfJ{lll) +      un    of tba s¡¡c¡¡cd   tu ud   nporred      h¡   ($96,790.61).

                                                                                         il
'¡9Ð   2l ot   346)

                                            Ð                                                                           ü

                            Ttc only subst¡ntivc widenße in tbc rccord dircctty çgtaþliihtng the extent of
                Petitioncß       f¡bds lnvolvtmeü in             tho orpcration end   nn¡¡gcocnt of th! coovcuiencc srtc, ln tbc
                prparrtion            and   filing of thp sales s'ld uso tr¡ ¡Ëür¡rq ard rorn¡ttrscÊ of the ta¡ payncnts durlng
                 th! audft pcsiod is found i¡ tbc               answcr¡t popounded to      Statrs dlscovcry.   ltcrc    al¡o   uc ùo   fiw
                 chcclß rrmittiry paynËût rigned by Pcddoner I¡b¡ that were ¡nofued by Statr                           ã    ThÊ   ,¡lLI,
                 based solely on tho stqFEFût¡ made in raspmsc to                        Sufs   disoavoçr, find¡ that Pctidoncc I¡ba
                 puch¡sd rnd patd for thc t¡rablt invcotory,                    mado ths daily    d4osltq   and rcccilræd thc     bæk
                 statc¡DsúF, signcd th¡ sales             t¡¡   rch¡¡nr, and paid thc s¡lcs a¡d r¡se     t¡¡c¡, Ttc ,{LI, thcrcfo¡q
                 conclud$ that Pctitionor Bba ws¡ involved in, awuc of, or shor¡ld h¡vs bcco awsrt of tho
                 undencportiug of ralcs             t¡r   ltrowwer, thc sams info¡oadm thnt supporb tblr couchsiou
                 exprculy limitr Petitisrcr Isbr's involvcmcot to ths perlod preæding ltsy l, 2008, wheu hc
                 cûtËrd l¡to m ogremrmt to                 seU tho buslnc¡s      md ouo of tho buyars assuurd rcspooribilíty           fG
                 perbrming thcsc t¡cks. St¡ff bsl uot rdd¡c¡sad                    ø ¡sñnpd my p¡rt of Petitloncr       SI's rcrpmser        ùo

                 its discovery requcats, hclt¡d¡ng thc ¡tatcneûtr limiting Pcdtiomr IsbC¡ involveusnt to                            th!
                 repøt puiodr prcccding May 1, 2ü)8.

                                Tho   ¡{LI co¡sludc!         i¡ srfflciæ b cstabüdr" by clerr and convincing
                                                          that thc ¡eco¡d
                  eyid€úco, fra¡¡dulcut scdou¡ on tba pan of Ftitioncr Isba thrt au aûih¡t¡bb to tho compann
                  but only for the pertod Februsry                l,   2(XIl, thrf,¡gb Aprü 30, 2fi18. Thc   ¡{LI thorcfu¡c
                  recommcnds tb¡t the sddldonal 5096 frat¡d p€o¡lty ¡hould be dismissed                       frr   the peaiod
                  ì{ey     I.   2fi}8, thmueþ the cod of the ardit            plod.

                                 Pctidmer¡ also arguc th¡t thc inposition of ¡ddithn¡l penaltler for jeopardy
                  deçnnin¡tion ¡rounco¡stlnüion¡l vaguc. Tho ALI lackr                          tho   jurMictionm considcrPaitio¡cds
                  conteirtion regardirrg thc corutihrtlonnlity of tbc jcqrrdy d*crnination stah¡to.                      Ibc cor¡¡t¡ h¡vo
                  ruled th¡t thc Co,ryEoller lac.ks jurtsrlicdoû to n¡le on thc cousdhrttonality of                   ¡ sunüc tb¡t     sho
                  adøini¡tsrs         .
                                Tal. Statc Ed øf Fhønaq v, Walgrecn Tæ cø.,520 s.w.2d 845 Cfex. civ.
                                          Sec

                  App.-Austb 1915, writ rtfld n.r.c) . Also,rce Compnoller's Dedsion No. 105,821 (2013).

                      ä   sr¡tr¡Brbibir4(Èrirtoulsb¡).

                                                                                    l2
raf¡€   æ of 346,

                                      o                                                                              I
                         L           SOAEllockctNo.Sfl{-lil{Zl¿26(Pcttllo¡erlsb¡)

                     Tsr Code $ 111.0611 iryes pcnmal lirbilityon a¡officer, Esnsglg ordi¡cctqof ¡
               corpcatiou who'a¡ u officcr, m¡ongÊf, direú:tor, orpartcr, took o¡ acdor orpartlclpatrd tn a
                frar¡ù¡lent scheoo or fraudttlcot plan to evadc thc payncnt of taxes.' Ttc pcnonal llability fu
                for trxeq      p¡ldeq     including     u   ¡ddldon¡l 50ß penalty, ¡¡d tnscst th+ arc duo ftom thc
                ærporatloa Acdonr th* indica¡e               s   ft¡rdulcût scbeoc or Êa¡¡ô¡lenl pl¡o o          evade thc     psyu@t
                of tarcs includo filing, G er¡!¡ng to bc filÊE ¡ fr¡ndulcut ta¡                  rtt¡rr c   rcport wlth tbc
                Conptrollcr o¡ bchalf of thc brui¡css endty, or fillng or cãusl¡g to bo ffte{                     a tar,   rch¡m ffi
                rcport with tbc Comptollcr            mbeh¡lf of thebruinc¡¡ outþ th¡l o¡t¡in¡ ¡n lqtrqtonaly fal¡o
                s'qt¡rnent that results       i!   qÊ amor¡nt of thÊ tar duc cxcccdlng tbo amor¡qt of tar rcporæd by
                25% or morg. Tcx. Ta¡ Cod!               A¡n !    111.0611O)(1), (3).

                          The sanc facu thåt thË         ALI relied        on in æconncodlng tnposltloo of tho             additiusl
                50fú    pq¡tty      support   upbldlng      tùG æseslmcût      of pcnoral liability. Fhst, üere wa¡ üt ovcr¡ll
                gnss undßmpoßülg of the t¡r. which rtsr¡lteq evcú slftcr tÀlrlñg inb sccontrt tho rdJumcut
                rÊcorneúdcd by thc ALt, ltr ar !ilot tat€ of 66.45*. Morrcoyer, thc ¡ccord esubllshcr th¡t
                Petido¡cr Isbr ws¡ l¡volved ln tbc opemtion ¡¡¡l mrnngg'rcût of thc cttrc aûd iD üc ¡tgni¡g of
                thp sales and ruc       t¡¡   ¡Eh¡ror snd r€úitrüßc of the ts¡        ps],rer¡s        Hc ordËrÊd and prtd for thc
                 t¡rnbþ inventory, deposltcd thc std!'s t?ccþts, ¡ccciwd thc ba¡k ståtcNrmc,                         and slgnod both

                 tho sales     tsr rcü¡rr!    and thc chccks     rcoittlng ps''mmb        ûo   the   Corpholler. Horpsrrc. thc
                    evidcnps e$tablbhË thls hvolvemcut by               cleu ud convincing eridcnco only fur thc pcdod
                    Fcbruary   l,   2007 ùrougù, Aprtl30,         2æ&       TbiE rËcord   i¡ srúficicût to nffirm   tbe pcnonal
                    Uabitity âsse$smmt for thc pertod         Mry     1,   20(n, th¡ou$ Ap¡i130, 2008, snd tho         lllJ
                    rccom¡nÊn& that tbc pcrronat          li¡bility   Êss€ssnclrt shq¡ld bG disni¡sed for tho pcriod Mny               l,
                    2fX)8, througb Jr¡¡Ê 30, 2009.

                            A         R¡couueud¡don¡

                            Tte ALI rccom¡no¡rd¡ tht the ar¡dit o¡scs¡rnent agpinrt Petitiou¡r SI should bc atrrrrc4
                    btrt subject to thc reco¡nm¡ndcd adjwtmcnts correcdng th¡ catcr¡latiou of estim¡ted tobacco sales

                                                                                 It
ago   2t of   316l

                                      o                                                                 o
                and       limiting tho addido¡ral pcualty to tho pËiod Fcbrurry \,z[ßr,thmugb April 30,2008. In thc
                c¡sc of tho peßson¡l llabllity IssËsmÉnt rgdnst Petitioner Isbq ùe         ALI recor¡mcnd¡ th¡t the
                rssÉsmcnt        ùq¡ld   bo   affi¡ucd strbjccf to th¡ rccommcodcd rdjusheot in tho undedying
                corpoßÊtt      ¡s¡es$rcrt and recoded dlsní¡¡rl of thc pemørl tiabiltty Bss€s$lsnt for tbe
                pcriod llíay 1, 200t, througþ ft¡nc 30,2fi19.

                                                          III.   NNIIINGS OFFACÏT

                t.           Smadco, Inc. (Pcddo[€r SD oporated a cmveofoucc slorÊ         h Fort S/o¡lb" Texu, dr¡¡fug
                             the ndft poriod februry 1.2ßCÍ1, thougþ June 30,2(n9.

                L            Pedtionlr SI war subjectcd to a desk urdit pcrfued by the Brnins¡ Acdvtty Rcscarch
                             Te¡m (BART) of tbc Ters¡ Cooptoller of Pr¡blic Apcounts (Comptrollc) fo¡ ths Gf,arn
                             pcriod of lanury l, 2008, thrc¡tgb ME¡rü, 31, 20(Þ, and a¡¡sscd a tar lirbility of
                             $23"5E1.60, conrirtingof tlr, tbo 10ft ¡t¡¡d¡¡d pco¡lty, tbÊ sdditiooål50* p€ülty, Ed
                             accn¡cd intcrest

                 3,          Ttc BART qam wrs prompEd by a comparisoo of Pctidmsr SIs alohol a¡d tobacco
                             purtù¡lct for thc craln pcdod rcponod by Paltioner SIs bbsoco ¡¡d alcohol vcadors
                             r¡ldcr IIB 11.

