Preview
Filed
10 July 19 A8:46
Amalia Rodriguez-Mendoza
District Clerk
: Travis District
Cause No. D-1-GN-10-002059 D-1-GN-10-002059
GWR Aviation, LLC, In the District Court of
Plaintiff
ve
Travis County, Texas
Susan Combs, Comptroller of
Public Accounts of the State of
Texas, and Greg Abbott, Attorney
General of the State of Texas,
Defendants
126" Judicial District
MO) CO) GD) CO) CO) CO) CO) (0? CO) CO?
Defendants’ Plea to the Jurisdiction and
Original Answer to Plaintiff's Application for Temporary
Injunction and Permanent Injunction
To The Honorable Judge of the Court:
. Defendants Susan Combs, Comptroller of Public Accounts of the State of
“Texas, and Greg Abbott, Attorney General of the State of Texas,(collectively the
“Comptroller”) respectfully submit their Plea to the Jurisdiction, Original Answer
to Plaintiff's Application for Temporary Injunction and Permanent Injunction
(‘Plaintiff's Application”) and shows the Court as follows:
I. Plea to the Jurisdiction
1. Plaintiffs Application seeks a temporary injunction enjoining the
Comptroller from collecting sales and use tax due on Plaintiffs purchase of
a 1993 Bombardier Learjet, and further seeks a permanent injunction
reversing the final assessment made by the Comptroller. The Court is
without jurisdiction to grant either of these requests for relief.
2. Plaintiff's claims for injunctive relief are barred by the doctrine of
sovereign immunity because they seek to control state action by denying
the Comptroller the power to collect delinquent taxes from the Plaintiff.
See McLane Co., Inc. v. Strayhorn, 148 S.W.3d 644, 649 (Tex.App.—
Austin 2004, pet. denied) (“a suit that seeks to impose liability on the state
or to control state action is a suit against the state and may not be
maintained without a waiver of sovereign immunity”).
Defendants’ Original Answer Page 1Texas Tax Code § 112.101 provides a limited waiver of sovereign
immunity for taxpayers seeking injunctive relief in relation to a Comptroller
tax assessment, but sets specific statutory prerequisites which must be
satisfied prior to suing for an injunction, See Tex. Tax Code Ann. §
112.101 (Vernon 2006). Since a state may withhold its consent to be sued
entirely, it may impose such conditions and limitations on its consent to be
sued as it may deem desirable. Paris Milling Co. v. Bullock, 583 S.W.2d
487, 489 (Tex. App.Austin 1979, no writ). Legislatively enacted
conditions and limitations imposed upon a waiver of sovereign immunity
are jurisdictional facts, and there must be full compliance with them in
order for the court to acquire subject-matter jurisdiction to consider the
merits of a given claim. Jd; Tex. Gov’t Code 311.034 (Vernon
2008)(providing statutory prerequisites to suit are jurisdictional in suits
brought against government entities). Further, statutes waiving immunity
are to be strictly construed. See Veterans Admin. v. Kee, 706 S.W.2d 101,
103 (Tex. 1986), citing McMahon v. U.S., 342 U.S. 25, 72 8, Ct. 17, 96 L.
Ed. 26 (1951).
In pertinent part Texas Tax Code § 112.101 states that an action for a
restraining order or injunction that prohibits the assessment or collection of
taxes may not be brought against the Comptroller unless the applicant has
first paid the taxes, penalties, and interest then due or filed a bond sufficient
to guarantee the payment of the taxes, penalties, and interest then due, as
well as the taxes penalties and interest that would accrue during the
pendency of the case. Tex. Tax Code Ann. § 112.101(a)(2). The amount
and terms of such a bond, as well as the sureties thereon, must be agreeable
to both the judge considering injunctive relief and the Attorney General. Id.
In this case, Plaintiff has neither: paid the taxes, penalties, and interest due
and owing on its purchase of the Learjet, nor filed a bond as required to
seek an injunction, and has therefore failed to satisfy the statutory
prerequisites to suit necessary to pursuing injunctive relief against the
Comptroller and Plaintiff's sovereign immunity bars Plaintiff's Application.
See Bullock v. Amoco Prod. Co., 608 S.W.2d 899 (Tex. 1980) (taxpayer
could not bring suit for tax refund without following statutory remedy then
in effect).
In an invalid attempt to establish jurisdiction, Plaintiff attaches a purported,
but unproven, “Oath of inability to pay taxes, penalties, and interest due.
Plaintiff suggests that Tex. Tax Code § 112.108 entitles it to seek injunctive
Defendants’ Original Answer Page 2relief prohibiting the Comptroller from collecting the assessed taxes and
setting aside the Comptroller’s assessment upon such an oath, thereby
relieving Plaintiff of the statutory obligation to file a bond. See Tex. Tax
Code 112.108 A plain reading of § 112.108 refutes that notion. In fact, §
112.108 states only that upon oath of inability to pay, “a party may be
excused from the requirement of prepayment of tax as a prerequisite to
appeal [to the district court].” Tex. Tax Code § 112.108.
7. Thus, by its plain language, § 112.108 only contemplates excusing the
requirement of pre-payment in the context of an appeal of a tax assessment;
such as a protest suit. By its own terms, section 112.108 does not excuse
the § 112.101 bond requirement for persons seeking an injunction enjoining
the Comptroller from collecting taxes. Indeed, the Texas Supreme Court
has confirmed the importance of the § 112.101 bond requirement by
recognizing that “by authorizing expedited procedures in the event that
normal collection may be jeopardized, and by requiring payment or other
security before injunctive relief can be sought, sections 111.022 and
112.101 protect the State against delays that may impinge its ability to
collect taxes that may legitimately be owed.” R Communications v. Sharp,
875 S.W.2d 314, 317 (Tex. 1994) (emphasis added). As such, Plaintiff was
statutorily required to post a bond prior to filing its Application, and
because it did not do so it has not satisfied the jurisdictional prerequisites
necessary to establish a waiver of the State’s sovereign immunity.
Therefore, sovereign immunity deprives this Court of subject-matter
jurisdiction to consider the merits of Plaintiff's demand for injunctive relief
to control the collection actions of the Comptroller.
8. Finally, to the extent Plaintiffs Application also alleges a claim for
declaratory relief, those claims should be dismissed as they would be
wholly redundant to the statutory remedies provided by the legislature in
the Texas Tax Code. Tex. Tax Code Ann. § 112.051 (Vernon 2008). When
a plaintiff properly files suit under Title 2 of the Code, the Court has the
authority to offer full-relief with the exception of attorney fees. If the Court
determines that the Comptroller has collected or assessed the tax at issue
erroneously, the Court may order the full amount of the tax, penalty, and
interest paid by the taxpayer to be refunded or revise the assessment.
Additionally, the taxpayer may also recover statutory interest on the amount
paid from the date of payment to the date of repayment. Tex. Tax Code
Ann. §§ 112.060, 112.155 (Vernon 2008). Moreover, in Title 2 claims, the
Court may also construe the Tax Code and hold any or all parts of the
statute unconstitutional as well as invalidate Comptroller rules and policies.
i
Defendants’ Original Answer Page 310.
ll.
See, e.g., Combs v. Entm't Publ'ns, Inc., 292 §.W.3d 712 (Tex.App.—
Austin 2009, no pet.). A declaratory judgment will not lie when a statute
provides a specific, adequate remedy. See Raytheon E-Systems, Inc. v.
Strayhorn, 101 S.W.3d 558, 572 (Tex. App. - Austin 2003, pet. denied).
Young Chevrolet, Inc. v. Texas Motor Vehicle Bd., 974 S.W.2d 906, 911
(Tex. App. — Austin, 1998, writ denied).
Injunctive Relief Improper
Subject to the foregoing plea, Plaintiff has not shown itself entitled to
injunctive relief. Tax Code section 112.1011 states that “[a] court may not
issue a restraining order or consider the issuance of an injunction that
prohibits the assessment or collection of an amount...unless the applicant
demonstrates: 1) irreparable injury will result to the applicant if the order or
injunction is not granted, 2) no other adequate remedy is available to the
applicant, and 3) the applicant has a reasonable possibility of prevailing on
the merits of the claim. Plaintiff has failed to adduce evidence establishing
any of these required threshold factors, and § 112.1011 therefore prohibits
the Court from considering the issuance of an injunction prohibiting the
Comptroller’s collection of taxes. See Tex. Tax Code § 112.101; 112.1011.
A. Plaintiff has shown only a hypothetical harm, not an irreparable
injury.
Atrial court may not grant an injunction based on a hypothetical situation
which might or might not arise at a later date. See Camarena v. Tex.
Employment Comm’n, 754 8.W.2d 149, 151 (Tex. 1988). Plaintiff alleges
that it will suffer irreparable injury absent an injunction because “the
Comptroller will seize GWR’s assets or coerce it, under threat of seizure, to
make payments of the underlying assessment in amounts that GWR cannot
reasonably afford and still maintain its ability to conduct business.”
Plaintiff has failed to produce evidence as to what assets might be seized
and to make any showing that such seizure would constitute irreparable
injury that could not be remedied by the return of the amount recovered
along with statutory interest in the unlikely event that the Comptroller’s
assessment is determined to be improper.
Further, Plaintiffs suggestion that the Comptroller might coerce it to make
payments it cannot afford is entirely speculative as to what the Comptroller
would do or whether Plaintiff could afford any partial payments of the tax
liability. Indeed, Plaintiff's affidavit is merely a conclusory statement that
Defendants’ Original Answer Page 4Plaintiff cannot afford to pay the ful] amount of tax, penalties, and interest
due in this case. See Plaintiffs Application, Exhibit C. Plaintiff has made
no showing that it could not afford a lesser payment to support its
contention that such a scenario would constitute irreparable harm.
Accordingly, Plaintiff has failed to establish an irreparable injury, and is
not entitled to injunctive relief under Tax Code § 112.101.
B. Plaintiff had another adequate Remedy
12. Although Plaintiff's Application contains the bare recital that it had no
other remedies through which to challenge the tax assessment at issue, the
Plaintiff could have filed a protest suit pursuant to Tex. Tax Code §
112.051; 052. Plaintiff alleges that it could not have filed a protest suit
under Chapter 112 because it did not have the ability to pay the amount of
the Assessment and because the statute of limitations had expired. See
Plaintiff's Application at p.5. However, § 112.108 allows a party to file an
oath of inability to pay (as Plaintiff has filed with this Application for
injunctive relief) in order to be excused from the prepayment requirement
normally necessary in a tax protest suit to appeal a Comptroller tax
assessment. See Tex. Tax Code § 112.108, 112.051; 052. Thus, although
Plaintiff seeks to improperly use a pauper’s affidavit to avoid the bond
requirement in an injunction suit, it could have properly used the oath of
inability to pay in the context of excusing prepayment in a § 112.052 tax
protest suit.
