Allcat Claims Service L.P. and John Weakly v. Susan Combs, No. 11-0589
The Texas Supreme Court has set a fast-track schedule for the challenge to Texas’s business-margins (franchise) tax. The theory of the case is that the tax on certain business partnerships is really an “income tax” in disguise.
[Updated:] I’ve now had a chance to read the Court’s order. It has a wrinkle. The Court wants to hear about the merits of the Bullock Amendment claim (the claim about “income tax”), but it also wants to hear two threshold jurisdictional questions. First, does it have power to hear this case at all — or did the Legislature itself exceed the Constitution by creating this special kind of expedited appeal just for this question? (( Article V, section 3 includes this language: “The Legislature may confer original jurisdiction on the Supreme Court to issue writs of quo warranto and mandamus in such cases as may be specified, except as against the Governor of the State.” The issue is whether that language, by not mentioning original jurisdiction for other kinds of claims (like this one), excludes them from the power granted to the Court. )) Second, even if that jurisdictional grant is constitutional, are the other questions raised in the complaint — which are more everyday tax questions — outside the scope of the statute’s special grant of jurisdiction?
If the margins tax doesn’t ring a bell, the changes to the franchise tax made in 2006 were part of the compromise deal reached to fix the Texas school-finance system. You can read my earlier post about the case or the story in the Texas Tribune.
As the case plays out, we will learn more about the scope of the challenge. If the entire framework were to be struck down, then it would affect many Texas businesses and the state budget. If only part of the framework were to be struck down, the effect could be much less. (( Although the tax had its origin in a compromise about how to pay for school finance, there’s no continuing link between the bills. ))
And if you watch a little too much political coverage, you may be reminded of an exchange that begins, “Corporations are people, my friend.” (( I’m sure at least one aspect of that statement if false: The person he was addressing was not his friend. )) The challenge here is brought by an unincorporated association, which gives it a different legal status for at least some purposes.
The Court has advised that it will hear arguments “the week of October 24-28.” Leading up to that, Allcat’s primary brief will be due September 12; the State’s brief will be due October 3; and Allcat’s reply will be due October 10.