                 4.           \lfholcs¡lsn and disüCbutoñ of bccr,wine mnlt liqum, cigrrc[g, dg¡¡¡, ¡¡d tobacco
                              psoductr are rcqulred to submít elect¡ontc rcIþrür, on a nonthly basír, !o the Comptroller.
                              Tlese elesl¡onic repffi arc rcqulred by Tc¡. Tax Codc ADD" l! LJl.Æ2" f54.212, ¡¡d
                               155.10Éi, which wera eriactcd rs paft of Tcx. ILB. 11, 80th Læg., RS. (2007). Tt¡ veodor
                              records orc commonly refcrrËd to as IIB     tl    ¡eco¡ds.

                 5.           ThG  HB ll tobacco ¡nd nlpohol purchrscr fortho cxan paiod e¡cceded the rr,pwted
                              tr¡ablo sslßs for tho ¡qnle ¡rcdod by $268,056 to $76,y/6. BART rclled oa tho HB l1
                              d¡t¡ md tho Comptoller'¡ At¡dit Divi¡ion Policy Mcmo (AP) 122 in cstimating thc
                              asge!s¡ucnt

                     6.       Podtion* SI did not fllc   a rcqu€st   furrcdetc¡ni¡stion contdting üÊ E¡NcssEGrt,
                              conseqæatly, thc assæsraçnr bccuc finEl s¡¡[ tþç sales ud u¡o tsr dgltñquç{tcy was
                              ccstiñcd to tho Anoruoy Oeoffal. Thc Anornoy Gcoeral filcd a l¡w¡r¡it scaking to cotlcct
                              tbc dollqtcncy from Peddonsû SI ed Mahmor¡d Ahmd Isba @ctldorrcr l¡ba). $ea
                              Søna¿co. Inr. v. Compnvllcr $ Puh Accorutîs,No. G-1140462CV, 2lll3 Tex. Ap¡1.
                              tE¡(il¡ 12013 (Ten App. - A¡sdn ScBtarbcr 26,?Ãl3,no pet h.),
                     7        PdÍtioncrsfiled varior¡¡ cormterclains as¡l¡¡tthostato. Howover, tc trial cor¡rt
                              dl¡ni¡¡ed PctidonÊß' counterclaim¡ frr ladr ofjruisdictiq whiù dccision Poütioncn
                              appealcd" Thc appeals court su¡t¡i¡cd PeddCIncß' clq|m thåt thË Compfolleds di¡edivc¡

                                                                           t{
'àgË   2l o!   3O6t

                                  t                                                               t
                        h AP 92 Êrd AP lZt w€re in fastn¡lcs and alco concludd thrt tbË uirl court had
                        juridiaíon over Sandco's clafrn ûat AP q¿ E¡d AP 122 wcæ i¡vrlid rule¡ md that,
                        thcrcfo¡q thc Ei¡|, court GGd ln dtsnissi¡g thir countcrclaim.   Sec   1øtfu,   Incn
                        2013 Tcr. App. tElfIS 12013, alry7.L-22.

                8.      Pcdtifllr    SI wa¡ audltcd by thn Comptroltcr' Tar Divisiø (St¡tr) for s¡lcs ¡¡d u¡c t¡x
                        compliancc for thß audit pedod, 8rd   ü! ar¡ditor o¡üm¡tcd thc audit dus to incompleæ
                        ¡Ecord¡.

                 9.     Petition¡r SI did uot respond to tte Euditodr rcqucstr for record¡. Tlo audltor l¡su€d a
                        Notificati¡¡n of E¡timado¡ ProcedurËr for Statc T¡¡ Audit &tcd January n ,2011,
                        odvlstng Pcdtloocr SI th¡t tha utdit mutd bo estlmatcd rsing IIB I f dils, md tbat thc
                        AP 122 pmccù¡es would b! fuUorvcd"

                 10.    Whcu thÊ sudltu ¡¡itisbd thc audit frsldwodc Pcütloner SI no longrr opcratcd tha
                        couveuicocc stont Tbãcfr¡q thc ¡ttditor could uot pcrform ¡ ¡hclf tcst md instcad      t¡sd
                        thc indr¡$ry Evcrrgo marhry pcmcntage! of 118.44ft 0!d 124.ür% rcspcctivdy frr
                        bbacco snd alcohol prchrucs sct orü in AP lZL

                 11.    ltc u¡dltor totaled tbc tobacco a¡d atcohol pnrcbascr nrdc þ Fctidonæ SI uslng tha
                        HB I 1 d¡r¡ for tbo rcport pcriodr Jaarrary I, 2l)0E, thmugþ Iruc 30, 2009. fts ætat
                        slcohot snd tobasco pt¡¡shrscs wcrs r[¡nitEd up by thcir respcctivc narlnrp pcæËntryc!.

                  t2.   lþ     gtnndt¡d AP 122pmùrct-mir perccnt¡BÊ sf il% fortoba¡co sndatcoholprodncb
                         wu    rpplled to s¡dvc et estlmnted t¡nblË sslË, becmso no purch¡¡! rrcords wcæ
                         availabla

                  t3.    Ite audio¡ afbrdcd ¡ 5ã ¡llowqnco br spollago a¡d thsft to dcæ(dtrc n¡t estlm¡tcd
                         t¡xable sale¡. Crdit was givro frr reporæd taxablc slle$

                  14. Itc ¡esulttng adjutcd tarable sales werc thco red¡rced by thp ¡nounts asscssed in the
                         BART exam for tho rcpo¡t pcriods Januory l, 200t, thror¡É ME¡ù 31, 2ü)9 to ¡¡¡ivc       ¡t
                         the addiÉonsl ta¡sblo sales.

                  15. Itc addidm¡l tarable sales we¡c multtplied by thc appllcablc tårß ratcs !o detetnino tbG
                         t¡¡¡ dnc for tbc rcport pcriods ftoo Jrnuary 1, 2008, thrcugþ h¡¡c 30 2ü)9.

                  16.    As thcm war no HB 11 dca availablc for Éc peçto& preædingJanrar¡r 1, 2008, th€
                         audito¡ cttim¡tcd thÊ addition¡l ux¡ble salc¡ fot tbic pcriod by first dclcrmtning tbc
                         avetegÊ monthly nct est¡m¡tcd t¡x¡ble salcs for tbc rqort pcrtodr lanuary L zqlq
                         tkougþ Juo 30, 20m. Tho poct-Dccanbcr 31, 20û7, toul ¡ct rstinstpd tuablo ¡alcs            of
                         $fr2,t,443.17 wqe dfuldcd by ths l8 rEpo¡t puiodr !o a¡rlvl d a montbly averago of
                         $40,469.06.

                                                                    ls
rgs   25 of   3¿16)

                                      I                                                                  t
                 17.        Tfu additionsl ta¡¡blc sslcc for thcprc.Innuary   1, 200E, ¡Wo¡tpcúiodt    we¡t c¡lculatcd
                            by rcduchg thc averago monthly nct eilimstcd t¡¡¡blo s¡les by ths t¿r¡blc mler rcportcd
                            to thÊ Compbollor.

                 18,        A 5É allownnco forspoilaç ¡dth¡frwa¡ ap'plted b deterabËtbs addttion¡l t¡xsblç
                            srlês.

                 19.                    additioral tsrr¡bl€ ¡alc¡ wrre thco multiplicd by thc applicablo t¡f, rate to
                            Ito rc¡ultlng
                            detcminÊ thc t¡¡ duo for pr+Isruåry 1, 2008, psil of tbc audit pcdod.

                 24.        Pedtío¡cr lsbawas üopnsidcntof Ptaitionet SL

                 2t.        Pctiriøcr hbr rigncd cücctr hr rcuitting salor      and usc   tar paymrutr drutng thc atdtt
                            pËriod"

                  2?,.      Paltioncr Isba wle rcrporsiblc frr dcpositing thp ¡b¡e's raler ptncccdr      fton
                            Fcbruary Tl, 2lßÍ1, thot¡¡þ Ap¡il 30, 200t'

                  23,        Pcdtion¡r Isba w¡s reoponsiblc for doposidng tb¡ storG's sales proeds Êom
                             Fehrt¡sry tl, 2907, th¡ouih Atril 30, 200t.

                  24.        Pcdtioner Isba was responslblo   hr ondcing    tho stors'c   hvørtory from Fob,n¡sry 27           ,
                                                                                                                       '2ûgl
                             tbrougb Aprit 30, 2008.

                  2:t.       Pedtioner Isba was resBoruible   furp¡ynm      of tho sto¡c's invcqtøfiE¡rchases   from
                             Febrnary 27,z0lJl-, th¡utgh April 3Q zfXlt.

                      26.    Pctido¡ec Isb¡ was the pcnon crüo rcceivçd tbe monthly         b¡¡k statcmøs Êoln
                             Fcbrnrary 27,2:ßVl, tbrot¡gh Ap¡il 3O 2008.

                      n.     Pctitioncr [¡ba'¡ rcsponsibility fc thesc ' skr cnded on ìilay l, 2008, wbm hs entcred
                             hto an agrüÊEer[ to ¡ell thc company to hir omplo¡rccs Ya¡¡ieq Si¡m and
                             Sstr&¡Sal¡zãr.

                      28.     Mr. Siam asil¡Esd Esponeibility fm thesa 'a"L. ûom lvhy l, 2008, r¡ntil thc cnd of thc
                              auditpcriod.

                      29.     Oû Apil l,201l, thÊ Statrissucdto Pctitimcr SI aTex¡¡ Notific¡tio¡ of AudttRcsulti
                              assessingtax, thc st¡rdard t0% pcndty, thÊ Êddiüond sflqb Êaud pcnalty, sDd accrud
                              irtsrcst, totaling S112381.02. with S64336.t1 ¡ttribr¡¡blc to t¿r.

