Opinion

Court: Texas Court of Appeals, 3rd District (Austin)
Filed: Apr 26, 2001
Status: Published
Cited by: 0 cases
Authority: More cited than 36.0%

The opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-00-00183-CV

Carole Keeton Rylander, Successor-in-Interest to John Sharp, Comptroller of Public

Accounts of the State of Texas; and John Cornyn, Successor-in-Interest to

Dan Morales, Attorney General of the State of Texas, Appellants

Fisher Controls International, Incorporated, Appellee

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 201ST JUDICIAL DISTRICT

NO. 98-08893, HONORABLE CHARLES F. CAMPBELL, JR., JUDGE PRESIDING

Carole Keeton Rylander, Comptroller of Public Accounts, and John Cornyn,

Attorney General (collectively the "Comptroller") appeal from a judgment awarded Fisher

Controls International, Inc. ("Fisher") in its suit to recover franchise taxes paid under protest for

the years 1992 and 1993. (1) We will affirm the judgment.

THE CONTROVERSY

Fisher, a corporation organized and existing under the laws of Delaware,

manufactured in Texas certain valves and related instruments that Fisher sold to buyers in other

states during calendar years 1991 and 1992. The sales resulted from the efforts of Fisher's

representatives and independent contractors who solicited sales orders in the other states-orders

that Fisher approved in Texas before shipping the items from Texas to the buyers in the other

states. The present litigation arose from a dispute between Fisher and the Comptroller regarding

the proper franchise-tax treatment of the sums received by Fisher from these sales.

THE FRANCHISE TAX

The franchise tax is imposed upon corporations for the privilege of transacting

business in Texas and is said to be justified by the benefits conferred upon corporations by the

state, including the opportunity to realize income and the protection afforded by Texas law. See

Bullock v. Nat'l Bancshares Corp. , 584 S.W.2d 268, 270 (Tex. 1979). The tax is due and

payable annually.

Before January 1, 1992, a corporation's net taxable capital was the sole basis for

computing the amount of franchise-tax liability. After that date and until the present, the tax has

been computed by applying specified statutory rates to a corporation's annual net taxable capital

and its annual net taxable earned surplus. See Tex. Tax Code Ann. §§ 171.001 (a)(1), .002 (West

Supp. 2001).

Net taxable capital consists of a corporation's stated capital (as defined in the Texas

Business Corporation Act) and its surplus (net corporate assets less stated capital), apportioned

to Texas as provided in section 171.106(a) of the Texas Tax Code, from which certain allowable

deductions are taken. Id. §§ 171.101(a), .106(a) (West 1992 & Supp. 2001).

A corporation's net taxable earned surplus consists of its reportable taxable income

(for federal income-tax purposes) plus certain sums and less other amounts. The net sum, for

present purposes, must be apportioned to Texas as set out in tax-code section 177.106(b) to arrive

at the corporation's apportioned taxable earned surplus, from which any allowable deductions and

business losses are subtracted to produce the corporation's net taxable earned surplus. (2) Id.

§ 177.106(b) (West Supp. 2001).

As indicated in the two preceding paragraphs, the tax code requires an

apportionment in the case of corporations doing an interstate business, both as to a corporation's

taxable capital and its net taxable earned surplus. See, e.g. , Gen. Dynamics Corp. v. Sharp , 919

S.W.2d 861, 863-64 (Tex. App.-Austin 1996, writ denied).

The apportionment of taxable capital and taxable earned surplus is governed by

section 171.106 of the tax code. With certain exceptions not material here, the apportionment

results from multiplying taxable capital and taxable earned surplus by a fraction, the numerator

of which is the corporation's gross receipts from business done in Texas and the denominator of

which is the corporation's total gross receipts. See Tex. Tax Code Ann. § 171.106 (a), (b) (West

Supp. 2001).

The calculation of gross receipts is governed in turn by other tax-code provisions,

one applicable to taxable capital and another applicable to taxable earned surplus. Because these

two tax-code provisions lie at the heart of the present controversy, we will set them out at length.

