# Sanadco Inc., a Texas Corporation Mahmoud Ahmed Isba Broadway Grocery, Inc. And Shariz, Inc. v. Glenn Hegar, in His Individual and Official Capacity as Comptroller of Public Accounts Office of Comptroller of Public Accounts for the State of Texas And Ken Paxton, in His Official Capacity as Attorney General of the State of Texas > Texas Court of Appeals, 3rd District (Austin) · May 26, 2015 URL: https://www.frixlaw.com/law-library/cases/4066852 ## Case - **Court:** Texas Court of Appeals, 3rd District (Austin) - **Decided:** May 26, 2015 - **Precedential status:** Published - **Opinion:** Opinion - **Cited by:** 0 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/4066852 ## How later opinions describe it (automated extraction) - concluding that arguments that agency did not provide required notice and inf'ormation during application process were insufficient to invoke exception ## Opinion text 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'tofParlr due exceeding the amount of 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 wouling 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