                      30.     Petitionersltimdyrequeotcdrcdctcrminrdon

                      31      St¡ff elso issued a jcopady daccminrtim m Ma¡frh 30, æ1 1, against Petitbner Isbo,
                              punurnt b Tax Codc 0 I 11.061 1, arscsring pmooal li¡b¡lity for tho ta¡ liability of
                              Pctitioffi SI b¡ tho pcríod May 1. ZM, tbrougþ Juno 30, 2ffi!1.

                                                                       tú
ågr 26 of 3{6,

                               o                                                               o
            32-       Tho pemonat   tlùiltty a¡scssmcú con¡istcd of tar, tho staod¡¡d 109å pcnalç tlrc
                      addido¡¡l50S pcndty, aad ocuued íltËæstthrongbthc date of úl¡fic¡tioü. ThË
                      pcrsonal ti¡biüry sssciscd agahsthddon¡r Isb¡ toteled S5,620.96, with $55,168.E7
                      atuibut¡blc b tsr"

            l!.       St¡tr rcftrrcd thc c¡se¡ to tht StEt! Officc of Adminis¡aüvc Hoarhgp for oral hcuingr"
                      StatrisstrcdNodcer of llcring th¡t ss6¡þs¿ s ¡tstûn€ût of thp dsÞ, d'¡G' ud place of
                      tho hedng$ a stal€ûrcut dth! ün¡rc of thc hcarings; ¡ st¡tcmcú of ths lcg¡l üüborlty
                      rnd jruisdicdon rndcß whtch tb hcaùÞ wcro to bo held¡ I rsfGrerc! to tho putioilar
                      section¡ of tbc stah¡tcs ¡¡d rule¡ hvolvc{ a¡d a ¡bo¡ì pl¡t¡ sl¡trrncnt of tbc m¡tten¡
                      ssrcrtËd.

            !4.       Ttc Adn¡dstrative law ludgo (ALD        ordcred the cascr joincd.

            35.       Ito ALI coweocd thc headug m August         t2"2OL3

            36.       'lihc ALI ordsrcd the ¡ccord dosed on   Nov@bq      12, 2013.

             37.      Its cor€ct ouhrp pcræút¡gÊ that thc urdimr should havc a¡pliod to thÊ tobaaco
                      puchases wa¡ 118.ü19t, which AP lX¿ dìæcg should bc r¡s€d for ¡rcnre followlng 20û7.

             38.      Applyi¡rgtho coneacdmnùry p€rccûtagt to ûç tob¡cco prcbascs proùrcd cstlnâtd
                      tobapco sal€! of $lü)"550.67 (tæcsur thc $100,90t 51 resultingfrom amartup of
                       118.44fr).

             19.       Tto applicaüon of ths corrcctcd marhp pcroEotagc to tobacco purcåasco rcdnccd tho
                       asscssmÊnt of ta¡ fr'Dm $64,336.90 to appruùnaæly 964J05.

             40.       Tto orlgi¡¡l ovcrall e¡ror ratc for Pcdtioncr SPs audlt w¡s 66.459ó.

             41.       The ALI has rccalo¡latcd thc einr ratc using thc reù¡ccd prilc'ipal ¡mor¡nt of tar duc.
                       Tltc ¡cc¡lo¡latcd audit cmot raic ls 66.44%, whích wa,r c¡ls¡latcd by dviding tho t¡x
                       a¡¡esscd ($É{"30Ð by tho ¡um of thc as¡essed t¡¡ snd ¡cportd ts ($96,790.61).

                                                rv. coNcl,rJslroNs or L.l\w

                 1.    Itc   Conptmllcr hu juisdicûion oyer this E¡üË pn¡sr¡¡trt to Te¡¡¡ Tar Codc ch. t I l.

                 L     Ttrc Statc Offico of AdninisEadve Hearingp hrs Jruirdicttoc ovc¡ m¡ttcrs rÊlald to ths
                       hÊtiry in th¡¡ Erttctr, including tbo autbrity to i¡¡uq ¿ proposal for dccision witb
                       flrnrtínar of fncn nnd ennnlu¡irmr nf lnw ñrñ¡nrrrl tn T¡rqr fl¡ve+rrmcnl lrnde nh lflfl?

                 3.     Ststr prwidcd propcr and ttmcly notlca of tho hearing purauant to Tox¡l Governmeot
                       Code cb" 2001.

                                                                 v
åqll ?? ôt 346,

                                 o                                                                         o
             4.         Thc Compnoller i¡ u¡thodzed o usc tho bcst lnfrrmqdon waihblc to esd¡n¡ts                    ¡
                        tarpa¡rcr's liability whco rËcorù aro incouplen q r¡¡¡eliablc. Ter Tar Codo                  Ann
                        0 111.0042(d) a¡d 34 Ter. AdmirCode I 3.2t1(c).

             5.         Petidoncr SI mst show by a prrc,pondrrancc of thc evidcuce th¡t ths audit w¡s                i¡   erm¿
                        34 Tex. fi¡lml't. CodÊ $ 1.40(2XB),

             6.         Ttc   ar¡dit of Petitioner SI wa¡ pcrfrnncd bqsed on      tc    best   info@¡tbs evril¡ble

             1,         fta audím  eæd in ¡ot rnhg thÊ cûrrcct p€scrûtlgo d llE.(n% in                ndíng         up thc
                        tob¡cco purcha¡c¡ in order to ssrimaþ tob¡cco sal€s. ,Sea AP lüt

            8.          Tlc calaünttm of ¡dditiou¡l ¡r-ahlo salcs should bc rdjn$cd by u¡i¡g             tbs cor¡cct
                        narhry ¡rcsccr¡tsg€ of 118.0296 þ m¡reìrrg up tobscco pt¡fch¡¡G!.

              9.        Tto Comptollcr is autho¡ized m impose au addltlon¡l 50S penalty lf thc failuc to pay
                        tsr or filc a re¡lort urüer duo was a rc¡r¡lt of fru¡d or m lntent to ovadc thc ta¡. Tcr T¡¡
                        CodGAn¡L     ¡   111.061(b).

              10.        Statrbesn the bu¡dco of pmof ùo sbowby clear andcorll¡cing cvldencc that
                         Petitioncr SI acted with tntcst to cvadô ta¡. 34 Tcr. Admin Codo S 1.40(lXB).

              11.        Petitlmcr Sl hsd thg intcut to er¡adc tar r€qrdrcd by Tcx. Tar Codc A¡n            ¡   1   t 1.061(bX1),
                         but ouly for thc ¡tpüt pcrtods fcbrtnry l,2ûïl,th¡or¡gh April 30, 200t.

              t2.        Tto rccorú ætabllshß! by clca¡ a¡d co¡vlncing wldcoæ th¡t tho grosr undccepødnþ of
                         t¡¡was due to thc tntcntto cradc tax and that thc impoaition of thÉ additiud 50ft
                         pcn¡lty w¡¡ wsr¡¡ted, hrt ody br thc rr?oû pGriods February 1,20(Xl. througþ April
                         30, 2008. Ter. Tsr CodcA¡n ü lll.06fGxl).

                  13.    Ite additton¡l50fr poualty ehouldbÊddotcd forthe rçøtperlods ìil¡y                 1,2008, lh¡ouib
                         Junc 30,20(Xl.

                  14. Itc a¡scssucot agaiut Petitlon¡r SI sttould bo afñnncd exccpt fur tho adjutncntr
                         rccommcudcdinConduslons of        l¡rp   Nos.   E   td   13.

                  15.                        !
                         Tex¡s Tar Codo lt 1.0611 hnpo¡e¡ pcffionat li¡bllity on an officcr, raFnnSGrr or direú:toÌ
                         of a corpomdon who "a,s ao officcr, qrln¡lcEr di¡eaor, or po¡ütGfi took a¡ astioo or
                         participrrcd tn a fraduhnt schcm¡ or fra¡¡dulent plrn to w¡d¿ tho pa¡mcnt of tarer."
                         Tho pusonal Uability is for t¡xe¡, pcaaltics, irclrdiry an addition¡l 509å ponnlty and
                          intcrest th¡t a¡o duo from thc coaporatiou Ten Tar Cods              Atr¡. !1 U.06U(e).

                  16.     Acdons th¡t i¡dic¡¡e ¡ fr¡udulcu sc,heuo or f¡¡udr¡lcot plan to ovado tho payment of
                          ta¡cc i¡cludc frUng or caruing b bo ñlo4 a ftar¡duld tsr Éü¡r! or ¡Ëpott wlth tho
                          Conpuoller m beh¡lf of ths brrrhress cotity, or ñling, or cauoing o bo filed, I tar ¡Ghrm

                                                                    It
rÀçt€   28 of,   3¿l¡,

                                  o                                                            o
                          or rËPo¡t with tbo CoEFüollGr on bchalf of thc br¡slnpss cndty tbat cont¡in¡ an
                          ùneuttonallyfalss st¡tcmmtth¡trcsultr inthc ¿mor¡¡t of the t¡rdræ exccediag thc
                          ruuntoft¡rrcpqtdbyZS9É ormsc. Te¡. TqrcodcArD" Í 111.0611(b)(l), (3).
                   17.    Stafre¡tabtisbcd th¡t Petidoncr bba war persmally liablc r¡nder Tcx¡s Tax Cdc
                          | 1U.061f for ùc ûssqßEÊtrt mdo agahst Peido¡¡r SI, but ody fm thc rcport p€dods
                          Ùfay 1,20(n, û¡ougb April 30, Zl0t.

                    18.   Tbc pccuonal llsblllty üictsrt!úû aggiûtPetitioncß Isb¡ for npocpedods ilfny 1,200t,
                          thmugþ Juc 30, 2009, ¡ho¡ld bo dolctcd.

                    19,   Th¡ ¡ssccsmcnt agalnst Pedtiooer l¡ba shor¡ld bc uphel4 eubjcct !o rhp dcterim
                          recom¡cudcd l¡ Couclusloq of I¿w No l8 and b thc adþtncot¡s ¡lsrmrledlng
                          coqtcatc Îs¡ stsÊssücnt agÊinot Pctldoncr SI rccommooded in Conclu¡iou of Lcw No. 8.

