Texas Legislature Adds Suits After Redetermination As Option To Challenge State Tax Assessments

In 2021, the Texas Legislature made it easier for taxpayers to challenge tax assessments without first paying the disputed amounts of tax due.

Prior to this change, pay-to-play was the only game in town. Under pay-to-play, a taxpayer first has to pay the total amount of tax, penalties, and interest assessed before challenging that assessment in court.[1]

This obviously created problems for taxpayers who can’t afford to pay, which could violate the Open Courts Provision in the Texas Constitution.[2] The Open Courts Provision provides that “[a]ll courts shall be open, and every person for an injury done him, in his lands, goods, person or reputation, shall have remedy by due course of law.”[3] The Texas Supreme Court has indicated that under certain circumstances a statute that requires prepayment of a tax assessment for judicial review may violate this provision.[4]

House Bill (HB) 2080, 87th Leg., R.S. (2021) was an attempt by the Legislature to address this issue. Per the bill’s legislative history, HB 2080 “seeks to ease the burden on taxpayers and ensure that all Texans, regardless of means, are able to access the taxpayer suit processes by establishing a new type of taxpayer protest suit that does not require prior payment of the amount in protest.”[5]

More specifically, HB 2080 created Texas Tax Code § 112.201 (Suit After Redetermination), which lets a taxpayer sue the Texas Comptroller and Attorney General to dispute an assessment of tax, penalty, or interest if the taxpayer has:

1. requested and obtained a redetermination with a finding of disputed and undisputed amounts and
2. filed a motion for rehearing that states the specific grounds of error and the disputed and undisputed amounts associated with the grounds of error.[6]

In bringing such a suit, the taxpayer is supposed to pay any undisputed amounts, but failure to do so doesn’t affect the jurisdiction of a court to hear a suit that otherwise complies with the requirements for these suits.[7] The petition must also state the disputed amounts, and the issues that the taxpayer may raise in the suit are limited to those raised in the motion for rehearing.[8]

The Comptroller and Attorney General are barred from attempting to collect the disputed amounts while such a suit is pending.[9] During that same time, however, the disputed taxes that the taxpayer hasn’t paid continue to accrue interest and penalties.[10] The Comptroller and Attorney General also can bring a counterclaim against the taxpayer for the same type of taxes and the same period that are the subject of the suit without having to assess those taxes.[11] If the taxpayer secures a judgment in their favor, the disputed taxes, penalties, or interest refunded are credited against any taxes, penalties, or interest due from the taxpayer.[12]

There are still some open issues regarding the applicability of Texas Tax Code § 112.201. If you have questions about how this provision could affect you, don’t hesitate to give us a call for free consultation.

*******Have a question? Contact TL Fahring, JD

[1] See Tex. Tax Code §§ 112.051 (Taxpayer Suit After Payment Under Protest), 112.151 (Suit for Refund).

[2] See EBS Solutions, Inc. v. Hegar, 601 S.W.3d 744, 754 (Tex. 2020).

[3] Tex. Const. art. I, § 13 (Excessive Bail or Fines; Cruel or Unusual Punishment; Open Courts; Remedy by Due Process of Law).

[4] EBS Solutions, Inc., 601 S.W.3d at 754-56.

[5] Ways and Means Bill Analysis for HB 2080 (Committee Substitute).

[6] Tex. Tax Code § 112.201(a), (d).

[7] Id. § 112.201(b).

[8] Id. §§ 112.201(f), 112.204(a) (Issues in Suit).

[9] Id. § 112.201(c).

[10] Id. § 112.201(c).

[11] Tex. Tax Code § 112.203 (Counterclaim).

[12] Tex. Tax Code § 1112.207 (Judgment).