Affirming determinations by the Comptroller, SOAH, and a Travis County district court, the Corpus Christi Court of Appeals rejected an interstate hauler’s attempt to obtain a refund for franchise taxes paid from 2014 to 2016.

Swift Transportation Co. Of Arizona, LLC. v. Hegar (No. 13-21-00010-CV) commenced with the company’s request for a refund from the comptroller on the basis that “an exemption from occupation taxes for transportation businesses (Tex. Trans. Code § 20.001) includes an exemption for franchise tax.” Swift’s claim turned on the argument that both taxes “have the same plain meaning” and are “measured by gross receipts.” Nobody below bought into this argument, and neither did the court of appeals. Probably the most damaging fact for Swift was a 1985 amendment to the franchise tax eliminating an exemption for corporate transportation companies. The court of appeals, rightly we think, took this to mean that the legislature viewed occupation taxes as distinct from the franchise tax. Moreover, generally speaking, the legislature has been consistently specific about when it intended a tax to be an occupation tax, as it did in this case.

Swift relied on a footnote in one appellate court’s opinion suggesting that the franchise tax was “a type of occupation tax,” as well as on SCOTX’s well-known opinion in In re Nestle USA, Inc., 387 S.W.3d 610 (Tex. 2012), which held that the franchise tax’s classification scheme and numerous exemptions did not render the tax unconstitutional under the equal and uniform taxation clause. The court of appeals brushed off the footnote as obiter dicta and the Nestle case as inapposite because, at minimum, the two taxes tax different activities for different legislative purposes. In the final analysis, Swift could not overcome the 1985 amendment and its clear indication that the taxes are distinct in the legislature’s mind.

This is an interesting case not only for its holding, but also for the fact that Swift’s legal representation was provided by the Ryan Law Firm, one of the most successful (and politically influential) pro-taxpayer firms in the state and not in the habit of accepting no for answer. The court of appeals issued a memorandum opinion, indicating in our view that perhaps the question was not that close. In any event, we will be very interested in whether Swift decides to push the issue at SCOTX.

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