                                                                 ¡f,
râgË   29 ot   3r¡51

                                  o                                                                o
                 HearlngNo& 106rûf5 snd 1üt006

                                              OADER, OF THE COMPI.ROLT,ER

                         Ou Ilcccmbcr l?,2Ûll,thc Stato Officc of Adoi¡i¡E¡tivolleuingr' Adninistntiv€ Iåw
                  Iudæ (ALf), PcÈt B¡ookr, iosucd a Pnopos¡l fc Dcdsim in tho above'¡ef€ûEoccd m¡tH¡ to
                  whlchTa¡ Divi¡ionfiledErcsptim¡ onDcccmbcr 17,2013. fbConpuollcrh¡¡ ætsidc¡cd
                  thc Excoptions sûd tbo ALI's æcor"'lcodation lcüGtr fto Comptmllcr f¡s dctñn¡Bcd thc thc
                  ALI'¡ hoposal for Dccision, ef,ccpt for minfi chqngÊo b MGGt tJpogrôpbical or clcrical snots'
                  should bo adopEd withq¡t ch¡[gs üd thís Decislm npreseoE thc nûíng thctcon

                          Thc abwc Dcci¡ion ¡csultlng i¡ Petit¡oüc(s' ll¡btlltiæ as sct or¡t l¡, Anachnoat¡ A, whlch
                  ar! irco¡pcstdby ¡¡fe¡cncq lr appmræd s¡d sdspbd in all upcctr, ThÊ Deciston bccoucr
                  fusl tw€uty dayr afrer thc d¡Ë Faiüoscrs rcccivo nodcc of thiç l}cdrlon, and thË tot¡l sus of
                  ths ts4 pg'rnltt, Erd l¡tcrcst anormtr is dus and peyablc withh hflcoty dayr thacafrcr. If rue.h
                  sum l¡ not paid withi¡ rucb timo, an additim¡l pcoalty of tco poccnt of tho tarer ú¡G wíll
                  accrilqqdintäcrtwillcmti¡rætoaccnro' Ifoithcpartyde¡i¡e¡¡rehcsrin&thatpertymust
                  filc ¡ modo¡ fu ¡chcr¡ng whicü El¡rt ctlt! tbo grouud¡ fü fiücãrhg, no latu th"" twcuty dayr
                  affcr tho duo Faitlono¡¡ rccçivo notlco of ihl¡ Dcci¡ion Nodcc of thi¡ Deci¡ion ic prtsumcd to
                  oaq¡ron üo &td dryafrcr ttc.lajg of thl. H¡lo¡.

                         SisrGd qrr rhii   JËh,     of lr¡¡s 2014.

                                                                 ST,TSAN COMBS¡
                                                                 Ter¡¡ Corytollcr of Rtblic fi¡ser¡ntr

                                                            bp            7   -mnf'Pi

                                                                              Compüollcß

                                                                     ru
?sg€   30 of     3461

         Þ739
          (Rev     I   -9619)
                                           I                                                                                 o
         TEXAS NOT1RCAT1ON OF HEARINGS RESULTS -AtlachmentA                                                        ETATEIT¡ENT DATE
                                                                                                                     Junc 17, 2014

          Ta:çeyer Number                                        Audlt Pedod                                       Headng Number
          32014146158                                           u1t07 THRU       8ßm0                                     1(F815
          Typa ofTar
          Llmltad Salæ,         Edss, and Use
          FIGURESWERE AMENOED

                                                                                       STATE                   LOCAL                          TOTAL
          TÆ(                                                                      $¡t8,876.09          s15,576.0r¿                      $84,2õ3.31
          FEI.¿ALTY                                                                 18,768.89                 I,m6.07                     u,n4,98
          ¡   NTEREST THRU STATEMENT DATE                                               17.797.n              4.41.!,9*                   lE.rqsj[
          TOTAL OUEAS OF ÍITATEMENT                        OATE                    981,23it.85 $2õ,994.e3                               t107,2ãt.¡tE
          n$¡Lqflf9%             Penal$ g                 per the Proposel lbr Oeclelon. InÞrpd v¡lll conünua to accrue at          I   Z.4B psr d€y
          aþ¡6117114 thmugh lhc dab of paymenl
                                              H1,.9

          lj99q         p9qÊlly.qlll. ba assss¡ed on tax süll duc 43 dayc after lhe Older of the Comptouer (TEX                TÆ( CODE ANN.
          SEe.         111.008'l (c¡.

          For payment lnhrmaüon call 1-800-531-6441, erû 3€800 bü free naüonrrtdg or celt                          siz¡t8lgg0o.
                           paye]¡le b STATE COMFÍROLLER and mall to Compfollcr of Pubtb Accounts, i 11                                    E
          [.ake.Vqur thegk                                                                                                                    17',r
          Sbeet Autün, Texas 787744100.

          '     Per annurn lntemst ratot rra aubleotto chenge on Janurry                    ld of e¡ch yrae      For rnon lnteruet        nto
              lnlbrmatlon, refer b Publlcetlon 98.00¿, crlll1'{,77.44l1-Zttrl,              w rslof to
              htto:lrutWw.wlndow.¡t¡ûe,t¡.prne,xl¡lo/tnt ile.html

                                                            (CutAnd Rct¡r¡r Bottom lb¡tlon ltlirh P¡y,mcnr)

              0G,z¡m
              TË'(AS NOTIFICATION OF HEARING RESULTS¡                                                                     Hearlng Nunbor
              - AttactrmentA                                                                                              1ffi816
                                                                         STATEÍTIENT DATE
                                                                         June 17.2014

                                                                         Type   ofTar
                                                                         Llmlted Sales, E¡¡clss,   ald Use
              Taxpayr Name E Malllng Address
              SANADCO,INC.
              3801 E ROSEI¡ALE Sr
              EflEl? tr¡/tEl'FL¡
              l"V¡\¡ lU\rl\l l l Tt
                                 lt\ tQa,lÊ
                                     tl,ll,r¡- .rqt   t
                                                l tù¡r3                                                         Arnount qfYour Payment

                                                                                                                .PMD-
              lcode        laxpayer Number 'Perlod 'Audlt 'Twc                    'StaÞ Amount
                                                                                                    .Type'Ld       Amou¡rt
               260¡10 32014146160                         0s00     001     02       81232.86 04                 26994.63
(Påg€ 31 of        297i

              qÞ739
                                         o                                                                                       o
              (Hev 9 -9€/91

              TEXAS NOTIFICATION OF HEARINGS RESULTS . Attschmenl A                                                              STATEMENT DATE

              Tarçayer Number                                                     Pedod                                           Headng Number
              æ
              LfiiãGütIBT{1ã5                                                                                               W
              T¡rye      olTar
              I   s"A_l-Es.  ExcsE.AND u_gF_.. _.""_."          " -.:l
              F rcu n Es WERE
                                    [:!EEEñ_-:¡fl
                                                                                                           CTÄTtr           I   ñôÂt               TôTÀ¡
              TÆ(                                                                                                       ;ú610fõ!3ð
                  PFNÂI TY                                                                                              :i¡a.UUOiW
                  INTFFIFST THFIT I STÀTtrMFÀfT NATtr                                                                    ¡t¡!J¡ll,t,:

                  TOTAL DUE AS OF STATEMEI.IT DATE
                  Thl¡ notlar rullcotr tño lot¡l smoutrt du] Pa¡n.nla mado by Sanadcq lno. wlll b cr¡dlt¡d wtrcr thcy Þccom¡ ¡v¡llrblr You
                  wlll nood lo conlacl Fwlnu. A¡Gounüng/8uccæror Llablllty d (t001 6t1-641t or locally rt (5t4 4eg¡¡æ fbr queatlonr on
                  updñ     rt¡l¡lnontt

                          (lntereelwlllcontln¡etoaccruoÊtf,!!i!þperdayafter|@|thrcughthgdaleolpaymenl..)
                  A 10% penalty wlll be assessed on tar stlll due ¡lft dep efter thË Older ol the Comptrollor (IEX TÆ( CODE
                  ANN, SEc.111.0081 (c).

                  For paymenl lnlormellon call 1 -80G631.5441 . e:û. 3-3900 toll frse nallonwlde, or call 512/46$3900.

                  Make your check payable to STATE COMPTROLLEH and mall to Comptrcller of Publlc Accounts, 111 E. 1?0'
                  Slrs€t, Austln, Texas 7077+0100.

                  Ò
                    Por annum lntsrltl taþr rrr cubtcct lo changc on January 1ú of cacNr ycea For more lnlorud fate
                  lnlonnrtlon, rl'lor lo Publlc¡tlon 9811Oq c¡¡ll14774f-283r1, or rebr to
                  hþ://wwrv.wlndsw,sleto.bç usltÐd   nf   oilnLret€. html

                                                     (CutAnd Rctum Bo$oE PoÍlon With Paymeat)

                   *2N
                  TH(AS} NOTIFICATION OF HEARING BESULTS                                                                        Hearlng Number
                  - Anachm€nt A
                                                      STATEMENT DATE                                                            "T,Lf-o?,oqotl
                                                                      l$lË?!r?gruK:5;:l
                                                                      Twe ol      Tar
                                                                                        :Il:;rä,q
                   Tarpayer Name & Malllng AddEEs
                                                                     I snms,       EXcTSEAND usE                       :I
                   [\inHruöt$ÃF"         iSBAþ':;.ir,":ñ1                                                                       Amount of Your Payment
                   r                       i]¿t, lil
                       oqii evtøId. at
     37 6-77,In Reata, thÊ cout t explained:

            When the govêrnmental entity interJects itself into or chooses to êngage in litigation
            to assert affirmative claims for monetary danrageÐ the entity will presunrably have
            made a decision to expend rêsourcês to pay litigation costs, , , , In thís situation, we
            believe that it would be fundamentally unfair to allow e governmental entity to
            assert affirmative claims against a party while claiming it had immunity as to the
            party's claims against it,
            Id, at375-76."