Taxable Capital

Sec. 171.103. Determination of Gross Receipts from Business Done in This State

for Taxable Capital

In apportioning taxable capital, the gross receipts of a corporation from its business

done in this state is the sum of the corporation's receipts from:

(1) each sale of tangible personal property if the property is delivered or shipped

to a buyer in this state regardless of the FOB point or other condition of the

sale, and each sale of tangible personal property shipped from this state to a

purchaser in another state in which the seller is not subject to taxation ;

(2) each service performed in this state;

(3) each rental of property situated in this state;

(4) the use of a patent, copyright, trademark, or license in this state;

(5) each sale of real property located in this state, including royalties from oil,

gas, or other mineral interests; and

(6) other business done in this state.

Id . § 171.103 (West Supp. 2001) (emphasis added).

Pursuant to the foregoing, the comptroller promulgated Rule 3.546, which provides

as follows:

Rule 3.546. Taxable Capital: Nexus.

(a) A foreign corporation is liable for the franchise tax if it is authorized to do

business in this state or if it is actually doing business in this state.

(b) A corporation is doing business in this state, for the taxable capital component

of the franchise tax, when it has sufficient contact with this state to be taxed

without violating the United States Constitution. A corporation may be

subject to the taxable capital component, but not subject to the earned surplus

component, because of Public Law 86-272. See § 3.554 of this title (relating

to Earned Surplus: Nexus) for the nexus standards for the earned surplus

component of the franchise tax.

34 Tex. Admin. Code § 3.546 (2000). The rule sets forth, following the above, numerous actions

that constitute "doing business" in Texas, including "having employees, independent contractors,

agents, or other representatives in Texas . . . to promote or induce sales of [a] foreign

corporation's goods or services." Id . § 3.546(c)(4).

After section 171.103 became effective in 1981, the Comptroller in 1988

promulgated Rule 3.549 in which he assigned meaning to the term "not subject to taxation" as

used in section 171.103(1). Rule 3.549 provides as follows:

Rule 3.549. Taxable Capital: Apportionment

(e) Treatment of specific items in computing gross receipts.

* * * *

(41) Tangible personal property. Examples of transactions involving the sale

of tangible personal property and which result in Texas receipts include,

but are not limited to, the following:

* * * *

(I) sales to which the throwback rule applies. For reports due on or

after October 2, 1984, each sale of tangible personal property

shipped from this state to a purchaser in another state in which the

seller is not subject to taxation (i.e., the throwback rule). This

subparagraph will control if it conflicts with any other provision of

this rule. Another state means a state of the United States, the

District of Columbia, Puerto Rico, or any territory or possession of

the United States. Subject to taxation means constitutional nexus.

The seller need not pay tax to the other state; it only has to have

enough contact with the other state that the other state could tax the

seller. If the seller is doing business , has a certificate of authority,

or is incorporated in the other state, the seller is subject to taxation

in that state . Voluntarily collecting or paying tax to another state,

by itself, is not enough contact to make sales to the other state non-Texas receipts. A corporation which performs any of the activities

listed in Rule 3.546(c) concerning Taxable Capital: Nexus for

taxation of taxable capital in the other state will be considered

subject to taxation in the other state . The selling corporation must

have nexus in the other state during the accounting year upon which

the tax is based. The corporation has the burden of proving it is

subject to taxation in the other state. . . .

34 Tex. Admin. Code § 3.549 (e)(41)(I) (2000) (emphasis added).

The effect of Rule 3.549(e)(41)(I) is to make the actions set out in Rule 3.546(c)(4)

the measure of whether a corporation is doing business in a state other than Texas. It appears to

be undisputed that Fisher is doing business in the other states in the requisite sense.

Taxable Earned Surplus

The legislature in 1991, for the first time, made a corporation's earned surplus a basis for

computing the Texas franchise tax. The concomitant gross-receipts provision was added to the

Tax Code as section 171.1032, to be effective January 1, 1992. The new statute provided as

follows:

Sec. 171.1032. Determination of Gross Receipts From Business Done in this State

for Taxable Earned Surplus

(a) In apportioning taxable earned surplus, the gross receipts of a corporation

from its business done in this state is the sum of the corporation's receipts

from:

(1) each sale of tangible personal property if the property is delivered or

shipped to a buyer in this state regardless of the FOB point or another

condition of the sale, and each sale of tangible personal property shipped

from this state to a purchaser in another state in which the seller is not

subject to taxation ;

(2) each service performed in this state;

(3) each rental of property situated in this state;

(4) each royalty for the use of a patent or copyright in this state; and

(5) other business done in this state.

