In Texas, a trade association has standing to challenge a tax statute on behalf of its members (at least for now)

Originally published by Alan E. Sherman.

Last Friday, the Texas Third Court of Appeals at Austin issued its opinion affirming the state District Court’s judgment in Combs, et al. v. Texas Small Tobacco Coalition and Global Tobacco, Inc. , No. 03-13-00753-CV (August 15, 2014). This was the court’s latest holding to the effect that a trade association can seek declaratory and injunctive relief against a state fee (treated by court and the parties as a “tax”) on behalf of the association’s members that would otherwise be required to pay it. The earlier case that had allowed such a challenge was Texas Entertainment Association, Inc., and Karpod, Inc. v. Combs, et al. , No. 03-12-00527 (May 9, 2014), involving the so-called sexually-oriented-business tax (and where the taxpayer recently filed a petition for review at the Texas Supreme Court).

In Texas Entertainment Association, the Texas Comptroller of Public Accounts, represented by the Texas Attorney General’s office, had argued that an association was barred from filing this type of suit against state officials under the doctrine of sovereign immunity “…because chapter 112 of the Tax Code requires a party challenging a tax to file a protest payment.” In Texas Small Tobacco Coalition, the Comptroller and the Attorney General, this time around referred to as the “State,” had contended that only an individual taxpayer has standing to sue under Texas Tax Code §112.108 (“Other Actions Prohibited”), and that “lawsuits by associations of taxpayers . . . are forbidden.” Just as it had earlier rejected the Comptroller’s sovereign immunity argument, the Third Court of Appeals had little difficulty in disposing of the State’s standing argument.

Photo Credit: ©intheskies – Fotolia.com

According to the court, “…we have held that section 112.108 is unconstitutional, and that holding has not been overruled by the Texas Supreme Court.” The court cited as authority for that statement its opinion in Richmont Aviation, Inc. v. Combs , No. 03-11-00486-CV (Sept. 12, 2013), now on review at the Texas Supreme Court regarding another part of §112.108, specifically the requirement that a taxpayer can only file suit if it first pays the assessment against it or posts a bond for twice the amount of the assessment. (For more about the Richmont Aviation litigation, readers should refer to a previous post on this site captioned “A possible game changer for bringing Texas tax disputes in the state’s courts.”)

Because Tax Code §112.108 presented no barrier in Texas Small Tobacco Coalition, the court held that a trade association has standing to sue on behalf of its members if the following conditions are met:[T]he members themselves have standing to sue in their own right [footnote omitted]; the interests the association is seeking to protect are germane to its purpose; and participation of the individual members in the lawsuit is not necessary, meaning the pleadings and record show that neither the claim asserted nor the relief sought require the individual members to participate in the suit. [Internal citations omitted.] When, as here, an association seeks injunctive or declaratory relief, as opposed to damages requiring a showing of individualized lost profits, the relief will inure to the benefit of the association’s members and does not require the participation of each individual member. [Internal citations omitted.]

***

Further, none of the statutes cited by the State forbids an association from bringing a lawsuit on behalf of its members to argue that a tax statute is unconstitutional, and we recently reaffirmed that a suit for declaratory relief challenging a tat statute’s constitutionality can be brought by a trade association. Texas Entm’t Ass’n, Inc. v. Combs , 431 S.W.3d 790, 795 & n.3 (Tex. App.–Austin 2014, pet. filed).

For now, the Third Court’s opinion in Texas Small Tobacco Coalition is good news for taxpayers that want to band together to challenge a state tax by having their trade association or other organization seek injunctive and declaratory relief from the the tax without first paying an assessment. Of course, the Texas Supreme Court could always weigh in and reverse the Court of Appeals’ position on the constitutionality of Tax Code §112.108, either in this case (if the State files a petition for review) or in Richmont Aviation . For that reason, businesses, and their Texas tax counsel, should watch for future Supreme Court action in those cases as well as in Texas Entertainment Association .

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

from Texas Bar Today http://ift.tt/1qjTtu1

via Abogado Aly Website