             The Defendants' claims unquestionably meet these criteria, and therefore mey nÕt
     be dismlssed on immunity grounds ând âre properly before the District court,
             Further, in suits filed pursuant to Tex, Tax Code Ann. $1Lt,01-0, officers and
     directors âre entitled to a full and complete hearlng on rheir tax liability in district court,
     .5e¿ Tex. Tax Code Ann. $ L1-L,0L0 (West 2008)
                                                     [authorizlng ettorney general to file suit to
     recovertaxes), Thecaseistrieddenovo. Greenev,State,324S,W.3d 276,288 (Tex,App.-
     Austln 2010, no pet,l [111,010 allows for a de novo review of the pârty's tax liability),
     Herrera v. State, No, 03.01-0010L-CV, 2002WL L85476, at *L n. 4,2002 Tex.App..-Austin
     Feb' 7, 2002, no pet,J lnot designated for publication) [identifying suit under sÊction
     1LL,0L0 as "de novo action by the State to collect dellnquent tax"),
              The Adninistrative Procedure Act [APA) provides that wlren "the mânner of review
     authorized by law for the decision in a contested case .., is by trial de novo, the reviewing
     court shall ffy each issue of fact and law ,,, as though there had not been an intervening
     agency action or clecision." Tex, Gov't Code Ann. $ 2001.173(a) fWest 2000), A de novo
     hearing has been defined âs "a rlew and independent action in which the whole case is gone
     into as if no trial whatever had been hacl in the court below." Trial de novo is not an
     "appeal", but is a new and independent action. Key Western Life Ins. Co. v. State Bd. of Ins.,
     350 S,W,zd 839,846 [Tex, 1961),
              The sine quâ non of a de novo trial is the nullificatiotl of the judgment or orcler of the
     first tribunal and a retriâl of the issues on whlch the judgment or order was founded, When
     jurisdiction of the second tribunal attaches, the judgment or order of the first tribunal is
     not merely suspended, but is nullified, Iexas Dept, of Public Safety v, Banks Transp, Co,, 417
     S,W,Zd 593, (Tex,Sup. 1968); Sauthern Canal Co, v. State Bd, afWater Engineers, SlB S,W,2d
     619; 159 Tex, 227 [Tex, 1.958), Accordingly, "res judicata" and "final Judgment" are
     inapplicable in de novo proceeclings because the original aclministrative order that is the
     subject of appeal is nullified in a de novo proceeding, State Bd, of Ins, v, Republic Nat'l lns,
     Co,,384 S.W.zd 369,372 [Tex.Civ,App.
                                                    - Austin 1964, writ refd n.r,e,), Thus, each of the
     issues raised in the cause before the District Court may be addressed by the court without
     consideration 0f the fìnality of the adnrinistrative judgments,
                                                                                           -3-lP¡rr,'.-
     Letter Bricf; In ro Sanadco lnc,, and \4alunaud A Isba; No, 03-11-00 462-CV
ProDoc Faxservice                   Pâge 5 of t0

                [Z] Dltl the flnal ludgment ln the admlnlstratlve proceedlng prectude the class
                litigants frorn raising affirnrative defenses or counter'claims not addressed in
                the admlnlstratlve prücee dlngs?

            Aside from the Sanadco audit, the remaining class issues are independent of the
     contested case proceedings in the administrative process. Each claim was filed before the
     administrative process had been c0mpleted, alleging ultra vires conducr and
     unconstitutionality of statutes under the UDIA, and invalidity of agency rules under the
     APA-all of which would render the respective audits voi'd, The filing of these complain$
     prior to completion of the administrative process has no effect on the court's jurisdiction as
     exhaustíon was not requirecl because these claims are not within the Comptroller's
     exclusive jurisdictlon, and independently invoked the Dishict Court's jurisdiction, thereby
     perrnitting the court to abate its proceedings pending the exhaustlon of admlnistratlve
     remêdies, LÌndig v. Johnson CiÐl, 03-08-00574-cV (Tex,App,-Austin l0-21-200g); Marblø
     Falls Independent school Dìsttiôt v, scott, 275 s,w.3d 558 (Tex. App.-Ausrin 200g, pet,
     denied).
             A UD)A clainr is sui generis and, âll otlrer things being equal, the distríct coutt's
     subject-matter jurisdiction over it exists independently of any administrative remedies.
     Texas Llquor contrll Bd, v, canyon creek Land corp,,456 s,w,zd Bg1, B9s [Tex, 1g70); cobb
     v. Harrington,I44 Tex. 360, L90 S.W,zd 709,713 (1945),
     .       If a gôvÊrnmental ageucy acts beyond its statutory powêrs, or ultra vires, lts actions
     are void ancl may be challenged at any time, Tn-Cify Fresh Water Supply Disr, iVo. 2 of Harris
     Cnty, v, Mønn,142 S,W,Zd 945,946,947 [Tex, 1940); see also Mobil 0il Corp, v, Matagorda
     County Drainage Dist, No, 3, 597 S,W.zd 910, 913 [Tex, 1980) [holding that drainage
     district's attempt to ennex Iancts was beyond its statutory power and therefore null). If a
     governmental authorityrs actions are voicl, the actions can be challenged by affectecl
     persons. See City of Irv:ing v. Callaway,363 S.W.U d 832, 834 [Tex.Civ.App..Dallas 1962, writ
     refld n,r,e,J [quo warranto proceeding necessary where åctions are voidable, but quo
     warranto proceeding not necessary and claim may be brought by private citizens affected
     by action when annexation ordinance attacked on grounds alleging âction void), Bexør
     Metra. Water v, Cíty af Bulverde,l"56 S.W,3d 79,88 (Tex,App, -Anstin 2005).
             The general rule in Texas is that courts do not irrterfere with the statutorily
     conferrecl dutles and functÍons of an aclministrative agency, Westheimer Indep, Sch. Dist- v.
     Êrockette, 567 S,W,zd 780, 7BS [Tex. 1978), However, courts mây inrervene in
     aclministrative proceedings when an agency exercises authority beyond its statutorily
     conferred powers, Id. See also City of Houston v. Williams, gg S.W,3d 709,717 [Tex.App,-
     Houstou [14th Dist,] 2003, no pet,), "ln such a case, the purposês underlying the exhaustion
     of renredies rule are not applicable, judicial and admini$trâtive efficacies ârê n0t served,
     and agency polices and expertise is irrelevant if thê agêncy's final action will be a nullity,"
     MAG-T, L.P,,L61, S.W.3d at625.
             Further, the doctrine has no application where the legal question is one of whether a
     stalute is constitutional, because aclministrative agencies have no power to deterrnine the
     cônstitutionality of statutes, Id.; see Texas Educ, Agency v, Cypress-Fairbanks lndep, Sch, Dist,,
                                                                                          -4-ll:tag*
     Lçttor Brief;In re Sanadco hrc,, and Mahmaud   À Isba;No, 03-i1-00462-Qy
ProDoc FaxService                                   Page I of           5

         830 S'W'Zd BB,9A'91. (Tex. L992),Accorclingly, there is no sound reason for forcing a
                                                                                           litigant
     through the adnlinistrâdvê process when ln good fâirh he is advancirrg a zubstautial
     complaint that the statute that he is charged with violating is unconstitutional. Grounds,
     707 S'W'2d ât 892. In other wôrds, "Whên the only issue raised is consritutionally of rhe
     statute, a court may decide it without waltlng for an adminísffatíve proce.eding." 4 K. Davis,
     Administratìve Law Treqtise 435 (Znd Ed, 1983) [ernphasis addedJ; see Cent,þower & Light
     Ca, v,          Sharp,960 S.W,Zd 6l-7, 618 (Tex, t_997).
                      Witlt respect to the challenge of thè agency rules, the administr.ative proceedings
     present no bârriêr to the District Court's jurisdiction because the Comptroller has
     deternrined that she has no Jurisdictton over thê issue and declined to âddress ir,
     Comptroller's Decision Nos, 103,683; 103,961 [2011) and104,277 (2012).
               Additionally, "[t]he APA proviclei two modes of iudicial review
     case decisions aud thÈ othêr for rules
                                                                                 - one for contested
                                                     that âre significantly differÊnr, The only time
     limitation on iudlcial review of a rule -is thar a proceeding to contest compliance with
     certain procedural requirements must be initiated wfthin two yêars of the rule's effective
     date, Otherwise, judicial review of a rule may be sought at any time, .,. The APA does not
     restrict thê scopê of juclicial review of rules but says only: The validity or applicability of a
     rule . , . may be determinecl in an action for declaratory judgment if it is alleged that the rutre
     or its threatênÊd applicåtion interferes with or lmpairs, or threâtens to interfere with or
     impair, a legal right or privilege of the plaintiff. No standard of review is prescribed. The
     statltte adds that plaintÍff need not have challenged the rule before the agency, fudicial
     review of rules is thus largely unlimited in time and scope," Rdilrodd Comm'n v, WBD )il E¿
     Gas           Co.104 S.W,3d 69,75 [Tex.2003).

                      t3). Is the comptroller authorized to estimate audits under Tax code
                      $111.0042?

