Welcome!

News Feed Item

Texas Supreme Court Upholds Sale for Resale Exemption for Items Resold to Fulfill Certain Federal Contracts.

DALLAS, June 7, 2013 /PRNewswire/ -- The Texas Supreme Court ("Court") has upheld a refund of sales taxes paid by a Ryan client on items resold to the United States government. In Combs v. Health Care Services Corporation, Nos. 11-0283, 11-0652 (Tex., June 7, 2013), the Court ruled that Health Care Services Corporation (HCSC), successor to Blue Cross and Blue Shield of Texas, Inc., could claim a sale-for-resale exemption on tangible personal property and taxable services purchased to fulfill contracts with the federal government to administer Medicare Part A, Medicare Part B, and the Federal Employees Health Benefit Program ("FEP"). The Texas Comptroller of Public Accounts ("Comptroller") denied HCSC's administrative refund claims, and HCSC subsequently filed suit. Mark W. Eidman and Doug Sigel of the Ryan Law Firm, LLP represented HCSC before the Court.

(Logo: http://photos.prnewswire.com/prnh/20110726/DA41187LOGO)

Ryan analyzed the facts and developed HCSC's theories for recovery during the administrative refund process. HCSC sought refunds of Texas sales and use taxes paid on:

  1. Allowable Items – tangible personal property, such as office supplies and furniture;
  2. Capitalized Assets – capital assets that HCSC booked as assets, depreciated, and claimed as depreciation expenses to the federal government;
  3. Utilities – gas and electricity;
  4. Leases of office equipment, telephones, postage machines, water coolers, etc.;
  5. Software/Software Maintenance – licenses to use software and maintenance of software;
  6. Taxable Services on Tangible Personal Property – repairs of equipment, purchases of burglar or fire alarm services; and
  7. Maintenance on tangible personal property.

HCSC contended that the foregoing items, on which HCSC paid tax at the time of purchase, were actually resold to the federal government under the Medicare and FEP contracts. The contracts contained title-passage provisions incorporated from the Federal Acquisition Regulations (FAR), which generally provided that items purchased for the performance of the contracts became the property of the federal government upon delivery to HCSC. The Court upheld the sale-for-resale exemption on purchases of tangible personal property and taxable services but denied the exemption for leases of tangible personal property.

First, the Court held that HCSC was entitled to the sale-for-resale exemption on purchases of tangible personal property that was automatically transferred to the federal government under the title passage provisions. The Comptroller presented the Court with a novel interpretation of the "essence of the transaction" test, contending that the sale-for-resale exemption did not apply because HCSC's "primary purpose" in buying property was to use it in the performance of nontaxable services and not to resell it in the form or condition in which it was acquired. The Court rejected this argument because it is not supported by the plain language of the statute.

Furthermore, the Court reaffirmed its earlier decision in Day & Zimmerman, Inc. v. Calvert, 519 S.W.2d 106 (Tex. 1975). The Court held that the title transfer provisions at issue in Day & Zimmerman are indistinguishable from those in the present case and that subsequent changes in the law neither modified nor abrogated Day & Zimmerman. The Court held that "Day & Zimmerman cuts squarely in HCSC's favor" and "stands for the proposition that automatic title transfer upon purchase qualifies for the sale-for-resale exemption."

The Court rejected the Comptroller's argument that "absurd" consequences would flow from a ruling in favor of HCSC. The Comptroller pointed out that a provider of a taxable service may issue a resale certificate only for the purchase of tangible personal property that will be transferred to the care, custody, and control of the purchaser of the service, whereas the provider of a nontaxable service (such as HCSC) could claim the exemption under automatic title transfer provisions in its contracts. First, the Court noted that "absurdity" is an issue only if a statute is ambiguous and that there is nothing "absurd" about treating providers of taxable and nontaxable services differently. The Court wrote that even "odd" or unexpected results do not compel it to rewrite an unambiguous law. The Court said that the Legislature has had decades since Day & Zimmerman to close this alleged "loophole" but has not done so.