13. | Moreover, the fact that Plaintiff did not avail itself of the protest remedies
in the Tax Code prior to the running of the applicable limitations. period
does not render that remedy inadequate. Under the Tex. Tax Code,
Plaintiff had six months from the date of the deficiency determination to
file a written protest with the Comptroller. Tex. Tax Code Ann. §§
112.051; 111.104. As mandated. by the Tax Code, the notice of tax
deficiency in this case was sent to Plaintiff on February 26, 2009.1 See Tex.
Tax Code § 111.008. Therefore, in order to challenge that deficiency
assessment, Plaintiff was required either to pay the tax and request a refund
or file a written protest on or about August 26, 2009. See Tex. Tax Code
§§ 111.104; 112.051. Plaintiff failed to avail itself of that remedy, and
cannot use its own failure to timely protest the assessment as a ground
necessitating an injunction from this Court.
" Exhibit 1
Defendants’ Original Answer . Page 55
C. ‘Plaintiff cannot demonstrate a reasonable possibility of
prevailing on the merits and the Comptroller has correctly
assessed taxes on Plaintiff’s Learjet. :
‘a Plaintiff cannot prevail on the merits because its claims are
barred by the statute of limitations.
14, Plaintiff cannot show a reasonable possibility of prevailing on the merits in
this matter because, as stated, the statute of limitations for challenging a
Comptroller tax assessment, or filing suit thereon has expired. See Tex.
Tax Code §§ 111.104; 112.051; 112.052.
ii, Plaintiff cannot has not shown the reasonable possibility of
establishing an exemption from sales and use tax.
15. Further, Plaintiff cannot demonstrate a reasonable possibility of prevailing
on the merits of its claim that the purchase of its aircraft was exempt from
sales and use tax under the “sale for resale” exemption found at Tax Code §
151.302. In claiming a tax exemption, the taxpayer bears the burden of
clearly showing that it falls within the statutory exemption. Quorum Sales,
Inc. v. Sharp, 910 8.W.2d 59, 64 (Tex. App.—Austin 1995, writ denied).
All doubts as to the availability of a tax exemption must be resolved in
favor of the Comptroller. Bullock v. Nat. Bancshares Corp., 584 S8.W.2d
268, 272 (Tex. 1979). Indeed, exemptions from taxation are not favored by
the law and should be narrowly construed. N. Alamo Water Supply Corp. v.
Willacy County Appraisal Dist., 804 S.W.2d 894, 899 (Tex. 1991). “[T]ax
exemptions are subject to strict construction since they are the antithesis of
equality and uniformity.” Hilltop Vill., Inc. v. Kerrville Indep. Sch. Dist.,
426 S.W.2d 943, 948 (Tex. 1968); Upjohn Co. v. Rylander, 38 S.W.3d 600,
606 (Tex. App.—Austin 2000, pet. denied).
16. Additionally, “serious consideration” is given to the agency's construction
of a statute that it is charged with enforcing, so long as that construction is
reasonable and consistent with the statutory language. See First Am. Title
Ins. Co. v. Combs, 258 S.W.3d 627, 632 (Tex.2008); of Rylander v. Fisher
Controls Int'l, Inc., 45 S.W.3d 291, 302 (Tex.App.-Austin 2001, no pet.).
When the Comptroller’s interpretation of the scope of a tax exemption
statute harmonizes with the statute, courts are bound to accept that
interpretation regardless of the existence of other reasonable interpretations.
Quorum Sales, 910 8.W.2d at 64. Administrative rules, which have the
Defendants’ Original Answer Page 617.
18.
19,
same -force as statutes, are construed in the same manner as statutes.
Rodriguez v. Service Lloyds Ins. Co., 997 S.W.2d 248, 254 (Tex.1999).
Therefore, the Comptroller’s administrative construction of her rules is
similarly entitled to deference. See First Am. Title, 258 S.W.3d at 632 (Tex.
2008); Osterberg v. Peca, 12 §.W.3d 31, 51 (Tex. 2000); Dodd v. Meno,
870 S.W.2d 4, 7 (Tex. 1994).
a. The Learjet does not qualify as a “Sale for Resale”
Tax Code § 151.302 exempts items from sales and use tax if they were sold
for resale. Further, the Tax Code defines a “sale” to include the lease of the
taxable property. See Tex. Tax Code § 151.005. Plaintiff claims that it
purchased its Learjet for the purpose of leasing the aircraft to a charter
carrier for the provision of charter flights, and that the Learjet should
therefore be tax exempt as a sale for resale.
However, Section 151.006(a)(2), Tax Code, defines sale for resale to mean
a sale of “tangible personal property for the sole purpose of the purchaser’s
leasing or renting it in the United States of America. Tex. Tax Code §
151.006(a)(2)(emphasis added). Here, GWR did not purchase aircraft for
the sole purpose of leasing it to others, because in GWR’s purported lease
agreement the company clearly retained the right to use the aircraft
whenever it wanted? Thus, the evidence suggests GWR purchased the
aircraft for its own use and merely entered into a use agreement whereby
the aircraft could be leased when GWR did not need it. GWR’s use of the
aircraft for its own purposes is inconsistent with the sale for resale
exemption.
Furthermore, the Comptroller has adopted Rule 3.294 which defines a lease
or rental as “a transaction, by whatever name called, in which possession
but not title to tangible personal property is transferred for a consideration
for a certain time period.” 34 Tex. Admin. Code § 3.294. Comptroller’s
decisions have further defined the term lease to mean the transfer of
“exclusive possession, use and enjoyment of property for a specified period
of time or a specified consideration. See Hearing No. 13,848 (1985) STAR
8502H0624A11; 26,144 (1990), STAR 9012H1064D01, and 40,812
(2003), STAR 200310344H. Thus, a lease which does not transfer absolute
and exclusive possession, use, and enjoyment of the property is insufficient
to establish a sale for resale exemption under Tex. Tax Code § 151.302 and
? Exhibit 2
Defendants’ Original Answer Page719,
20.
20.
Comptroller precedent. STAR 200702945L,
In this case, the agreement between GWR, as lessor, and the charter
company lessee, GWR retains ultimate operational control through a
provision which allows it final authority as to what flights are chartered.
Specifically, in the portion of the agreement which recites the obligations of
the parties, the contract states that “...At [GWR’s] request, [the charter
company] shall present flight scheduling requirements for prospective
charter flights to [GWR] for prior approval in [GWR’s] sole discretion as
far in advance of the date of the proposed charter flight as is reasonably
practical.” See Exhibit 2, Clause 15(a), at p. 3. Further, the agreement goes
on to say that “Notwithstanding [GWR’s] approval of any charter flight, in
the event that [GWR] requests to charter the aircraft at a time that conflicts
with a scheduled charter flight of a non-owner [GWR] may preempt such
other charter flight upon not less that forty-eight hours notice to Agent.”
Id. at p.14-15.
Accordingly, under the agreement, GWR maintains the right to approve or
disapprove any charter flights on the aircraft, or to interrupt other charter
flights so that it can use the Learjet for its own purposes. Such an
agreement does not constitute a transfer of exclusive possession, use and
enjoyment, because ultimate operational control remains with GWR. See
STAR 200702945L. That agreement cannot serve as the basis for the sale
for resale exemption, and the Comptroller has reasonably and properly
assessed taxes against Plaintiff.
b. GWR’s purchase of the Learjet does not qualify as
an “Occasional Sale”
Alternatively, Plaintiff argues that its purchase of the Learjet should be
exempt as an Occasional Sale. See Tex. Tax Code § 151.304(a). One type
of exempt Occasional Sale is defined as “one or two sales of taxable
items... at retail during a 12-month period by a person who does not
habitually engage or hold himself out as engaging, in the business of selling
taxable items at retail.” Tex. Tax Code § 151.304(b)(1). Plaintiff alleges
that it is entitled to the Occasional Sale exemption because the entity from
which it purchased the Learjet, Alaska Flight Services, LLC, did not
“habitually engage, or hold itself out as engaging, in the business of selling
taxable items at retail. AFS also did not sell more than two items in the 12-
* Exhibit 2
Defendants’ Original Answer Page 821.
21.
month period previous to its sale of the [Learjet].” Plaintiff's Application
at pp. 5-6.
Plaintiff, however, fails to produce any evidence which tends to
substantiate the hollow assertion that Alaska Flight Services did not
habitually engage in either selling or leasing taxable items.* On the
contrary, prior to selling the Learjet to Plaintiff, Alaska Flight Services,
LLC, filed an Affidavit of Continuous Ownership with the Federal Aviation
Administration in which AFS expressly stated that it leased the Learjet at
issue, as lessor, for continuing use in Canada.° The Tax Code definition of
a sale includes the lease or rental of tangible personal property. Tex. Tax
Code § 151.005(2). Thus, the best evidence suggests that Alaska Flight
Services, as the name implies, was habitually engaged in the leasing of
aircraft. As such, Plaintiff has failed to provide this Court with any
evidence which demonstrates that it has a reasonable possibility of
establishing its purchase of the Learjet to be exempt as an Occasional Sale.
c. Declaratory Judgment
Finally, Plaintiff cannot show any reasonable possibility of prevailing on its
claims for declaratory relief because they are wholly redundant to the
statutory remedies provided by the legislature in the Texas Tax Code. Tex.
Tax Code Ann. § 112.051 (Vernon 2008). When a plaintiff properly files
suit under Title 2 of the code, the Court has the authority to offer full relief
with the exception of attorney fees. If the Court determines that the
Comptroller has collected or assessed the tax at issue erroneously, the Court
may order the full amount of the tax, penalty, and interest paid by the
taxpayer to be refunded or revise the assessment. Additionally, the
taxpayer may also recover statutory interest on the amount paid from the
date of payment to the date of repayment. Tex. Tax Code Ann. §§ 112.060,
112.155 (Vernon 2008). Moreover, in Title 2 claims, the Court may also
construe the Tax Code and hold any or all parts of the statute
unconstitutional as well as invalidate Comptroller rules and policies. See,
e.g., Combs v. Entm't Publ'ns, Inc., 292 8.W.3d 712 (Tex.App.—Austin
2009, no pet.). A declaratory judgment will not lie when a statute provides
a specific, adequate remedy. See Raytheon E-Systems, Inc. v. Strayhorn,
101 S.W.3d 558, 572 (Tex. App. - Austin 2003, pet. denied). Young
‘Plaintiff cannot rely on its verified Application as testimonial evidence because pleadings, even if
sworn, are not competent evidence. See Laidlaw Waste Sys. v. City of Wilmer, 904 S.W.2d 656, 660 (Tex.