             The Appellants have briefed and argued its contention rhâr the Comprroller is not
     authorizecl to estÍmate aurllts performerl pursuant to $ ttt,O04Z. At oral argumenf,
     Appellants cited two stâtutes establishing the circumsrånces undÊr which rhe Cotnptroller
     is authorized to estimate audits which were not included in the briefs. Tex. Tax Code Ann, $
     1-51.501-4 directs the cletermination of taxes clue when the taxpayer has filecl a sales tax
     report, It instt:ucts tlte Comptroller to issue a determination under 5111.00S which
     åuthorizes a determination under $ 111,0042 which only authorizes detailed and sample
     and projection audits, The only circumstance under which the Comptroller is aurhorized to
     estimate an audit is when the taxpayer fails to file a report. Tex. Tax, Code Ann, $ 151,503s,

     45
           t   S   LSOI TAX, Dete¡minotion Afrer the Filing of a Report
     If   a person      hæ fileci a tax report, thn comptroilcr may issue a clefroicncy detcrmination uncler Section I I i .008 of thig
     ccdç,

     ' 5 1Sl,¡03 TAX, Determinstion if No Report Filed
     (o) If n per,ron fails to file B report, the com¡rtroller shali estimste the amount of receipts of the person subject to the
     sales to4 ths smount oftotal sales prices oftaxnble items sold, bnsed, or rcntçd by the person to nnother for storage,

                                                                                                                        -5-ll':agr""
     Letter Briof; In re Sanadco Inc,, and Mahmaud                  A   Isba; No, 03-11.00 462-CV
ProDoc FaxserviGe                         Page Z of            5

     The statute provides, in pertinent part, "lf a person fails to file a repor!, the cornptroller
     shall estimate the âmount rf rècÊipts of the person subject to the sâles tâx , , , ,,, By
     specifying failure to file a report under whidr estimation is permitted, the Legislature in
     effêct êxplêssecl its intention to exclurlê all other circumstances, It is a genêrâl rule of
     stetutory construction that the express rnention or enumeretion of one person or thing or
     cÖnsêquênce is tantamount to ân êxpress excluslon of all others , Foshee ReflnÍng Co, v, State
     et q1.,73 S,W,Zd 1098, 1-100,
             The nraxim, Expressio unius est excìusio alterius [the narning of one thing excludes
     ânother) is applicable here, It has often been applied in determining the powers which
     have been or have not been delegated by the Legislature to administrative boards,
     commissions, licensÍng authorities ancl others. CommercÍal Standard Ins, Co. v. Board of Ins.
     commissioners, 34 s,w.2d 343 (Tex,civ,App.); Foshee Refining co. v, state, 73 s.w,zd 1099,
     1L00 [Tex,civ'App,); state v, Mapel, 61 s,w,zd L49, Lsz [Tex,civ,App,]; srate v, Mauritz-
     Wells Co,, 141 Tex. 634, L75 S,W.Zd 28B; Ex parte Halsted,, LAT Tex,Crim. R., t_BZ S,W.Zd
     479,484; Harris coung v, crooker, 1"L2 Tex, 450,248 s,w,6s2,6s5; Hunrress v, state, BB
     5,w.2d 630 643 (Tex.civ,App.); Mccamey v. Hollisrer oil co., Tex.civ.App., 241 s.w, 689
     [aff, by ].15 Tex, 49,27+ S,W,562); Clarkv, Briscoe lrr, Co,, Z00 S,W,Zd 67q,682,
             Accordlngly, the Legislature has expressþ excluded cases in which a sales tax report
     has been from an estimatêd auclit, and this court should so hold,

              Conclusion

           It is therefore apparent that the District Court m¡¡sf permit Sanarlco to pursue its
     claims and defenses in this proceeding because Reata requires it since tlìê StarÊ has
     brought its action seeking the recovery of damages, Because the standartì of review is cle
     novt, the District C0urt proceeding is ä nêw and independent åction, and the original
     aclministrative order that is the subject of appeal is nullified, Accordingly, there is no final
     judgntent upon which to base a judgnrent of res judicata or orhÊrwise conflict with the
     Di strict Court's jurisdiction.
              The independent claims raised by the class claimanm arspursuÊd under the UD)A or
     Gov't Code $ 2001,03B by which the District Court obtains jurisdiction outside the purview
     of the administrative contested case proceeding. Whether or not the aclministrative order
     ostensibly resolved the issue, the District Court would proceed de novo âs though no
     Judgment ltad been entered, The ultra vires clainrs prèsume tlìât the state agency acted

     or consumption without the pâyrnônt of the use tax tn a retailer for each period or the totâi period for which the
     person feriled to report es required by this chapter,
      (b) The estimate require cl by Subsection (a) of this section may be made on any information avaiìable to the
     comptroiler,
     (o) On thn basis of thÊ estimatc, the comptroller shail oompute ancl determinc the amow:t requlcd to be paid to thr
     stete for each period,
      (d) The comptroller shell add to the determirurtion an nmount equel to   l0 percent pf the smount computed under
     Subsection (c) of this section ns tr penelty,

                                                                                                              -6-lPar¡*
     Letter Brief; In re Sanadco Inc., and ivlahmaud       A   Isba; No. 03-I1-00462-CV
ProDoc FaxService                        Page 3 of         5

         outslde its statutory authority, thereby invaliclating the audlts, which may be challenged
         independent of the adnrinistrative proceedings under thÊ UDJA,
                Likewise, the rules challenges may be pursuecl inclepenclent of the administrative
         procÊedlngs beøuse the Cotnpffoller presumed.thât it did not have jurisclicrion and
         therefore refused to rule on the issue, The Dlstrict Court takes jurisclictton, therefore,
         without the indicía of an administrative ruling pursuârlr ro 2001,098, uninhibired by
         restrictions of neither time nor scope.

         Respectfully sl¿bmittecl"

         Law Affice of SønuefÍ, Jacñçon

     P.O. Box 770633
     Arlingtorç 'IX76OL7
     Tet (81/) 751-7155
     Fax: (866)374-0164
     j   adssonlaw@hobnail,com

                $amuelT. Jaikson
                State Bar No. 10495700
                Attorney for Relat¡rrs

     ccl        Jack Hohengarten, Assistant Attor.ney General

                                                                                       -7-lllaqr:
     Lette,r Briof; In rs Sanadco Inc,, and M¿hmaud   A   lsba; No, 03-li-00 462-CV
ProDoc FaxService                    Page 4 of        5

     Dutside fts stahrtory-authority, thereby lnvalidating the audi$, which may bê chalienged
     independent of the admtnlshative proceedlngs under the UDT4"
            Llkewfsq the rules challenges may be pursued. lndependent of the administrative
     proceedtngs Ïecause tJre Comptroller presumed that it dld not have jurfsdfction and
     therefore refused to rule on the issue. The Dish'ict Court takes jurisdi'rtion, therefore,
     without the indîcia of an admjnistrative ruling pursuant to 2001.088, uninhibited by
     restrictiorus of neither time nor scope,

     Ræp ætf uJIy subanitte d,

     tøw   We       ofsømuøttî, Ja.cftgon

     P.O,Box170619
      Arlington, TX76017
      TeL (817) 7s1-715s
     rax (866) 37+0L&
     jacke onlau@holmailcom

                    T. Jadcson
            State Bar N0.10495700
            Attomeyfor Relato¡e

     cc:    JacJ<   Hohengarten, Aooretant Atinmey Gcneral

                                                                                   -7-lPage
    Letter Brief; In ro Sanadco I¡ç,, süd Mahmaud A. Iabq Nq, 03.i i-00 462-CV
                                                 Tab H

 State Officials’ Response to Appellants’ Post-Submission Brief
                 Sanadco I, No. 03-11-00462-CV
                     Third Court of Appeals.

Appellees’ Responsive Brief                                 page 8
Sanadco v. Glenn Hegar, et al., 03-14-00771-CV
                             NO. 03-11-00462-CV

                            fin tÍlt @ourt of $pseuts
                        tor tbe (trbtrù luùici¡t Dístrír
                                    Hagtin, U,exug

 S¿rr{anco INc., L Tnx¿,s Conpon¡TroN, ¡,xu Manuoun A. IsB.L, ilxl¡.M¡,Hn¿loun
                 Anunn ABursna, N rcl ¡Mmn IsBA., INntvlnu^l.Ll,v,
                                    4ppellants,

                                             V

          SusaN Comnsr l¡¡ntvrnu¡,Ll,y, AND IN HER Orrrcul, Clplcrtv ¡,s
         ConnprnollERor Punr,lc Accouxrs oF THE Sr¿rB or Tnx¡,s; ar.¡n
                 Gnnc AnnorrrN Hrs Orntcr,ll C¡,pacrrv, ETAL.,
                                     Appellees.

         On Appeal from the 98th Judicial District Court of Travis County, Texas
                      Trial Court Cause No. D-l-GV-10-000902;
                      The Honorable Tim Sulak, Judge Presiding

        STATE OFF'ICIALS' RESPONSE TO APPELLANTS'
                  POST-SUBMISSION BRIEF'

GREG ABBOTT                                          JACK HOHENGARTEN
Attorney General of Texas                            Assistant Attorney General
                                                     Financial and Tax Litigation Division
DANIEL T. IIODGE                                     State Bar No. 09812200
First Assistant Attorney General                     P.O. Box 12548
                                                     Austin, Texas 7 87 ll-2548
DAVID C. MATTAX                                      Tel: (512) 47s-3503
Deputy Attorney General   for   Defense Litigation   Fax: (512) 477-2348
                                                     j   ack. hohen garten@oag. state.tx. us
JEFF M. GRAHAM                                       Counselfor Appellees
Chief, Financial and T ax Litigation
                              TABLE OF CONTENTS

                                                                                PAGE

TABLE OF CONTENTS                                                               .....11

INDEX OF AUTHORITIES

I.    SUMMARY OF ARGUMENT                                                                 2

il.   ARGUMENTS AND AUTHORITIES                                                           2

      A.   The State's flrling suit against Sanadco for tax collection waives
           sovereign immunity only for def'ensive counterclaims operating
           as an offset                                                                   2

      B    The waiver of immunity in APA section 2001.171 does not
           apply, because the legislature has set out a specializedprocedure
           for tax protest suits                                                          4

      C    The ulha vires claim relating to Tax Code section I I 1.0042 and
           HB 11 was disposed of by summary judgment and is notbefore
           this court; alternatively, the Cornptroller did not exceed her
           statutory authorþ                                                              7

CONCLUSION                                                                       ...10
CERTIFICATE OF SERVICE                                                                1l

                                           ll
                               INDEX OF AUTHORITIES

STATE CASES                                                           PAGE

Central Power & Light Co. v. Sharp,
      919 S.W.2d 485 (Tex. App.-Austin 1996, writ denied)                5

