The Texas Court of Appeals held that a taxpayer’s refund claim sufficiently put the Comptroller on notice that the taxpayer claimed a manufacturing exemption. An electricity manufacturer filed a refund claim for sales taxes paid on various types of meters used in its business. The Comptroller denied the claim, and the taxpayer sought an administrative hearing. The administrative law judge concluded that the manufacturing exemption was not sufficiently raised within the deadline for the taxpayer to amend its statements of grounds. The taxpayer sought judicial review. The trial court: (1) rejected the Comptroller’s argument that the taxpayer had waived the opportunity to raise the manufacturing exemption claim; and (2) held that the manufacturing exemption applied to the taxpayer’s meters because they constituted “telemetry units related to step-down transformers.”

Texas law requires that a claim for refund “state fully and in detail” each reason or ground on which the claim is founded. The Comptroller contended that the taxpayer did not specifically assert that the legal basis of the refund claim was for telemetry units related to step-down transformers. Rather, the taxpayer cited to the relevant statute and mass quoted a list of numerous categories of exempted items, one of which was for telemetry units related to step-down transformers. Because the Comptroller did not know which specific category of exempt items was at issue, it claimed it could not determine the merits and validity of the refund claim.

Over two dissenting votes, the court of appeals rejected the Comptroller’s argument. The court found it to be sufficient that the taxpayer: (1) expressly referenced the manufacturing exemption and quoted the relevant statute in the statement of grounds; and (2) provided notice in the accompanying schedules, which referred to one of the relevant items as “mfg. equip. – 100% exempt” and referred to the applicable statute and rule.  Thus, the court concluded that the Comptroller was put on notice of the taxpayer’s manufacturing exemption claim.

The court also concluded that the manufacturing exemption applied to the taxpayer’s customer meters. These items were telemetry units related to step-down transformers – and thus not subject to sales tax – because the information collected and transmitted from the customer meters was used to analyze the step-down transformers’ performance, maintenance, and safety requirements.

Hegar v. El Paso Electric Co., No. 03-18-00790-CV (Tex. Ct. App. Mar. 5, 2021) (en banc).