1995), citing Hidalgo v. Surety Sav. & Loan Ass'n, 462 S.W.2d 540, 545 (Tex. 1971).
5 Exhibit 3 ‘
Defendants’ Original Answer Page 922.
23.
24,
25.
Chevrolet, Inc. v. Texas Motor Vehicle Bd., 974 S.W.2d 906, 911 (Tex.
App. — Austin, 1998, writ denied). .
In the alternative, even if a declaratory action was available to Plaintiff as a
remedy, Plaintiff has failed to allege any grounds which would show a
reasonable possibility of prevailing on such a claim. Here, Plaintiffs
Application nakedly states: .
“GWR seeks a determination of the proper
construction and application of the relevant statutes of
the Tax Code. More specifically, the court should
declare the Comptroller’s policy as described by
Comptroller Letter No. 200702945L is invalid, or that
the Comptroller has misconstrued her own policy
when applying it to GWR’s facts.” (
See Plaintiffs Application at p. 6. That mere assertion cannot support a
finding that Plaintiff has a reasonable possibility of prevailing sufficient to
merit this Court’s entering an injunction prohibiting the Comptroller from
fulfilling its statutorily mandated function of administering the Texas tax
system and collecting the taxes due.
General Denial
Subject to the foregoing, and without waiving the same, Defendants
generally deny every matter averred in Plaintiff's Original Petition, and
demand strict proof thereof.
Affirmative Defense
As to any cause of action not specifically authorized by statute, the
Comptroller asserts the affirmative defense of sovereign immunity.
Further, due to sovereign and official immunity, no attorney’s fees may be
assessed against Defendants in this case. A court may award attorneys’
fees only if there is either a contractual or a statutory basis for their award.
See Turner v. Turner, 385 S.W.2d 230, 233 (Tex. 1964). Although the
Uniform Declaratory Judgments Act (U.D.J.A.) does contain a provision
allowing for the recovery of attorneys fees, the legislature has expressly
stated that declaratory suits against the Comptroller shall not entitle the
winning party to attorney’s fees. See Tex. Civ. Prac. & Rem. Code §
Defendants’ Original Answer Page 1037.009;. but see Tex. Tax Code 112.108 (Vernon 2006); Combs v. Entm’t
Publ’ns, Inc., 292 §.W.3d 712, 723 (Tex.App.—Austin 2009, no pet.). No
other statute or contract would allow the recovery of attorney’s fees in this
case.
Prayer
For these Reasons, Defendant requests the judgment of the Court as
follows:
1. That the Court grant Defendant’s Plea to the Jurisdiction;
2. That the Court dismiss Plaintiff's claims for injunctive relief, and
3. That Plaintiff take nothing and that the Defendant recover all costs
together with such other and further relief to which Defendant may be
justly entitled.
Respectfully submitted,
Greg Abbott
Attorney General of Texas
C. Andrew Weber
First Assistant Attorney General
David S. Morales
Deputy Attorney General for Civil
Litigation
Kevin D. Van Oort
Chief, Taxation Division
Gunnar P. Seaquist
Assistant Attorney General
State Bar No. 24043358
Taxation Division
Defendants’ Original Answer Page 11P.O. Box 12548
Austin, Texas 78711-2548
Tel: (512) 475-1747
Fax: (512) 478-4013
Attorneys for Defendants
Certificate of Service
I do hereby certify that on the 19" day of July, 2010, a true and correct
copy of this pleading was sent to the parties to this action as follows:
James F. Martens
Michael B. Seay
Martens, Seay & Todd
301 Congress Ave, Ste. 1950
(Attorneys for Plaintiff)
Via Certified Mail Return Receipt Requested
unnar P, Seaquist
Assistant Attorney General
Defendants’ Original Answer Page 12Exhibit 1
Defendants’ Original Answer
Page 13qvage 3 of 13)
TEXAS COMPTROLLER of PuBLic AccounNTs
WWW, WINDOW, STATE ,.TX,US.
BUSINESS ACTIVITY RESEARCH TEAM
6875 BANDERA ROAD
SAN ANTONIO TX 78238-1359
1-866-345-6780 or 210-257-4600 FAX # 210-509-1860
February 26, 2009
GWR Aviation LLC
Attn: Grady W Roberts
9 Greenway Plz Ste 700
Houston, TX 77046-0914
RE: Aircraft: Tail #134GR, Serial #068, 1992 Learjet Inc 31A
Taxpayer Number: 32019719650, Exam Period: 0604-0604 i
Dear Grady W Roberts,
We have not received any response to our questionnaire or any of the correspondence
previously sent to you inquiring into the above aircraft. Therefore, based on the information we
have obtained through the FAA, we must take the position that this was a taxable transaction
and that Texas Use Tax is due on this purchase.
Attached is our Texas Notification of Exam Results that includes your taxpayer rights and the
deadline by which to request a redetermination hearing if you disagree with our assessment.
While this examination is not an actual audit, | would like to emphasize certain procedures that
apply in my examination; these are as follows:
If you disagree with the assessment, you can request a redetermination. hearing. Your
1.
statement of grounds must be submitted within 30 days of the date of the bill.
“2. Please be advised that if payment is not received within the 40 days, certain Enforcement
collection procedures will commence.
3. Once the determination becomes final, you must pay the liability and seek relief via a refund
hearing.
If you agree with the tax assessment, please send a check or money order made payable to the
STATE COMPTROLLER to my attention at the above address. If you have any questions
regarding the enclosed Notice or on the taxability of this transaction, please feel free to contact
me at 1-866-345-6780, extension 44621 or by email at albert.alvarez@cpa.state.tx.us,
Sincerely,
Ath a—
Albert Alvarez
Business Activity Research Team(wage 4 of 13)
uy oty
TEARS NOTIBREATIN,OF xa RESULTS
Taxpayer_N.
GAR AVTATIONS L.L.C.
LRP Pes, excrse ano use Tax
_
CT
EREST THRU STATEMENT DATE
IF PAID AFTER 02-26-2009, ADD INTEREST OF $
INTEREST RATE NOTE ON BACK. )
IF PAID AFTER 04-09-2009
(TEX. TAX CODE ANN.SEC. 411.0081).
$ ae
14,9
32,71
BS
AMOUNT DUE AS OF STATEMENT DATE $ 197,389.73 ° $
ADD AN ADDITIONAL 10% PENALTY OF $
February 0) BAD
SeaBRS9 Suet"
04-01-2608" then 64-30-2006
LO TI
ohie + tig
49, 168,59
10/465. 1 ei
63,155.11. $
23.01 PER DAY THROUGH DATE OF PAYMENT.* (SEE
19, 758.75,
THIS NOTIFICATION BECOMES FINAL ON 03-30-2009, unless you request a redetermination hearing by
this date. Ifa hearing Is not requested, this determination becomes final on 03-30-2009, and it Is due and
payable on 04-09-20!
The results of this exam do not rescind or rgnlae
regardin, outstanding balances. You are liable f ;
this exam should not be taken as approval of your tax reporting system. Law
ifferent findings in
be responsible for any Foxes found owing and due,
The results o}
I?
ey
Qa
CATION OF EXAM RESULTS
Ce AR ChE ANN.SEC. HOBBS
February 2, 2008
Taxpayer Name & Mailing Address
TATION, L.L.C.
a
*Tcode *Taxpayer Number *Period *Audit
26040 32019719650 0604 003 197359.73
ALBERT ALVAREZ
COMPTROLLER OF PUBLIC ACCOUNTS
6875 BANDERA ROAD
SAN ANTONIO TX 78238-1359
Amount of Your Payment
*PMD
*State Amount
63155.11
*Local Amount(wage > ,of 13)
00-240
TAXPAYER RIGHTS SUMMARY
If you disagree with the exam results, jou may request a redetermination hearing.
Your request must be postmarked by 30-2008" 9
If you request a redetermiviation hearing, you are not required to pay the assessment at
that time, but if you request a redetermination hearing without making payment, interest
will continue to accrue on the tax ultimately determined to be owed to the state. Any
payments, full or partial, will stop or reduce the accrual of interest. .
If a hearing is not requested this determination becomes final on 03-30-2009, and it is
due and payable on 04-09-2009,
Hearing requests must include a statement of grounds that describes, in detail, the
reasons you believe the determination is incorrect,. Your statement should describe, as
clearly as possible, the facts'and the provisions of the tax laws and Comptroller rulas
upon which you are relying. All hearing requests should be in writing and sent to the”
Audit Processing section of the Audit Division at Comptroller of Pubfic Accounts,
111 E. 17th Street, Austin; Texas 78774-0100, :
{f you do not request.a hearing or pay the amount due, several collection actions may be
initiated. These actions include, but are not limited to, filing of tax Mens; tiling .
legal suit for injunction and/or judgment; revocation or suspension of any permit,
license, or certificate issued by the Comptroller; withholding of state-issued warrants; °
forfeiting of posted bond or security; requiring new or additional bond or security;
freezing of assets; and seizure and sale of properties.