City of El Paso v. Heínrich,
        284 S.W.3d 366 (Tex. 2009)                                     4,9

Combs v. Chevrari,
     319 S.V/.3d 836 (Tex. App.-Austin 2010, pet. denied)                5

County of Bexar v. Bruton,
      256 S.W.3d 345 (Tex. App.- San Antonio 2008, no pet.)              7

Dubai Pelroleum v, Kazí,
      12 S.w.3d 71 (Tex. 2000)                                           6

In re: NestleUSA, Inc.,
       359 S.W.3 d 207 (Tex.   20tz)                                     6

R Communícatíons v. Sharp,
      87s S.W.2d3t4 (Tex. 1994)                                         416

Reata Constr. Corp. v. Cíty of Dallas,
      197 S.W.3d37l (Tex. 2006)                                           3

Scottv. Presidío Indep. Sch. Dist.,
       266 S.V/.3d 531 (Tex. App.- Austin 2008, pet. filed) . . .         7

Tex. Dep't of Protective & Regulatory Servs, v. Mega Child Care,
      14s S.V/.3d 170 (Tex.2004)                                          5

Tex. Dep't of Transp. v. Crockett,
                                                                          a
      257 S.W.3 d 412 (Tex. App.- Corpus Christi 2008, pet. denied)       J

                                             rll
STATE STATUTES

Tex. Civ. Prac. & Rem. Code g 5 l.0 ta(a)(B) (West 2008)           I
Tex. Govot Code Ann. 9,2001.03S (Wesr 2008)                       4

Tex. Gov't Code Ann. $ 2001.121 (West 200S)                   4, 5,7

Tex. Gov't Code Ann. g 3l 1.034 ('V/est 2005)                     6

Tex. Gov't Code Ann. g 2001.144 (West 200S)                        7

Tex. Tax Code Ann. $ 711.0A42 (V/esr 200S)                    4,7,8
Tex, Tax Code Ann $ 111.008 (West 2008)          .                 I
Tex. Tax Code Ann g 111.022 (Wesr 200S)                            8

Tex. Tax Code Ann, $ 151.461(Wesr 2008)                            9

Tex. Tax Codç Ann. $ 154.212 (West 2008)         .                 I
Tex. Tax Code Ann. $ I55.105 (West 200S)                           9

Tex. Tax Code Ann. $$112.051-.060 (West 2008 & Supp. 2011)         5

Tex. Tax. Code Ann. $ I I 1.009 (\Mest 200S)                       3

Tex. Tax. Code Ann. $   11   1.010 (West 2008)                     4

Tex. Tax. Code Ann. li 1l 1.0013 (West 2008)                 .....3
Tex. Tax. Code Ann. $ 111.0102 (V/est 2008)                     3,4

                                             1V
OTHER AUTHORITIES

Tex. S. Comm. on Business and Commerce, Bill Analysis,
      HB 11, 80th L.g., R,S. (2007)                      2,7-9

                                         v
                               NO. 03-1t-00462-CV

                             5n t$e @ourt of ß[ppedr
                         for tüe (ÍDirù luùícist Þistriú
                                  Hastin, îllex¡s

  s¡,F¡anco rNc.r .l Tnxas conpoRauoN, AND M.¿.nruoun A. rsnl, Nxt¡,Mtun¿oun
                  Annnun Anursn,l, Nrcln Mlxn Isnl, INnrvrnulll,v,
                                          4ppellants,

                                              v

            Susa¡l Connnso INDIVIDUALLv, AND IN HER Orrrcu.l, C¿.p¡crty ¿s
           Con¡rrnoLLER on Puslrc Accouivrs oF THE Sr¿.rp or Tnx.l,s; nnn
                    Gnnc Asnorr IN HIs Orrlcr¡¡ Cap^lcrry, ET AL.,
                                         Appellees.

           On Appeal from the 98th Judicial District Court of Travis County, Texas
                        Trial Court Cause No. D-l-GV-10-000902;
                        The Honorable Tim Sulak, Judge Presiding

          STATE OF'FICIALS' RESPONSE TO APPET-,LANTS'
                    POST-SUBMISSION BRIEF

TO THE IIONORABLE JUSTICES OF SAID COURT:

         Appellees, Susan Combs, Individually and in her Official Capacity as Comptroller   of

Public Accounts of the State of Texas, and Greg Abbott in his Official Capacity   as   Attomey

General of Texas (the "State Officials"), file this re3ponse to Sanadco's post-submission

brief,
                                                 I.

        First, although its failure to contest the tax at the administrative
                                                                             level does not prevent

Sanadco from asserting properly defensive offset claims
                                                        in the district court, its claims still

must fall within the court's subject-matter jurisdiction. And they
                                                                   must be viable as a matter

of law. Sanadco's claims are neither. Second,APA section 2001.171            does not provide an

alternative basis forjurisdiction here, because the agency's
                                                             organic law specifically sets out

the statutory prerequisites for challenging a determination of tax liability
                                                                             in district court.
Application of the APA, provisions for judicial review would render meaningless
                                                                                the

statutory requirements in the Chapter 112 of the Tax Code. Those requirements
                                                                              serve as

legislative safeguards to the fiscal operations of the State and ensure the
                                                                            Comptroller is not

unduly hindered in her collection of taxes, penalties and interest. Thírd,the State
                                                                                    Offrcials

have already shown, in their initial brief, that the Comptroller's guidelines in
                                                                                 Ap 92 and
     122, and her use   of desk audits, are expressly authorized by sections 111.0042         and
^P
111.008, and by HB 11.

                                               il.
                          ÄRGUMENTS AND AUTHORITIES

A.     The State's filing suit against Sanadco for tax collection waives sovereign
       immunity only for defensive counterclaims operating as an offset.

       Because the State of Texas filed suit against it, Sanadco may assert claims that arc

"germane to, connected with, and properly defensive to" claims asserted by the State           of

                                                )
Texas, except for amounts that exceed the amounts
                                                  necessary to offset the government,s

claims.    Reata   constr. corp. v. city ofDallas,lg7 s.w.3d 371,37UTex.2006
                                                                             );Tex. Dep,t
ofTransp- v' crockett,zs7 s.w.3d 412,414 (Tex. App.
                                                                 Corpus christi 200g, pet. denied);
                                                             -
see also Tex' Tax' Code Ann. 1 I 1.0102 (West 200s)
                            $                       fiurisdiction of suit to challenge or
avoid comptroller collection action exclusively conferred on
                                                             Travis County district courts);

I I I '013 (certificate oftax delinquency is prima facie evidence,
                                                                   requiring sworn denial); Tex.

R. Civ. P.97

        InReata,the Supreme Courtstressedthe limitednature ofthe waiver
                                                                        ofimmunity and
the policy considerations underlying       it. It explained that when:
       The governmental entity interjects itself into or chooses to engage
                                                                           in litigation
       to assert affirmative claims for monetary damages, the entityïill presuãrably
       have made a decision to expend resources to pay litigation costs, If the
        opposing party's claims can operate only ur * oifr.t to reduce the
        goverrrment's recovery, ûo tax resources will be called upon
                                                                        to pay a
       judgment, and the fiscal planning of the governmental entity shout¿
                                                                           noi ue
       disrupted.

Reata, 197 S.W.3 d at375.

       To the extent Sanadco's counterclaims for "compensatory relief' exceed this limited

waiver, the district court lacks jurisdiction.r C.R. 74, 104. For claims that are properly

gennane and defensive to the State's suit, the Tax Code does not require, as a statutory

prerequisite, that the taxpayer first challenge the Comptroller's determination at the

administrative level"   ,See   Tex. Tax, Code Ann. $ I I 1.009 (West 200S) (authorizi¡ gtaxpayer

       I   Sanadco is the only appeliant against which the State of Texas has brought claims in
district court to coilect taxes, penalties and interest.

                                                  J
to administratively petition Comptroller for            redetermination   of tax liability);   111.010

(authorizing Attorney General to bring suit to recover taxes); 111.0102 (authorizing
                                                                                     claims

to challenge or avoid collection action.); compare Tex. Gov't CodeAnn. 2001.t71(West
                                                                      $
2008) (person who has exhausted administrative remedies is entitled to judicial review).

         Although failure to contest the tax   at the   administrative level does not preclude offset

claims in the district court, Sanadco's claims still must fall within the court's subject-matter

jurisdiction, and they must be legally viable. Sanadco's claims are neither. First,
                                                                                    ApA
section 2001.03S cannot confer jwisdiction, because internal agency memos written by

division directors to their auditors are not APA "rules." Second, Sanadco has failed to plead

a   legally viable claim that the Comptroller engaged in ultra vires acts, warranting relief under

the UDJA . See Cíty of El Paso v. Heinrich, 284 S.W.3d 366 (Tex. 2009); R Communications

v. Sharp,875 S.W.2 d374,3 17 (Tex. 1994). Third. Sanadco has no standing to challenge Tax

Code section 111.0042, and any such ruling by the courtwould amount to an advisory

opinion that does not resolve    a   live controversy. Sanadco's remaining constitutional claims

were decided on summary judgment and are not before this court.

B.       The waiver of immunity in APA section 2001.171 does not apply, because the
         legislature has set out a specialized procedure for tax protest suits.

         The intervening convenience stores theorize in their post-subrnission brief that APA

section 200L171, which authorizes judicial review of frnal agency decisions, provides an

alternative basis for jurisdiction here. According to these appellants, once the Comptroller's

administrative decisions have become final, they can invoke the APA as grounds for

                                                   /l
 challenging the administrative detennination of tax
                                                     riability.

         But APA section 2001.171 does not apply to the Tax Code. The
                                                                      ApA provides an
independent rÍght to judiciat review only where the
                                                    agency's enabling statute neither

specifically authorizes norprohibits judicial review ofthe decision.
                                                                     Tex. Dep,t of protectíve

& Regulatory servs. v. Mega chitd careo           145   s.w.3d   170 (Tex. 2004).