Tex. Tax Code Ann. § 171.1032 (West 1992) (emphasis added).

Section 171.1032 was itself amended in 1993 as discussed below. The pre-amendment version set forth above is, nevertheless, the law governing the 1992 and 1993

franchise-tax reports in dispute here.

While the pre-amendment version of section 171.1032 was yet in effect, the

Comptroller promulgated Rule 3.554, which became effective March 16, 1992. Therein he

referred implicitly to the term "not subject to taxation" as used in section 171.1032(a)(1) of the

statute before its 1993 amendment:

Rule 3.554. Earned Surplus: Nexus.

(a) A foreign corporation is liable for the franchise tax if it is authorized to do

business in this state or if it is actually doing business in this state.

(b) A corporation is doing business in this state, for the earned surplus component

of the franchise tax, when it has sufficient contact with this state to be taxed

without violating the United States Constitution. A corporation may be

subject to the taxable capital component, but not the earned surplus

component , because of Public Law 86-272. See Rule 3.546 concerning

Taxable Capital: Nexus for the nexus standards for the taxable capital

component of the franchise tax.

sales of tangible personal property, which orders are sent outside the state for

approval or rejection, and, if approved, are filled by shipment or delivery

from a point outside this state, then the corporation is not subject to the

earned surplus component of the franchise tax.

34 Tex. Admin. Code § 3.554 (a) (1992) (emphasis added).

A few months after adopting Rule 3.544, the Comptroller adopted Rule 3.557,

pertaining to the apportionment of earned surplus, to be effective November 13, 1992. The rule

provided as follows:

Rule 3.557. Earned Surplus: Apportionment

(e) Treatment of specific items in computing receipts:

* * * *

(37) Tangible personal property. Examples of transactions involving the sale

of tangible personal property and which result in Texas receipts include,

but are not limited to, the following:

* * * *

(I) sales to which the throwback rule applies. Each sale of tangible

personal property shipped from this state to a purchaser in another

state in which the seller is not subject to taxation (i.e., the

throwback rule). This subparagraph will control if it conflicts with

any other provision of this rule. Another state means a state of the

United States, the District of Columbia, Puerto Rico, or any

territory or possession of the United States. A corporation or

limited liability company is subject to taxation in another state if the

corporation or limited liability company is chartered or organized

in that state or has sufficient contact with that state so that a tax on

net income could be imposed on the corporation or limited liability

company without violating 15 United States Code, sec. 381 (i.e.,

Public Law 86-272 ). For reports originally due before January 1,

1993, the mere holding of a certificate of authority will establish

that a corporation or limited liability company was subject to

taxation in another state. Sales into another state where the seller

merely holds a certificate of authority will be treated as sales to

which the throwback rule applies, effective for reports originally

due on or after January 1, 1993. Voluntary payment of tax to

another state or the inclusion of a corporation or limited liability

company in another entity's state combined or consolidated income

tax return does not, by itself, cause the corporation or limited

liability company to be subject to taxation in another state. The

selling corporation or limited liability company must be subject to

taxation in the other state during the accounting year upon which

the tax is based. The corporation or limited liability company has

the burden of proving that it is subject to taxation in the other state

(See Rule 3.554).

34 Tex. Admin. Code § 3.557 (2000).

Public Law 86-272, incorporated in Rules 3.554(a) and 3.557, prohibits a state's

imposition of a tax on net income derived within the state from interstate commerce if the only

business activity within the state is the solicitation of orders for tangible property by a

representative of the taxpayer or an independent contractor, when the orders are sent outside the

state for approval or rejection and, following approval, are filled by shipment or delivery from

a point outside the state. See 15 U.S.C.A. § 381 (West 1997).

The 1993 Amendment

Section 171.1032 was amended in 1993, to be effective January 1, 1994, so that

after the amendment paragraph (a)(1) provided as follows:

[I]n apportioning taxable earned surplus, the gross receipts of a corporation from

its business done in this state is the sum of the corporation's receipts from:

(1) each sale of tangible personal property if the property is delivered or shipped

to a buyer in this state regardless of the FOB point or another condition of the

sale, and each sale of tangible personal property shipped from this state to a

purchaser in another state in which the seller is not subject to any tax on, or

measured by, net income, without regard to whether the tax is imposed;

* * * *

Tex. Tax Code Ann. § 171.1032 (a)(1) (West Supp. 2001) (emphasis added).