The Comptroller wants to ive all taxpayers full consideration in each case. There
Is more information in our prochyres, * ‘ontestin Disagreed, Audita and athe | ules
oT Practice an ‘rocedui a ou Can Ol in the! our lot 1 or cal
7-800-681-6441, ext. 3-3900 toll-free nationwide, oF call 815/485-5800,
00-240
* Per annum interest rates are subject to change on January 1st of each year. For
interest information, refer to Publication 98-304, or call B77 447-203 , OF go to
http://www. window. state.tx.us/taxinfo/int_rate. html
- **Please be advised that this notice is for an unaudited tax assessment. This
examination does not cdnstitute an audit.Exhibit 2
Defendants’ Original Answer Page 14AIRCRAFT L) ASE AGREEMENT
THIS AGREEMENT (“Agreement”) is made an entered in to this 13th day of March 2006 (the “Effective
“Date”, by and berween GWR AVIATION, LLC, # Texas limited Uability company ("Owner"), and
AMERICAN JET INTERNATIONAL CORPORA’ ION, a Texas corporation (“Agent”),
W. [NESSETH:
WHEREAS one of the businesses in which Agent s involved fs the feasing/management of private aircraft, and
in that regard, Agent holds an Air Carrler Operating C srtificate issued pursuant to Part 135 of the Federal! Aviation
Regulations (FAR) 14 C.F.R. section 135.5 (the “Cert: cate") and,
WHEREAS, Owner is the registered operator of vn: 068 a 1993 Bombardier Learjet 31A with Registration
‘NOSOAPF (the “Aircra"),
NOW, THEREFORE, for and in cot
mlitual promises, terms, conditions, and covenants cont tined herein, the parti
1, Lease: Owner hereby retalns Agent as Owner's « xclusive agent solely for the purposes of leasing the Aircraft
for on-demand FAR 135 operations set forh in the Agreement, and Agent hereby accepts such
leasing/management responsibility on the terms ¢ +t forth in this Agreement. Under this Agreement the ter
“Owner” shall include any charter customer (i) tat is an entity owned or controlled, directly or indirectly, j
whole or in part, by the same person(s) or entity ntities as Owner, and (ii) uny shareholder, partner, memb¢r,
director, officer or employee of any of the foregol g entilies or of Owner,
sideration of 1 payments to be made hereunder and in consideration of the
ies hereto agree as follows:
e t: This Agreement shall bec: me effective on tho date first above written and shall continue.
months fr _m said date, unless elther party gives sixty Coy days written
Not later han the end of six (6) months from the effective date of this
the end 0 every six (6) month period thereafter, Agent will conduct an
wner and/t r the Owner's designated representative to provide a detailed
but not Ii nited to, revenues generated and costs Incurred for the entire
for the ¢ tire time period since the last such review meeting and to
jes for he upcoming six (6) months, On the anniversary date of this
«ate, this Agreement shall automatically continue pursuant to
the same terms and conditions as set forth herein, inless elther party gives notice of termination of at least thirty
(30) days prior to the written term. In the event ei her party gives such written notice of termination hereto, then
this Agreement shall terminate ninety (90) days ¢ ter recelving such notice. In order to comply with the FAA
_ Yegulations, specifically Part 135.77, it is jointly greed and acknowledged between Owner and Agent that all
times during this Agreement, Agent shall have ex dJusive possession, command, and control of the AlrcraRt and
shall retain operational control of the Aircraft. t all times, Agent shall exercise exclusive authority over
initiating, conducting, or terminating any flight co ducted pursuant to this Agreement, and the Flight Crew shal!
be under the exclusive command and control of A) ent in all phases of such flights and at all times.
2. Ter
for a period of twelve (12) consecutive Sova
notice of termination for convenience.
agreement and thereafter, not later then
Operations Review Meeting with the O1
review of all flight activities to include,
time period since the effective date or
provide a forecast of expected flight activit
agreement and on every succeeding anniversary
3, Charter Rate and Billing: Agent shall charge at hourly rate to outside customers in excess of the amount paid
to Owner (as set forth in Exhibit “A") for Chartet Flight Hours, ‘This ‘Delta’ is fully earned ond Is designed as
additional compensation to agent for booking reve we onto Owners Aircraft.
jing: Agent shall be responsib > for all contracting with, billing and collecting from charter
customers, including Owner, and only Agent may dill the charter ctistomer for the charter flight, Agent shall be
solely responsible for collection of all incidental « xpenses and any taxes duo from all charter customers and for
payment of such incidental expenses and taxes to’ 1¢ appropriate vendors, entities or taxing jurisdictions, Agent
shal) assume the risk of non-payment, non-colle tion, or refunds of charter flight revenues from any charter
customer other than the Owner, Owner's guests ¢ ‘ ther Owner related flights, provided, however, Agent shall
not be responsible for non-payment or non-collec ion of charter flight revenues to the extent such revenues are
non-collectable due to termination or interruptior of a charter flight resulting from mechanical malfunction, or
other direct action or demand by owner,
4. Contr:
NO68OAF
Charter Management and Lease Agreement
Page | of 8a
» Taxes: (3) None of the payment
Fuel Tax Credit: Agent shall credit owners ace int the amount of 0.175 cents per gallon of fuel actually used
in flights chartered by Owner, (As point of clariff ation, such credit shall only apply to the number of gallons of
fuel actually used during such flights, as opposed! ) the amount of fuel up lifted to the aircraft immediately prior
to such flight) Such amount (ic, 0.175 per gallon’ is intended to reflect the fuel tax credit currently provided by
relevant federal tax law, To the extent that suc 1 tax law is amended or other legislation Is enacted which
actually increases or decreases the current tax cre it of 0,175 cents per gallon, the amount credited by Agent to
‘Owner shall correspondingly increase or decrease,
Monthly Operating Account Credits: Not later han the last day of each calendar month Agent shall credit the
following to a bookkeeping account maintained b; Agent to account for revenue and costs incurred with respect
fo the Aircraft (the Operating Account):
a, Hourly Rate Charges in connection with charl r flights and positioning flights as follows:
1, Owner and Owner Related Char +r Flights - $1000.00 per flight hour(s) flown.
2, Non Owner and Non Owner Rel ted Flights —
* Charter Legs - $950.00 per light hour(s) flown, paid to Owner.
count Debits: Not late’ than the 15" day following the last day of esch calendar
from 1} + Operating Account (i) the amount of all Direct Operating
and ol ier non revenue operations conducted during such month, (ii)
‘ed Juring or applicable to such month. “Fixed Operating Cost”
means any costs directly related fo the storage, ut +, or operations of the Aircraft, including, without limitation,
aircraft management fees and costs of Aircraft hn |! and liability insurance, but excluding direct and incidental
operating costs, “Direct Operating Costs” mean: cost incurred for fuel, lubricants, oxygen and other aircraft
consumable products used In connection with ftlg! ¢ operations conducted by Agent, engine maintenance service
plan hourly costs, and all maintenance and repair ¢ ysts.
tatement_o| 1: Not Jater than the 15" day of each calendar month, Agent shall send to Owner an
itemized statement of account describing in deta , and including all reasonably requested support by Owner,
with respect to the immediately preceding cales jar month, (f) # summary of all operations of the Aircraft
conducted by Agent, including
ctedits to the Operating Account (iii) all deductlo s from the Operating Account, and (iv) the ending Operating
Account Balance.
Payment of Operating Account Balance: Wit! In thirty (30) days after the statement date of each statement
provided pursuant ta Paragraph 8, and subject to the provislons of Paragraph 10: (i) if the Operaling Account
contains a credit balance, Agent shall remit fro a the Operating Account the lull balance of the Operating
‘Account to Owner for the immediately preced! g calendar month; however, (ii) if the Operating Account
contains a deficit balance, Owner shall remit to Agent the artount required to raise the Operating Account
balance to zero,
eatin,
month, Agent shall be entitled to deduct
Costs incurred by Agent for charter flights,
the amount of all Fixed Operating Costs incurr
. Right of Offset and Use of Alreraft: (a) ‘The p wties acknowledge that Owner may charter alr transportation
ie to time using the , ircraft. Contrary provisions of Paragraph 9 notwithstanding,
services from Agent from thm
amounts due and payable from Owner to Agent for chi
attributable to Hourly Rate charges., incidental ©) senses, and taxes may be (i) netted against the credit balance
due and payable to Owner pursuant to Paragraph ! (i), if any, or (it) added to the deficit balance due and payable
to Agent pursuant to Paragraph 9(ii), if any; p ovided, however that any amount netted against the credit
balance, or added to the deficit balance, pursuant 1 » this Section 10 must be separately stated on the Statement of
Account.
arter services provided to Owner, including amounts
ts to be made by \gont to Owner under this Agreement includes the amount of
any taxes which may be assessed or levied by w y taxing Jurisdiction as a result of the use of the Aircraft by
Owner hereunder, or the use of the Aircraft by sgent or the provision of # taxable transportation service by
Agent using the Alrcraft. Agent shall be responsi ‘le for income and excise taxes on Agent’s income eamed for
N6BOAF
Charter Management and Lease Agreement
Page 2 of 8
charter flights, rej asitioning flights, and non-revenue operations, if any, (id) all12,
13,
14,
\
providing services under this Agrecment, (b) If any taxes are required by applicable low to be paid by Agent
directly to the appropriate taxing jurisdiction (e.g. FET), Agent shall remit such taxes directly to the appropriate
taxing jurisdiction promptly at the time required b * Applicable Law.
Books and Records: The books and records of / gent (Including all bills, vouchers and related data) relating to
the Aircraft shall be maintained in accordance vith generally accepted accounting principles, to the extent
applicable, Such books and records shall be mi Je available for Inspection by Owner, or Owner's designees
upon reasonable notice snd during normal busines hours.
Non-Solicitation of Employees.
Agent, on behalf of itself and its reprosentativ s, agrees that it will not, during the period of this Agreement
and for one (1) year thereafter, for any reasor whatsoever, directly or Indirectly, Individually or on behalf of
persons not now parties to this Agreement, ai or endeavor to solicit or induce any of Owner's employees to
feave Owner In order to accept employment o ‘any kind with any other person or entity, including Agent.
a
b. Owner, on behalf of itself and its representati ss, agrees that it will not, during the perlod of thls Agreement
and for one (1) year thereafter, for any reasor whatsoever, directly or indirectly, individually or on behalf of
persons not now parties to this Agreement, ai | or endeavor to solicit or induce any of Agent's employees to
leave Agent in order {o accept employment of any kind with any other person or entity, including Owner.
Non-Solicitation of Customers
Agent, on behalf of itself and its representatis 2s, agrees that it will not, during the period of this Agreement
a
and for two (2) years thereafter, for any reas: n whatsoever, directly or indirectly, individually or on behalf
of persons not now partics to this Agreem: nt, aid or endeavor to solicit or induce any of Customer's
Specific Industry Customers to leave Custom» r In any way.
’b. Owner, on behalf of itself and its representat! es, agrees that it will not, during the period of this Agreement
and for (wo (2) years thereafter, for any reas' n whatsoever, directly or indirectly, individually or on behalf
of persons not now parties to this Agreement, ald or endeavor to solicit or induce any of Agent's Customers
to leave Agent, or Agent's Affiliated Compan es in any way.