        Flere, in clear contr astto Mega Chitd Care, tn'e Comptroller's
                                                                        organic law specifically

sets out the statutory prerequisites for challenging the
                                                         Comptroller's determination of tax

liability in district courr,

        The legislature has created a limited waiver of sovereign immunity
                                                                           for tax protest
suits, but mandated specific prerequisites which must be satisfied prior
                                                                         to filing suit against

the state.    ,9ee   Tex. Tax code Ann. ggl12.05t-.060 (west 200g             & supp. 20ll).2      The

undisputedjurisdictional facts show that none ofthe intervening convenience stores
                                                                                   have met

the statutory prerequisites in sections 112.051 and ll2.0SZ. C.R. 2g, 5g-61(Affidavit
                                                                                                     of
David Rock). Compliance with the procedural requirements of the tax-protest law is                    a

jurisdictional prerequisíte to suit.   ,See   Central Power & Lìght Co. v. Sharp,gl9 S.W.2d 4g5,

491 (Tex. App.-Austin t996, writ denied); Combs v. Chevron 319 S.W.3d g36, 844-45

(Tex. App.-Austin 2010, pet. denied). Further, none of the "counter-plaintiffs" have

satisfied the statutory prerequisites for filing a class action under section 1 12.055 of the Tax

       2 Like suits chalienging, or
                                       in avoidance of, the State's tax collection suit, the statutory
prerequisites for filing a tax-protest suit do not require the taxpayer to first contest the tax
                                                                                                 at the
administrative level.

                                                    5
Code. As a result, the trial court lacked jurisdiction over the putative class
                                                                               action   as   well.
        These explicit prerequisites serve as legislative safeguards
                                                                     to the fiscal operations   of
the State by ensuring that the Comptroller is not unduly hindered
                                                                  in her obligation to collect

onfinaltaxassessments.,seeR communicationsv.sharp,sTss.w.2d
                                                            314,317(Tex. lgg4).

The counter-plaintiffs cannot circumvent these safeguards simply by characterízing
                                                                                   their
claims as APA claims forjudicial review. Such an outcome would be contrary
                                                                           to the holding

in Mega Chíld Care. More importantly, Sanadco's argument, if accepted by this court,

would effectively read out of the Tax Code the statutory prerequisites for bringing a tax-

protest suit in district court. The APA procedure for judicial review
                                                                      would swallow and

render meaningless those prerequisites-an outcome the legislature could not have
                                                                                 intended.

See   In re; Nestle (JSA, ?nc.,359 S.W.3 d 207,211-12(Tex. Z[lz)(holding that statutory

prerequisites for taxpayer suits are conditions on the legislative waiver of immunity
                                                                                      and

dismissing original proceeding for want ofjurisdiction).

        In 2005, the legislature amended the Code Construction Actto reiterate that statutory

prerequisites to suit are both rnandatory and jurisdictional. Tex. Gov't Code Ann. g 3 1 L034

(West 2005). The amendment was in response to confusion about which, if any, statutory

prerequisites to suit were actuallyjurisdictional after the Supreme Cour{'s decision in Dubaí

Petroleum v. Kazi, 12 S.W.3d 71,76 (Tex. 2000). Since the amendment to the Code

Construction Act, the courts of appeal have considered carefully whether a plaintiff has

properly complied with statutory mandates and exhausted administrative remedies where

                                               6
required.   Scott v. Presìdio   Indep Sch. Díst.,266 S.w.3d 531 (Tex.App.- Austin 200g, pet.

filed); see, e.g., county of Bexar   v.   Bruton,256 s.v/.3d 345 (Tex, App.- San Antonio 200g,

no pet,).

       Sanadco itself never challenged the assessment administratively,
                                                                        so it became final.

The State of Texas and other taxing authorities then filed suit against
                                                                        it and Mahmoud A.
Isba under Chapter 111 to collect the tax, interest, and statutory penalties.
                                                                              Sanadco, to the

extent it relies on APA section 200l.77l,tries to have it both ways. It
                                                                        argues, in effect, that

the APA judicial review provisions apply, but that the Act's exhaustion-of-remedies

requirement does not. ,see Tex. Gov't code Ann. 2001.144,2001.171 (west
                                               $                        200s) (party

seeking judicial review must exhaust administrative remedies, including
                                                                        the         filing of   a

motion for rehearing).

C'     The ultra vires claÍm relating to Tax Code section 111.0042 and HB Ll was
       disposed of by summary judgment and is not before this court; alternatively, the
       Comptroller did not exceed her statutory authority.

       In its last point, Sanadco simply re-urges arguments relating to Tax Code section

111.0042 that have been fully briefed by the parties. As part of its ultra vires ârgumenr,

Sanadco contends that the Comptroller has acted outside section 1 I 1.0042(b)(2) of the Tax

Code, which authorizes audit "sampling" under certain circumstances. According to

Sanadco, both the guidelines        in AP 92     and   AP 122 and the use of   abbreviated, or

"desk,"audits exceed the limitations in that section. This issue, however, was resolved by

summary judgment and is therefore not before the court. C.R. 28, 49-50,128. Intheir brief

                                                  7
in support of plea to the jurisdiction and motion for summary judgment, the State Officials

explicitly argued that:

       Because the collection and use of HB I 1 data is specifically authorized by the
       Legislature, collection and use of the data by the Comptroller cannot be an
       ultra vires act. Ultra vires acts are acts beyond the statutory authority granted
       to state officials. See cip of El paso v. Heinrtch, 2g4 s.w.3d 366, 371-73
       (Tex. 2009). As a matter of law, when the Legislature specifically grants a
       state fficíal the power to perþrm an act, that act, by deJìnitíon, cannot be
       outside the ffi¿¡61's statutory authority. c.R. 50 (emphasis added).

Section 5l '014 of the Civil Practice and Remedies Code authorizes interlocutory appeal of

an order granting or denying apleato the         jurisdiction. It does not authorize        an interlocutory

appeal of the trial court's sunmary judgrnent.

       Even though the issue is not befbre the court, the State Officials have also shown in

their initial brief that the desk audits,   as   well    as the guidelines       in Ap 92   and   Ap IZ2, arc
entirely consistent with section I I 1 .0042and HB          1   l.
       They have also pointed out that the Tax Code expressly authorizes the Comptroller

to make an estimated assessment when taxpayers fail to file               a   return or when the filed return

is incorrect. Tex. Tax Code Ann $ I11.008,           lll.A22         (West 200S). Subsection 111.008(a),

in particular, expressly provides that:

       If the comptroller is not satisfîed with a tax report or the amount of the tax
       required to be paid to the state by a person, the comptroller may compute and
       determine the amount of tax to be paid from information contained in the
       report or from any other information at¡ailable to the comptroller. (emphasis
       added).

                                                     I
Thus, the Comptrollçr is expressly empowered to calculate the amount
                                                                     of tax due by
examining any information available to her.

       Further, the legislature has expressly authorized the Comptroller
                                                                         to collect and use

wholesaler reports of beer, wine, malt liquor, cigar, and tobacco product
                                                                          sales to convenience

stores' Tex. Tax Code Ann. $ 151.461 (forrnerly 151.433) (beer, wine, and
                                               {i                         malt liquor

reports), 154.212 (cigarette reports), and 155.105 (cigars and tobacco pro¿uct
                                                                               reports). As

the legislative history for HB I I shows, these reports are intended to enable
                                                                               the Comptroller

to cross-check a convenience store's reports or returns with wholesaler records of sales to

that store. Tex. S. Comm. on Business and Commerce, Bill Analysis, HB l,                gO,h
                                                                     .l                        Leg., R.S.

(2ooT.3

       Where the cross-check indicates a discrepancy-usually in the form of substantial

under-reporting    of   taxable sales by the convenienca store, as was the case with

Sanadco-section I I 1.008 authorizes the Comptroller to compute the amount actually owed.

The convenience store owners, in response, baldly theorize that while HB                   I   I   requires

wholesaler reporting to the Comptroller, it does not authorize the agency to use that data.

This contention, however, is undermined         by the statutory language itself.a

       3 The
             bill analysis is included in the appendix, at Tab 2, to the State Officials' initial brief.
       a  Sections 151.433(b), 154,21"2(a) and155.105(a) of the Tax Code are included in rhe
appendix, atTab 1, to the State Officials' initial brief.

                                                   I
                                        CONCLUSION

       WHEREFORE, PREMISES CONSIDERED, the State officials requesr tharthis courr

affirm the trial court's order granting their plea to the jurisdiction.

                                             Respectfully submitted,

                                             GREG ABBOTT
                                             Attorney General of Texas

                                             DANIEL T, HODGE
                                             First Assistant Attorney General

                                             DAVID C. MATTAX
                                             Deputy Attorney General for Defense Litigation

                                             JEFF GRAI-IAM
                                             Chief, Financial and Tax Litigation Division

                                             /s/ .Inck       Enrten
                                            JACK HOHENGARTEN
                                             State Bar No. 09812200
                                            Assistant Attorney General
                                            Financial and Tax Litigation Division
                                            P.O. Box 12548
                                            Austin, Texas 781 1I-2548
                                            TEL: (512) 475-3503
                                            FAX: (sr2) 477-2348
                                            j ack.hohen qarten@texasattorney gen eral. gov
                                             Counselþr Appellees

                                               10
                            CERTIFICATE OF SERVICE

      I  heteby certi$r that on April 12, 2A12, a true and correct copy of the foregoing
document, State Officials' Response to Appellants' Fost-Submission Brief, was sent by
electronic filing with the court and counsel of record to the following:

       Samuel T. Jackson
      Lew Orprcg oF SAMUEL JACKSoN
      P.O, Box 170633
      Arlington, Texas 76003-0633
      TEL: (817) 751-7lss
      FAX: (866) 374-0164
      E-mail : j acksonlaw@hotmail.com
      Attorneyþr Appellants

                                         JACK HOHENGARTEN

                                           I1