Today, the Texas Supreme Court denied the Texas Comptroller’s Petition for Review in the Richmont Aviation case. As a result, the Third Court of Appeals’ decision in the taxpayer’s favor becomes final, but the Texas Supreme Court has taken no position on the Third Court of Appeals’ holding in Richmont Aviation, leaving some uncertainty in the law regarding the question of whether a taxpayer may file suit in Travis County District Court challenging the assessment or collection of a tax without first paying the tax or filing a bond.
The Texas Tax Code prohibits a taxpayer from challenging the assessment or collection of a tax in court without paying the tax first or filing a bond unless the taxpayer files an oath of inability to pay and a judge finds that the prepayment requirement would constitute an unreasonable restraint on that taxpayer’s access to the courts. However, in 2000 in the Bandag Licensing Corp. case, the Third Court of Appeals held that this prepayment requirement violated the Open Courts provision of the Texas Constitution and invalidated the associated statutory provision. The Third Court of Appeals wrote the oath of inability to pay provision was not a sufficient protection for taxpayers and that the prepayment requirement was an unreasonable financial barrier to access to the courts.
Nevertheless, the Texas Comptroller has maintained the position that the statutory provision remains valid despite the Bandag Licensing Corp. decision and has aggressively opposed the efforts of taxpayers to challenge assessments and collection action in court without paying the associated tax first. In recent years, the Texas Comptroller has asserted that certain language in the Texas Supreme Court’s 2012 decision in In re Nestle, a case that addressed the constitutionality of the Texas franchise tax, overruled Bandag Licensing Corp. (though the Texas Supreme Court did not mention Bandang Licensing Corp. by name and addressed the statutory provision only in passing).
In Richmont Aviation, the Third Court of Appeals reasserted its holding in Bandag Licensing Corp. and held once again that the prepayment requirement was an unreasonable financial barrier to access to the courts. It rejected the argument that the Texas Supreme Court overruled Bandag Licensing Corp. in In re Nestle.
The Texas Supreme Court’s silence leaves some doubt in its wake. It is unclear whether now, after its petition for review was denied, the Texas Comptroller will continue to refuse to follow the Third Court of Appeals’ decisions in Bandag Licensing Corp. and Richmont Aviation. Nevertheless, now that Richmont Aviation is final, taxpayers appear to have strong support for the position that they may file suits for injunction or declaratory judgment challenging the assessment or collection of tax without prepaying the tax first. A taxpayer considering such a lawsuit would be well advised to seek the assistance of a Texas tax attorney to determine which type of suit, if any, would be appropriate for their circumstances.