Texas High Court Boots Nestle Tax Case

DALLAS (CN) - The Texas Supreme Court dismissed a challenge to the state's franchise tax, finding that Nestle and others failed to follow statutory requirements before suing.

Writing for the court, Justice Nathan L. Hecht said Nestle USA and its coplaintiffs could sue only if they had paid the taxes under protest or had asked the state for a refund.

"Petitioners did not pay their taxes under protest or request a refund from the Comptroller, statutory prerequisites to taxpayer suits in the district court but not, relators contend, for suit in this Court. We disagree," Hecht wrote. "We hold that the statutory prerequisites are conditions on the legislative waiver of the State's immunity from suit. Accordingly, we dismiss the case for want of jurisdiction."

The plaintiffs sued directly in the Texas Supreme Court, not in a district court, hence their contention that the requirements do not apply to them.

"If a taxpayer were not required to lodge its complaints first by protest or a refund claim, the Comptroller would lack notice of the assertion of illegality, perhaps - as this case illustrates - for years," Hecht wrote. "It has been important that the tax collector know of disputes and their potential effect on revenues. Were taxpayers permitted to delay in suing for a refund, the monetary burden of a loss on the State could be greatly increased. In this case, petitioners acknowledge that if they were to prevail and all franchise taxes determined to be illegal were refunded to all similarly situated taxpayers, the impact on the state fisc would be enormous."

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