15, Obligation: During the term of this Agreement 1 1d any extensions hereto, the Parties shall have the following
duties, obligations and rights with respect to mana jement of the aircraft,
a, Crew: Agent shall be responsible for provic ing flight crews. Agent shall be responsible for conducting a
background check, and periodic drug and al ohol screening of all pilots and flight crew members. Agent
shall schedule all crewmembers training as cquired by law. Agent shall be responsible for the cost of
training pilots, Notwithstanding the foregoin ; sentence, Owner shall be responsible for the cost of one (1)
Initial Simulator Training event (defined in E hibit “A” to this Agreement) per year. Further, should Owner
terminate this Agreement before the expirati in of the Initial term, as provided for in Paragraph 2 of this
Agreement, or otherwise, Owner shall be esponsible for the cost of training pilots, Agent shall be
responsible for pilot salaries, and benefits, Owner shall be responsible for paying Agent a Daily Crew
Expensé as set forth on Exhibit “A” for all Dwner flights. Owner shall not be responsible for any such
Daily Crew Expense for any day during wh :h the Aircraft shall be used for both an Owner flight and a
charter flight. Should such an event occur, a J the Owner flight oxtends into additional days past the day of
such event, Owner shall be responsible for C aily Crow Expenses for each such additional day, The flight
crews used for flights of the Owner's aircraf shall meet or exceed F.A.R. 91 or F,A.R, 135 standards and
those requirements set forth by the Owner's insurance company for flight proficiency, safety, aviation
knowledge, and all requirements for conditic 1s for the coverage under the Owner's insurance policy. All
flights shall have a pilot and co-pilot. Agent hall maintain a scheduling log and shall dispatch all use of the
Aircraft by Agent, and shall coordinate all repairs and maintenance of the Aircraft so os to minimize
interference with any scheduled or anticipate | utilization. At Owner’s request, Agent shall present flight-
scheduling requirements for prospective ct wter flights to Owner for prior approval In Owner's solo
discretion as far in advance of the date «f the proposed charter flight as is reasonably practicable,
Notwithstanding Owner’s approval of any ch rter flight, in the event that any Owner requests to charter the
N680AF
Charter Management and Lease Agreement
Page 3 of 8Aircraft at a time that conflicts with a schedu’ id charter flight of a non Owner the Owner may preempt such
other charter flight upon not less than forty-ei hi hours advance notice to Agent.
b. Insurance: Agent shall, at Owner's expense, secure all aircraft, risk, hull, and liability insurance, including
war risk coverage, in an amount no less han $50,000,000.00 for bodily injury, including injury to
passengers and/or property. Said insurance st sl] include the following provisions,
(i) Owner, its officers, directors, partne s, owners, shareholders, members, agents and employees are
included as additional insureds.
(ii) If the insurance is canceled for any reason whatsoever, or any change is made which materially
affects the coverage provided to Age it or Owner, such cancellation or change shall not be effective
for thirty (30) days or such other j eriod as is customarily obtainable in the aviation insurance
industry in dhe case of any “war risk and allied perils,” coverage after receipt by Agent from such
insurers of written notice of such car: :ellation or change.
(iii) Such insurance as fs afforded for A; ent and Owner shall not be invalidated duc to any negléct of
the Owner's Agent, Agent, or custom 21. .
A certificate of insurance and a copy of eac t Insurance policy covering the Aircraft will be provided to
Owner, evidencing the foregoing provisions p jor to the commencement of this Agreement, Such insurance
shall be maintained in full force and effect du Ing the term of this Agreement and the failure to maintain the
insurance will constitute a material breach o the Agreement. At Owner's request, Agent shall cause the
company issuing the insurance policy caller for herein to add Owner's lender or lenders as additional
insured.
Limitation of Linbility: Agent's liability -» Owner arising from any accident, injury or property loss
involving the Alrcraft will be strictly limite | to any recovery obtained under any applicable insurance
policies provided for herein and in force at fe time of such‘ accident, injury or property loss, except (i) to
the extent recovery under any such policy is denied as a result of Agent's gross negligence, willful
misconduct, or illegal acts .
d. Maintenance of Aircraft: Owner will | > responsible for all maintenance costs including engine
maintenance programs on the Aircraft. To cor iply with FAA Regulations, the Aircraft will be maintained in
accordance with all applicable FAR'S and Agent’s Operations Specifications at all times. Agent will
facilitate owner's maintenance and pilot te m with scheduled and non-scheduled maintenance for the
aircraft, All aircraft maintenance shall be pt formed by persons or entities selected by Agent, and such
persons or entities shall be qualified to perfo m the work required. Any warranties, guaranties, or similar
rights relating to parts, repairs, and maintenar 26 of the Aircraft will be the property of Owner. All Aircraft
maintenance will need to be, preformed and » oordinated with agent's Director of Maintenance. All flights
whether FAR 135 charter or Part 91 shal be conducted in accordance with FAR 135 maintenance
standards, Agent shall maintain complete re ords of all maintenance performed on the Aircraft, and shall
make such records available for Inspection a id copying by Owner or Owner’s designee, upon reasonable
nofico and during normal business hours.
c.
Fuel: Agent shall be responsible for the pay nent of all fuel, except the owner shall pay agent for all fuel
actually used in flights chartered by owner a agents published rate, less the discount provided in Exhibit
“A” attached hereto, subject to the credit desc ibed in Section 5 hereof,
f Miscellaneous: Agent shall be responsible for any other duties associated with the operation and
management of the aircraft required by FA : 135 operations and Owner hereby specifically authorizes
Ayent to provide such services, to contract ar such services as necessary to effectuate the Intent of this
Agreement, and to make changes to the A
Preview
Filed 10 July 19 A8:46 Amalia Rodriguez-Mendoza District Clerk : Travis District Cause No. D-1-GN-10-002059 D-1-GN-10-002059 GWR Aviation, LLC, In the District Court of Plaintiff ve Travis County, Texas Susan Combs, Comptroller of Public Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas, Defendants 126" Judicial District MO) CO) GD) CO) CO) CO) CO) (0? CO) CO? Defendants’ Plea to the Jurisdiction and Original Answer to Plaintiff's Application for Temporary Injunction and Permanent Injunction To The Honorable Judge of the Court: . Defendants Susan Combs, Comptroller of Public Accounts of the State of “Texas, and Greg Abbott, Attorney General of the State of Texas,(collectively the “Comptroller”) respectfully submit their Plea to the Jurisdiction, Original Answer to Plaintiff's Application for Temporary Injunction and Permanent Injunction (‘Plaintiff's Application”) and shows the Court as follows: I. Plea to the Jurisdiction 1. Plaintiffs Application seeks a temporary injunction enjoining the Comptroller from collecting sales and use tax due on Plaintiffs purchase of a 1993 Bombardier Learjet, and further seeks a permanent injunction reversing the final assessment made by the Comptroller. The Court is without jurisdiction to grant either of these requests for relief. 2. Plaintiff's claims for injunctive relief are barred by the doctrine of sovereign immunity because they seek to control state action by denying the Comptroller the power to collect delinquent taxes from the Plaintiff. See McLane Co., Inc. v. Strayhorn, 148 S.W.3d 644, 649 (Tex.App.— Austin 2004, pet. denied) (“a suit that seeks to impose liability on the state or to control state action is a suit against the state and may not be maintained without a waiver of sovereign immunity”). Defendants’ Original Answer Page 1Texas Tax Code § 112.101 provides a limited waiver of sovereign immunity for taxpayers seeking injunctive relief in relation to a Comptroller tax assessment, but sets specific statutory prerequisites which must be satisfied prior to suing for an injunction, See Tex. Tax Code Ann. § 112.101 (Vernon 2006). Since a state may withhold its consent to be sued entirely, it may impose such conditions and limitations on its consent to be sued as it may deem desirable. Paris Milling Co. v. Bullock, 583 S.W.2d 487, 489 (Tex. App.Austin 1979, no writ). Legislatively enacted conditions and limitations imposed upon a waiver of sovereign immunity are jurisdictional facts, and there must be full compliance with them in order for the court to acquire subject-matter jurisdiction to consider the merits of a given claim. Jd; Tex. Gov’t Code 311.034 (Vernon 2008)(providing statutory prerequisites to suit are jurisdictional in suits brought against government entities). Further, statutes waiving immunity are to be strictly construed. See Veterans Admin. v. Kee, 706 S.W.2d 101, 103 (Tex. 1986), citing McMahon v. U.S., 342 U.S. 25, 72 8, Ct. 17, 96 L. Ed. 26 (1951). In pertinent part Texas Tax Code § 112.101 states that an action for a restraining order or injunction that prohibits the assessment or collection of taxes may not be brought against the Comptroller unless the applicant has first paid the taxes, penalties, and interest then due or filed a bond sufficient to guarantee the payment of the taxes, penalties, and interest then due, as well as the taxes penalties and interest that would accrue during the pendency of the case. Tex. Tax Code Ann. § 112.101(a)(2). The amount and terms of such a bond, as well as the sureties thereon, must be agreeable to both the judge considering injunctive relief and the Attorney General. Id. In this case, Plaintiff has neither: paid the taxes, penalties, and interest due and owing on its purchase of the Learjet, nor filed a bond as required to seek an injunction, and has therefore failed to satisfy the statutory prerequisites to suit necessary to pursuing injunctive relief against the Comptroller and Plaintiff's sovereign immunity bars Plaintiff's Application. See Bullock v. Amoco Prod. Co., 608 S.W.2d 899 (Tex. 1980) (taxpayer could not bring suit for tax refund without following statutory remedy then in effect). In an invalid attempt to establish jurisdiction, Plaintiff attaches a purported, but unproven, “Oath of inability to pay taxes, penalties, and interest due. Plaintiff suggests that Tex. Tax Code § 112.108 entitles it to seek injunctive Defendants’ Original Answer Page 2relief prohibiting the Comptroller from collecting the assessed taxes and setting aside the Comptroller’s assessment upon such an oath, thereby relieving Plaintiff of the statutory obligation to file a bond. See Tex. Tax Code 112.108 A plain reading of § 112.108 refutes that notion. In fact, § 112.108 states only that upon oath of inability to pay, “a party may be excused from the requirement of prepayment of tax as a prerequisite to appeal [to the district court].” Tex. Tax Code § 112.108. 