Citations
- 932 S.W.2d 230
Full opinion text
JONES, Justice.
Appellee Caterpillar, Inc. (“Caterpillar”) sued appellants (collectively, “the Comptroller”) in district court for a refund of franchise taxes paid under protest. The district court granted summary judgment in favor of Caterpillar, and the Comptroller now appeals. We will reverse the district court’s judgment and remand the cause.
THE CONTROVERSY
The issue at the heart of this appeal is whether Caterpillar must be allowed to deduct from its franchise tax base an estimate of future liability for certain post-retirement employee benefits. Caterpillar provides extensive benefits to its retired employees, including health and life insurance coverage, which are the benefits at issue in this appeal. Caterpillar pays health and life insurance claims out of general revenue as they are incurred; the benefits are not “funded” by a trust or other similarly dedicated asset. Though Caterpillar’s future liability for these benefits may be statistically predictable with reasonable accuracy, the exact amount of payments for future years cannot be precisely determined in advance.
For the 1988-1994 franchise-tax reporting years, the Comptroller did not allow Caterpillar to deduct from its franchise tax base future liability for the benefits at issue. Caterpillar paid its franchise tax under protest and, after exhausting its administrative remedies, filed suit in district court seeking a refund of over $2,400,000. Caterpillar argued that the relevant provisions of the Tax Code should be interpreted to allow a deduction for its future benefits liability. Alternatively, Caterpillar claimed that these provisions are preempted by the federal Employee Retirement Income Security Act (“ERISA”) and violate the Texas constitutional guarantee of equal and uniform taxation. Both parties moved for summary judgment. The district court granted Caterpillar’s motion for summary judgment and overruled the Comptroller’s motion. The Comptroller now appeals.
FRANCHISE TAX BACKGROUND
The franchise tax is imposed on corporations for the privilege of doing business in Texas. See Tex.Tax Code Ann. § 171.001(a)(1) (West 1992). A corporation’s franchise tax base is determined, in part, by applying a specified tax rate to the corporation’s net taxable capital. Id. § 171.002(b)(1). A corporation’s net taxable capital is equal to its stated capital plus its surplus, minus any deductions allowed by the Tax Code. Id. § 171.101(a). At issue in this appeal is the surplus component of net taxable capital.
Before 1987, the Tax Code did not define surplus. In 1987, the legislature added section 171.109 to the Tax Code to provide a general definition of surplus. Act of June 1, 1987, 70th Leg., R.S., ch. 324, § 1, 1987 Tex.Gen.Laws 1784, 1734r-35 (Tex.Tax Code Ann. § 171.109(a), since amended). Both parties agree that the legislature added the definition of surplus to overturn this Court’s holdings in State v. Sun Refining & Marketing., Inc., 740 S.W.2d 552 (Tex.App.—Austin 1987, writ denied), and State v. Sun Oil Co. (Delaware), 740 S.W.2d 556 (Tex.App.—Austin 1987, ho writ) (“the Sun cases”). In the Sun cases, we held that taxpayers could exclude from surplus reasonable estimates of contingent liabilities, such as self-insurance accounts, bad debt accounts, deferred employee benefits accounts, and various other liabilities connected with the oil and gas industry. The 1987 Act defined surplus as net assets minus stated capital; net assets were, in turn, defined as total assets minus total debts. Id. § 171.109(a)(l)-(2). To effectively overturn the Sun cases, the legislature also provided that surplus specifically includes “unrealized, estimated, or contingent losses or obligations....” Id. § 171.109(a)(1).
In 1991, the legislature added subsection 171.109(j), which provides that a corporation may not exclude from surplus liabilities for employee benefits “that are not payable in the current accounting year, including retirement, medical, insurance, post-retirement, and other similar benefits.... ” Id. § 171.109(j)(l). The legislature specifically noted that it intended subsection