Next, the Court held that HCSC's purchases of taxable services also qualified for the sale-for-resale exemption. The Comptroller argued that the title transfer provisions applied only to tangible personal property. The Court responded that HCSC acquired taxable services and resold them to the government "by directing that they be performed on the government's behalf with the purpose of receiving reimbursement and compensation (consideration) from the government…" Such services were resold "in the form or condition" in which they were acquired. Therefore, they qualified for the exemption under the plain language of the statute.

The Court denied the sale-for-resale exemption for HCSC's leases of tangible personal property. Although the Court acknowledged that a lease of property for the purpose of re-leasing it would qualify for the sale-for-resale exemption, it held that there was no evidence that HCSC re-leased property to the federal government. Using the property to perform nontaxable services under a federal contract was not the same as "formally re-leasing" the property to the government. The subsequent transfer of leased property to a new contractor after the expiration of HCSC's contract was insufficient to establish that HCSC originally leased the property for the purpose of re-leasing it, as required by the exemption.

Finally, the Comptroller argued that HCSC could not obtain a refund because the government reimbursed HCSC for the sales taxes it paid to its suppliers. The Comptroller relied on Tex. Tax Code section 111.104(f), which provides that "[n]o taxes…may be refunded to a person who has collected the taxes from another person unless the person has refunded all the taxes and interest to the person from whom the taxes were collected." The Court held that "reimbursement" and "collection" of taxes are two different things, and HCSC did not "collect" taxes from the federal government within the meaning of the statute.

The Court remanded the case to the trial court for entry of judgment based upon these holdings. At press time, it was not known whether the Comptroller would ask the Court to reconsider.

About Ryan
Ryan is an award-winning global tax services firm, with the largest indirect tax practice in North America and the seventh largest corporate tax practice in the United States. Headquartered in Dallas, Texas, the Firm provides a comprehensive range of state, local, federal, and international tax advisory and consulting services on a multi-jurisdictional basis, including audit defense, tax recovery, credits and incentives, tax process improvement and automation, tax appeals, tax compliance, and strategic planning. Ryan is a three-time recipient of the International Service Excellence Award from the Customer Service Institute of America (CSIA) for its commitment to world-class client service. Empowered by the dynamic myRyan work environment, which is widely recognized as the most innovative in the tax services industry, Ryan's multi-disciplinary team of more than 1,600 professionals and associates serves over 9,000 clients in 40 countries, including many of the world's most prominent Global 5000 companies. More information about Ryan can be found at www.ryan.com.

TECHNICAL INFORMATION CONTACTS:

Randy W. Donald
Principal
Ryan
972.934.0022
[email protected]

Ginny Buckner Kissling
Principal
Ryan
972.934.0022
[email protected]

John D. Christian
Director
Ryan
512.476.0022
[email protected]