7. Thus, by its plain language, § 112.108 only contemplates excusing the requirement of pre-payment in the context of an appeal of a tax assessment; such as a protest suit. By its own terms, section 112.108 does not excuse the § 112.101 bond requirement for persons seeking an injunction enjoining the Comptroller from collecting taxes. Indeed, the Texas Supreme Court has confirmed the importance of the § 112.101 bond requirement by recognizing that “by authorizing expedited procedures in the event that normal collection may be jeopardized, and by requiring payment or other security before injunctive relief can be sought, sections 111.022 and 112.101 protect the State against delays that may impinge its ability to collect taxes that may legitimately be owed.” R Communications v. Sharp, 875 S.W.2d 314, 317 (Tex. 1994) (emphasis added). As such, Plaintiff was statutorily required to post a bond prior to filing its Application, and because it did not do so it has not satisfied the jurisdictional prerequisites necessary to establish a waiver of the State’s sovereign immunity. Therefore, sovereign immunity deprives this Court of subject-matter jurisdiction to consider the merits of Plaintiff's demand for injunctive relief to control the collection actions of the Comptroller. 8. Finally, to the extent Plaintiffs Application also alleges a claim for declaratory relief, those claims should be dismissed as they would be wholly redundant to the statutory remedies provided by the legislature in the Texas Tax Code. Tex. Tax Code Ann. § 112.051 (Vernon 2008). When a plaintiff properly files suit under Title 2 of the Code, the Court has the authority to offer full-relief with the exception of attorney fees. If the Court determines that the Comptroller has collected or assessed the tax at issue erroneously, the Court may order the full amount of the tax, penalty, and interest paid by the taxpayer to be refunded or revise the assessment. Additionally, the taxpayer may also recover statutory interest on the amount paid from the date of payment to the date of repayment. Tex. Tax Code Ann. §§ 112.060, 112.155 (Vernon 2008). Moreover, in Title 2 claims, the Court may also construe the Tax Code and hold any or all parts of the statute unconstitutional as well as invalidate Comptroller rules and policies. i Defendants’ Original Answer Page 310. ll. See, e.g., Combs v. Entm't Publ'ns, Inc., 292 §.W.3d 712 (Tex.App.— Austin 2009, no pet.). A declaratory judgment will not lie when a statute provides a specific, adequate remedy. See Raytheon E-Systems, Inc. v. Strayhorn, 101 S.W.3d 558, 572 (Tex. App. - Austin 2003, pet. denied). Young Chevrolet, Inc. v. Texas Motor Vehicle Bd., 974 S.W.2d 906, 911 (Tex. App. — Austin, 1998, writ denied). Injunctive Relief Improper Subject to the foregoing plea, Plaintiff has not shown itself entitled to injunctive relief. Tax Code section 112.1011 states that “[a] court may not issue a restraining order or consider the issuance of an injunction that prohibits the assessment or collection of an amount...unless the applicant demonstrates: 1) irreparable injury will result to the applicant if the order or injunction is not granted, 2) no other adequate remedy is available to the applicant, and 3) the applicant has a reasonable possibility of prevailing on the merits of the claim. Plaintiff has failed to adduce evidence establishing any of these required threshold factors, and § 112.1011 therefore prohibits the Court from considering the issuance of an injunction prohibiting the Comptroller’s collection of taxes. See Tex. Tax Code § 112.101; 112.1011. A. Plaintiff has shown only a hypothetical harm, not an irreparable injury. Atrial court may not grant an injunction based on a hypothetical situation which might or might not arise at a later date. See Camarena v. Tex. Employment Comm’n, 754 8.W.2d 149, 151 (Tex. 1988). Plaintiff alleges that it will suffer irreparable injury absent an injunction because “the Comptroller will seize GWR’s assets or coerce it, under threat of seizure, to make payments of the underlying assessment in amounts that GWR cannot reasonably afford and still maintain its ability to conduct business.” Plaintiff has failed to produce evidence as to what assets might be seized and to make any showing that such seizure would constitute irreparable injury that could not be remedied by the return of the amount recovered along with statutory interest in the unlikely event that the Comptroller’s assessment is determined to be improper. Further, Plaintiffs suggestion that the Comptroller might coerce it to make payments it cannot afford is entirely speculative as to what the Comptroller would do or whether Plaintiff could afford any partial payments of the tax liability. Indeed, Plaintiff's affidavit is merely a conclusory statement that Defendants’ Original Answer Page 4Plaintiff cannot afford to pay the ful] amount of tax, penalties, and interest due in this case. See Plaintiffs Application, Exhibit C. Plaintiff has made no showing that it could not afford a lesser payment to support its contention that such a scenario would constitute irreparable harm. Accordingly, Plaintiff has failed to establish an irreparable injury, and is not entitled to injunctive relief under Tax Code § 112.101. B. Plaintiff had another adequate Remedy 12. Although Plaintiff's Application contains the bare recital that it had no other remedies through which to challenge the tax assessment at issue, the Plaintiff could have filed a protest suit pursuant to Tex. Tax Code § 112.051; 052. Plaintiff alleges that it could not have filed a protest suit under Chapter 112 because it did not have the ability to pay the amount of the Assessment and because the statute of limitations had expired. See Plaintiff's Application at p.5. However, § 112.108 allows a party to file an oath of inability to pay (as Plaintiff has filed with this Application for injunctive relief) in order to be excused from the prepayment requirement normally necessary in a tax protest suit to appeal a Comptroller tax assessment. See Tex. Tax Code § 112.108, 112.051; 052. Thus, although Plaintiff seeks to improperly use a pauper’s affidavit to avoid the bond requirement in an injunction suit, it could have properly used the oath of inability to pay in the context of excusing prepayment in a § 112.052 tax protest suit. 13. | Moreover, the fact that Plaintiff did not avail itself of the protest remedies in the Tax Code prior to the running of the applicable limitations. period does not render that remedy inadequate. Under the Tex. Tax Code, Plaintiff had six months from the date of the deficiency determination to file a written protest with the Comptroller. Tex. Tax Code Ann. §§ 112.051; 111.104. As mandated. by the Tax Code, the notice of tax deficiency in this case was sent to Plaintiff on February 26, 2009.1 See Tex. Tax Code § 111.008. Therefore, in order to challenge that deficiency assessment, Plaintiff was required either to pay the tax and request a refund or file a written protest on or about August 26, 2009. See Tex. Tax Code §§ 111.104; 112.051. Plaintiff failed to avail itself of that remedy, and cannot use its own failure to timely protest the assessment as a ground necessitating an injunction from this Court. " Exhibit 1 Defendants’ Original Answer . Page 55 C. ‘Plaintiff cannot demonstrate a reasonable possibility of prevailing on the merits and the Comptroller has correctly assessed taxes on Plaintiff’s Learjet. : ‘a Plaintiff cannot prevail on the merits because its claims are barred by the statute of limitations. 14, Plaintiff cannot show a reasonable possibility of prevailing on the merits in this matter because, as stated, the statute of limitations for challenging a Comptroller tax assessment, or filing suit thereon has expired. See Tex. Tax Code §§ 111.104; 112.051; 112.052. ii, Plaintiff cannot has not shown the reasonable possibility of establishing an exemption from sales and use tax. 15. Further, Plaintiff cannot demonstrate a reasonable possibility of prevailing on the merits of its claim that the purchase of its aircraft was exempt from sales and use tax under the “sale for resale” exemption found at Tax Code § 151.302. In claiming a tax exemption, the taxpayer bears the burden of clearly showing that it falls within the statutory exemption. Quorum Sales, Inc. v. Sharp, 910 8.W.2d 59, 64 (Tex. App.—Austin 1995, writ denied). All doubts as to the availability of a tax exemption must be resolved in favor of the Comptroller. Bullock v. Nat. Bancshares Corp., 584 S8.W.2d 268, 272 (Tex. 1979). Indeed, exemptions from taxation are not favored by the law and should be narrowly construed. N. Alamo Water Supply Corp. v. Willacy County Appraisal Dist., 804 S.W.2d 894, 899 (Tex. 1991). “[T]ax exemptions are subject to strict construction since they are the antithesis of equality and uniformity.” Hilltop Vill., Inc. v. Kerrville Indep. Sch. Dist., 426 S.W.2d 943, 948 (Tex. 1968); Upjohn Co. v. Rylander, 38 S.W.3d 600, 606 (Tex. App.—Austin 2000, pet. denied). 16. Additionally, “serious consideration” is given to the agency's construction of a statute that it is charged with enforcing, so long as that construction is reasonable and consistent with the statutory language. See First Am. Title Ins. Co. v. Combs, 258 S.W.3d 627, 632 (Tex.2008); of Rylander v. Fisher Controls Int'l, Inc., 45 S.W.3d 291, 302 (Tex.App.-Austin 2001, no pet.). When the Comptroller’s interpretation of the scope of a tax exemption statute harmonizes with the statute, courts are bound to accept that interpretation regardless of the existence of other reasonable interpretations. Quorum Sales, 910 8.W.2d at 64. Administrative rules, which have the Defendants’ Original Answer Page 617. 18. 19, same -force as statutes, are construed in the same manner as statutes. Rodriguez v. Service Lloyds Ins. Co., 997 S.W.2d 248, 254 (Tex.1999). Therefore, the Comptroller’s administrative construction of her rules is similarly entitled to deference. See First Am. Title, 258 S.W.3d at 632 (Tex. 2008); Osterberg v. Peca, 12 §.W.3d 31, 51 (Tex. 2000); Dodd v. Meno, 870 S.W.2d 4, 7 (Tex. 1994). a. The Learjet does not qualify as a “Sale for Resale” Tax Code § 151.302 exempts items from sales and use tax if they were sold for resale. Further, the Tax Code defines a “sale” to include the lease of the taxable property. See Tex. Tax Code § 151.005. Plaintiff claims that it purchased its Learjet for the purpose of leasing the aircraft to a charter carrier for the provision of charter flights, and that the Learjet should therefore be tax exempt as a sale for resale. However, Section 151.006(a)(2), Tax Code, defines sale for resale to mean a sale of “tangible personal property for the sole purpose of the purchaser’s leasing or renting it in the United States of America. Tex. Tax Code § 151.006(a)(2)(emphasis added). Here, GWR did not purchase aircraft for the sole purpose of leasing it to others, because in GWR’s purported lease agreement the company clearly retained the right to use the aircraft whenever it wanted? Thus, the evidence suggests GWR purchased the aircraft for its own use and merely entered into a use agreement whereby the aircraft could be leased when GWR did not need it. GWR’s use of the aircraft for its own purposes is inconsistent with the sale for resale exemption. Furthermore, the Comptroller has adopted Rule 3.294 which defines a lease or rental as “a transaction, by whatever name called, in which possession but not title to tangible personal property is transferred for a consideration for a certain time period.” 34 Tex. Admin. Code § 3.294. Comptroller’s decisions have further defined the term lease to mean the transfer of “exclusive possession, use and enjoyment of property for a specified period of time or a specified consideration. See Hearing No. 13,848 (1985) STAR 8502H0624A11; 26,144 (1990), STAR 9012H1064D01, and 40,812 (2003), STAR 200310344H. Thus, a lease which does not transfer absolute and exclusive possession, use, and enjoyment of the property is insufficient to establish a sale for resale exemption under Tex. Tax Code § 151.302 and ? Exhibit 2 Defendants’ Original Answer Page719, 20. 