Recently, the Texas Court of Appeals in Austin ruled against an effort by the Comptroller of Public Accounts to collect sales taxes from the Health Care Services Corporation on items it had resold to the U.S. government. In the end, the court’s decision rested on statutory interpretation-or what the tax law actually meant.

In its opinion – Combs v. Health Care Services Corporation – dated March 16, 2011, the Court explained that when interpreting statutes, they look at legislative intent. In so doing, they give great deference to the agency in charge of implementing the statute. From their ruling, “With regard to a statute that an agency is charged with enforcing, we give serious consideration to the agency’s construction of it, so long as that construction is reasonable and consistent with the statutory language, and this is particularly true when the statute involves complex subject matter within the agency’s area of expertise.”

In this case, the Court gave great deference to the Comptroller’s office, even more so than usual because the statute in question was a tax statute. “Further, statutory exemptions from taxation-like the sale-for-resale exemption-are ‘strictly construed’ against the taxpayer because ‘they undermine equality and uniformity by placing a greater burden on some taxpaying businesses and individuals rather than placing the burden on all taxpayers equally.'” Therefore, the Court will accept an agency’s interpretation of a statute under its authority, unless that interpretation is deemed unreasonable.

Even after interpreting the evidence heavily in favor of the Comptroller, the Court denied all the State’s contentions and affirmed the district court’s judgment. In doing so, the Court commented that “the concept that a tax exemption must be ‘strictly’ construed ‘cannot be used as an excuse to stray from reasonableness.” In finding the Comptroller’s interpretation unreasonable, the Court stated that the Comptroller’s interpretation of the statute “leads to absurd results.”

-Ryan Brannan