The 1993 amendment left no doubt that the amended version of section 171.1032

was intended to be prospective only in its application. The amending act stated as follows: "This

Act takes effect January 1, 1994, and applies to a report originally due on or after that date ." Act

of June 8, 1993, 73d Leg., R.S. ch. 546, § 13, 1993 Tex. Gen. Laws 2043 , 2045 (emphasis

added). Thus, the amended version does not govern the 1992 and 1993 franchise-tax reports in

dispute here. The Comptroller contends, however, that the 1993 amendment is proof of what the

legislature intended by the term "subject to taxation" used in its original 1991 enactment of

section 171.1032, a contention we will discuss below.

DISCUSSION AND HOLDINGS

Under section 171.103(1) and section 171.1032(a)(1) as it existed before January

1, 1994, Fisher was required to include in its Texas gross receipts any amounts received from

sales of tangible personal property to buyers in other states in which Fisher was not subject to

taxation. It appears undisputed that Fisher's sales to customers in the other states, through its

representatives and independent contractors, amounted to doing business in those states.

Consequently, Fisher was subject to taxation in those states in the sense that the tax would not

offend the constitution of the United States. The parties refer to this as a constitutional nexus

between Fisher and the other states. See Rylander v. Bandag Licensing Corp ., 18 S.W.3d 296,

298-99 (Tex. App.-Austin 2000, pet. denied). Even though some of the other states have not

actually imposed an income-based tax, this is immaterial in Fisher's view; those states could

impose such a tax under the Constitution because "constitutional nexus" was the only thing

sections 171.103(1) and 171.1032 contemplated. Therefore, it cannot be said that under those

statutes Fisher was "not subject to taxation" in those states. Consequently, Fisher included as part

of its total gross receipts those obtained from sales made in states that could have imposed an

income-based tax but did not do so. This enlarged the denominator of the apportionment fraction

and reduced the amount of Fisher's Texas franchise-tax liability.

The Comptroller, on the other hand, contends Fisher was not subject to taxation

in the other states, in the words of section 171.103(1) and section 171.1032(a)(1) as they existed

before January 1, 1994, when those states could, but did not actually, impose an income-based

tax. The effect of this interpretation is that Fisher was required to include in its Texas gross

receipts amounts derived from sales in such other states. This interpretation of the statutory term

"not subject to taxation" enlarges the numerator of the apportionment fraction and thus increases

the amount of Fisher's franchise-tax liability.

There can be no doubt as to the meaning of the adverb "not" and the noun

"taxation" as used in the statutory term "not subject to taxation." The key to understanding the

meaning of the term as a whole is, therefore, the intended meaning of the words "subject to."

The Comptroller and Fisher both contend their antagonistic interpretations come

within the plain meaning of the words "not subject to taxation." We believe, however, that either

party's interpretation might reasonably and fairly come within the disputed language considered

in isolation .

In common usage, the term "subject to" can mean to bring under dominion,

control, or authority (which tends to support Fisher's theory) or the term can mean to suffer a

particular liability or exposure (which tends to support the Comptroller's theory). See Webster's

Third New International Dictionary 2275 (Philip Babcock Gove, ed. 1986). We hold,

accordingly, that the statutory term "not subject to taxation" is ambiguous and therefore open to

construction, first by the Comptroller in the administrative process and then by the courts on

judicial review.

In our attempt to find the intended meaning of the disputed statutory term, we are

mindful that the Code Construction Act erects a presumption that a just and reasonable result was

intended; and, the Act authorizes us to consider the objective sought to be obtained, former

statutory provisions, including laws on the same or similar subjects, and the consequences of a

particular construction of the disputed term. See Tex. Gov't Code Ann. § 311.023 (West 1998).

We are forbidden to impose our own notions of public policy, such as the desirable scope of a

statute, but must instead determine the legislative purpose from a consideration of the statutory

scheme as a whole rather than from a literal application or interpretation of any particular

statutory language. See Citizens Bank v. First State Bank, Hearne, 580 S.W.2d 344, 348 (Tex.