SOURCE Ryan, LLC

More Stories By PR Newswire

Copyright © 2007 PR Newswire. All rights reserved. Republication or redistribution of PRNewswire content is expressly prohibited without the prior written consent of PRNewswire. PRNewswire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Latest Stories
The hierarchical architecture that distributes "compute" within the network specially at the edge can enable new services by harnessing emerging technologies. But Edge-Compute comes at increased cost that needs to be managed and potentially augmented by creative architecture solutions as there will always a catching-up with the capacity demands. Processing power in smartphones has enhanced YoY and there is increasingly spare compute capacity that can be potentially pooled. Uber has successfully ...
Using new techniques of information modeling, indexing, and processing, new cloud-based systems can support cloud-based workloads previously not possible for high-throughput insurance, banking, and case-based applications. In his session at 18th Cloud Expo, John Newton, CTO, Founder and Chairman of Alfresco, described how to scale cloud-based content management repositories to store, manage, and retrieve billions of documents and related information with fast and linear scalability. He addres...
The technologies behind big data and cloud computing are converging quickly, offering businesses new capabilities for fast, easy, wide-ranging access to data. However, to capitalize on the cost-efficiencies and time-to-value opportunities of analytics in the cloud, big data and cloud technologies must be integrated and managed properly. Pythian's Director of Big Data and Data Science, Danil Zburivsky will explore: The main technology components and best practices being deployed to take advantage...
For years the world's most security-focused and distributed organizations - banks, military/defense agencies, global enterprises - have sought to adopt cloud technologies that can reduce costs, future-proof against data growth, and improve user productivity. The challenges of cloud transformation for these kinds of secure organizations have centered around data security, migration from legacy systems, and performance. In our presentation, we will discuss the notion that cloud computing, properl...
The deluge of IoT sensor data collected from connected devices and the powerful AI required to make that data actionable are giving rise to a hybrid ecosystem in which cloud, on-prem and edge processes become interweaved. Attendees will learn how emerging composable infrastructure solutions deliver the adaptive architecture needed to manage this new data reality. Machine learning algorithms can better anticipate data storms and automate resources to support surges, including fully scalable GPU-c...
To Really Work for Enterprises, MultiCloud Adoption Requires Far Better and Inclusive Cloud Monitoring and Cost Management … But How? Overwhelmingly, even as enterprises have adopted cloud computing and are expanding to multi-cloud computing, IT leaders remain concerned about how to monitor, manage and control costs across hybrid and multi-cloud deployments. It’s clear that traditional IT monitoring and management approaches, designed after all for on-premises data centers, are falling short in ...
With more than 30 Kubernetes solutions in the marketplace, it's tempting to think Kubernetes and the vendor ecosystem has solved the problem of operationalizing containers at scale or of automatically managing the elasticity of the underlying infrastructure that these solutions need to be truly scalable. Far from it. There are at least six major pain points that companies experience when they try to deploy and run Kubernetes in their complex environments. In this presentation, the speaker will d...
When applications are hosted on servers, they produce immense quantities of logging data. Quality engineers should verify that apps are producing log data that is existent, correct, consumable, and complete. Otherwise, apps in production are not easily monitored, have issues that are difficult to detect, and cannot be corrected quickly. Tom Chavez presents the four steps that quality engineers should include in every test plan for apps that produce log output or other machine data. Learn the ste...
Digital Transformation is well underway with many applications already on the cloud utilizing agile and devops methodologies. Unfortunately, application security has been an afterthought and data breaches have become a daily occurrence. Security is not one individual or one's team responsibility. Raphael Reich will introduce you to DevSecOps concepts and outline how to seamlessly interweave security principles across your software development lifecycle and application lifecycle management. With ...
The vast majority of businesses now use cloud services, yet many still struggle with realizing the full potential of their IT investments. In particular, small and medium-sized businesses (SMBs) lack the internal IT staff and expertise to fully move to and manage workloads in public cloud environments. Speaker Todd Schwartz will help session attendees better navigate the complex cloud market and maximize their technical investments. The SkyKick co-founder and co-CEO will share the biggest challe...
Enterprises are striving to become digital businesses for differentiated innovation and customer-centricity. Traditionally, they focused on digitizing processes and paper workflow. To be a disruptor and compete against new players, they need to gain insight into business data and innovate at scale. Cloud and cognitive technologies can help them leverage hidden data in SAP/ERP systems to fuel their businesses to accelerate digital transformation success.
Dhiraj Sehgal works in Delphix's product and solution organization. His focus has been DevOps, DataOps, private cloud and datacenters customers, technologies and products. He has wealth of experience in cloud focused and virtualized technologies ranging from compute, networking to storage. He has spoken at Cloud Expo for last 3 years now in New York and Santa Clara.
Predicting the future has never been more challenging - not because of the lack of data but because of the flood of ungoverned and risk laden information. Microsoft states that 2.5 exabytes of data are created every day. Expectations and reliance on data are being pushed to the limits, as demands around hybrid options continue to grow.
Machine learning provides predictive models which a business can apply in countless ways to better understand its customers and operations. Since machine learning was first developed with flat, tabular data in mind, it is still not widely understood: when does it make sense to use graph databases and machine learning in combination? This talk tackles the question from two ends: classifying predictive analytics methods and assessing graph database attributes. It also examines the ongoing lifecycl...
While some developers care passionately about how data centers and clouds are architected, for most, it is only the end result that matters. To the majority of companies, technology exists to solve a business problem, and only delivers value when it is solving that problem. 2017 brings the mainstream adoption of containers for production workloads. In his session at 21st Cloud Expo, Ben McCormack, VP of Operations at Evernote, discussed how data centers of the future will be managed, how the p...