20. Comptroller precedent. STAR 200702945L, In this case, the agreement between GWR, as lessor, and the charter company lessee, GWR retains ultimate operational control through a provision which allows it final authority as to what flights are chartered. Specifically, in the portion of the agreement which recites the obligations of the parties, the contract states that “...At [GWR’s] request, [the charter company] shall present flight scheduling requirements for prospective charter flights to [GWR] for prior approval in [GWR’s] sole discretion as far in advance of the date of the proposed charter flight as is reasonably practical.” See Exhibit 2, Clause 15(a), at p. 3. Further, the agreement goes on to say that “Notwithstanding [GWR’s] approval of any charter flight, in the event that [GWR] requests to charter the aircraft at a time that conflicts with a scheduled charter flight of a non-owner [GWR] may preempt such other charter flight upon not less that forty-eight hours notice to Agent.” Id. at p.14-15. Accordingly, under the agreement, GWR maintains the right to approve or disapprove any charter flights on the aircraft, or to interrupt other charter flights so that it can use the Learjet for its own purposes. Such an agreement does not constitute a transfer of exclusive possession, use and enjoyment, because ultimate operational control remains with GWR. See STAR 200702945L. That agreement cannot serve as the basis for the sale for resale exemption, and the Comptroller has reasonably and properly assessed taxes against Plaintiff. b. GWR’s purchase of the Learjet does not qualify as an “Occasional Sale” Alternatively, Plaintiff argues that its purchase of the Learjet should be exempt as an Occasional Sale. See Tex. Tax Code § 151.304(a). One type of exempt Occasional Sale is defined as “one or two sales of taxable items... at retail during a 12-month period by a person who does not habitually engage or hold himself out as engaging, in the business of selling taxable items at retail.” Tex. Tax Code § 151.304(b)(1). Plaintiff alleges that it is entitled to the Occasional Sale exemption because the entity from which it purchased the Learjet, Alaska Flight Services, LLC, did not “habitually engage, or hold itself out as engaging, in the business of selling taxable items at retail. AFS also did not sell more than two items in the 12- * Exhibit 2 Defendants’ Original Answer Page 821. 21. month period previous to its sale of the [Learjet].” Plaintiff's Application at pp. 5-6. Plaintiff, however, fails to produce any evidence which tends to substantiate the hollow assertion that Alaska Flight Services did not habitually engage in either selling or leasing taxable items.* On the contrary, prior to selling the Learjet to Plaintiff, Alaska Flight Services, LLC, filed an Affidavit of Continuous Ownership with the Federal Aviation Administration in which AFS expressly stated that it leased the Learjet at issue, as lessor, for continuing use in Canada.° The Tax Code definition of a sale includes the lease or rental of tangible personal property. Tex. Tax Code § 151.005(2). Thus, the best evidence suggests that Alaska Flight Services, as the name implies, was habitually engaged in the leasing of aircraft. As such, Plaintiff has failed to provide this Court with any evidence which demonstrates that it has a reasonable possibility of establishing its purchase of the Learjet to be exempt as an Occasional Sale. c. Declaratory Judgment Finally, Plaintiff cannot show any reasonable possibility of prevailing on its claims for declaratory relief because they are wholly redundant to the statutory remedies provided by the legislature in the Texas Tax Code. Tex. Tax Code Ann. § 112.051 (Vernon 2008). When a plaintiff properly files suit under Title 2 of the code, the Court has the authority to offer full relief with the exception of attorney fees. If the Court determines that the Comptroller has collected or assessed the tax at issue erroneously, the Court may order the full amount of the tax, penalty, and interest paid by the taxpayer to be refunded or revise the assessment. Additionally, the taxpayer may also recover statutory interest on the amount paid from the date of payment to the date of repayment. Tex. Tax Code Ann. §§ 112.060, 112.155 (Vernon 2008). Moreover, in Title 2 claims, the Court may also construe the Tax Code and hold any or all parts of the statute unconstitutional as well as invalidate Comptroller rules and policies. See, e.g., Combs v. Entm't Publ'ns, Inc., 292 8.W.3d 712 (Tex.App.—Austin 2009, no pet.). A declaratory judgment will not lie when a statute provides a specific, adequate remedy. See Raytheon E-Systems, Inc. v. Strayhorn, 101 S.W.3d 558, 572 (Tex. App. - Austin 2003, pet. denied). Young ‘Plaintiff cannot rely on its verified Application as testimonial evidence because pleadings, even if sworn, are not competent evidence. See Laidlaw Waste Sys. v. City of Wilmer, 904 S.W.2d 656, 660 (Tex. 1995), citing Hidalgo v. Surety Sav. & Loan Ass'n, 462 S.W.2d 540, 545 (Tex. 1971). 5 Exhibit 3 ‘ Defendants’ Original Answer Page 922. 23. 24, 25. Chevrolet, Inc. v. Texas Motor Vehicle Bd., 974 S.W.2d 906, 911 (Tex. App. — Austin, 1998, writ denied). . In the alternative, even if a declaratory action was available to Plaintiff as a remedy, Plaintiff has failed to allege any grounds which would show a reasonable possibility of prevailing on such a claim. Here, Plaintiffs Application nakedly states: . “GWR seeks a determination of the proper construction and application of the relevant statutes of the Tax Code. More specifically, the court should declare the Comptroller’s policy as described by Comptroller Letter No. 200702945L is invalid, or that the Comptroller has misconstrued her own policy when applying it to GWR’s facts.” ( See Plaintiffs Application at p. 6. That mere assertion cannot support a finding that Plaintiff has a reasonable possibility of prevailing sufficient to merit this Court’s entering an injunction prohibiting the Comptroller from fulfilling its statutorily mandated function of administering the Texas tax system and collecting the taxes due. General Denial Subject to the foregoing, and without waiving the same, Defendants generally deny every matter averred in Plaintiff's Original Petition, and demand strict proof thereof. Affirmative Defense As to any cause of action not specifically authorized by statute, the Comptroller asserts the affirmative defense of sovereign immunity. Further, due to sovereign and official immunity, no attorney’s fees may be assessed against Defendants in this case. A court may award attorneys’ fees only if there is either a contractual or a statutory basis for their award. See Turner v. Turner, 385 S.W.2d 230, 233 (Tex. 1964). Although the Uniform Declaratory Judgments Act (U.D.J.A.) does contain a provision allowing for the recovery of attorneys fees, the legislature has expressly stated that declaratory suits against the Comptroller shall not entitle the winning party to attorney’s fees. See Tex. Civ. Prac. & Rem. Code § Defendants’ Original Answer Page 1037.009;. but see Tex. Tax Code 112.108 (Vernon 2006); Combs v. Entm’t Publ’ns, Inc., 292 §.W.3d 712, 723 (Tex.App.—Austin 2009, no pet.). No other statute or contract would allow the recovery of attorney’s fees in this case. Prayer For these Reasons, Defendant requests the judgment of the Court as follows: 1. That the Court grant Defendant’s Plea to the Jurisdiction; 2. That the Court dismiss Plaintiff's claims for injunctive relief, and 3. That Plaintiff take nothing and that the Defendant recover all costs together with such other and further relief to which Defendant may be justly entitled. Respectfully submitted, Greg Abbott Attorney General of Texas C. Andrew Weber First Assistant Attorney General David S. Morales Deputy Attorney General for Civil Litigation Kevin D. Van Oort Chief, Taxation Division Gunnar P. Seaquist Assistant Attorney General State Bar No. 24043358 Taxation Division Defendants’ Original Answer Page 11P.O. Box 12548 Austin, Texas 78711-2548 Tel: (512) 475-1747 Fax: (512) 478-4013 Attorneys for Defendants Certificate of Service I do hereby certify that on the 19" day of July, 2010, a true and correct copy of this pleading was sent to the parties to this action as follows: James F. Martens Michael B. Seay Martens, Seay & Todd 301 Congress Ave, Ste. 1950 (Attorneys for Plaintiff) Via Certified Mail Return Receipt Requested unnar P, Seaquist Assistant Attorney General Defendants’ Original Answer Page 12Exhibit 1 Defendants’ Original Answer Page 13qvage 3 of 13) TEXAS COMPTROLLER of PuBLic AccounNTs WWW, WINDOW, STATE ,.TX,US. BUSINESS ACTIVITY RESEARCH TEAM 6875 BANDERA ROAD SAN ANTONIO TX 78238-1359 1-866-345-6780 or 210-257-4600 FAX # 210-509-1860 February 26, 2009 GWR Aviation LLC Attn: Grady W Roberts 9 Greenway Plz Ste 700 Houston, TX 77046-0914 RE: Aircraft: Tail #134GR, Serial #068, 1992 Learjet Inc 31A Taxpayer Number: 32019719650, Exam Period: 0604-0604 i Dear Grady W Roberts, We have not received any response to our questionnaire or any of the correspondence previously sent to you inquiring into the above aircraft. Therefore, based on the information we have obtained through the FAA, we must take the position that this was a taxable transaction and that Texas Use Tax is due on this purchase. Attached is our Texas Notification of Exam Results that includes your taxpayer rights and the deadline by which to request a redetermination hearing if you disagree with our assessment. While this examination is not an actual audit, | would like to emphasize certain procedures that apply in my examination; these are as follows: If you disagree with the assessment, you can request a redetermination. hearing. Your 1. statement of grounds must be submitted within 30 days of the date of the bill. “2. Please be advised that if payment is not received within the 40 days, certain Enforcement collection procedures will commence. 3. Once the determination becomes final, you must pay the liability and seek relief via a refund hearing. If you agree with the tax assessment, please send a check or money order made payable to the STATE COMPTROLLER to my attention at the above address. If you have any questions regarding the enclosed Notice or on the taxability of this transaction, please feel free to contact me at 1-866-345-6780, extension 44621 or by email at albert.alvarez@cpa.state.tx.us, Sincerely, Ath a— Albert Alvarez Business Activity Research Team(wage 4 of 13) uy oty TEARS NOTIBREATIN,OF xa RESULTS Taxpayer_N. GAR AVTATIONS L.L.C. LRP Pes, excrse ano use Tax _ CT EREST THRU STATEMENT DATE IF PAID AFTER 02-26-2009, ADD INTEREST OF $ INTEREST RATE NOTE ON BACK. ) IF PAID AFTER 04-09-2009 (TEX. TAX CODE ANN.SEC. 411.0081). $ ae 14,9 32,71 BS AMOUNT DUE AS OF STATEMENT DATE $ 197,389.73 ° $ ADD AN ADDITIONAL 10% PENALTY OF $ February 0) BAD SeaBRS9 Suet" 04-01-2608" then 64-30-2006 LO TI ohie + tig 49, 168,59 10/465. 1 ei 63,155.11. $ 23.01 PER DAY THROUGH DATE OF PAYMENT.