1979); Calvert v. British-Amer. Oil Producing Co. , 397 S.W.2d 839, 842 (Tex. 1965); Sexton v.

Mt. Olivet Cemetery Ass'n , 720 S.W.2d 129, 138 (Tex. App.-Austin 1986, writ ref'd n.r.e.);

Brown v. Patterson , 609 S.W.2d 287, 289 (Tex. Civ. App.-Dallas 1980, no writ). We are also

reminded that the Comptroller's administrative interpretation of ambiguous language in a revenue

statute is entitled to our respect and due weight. See Clark v. Atl. Pipe Line Co ., 134 S.W.2d

322, 328-29 (Tex. Civ. App.-Austin 1939, writ ref'd); see generally Stanford v. Butler , 181

S.W.2d 269, 273 (Tex. 1944). We are not bound, however, by the Comptroller's interpretation.

See Bullock v. Ramada Tex., Inc. , 609 S.W.2d 537, 539 (Tex. 1980); Firestone Tire & Rubber

Co. v. Bullock , 573 S.W.2d 498 , 500 n.3 (Tex. 1978); Citizens Nat'l Bank v. Calvert , 527

S.W.2d 175, 180 (Tex. 1975).

We will first summarize the parties' respective arguments, as we understand them,

relative to the meaning proper to be assigned to the term "not subject to taxation" as used in the

pre-1994 version of section 171.1032(a)(1).

The Comptroller's Arguments

In support of her position, the Comptroller argues as follows: The legislature

intends, in general, that the franchise tax shall extend "to the limits of the United States

Constitution and the federal law adopted" thereunder. Tex. Tax Code Ann. § 171.001 (c) (West

Supp. 2001). From this, the Comptroller reasons that the legislature's 1991 enactment of section

171.1032, making taxable earned surplus a component of the franchise tax for the first time, had

the purpose of enhancing Texas state revenue and preventing multi-state income from escaping

state taxation altogether. See Rylander v. 3 Beall Bros. 3, Inc. , 2 S.W.3d 562, 570 (Tex.

App.-Austin 1999, pet. denied); Rylander v. B & A Mktg. , 997 S.W.2d 326, 334 (Tex.

App.-Austin 1999, no pet.).

The Comptroller concedes that Rule 3.549(e)(41)(I), pertaining to the

apportionment of taxable capital, assigned to the disputed term "not subject to taxation" a meaning

contrary to that which she now assigns to the same statutory term used in section 171.1032(a)(1).

She points out, however, that the same statutory term is used in different statutory contexts.

Section 171.1032 (pertaining to the taxable earned-surplus component) includes an incorporation

of Public Law 86-272, which limits a state's power to tax corporate income as opposed to its

capital, while section 171.103 (construed in Rule 3.549(e)(41)(I) and pertaining to the taxable-capital component) does not refer at all to Public Law 86-272. Thus, it is reasonable for the

Comptroller to assign different meanings to the same statutory term ("not subject to taxation")

found in each of the two sections of the tax code.

In the Comptroller's view, the 1993 amendment of section 171.1032(a)(1) decided

the controlling issue in the Comptroller's favor by adding the words "without regard to whether

the tax is imposed" by the other state. Conceding the 1993 amendment does not actually govern

the present case, because it was not effective until after Fisher's filing of the disputed franchise-tax reports for 1992 and 1993, the Comptroller argues that the 1993 amendment nevertheless

proves the legislature's 1991 intent in enacting section 171.1032(a)(1) containing the disputed term

"not subject to taxation": the term was intended to mean without regard to whether the tax was

actually imposed by the other state. The 1993 amendment was, according to the Comptroller,

merely a clarifying amendment not intended to change the law that had existed in the legislature's

mind since the original 1992 enactment of section 171.1032(a)(1). At least, the Comptroller

contends, the 1993 amendment is highly persuasive as to the legislature's 1991 intent. See Tex.

Water Comm'n v. Brushy Creek Mun. Util. Dist. , 917 S.W.2d 19, 21 (Tex. 1996).

The Comptroller argues finally that Rule 3.557, promulgated November 13, 1992,

to include Public Law 86-272 as a factor in judging whether corporate income is not subject to

taxation in the other state, is an administrative construction of the statutory term that is entitled

to great weight in our own attempt to ascertain the legislative intent that produced that ambiguous

term. See Stanford v. Butler , 181 S.W.2d at 274 .

Fisher's Arguments

Fisher contends the Comptroller's interpretation attempts to give retroactive force

and effect to the 1993 amendment of section 171.1032(a)(1), which gave statutory sanction to the

Comptroller's interpretation but declared explicitly and concurrently that the amendment would

apply only "to a [franchise-tax] report originally due on or after" January 1, 1994.

Fisher next points out that the Comptroller's Rule 3.549, although strictly

applicable to the taxable-capital component alone, stated expressly that the term "subject to

taxation" meant constitutional nexus and that actual payment of an income-based tax was

unnecessary. This administrative interpretation of the term "subject to taxation" was presumably

in the legislature's mind when it employed the identical expression in its first enactment of section

171.1032, to be effective January 1, 1992; and, by utilizing the very same words "subject to

taxation," as adopted by the Comptroller in reference to taxable capital, the other component of

the franchise-tax calculation, the legislature must have intended the same words to have the same

meaning throughout the franchise-tax calculation.

Referring to the Comptroller's Rule 3.554, dealing specifically with taxable earned

surplus, effective November 13, 1992, Fisher argues that the rule contemplates only that a

corporation may or may not be subject to actual taxation in another state, measured by income,

according to whether the corporation "has sufficient contact with the state to be taxed without

violating the United States Constitution," as stated in subsection (b) of the rule. And subsection

of the franchise tax" if the corporation's only business activity in the other state "is the solicitation

of orders for sales of tangible personal property, which orders are sent outside the state for

approval or rejection, and if approved are filled by shipment or delivery from a point outside" the

state. 34 Tex. Admin. Code § 3.554 (c) (emphasis added). In Fisher's view, this is not a

qualification or limitation of the constitutional nexus mentioned in subsection (b) but rather a

restriction against application of the earned-surplus component alone if such nexus exists .

Subsection (c) does not mean, therefore, that the corporation is not subject to any income-based

tax in the circumstances described. That question must be determined according to subsection

(b)-the constitutional-nexus requirement.

We believe the most important consideration, if not an overriding consideration,

is the legislature's 1993 enactment of section 171.1032(a)(1). This amendment added, in the most

explicit language, the very qualification for which the Comptroller now contends, stating expressly

that it is immaterial whether an income-based tax is actually imposed by the other state.

Accompanying that declaration, the legislature also stated in no uncertain terms that its 1993

amendment "takes effect January 1, 1994, and applies to [franchise-tax] reports originally due on

or after that date." This implies in the strongest possible terms that the 1993 amendment may not

be applied retroactively to the franchise-tax reports in dispute in the present litigation-Fisher's

1992 and 1993 reports. It is equally clear that the Comptroller's position and supporting

arguments require that we apply retroactively to Fisher's 1992 and 1993 reports the full force and

effect of the 1993 amendment on a theory that the law laid down therein had always been the

meaning of section 171.1032(a)(1). If such had always been the law, then the legislature's

limiting the amendment to reports due after January 1, 1994, would be meaningless in our view.

That theory flies in the face of the legislature's express prohibition as well as the ordinary

presumption against a retroactive application of a statute. See 3 Singer, Sutherland Statutory

Construction § 66.08, at 17 (6th ed. 2000). Concerning the Comptroller's argument that the 1993

amendment merely clarified what the legislature intended in its original enactment of section

171.1032(a)(1), then Fisher's 1992 and 1993 reports would necessarily have been subject to and

not expressly excepted from the clarification made in 1993. See City of Houston v. Clear Creek

Basin Auth ., 589 S.W.2d 671, 681 (Tex. 1979); Am. Sur. Co. v. Axtell Co ., 36 S.W.2d 715, 718

(Tex. 1931); Tex. Dep't of Banking v. Mt. Olivet Cemetery Ass'n , 27 S.W.3d 276, 285 (Tex.

App.-Austin 2000, pet. denied).

Moreover, the Comptroller's argument requires that we assume the legislature, in

choosing the term "not subject to taxation" for use in section 171.1032(a)(1), enacted in 1991,

intended that the term should have a vastly different meaning from that assigned by the

Comptroller to the very same words in his 1988 adoption of Rule 3.549 only four years earlier.

We reject that theory because we cannot impute to the legislature an intent to cause such confusion

of meaning in the two interwoven statutes by which franchise-tax liability is computed.

Nor are we persuaded by the Comptroller's invocation of the legislature's general

intent and objective that the franchise tax should extend to the limits allowed by the United States

constitution and laws enacted thereunder, nor by her reliance upon the legislature's specific intent

that section 171.1032(a)(1) serve to enhance Texas state revenue. The legislature has enacted

numerous statutory provisions providing for a reduced franchise-tax liability or an absolute

exemption from such liability in circumstances where the federal constitution and statutes would

apparently pose no barrier to a franchise tax. See, e.g., Tex. Tax Code Ann. §§ 171.055 (open-end investment companies), 171.056 (corporations with business interest in solar-energy devices),

171.059 (non-profit corporations organized to provide burial places), 171.069 (marketing

associations), 171.071 (farmers' cooperative societies), 171.074 (development corporations),

171.077 (credit unions), 171.085 (corporations engaged in recycling operations) (West 1992 &

Supp. 2001).

Nor are we persuaded by the Comptroller's invocation of the rule of departmental

construction laid down in Stanford v. Butler , 181 S.W.2d at 273 . This rule of statutory

construction does indeed find frequent application in cases of ambiguous statutory language, and

holds that courts should give serious consideration to the contemporaneous construction placed

upon the ambiguous language by an executive officer or department-the Comptroller in this

instance. See generally 2B Singer, Sutherland Statutory Construction §§ 49:01-:11, at 8-128

(6th ed. 2000). This rule of construction applies particularly to an agency's construction that is

sanctioned by long acquiescence, Stanford v. Butler , 181 S.W.2d at 273 , but such is not the case

here. And it appears the Comptroller's construction of the term "subject to taxation," insofar as

it is said to be found in Rules 3.554 and 3.557, is itself ambiguous and uncertain as to what that

construction actually is; it plainly is not as clear, certain, and direct as the legislature's 1993

amendment of section 171.1032(a)(1) containing the proviso "without regard to whether the tax

is imposed." The Comptroller argues only that this very proviso is implied by the rules

mentioned, but the Comptroller fails to point to any part of the rules that naturally or logically

gives rise to the implication claimed. Interpretation by implication is permitted only to supply

obvious intent not expressly stated, and never to contradict or add to a statute. See

Commonwealth of Mass. v. United N. & S. Dev. Co. , 168 S.W.2d 226, 229 (Tex. 1942); Sexton

v. Mt. Olivet Cemetery Ass'n , 720 S.W.2d at 138 .

Finally, the task of statutory construction does not here involve a matter lying

within agency expertise. It involves instead a non-technical question of law-legislative

intent-determined from the legislature's use of the term "not subject to taxation" in context and

based on the ordinary meaning of those words. Courts are as competent as the Comptroller in

making that assessment of legislative intent. This reduces considerably the degree of judicial

deference owed the Comptroller's interpretation. "Courts do not defer to administrative

interpretation in regard to questions which do not lie within administrative expertise, or deal with

a nontechnical question of law." 2B Singer, Sutherland Statutory Construction § 49.04, at 23-24.

For the reasons given, we affirm the trial-court judgment.

John E. Powers, Justice

Before Justices Patterson, Powers * and Jones; Justice Jones Not Participating

Affirmed

Filed: April 26, 2001

Publish

* Before John E. Powers, Senior Justice, (retired), Third Court of Appeals, sitting by

assignment. See Tex. Gov't Code Ann. § 74.003 (b) (West 1998).

1. The judgment, rendered after a bench trial, orders that Fisher recover the sum of

$1,209,209.04 and statutory interest thereon from the date Fisher paid such sum under protest.

The franchise-tax reports in dispute (1992 and 1993) are based on business done by Fisher in

calendar years 1991 and 1992.

2. Our descriptions of the various tax-code provisions are mere summaries of the statutes

in question. The actual tax-code provisions are more complex. The descriptions suffice,

however, for present purposes.

gislature has enacted