* (SEE 19, 758.75, THIS NOTIFICATION BECOMES FINAL ON 03-30-2009, unless you request a redetermination hearing by this date. Ifa hearing Is not requested, this determination becomes final on 03-30-2009, and it Is due and payable on 04-09-20! The results of this exam do not rescind or rgnlae regardin, outstanding balances. You are liable f ; this exam should not be taken as approval of your tax reporting system. Law ifferent findings in be responsible for any Foxes found owing and due, The results o} I? ey Qa CATION OF EXAM RESULTS Ce AR ChE ANN.SEC. HOBBS February 2, 2008 Taxpayer Name & Mailing Address TATION, L.L.C. a *Tcode *Taxpayer Number *Period *Audit 26040 32019719650 0604 003 197359.73 ALBERT ALVAREZ COMPTROLLER OF PUBLIC ACCOUNTS 6875 BANDERA ROAD SAN ANTONIO TX 78238-1359 Amount of Your Payment *PMD *State Amount 63155.11 *Local Amount(wage > ,of 13) 00-240 TAXPAYER RIGHTS SUMMARY If you disagree with the exam results, jou may request a redetermination hearing. Your request must be postmarked by 30-2008" 9 If you request a redetermiviation hearing, you are not required to pay the assessment at that time, but if you request a redetermination hearing without making payment, interest will continue to accrue on the tax ultimately determined to be owed to the state. Any payments, full or partial, will stop or reduce the accrual of interest. . If a hearing is not requested this determination becomes final on 03-30-2009, and it is due and payable on 04-09-2009, Hearing requests must include a statement of grounds that describes, in detail, the reasons you believe the determination is incorrect,. Your statement should describe, as clearly as possible, the facts'and the provisions of the tax laws and Comptroller rulas upon which you are relying. All hearing requests should be in writing and sent to the” Audit Processing section of the Audit Division at Comptroller of Pubfic Accounts, 111 E. 17th Street, Austin; Texas 78774-0100, : {f you do not request.a hearing or pay the amount due, several collection actions may be initiated. These actions include, but are not limited to, filing of tax Mens; tiling . legal suit for injunction and/or judgment; revocation or suspension of any permit, license, or certificate issued by the Comptroller; withholding of state-issued warrants; ° forfeiting of posted bond or security; requiring new or additional bond or security; freezing of assets; and seizure and sale of properties. The Comptroller wants to ive all taxpayers full consideration in each case. There Is more information in our prochyres, * ‘ontestin Disagreed, Audita and athe | ules oT Practice an ‘rocedui a ou Can Ol in the! our lot 1 or cal 7-800-681-6441, ext. 3-3900 toll-free nationwide, oF call 815/485-5800, 00-240 * Per annum interest rates are subject to change on January 1st of each year. For interest information, refer to Publication 98-304, or call B77 447-203 , OF go to http://www. window. state.tx.us/taxinfo/int_rate. html - **Please be advised that this notice is for an unaudited tax assessment. This examination does not cdnstitute an audit.Exhibit 2 Defendants’ Original Answer Page 14AIRCRAFT L) ASE AGREEMENT THIS AGREEMENT (“Agreement”) is made an entered in to this 13th day of March 2006 (the “Effective “Date”, by and berween GWR AVIATION, LLC, # Texas limited Uability company ("Owner"), and AMERICAN JET INTERNATIONAL CORPORA’ ION, a Texas corporation (“Agent”), W. [NESSETH: WHEREAS one of the businesses in which Agent s involved fs the feasing/management of private aircraft, and in that regard, Agent holds an Air Carrler Operating C srtificate issued pursuant to Part 135 of the Federal! Aviation Regulations (FAR) 14 C.F.R. section 135.5 (the “Cert: cate") and, WHEREAS, Owner is the registered operator of vn: 068 a 1993 Bombardier Learjet 31A with Registration ‘NOSOAPF (the “Aircra"), NOW, THEREFORE, for and in cot mlitual promises, terms, conditions, and covenants cont tined herein, the parti 1, Lease: Owner hereby retalns Agent as Owner's « xclusive agent solely for the purposes of leasing the Aircraft for on-demand FAR 135 operations set forh in the Agreement, and Agent hereby accepts such leasing/management responsibility on the terms ¢ +t forth in this Agreement. Under this Agreement the ter “Owner” shall include any charter customer (i) tat is an entity owned or controlled, directly or indirectly, j whole or in part, by the same person(s) or entity ntities as Owner, and (ii) uny shareholder, partner, memb¢r, director, officer or employee of any of the foregol g entilies or of Owner, sideration of 1 payments to be made hereunder and in consideration of the ies hereto agree as follows: e t: This Agreement shall bec: me effective on tho date first above written and shall continue. months fr _m said date, unless elther party gives sixty Coy days written Not later han the end of six (6) months from the effective date of this the end 0 every six (6) month period thereafter, Agent will conduct an wner and/t r the Owner's designated representative to provide a detailed but not Ii nited to, revenues generated and costs Incurred for the entire for the ¢ tire time period since the last such review meeting and to jes for he upcoming six (6) months, On the anniversary date of this «ate, this Agreement shall automatically continue pursuant to the same terms and conditions as set forth herein, inless elther party gives notice of termination of at least thirty (30) days prior to the written term. In the event ei her party gives such written notice of termination hereto, then this Agreement shall terminate ninety (90) days ¢ ter recelving such notice. In order to comply with the FAA _ Yegulations, specifically Part 135.77, it is jointly greed and acknowledged between Owner and Agent that all times during this Agreement, Agent shall have ex dJusive possession, command, and control of the AlrcraRt and shall retain operational control of the Aircraft. t all times, Agent shall exercise exclusive authority over initiating, conducting, or terminating any flight co ducted pursuant to this Agreement, and the Flight Crew shal! be under the exclusive command and control of A) ent in all phases of such flights and at all times. 2. Ter for a period of twelve (12) consecutive Sova notice of termination for convenience. agreement and thereafter, not later then Operations Review Meeting with the O1 review of all flight activities to include, time period since the effective date or provide a forecast of expected flight activit agreement and on every succeeding anniversary 3, Charter Rate and Billing: Agent shall charge at hourly rate to outside customers in excess of the amount paid to Owner (as set forth in Exhibit “A") for Chartet Flight Hours, ‘This ‘Delta’ is fully earned ond Is designed as additional compensation to agent for booking reve we onto Owners Aircraft. jing: Agent shall be responsib > for all contracting with, billing and collecting from charter customers, including Owner, and only Agent may dill the charter ctistomer for the charter flight, Agent shall be solely responsible for collection of all incidental « xpenses and any taxes duo from all charter customers and for payment of such incidental expenses and taxes to’ 1¢ appropriate vendors, entities or taxing jurisdictions, Agent shal) assume the risk of non-payment, non-colle tion, or refunds of charter flight revenues from any charter customer other than the Owner, Owner's guests ¢ ‘ ther Owner related flights, provided, however, Agent shall not be responsible for non-payment or non-collec ion of charter flight revenues to the extent such revenues are non-collectable due to termination or interruptior of a charter flight resulting from mechanical malfunction, or other direct action or demand by owner, 4. Contr: NO68OAF Charter Management and Lease Agreement Page | of 8a » Taxes: (3) None of the payment Fuel Tax Credit: Agent shall credit owners ace int the amount of 0.175 cents per gallon of fuel actually used in flights chartered by Owner, (As point of clariff ation, such credit shall only apply to the number of gallons of fuel actually used during such flights, as opposed! ) the amount of fuel up lifted to the aircraft immediately prior to such flight) Such amount (ic, 0.175 per gallon’ is intended to reflect the fuel tax credit currently provided by relevant federal tax law, To the extent that suc 1 tax law is amended or other legislation Is enacted which actually increases or decreases the current tax cre it of 0,175 cents per gallon, the amount credited by Agent to ‘Owner shall correspondingly increase or decrease, Monthly Operating Account Credits: Not later han the last day of each calendar month Agent shall credit the following to a bookkeeping account maintained b; Agent to account for revenue and costs incurred with respect fo the Aircraft (the Operating Account): a, Hourly Rate Charges in connection with charl r flights and positioning flights as follows: 1, Owner and Owner Related Char +r Flights - $1000.00 per flight hour(s) flown. 2, Non Owner and Non Owner Rel ted Flights — * Charter Legs - $950.00 per light hour(s) flown, paid to Owner. count Debits: Not late’ than the 15" day following the last day of esch calendar from 1} + Operating Account (i) the amount of all Direct Operating and ol ier non revenue operations conducted during such month, (ii) ‘ed Juring or applicable to such month. “Fixed Operating Cost” means any costs directly related fo the storage, ut +, or operations of the Aircraft, including, without limitation, aircraft management fees and costs of Aircraft hn |! and liability insurance, but excluding direct and incidental operating costs, “Direct Operating Costs” mean: cost incurred for fuel, lubricants, oxygen and other aircraft consumable products used In connection with ftlg! ¢ operations conducted by Agent, engine maintenance service plan hourly costs, and all maintenance and repair ¢ ysts. tatement_o| 1: Not Jater than the 15" day of each calendar month, Agent shall send to Owner an itemized statement of account describing in deta , and including all reasonably requested support by Owner, with respect to the immediately preceding cales jar month, (f) # summary of all operations of the Aircraft conducted by Agent, including ctedits to the Operating Account (iii) all deductlo s from the Operating Account, and (iv) the ending Operating Account Balance. Payment of Operating Account Balance: Wit! In thirty (30) days after the statement date of each statement provided pursuant ta Paragraph 8, and subject to the provislons of Paragraph 10: (i) if the Operaling Account contains a credit balance, Agent shall remit fro a the Operating Account the lull balance of the Operating ‘Account to Owner for the immediately preced! g calendar month; however, (ii) if the Operating Account contains a deficit balance, Owner shall remit to Agent the artount required to raise the Operating Account balance to zero, eatin, month, Agent shall be entitled to deduct Costs incurred by Agent for charter flights, the amount of all Fixed Operating Costs incurr . Right of Offset and Use of Alreraft: (a) ‘The p wties acknowledge that Owner may charter alr transportation ie to time using the , ircraft. Contrary provisions of Paragraph 9 notwithstanding, services from Agent from thm amounts due and payable from Owner to Agent for chi attributable to Hourly Rate charges., incidental ©) senses, and taxes may be (i) netted against the credit balance due and payable to Owner pursuant to Paragraph ! (i), if any, or (it) added to the deficit balance due and payable to Agent pursuant to Paragraph 9(ii), if any; p ovided, however that any amount netted against the credit balance, or added to the deficit balance, pursuant 1 » this Section 10 must be separately stated on the Statement of Account. arter services provided to Owner, including amounts ts to be made by \gont to Owner under this Agreement includes the amount of any taxes which may be assessed or levied by w y taxing Jurisdiction as a result of the use of the Aircraft by Owner hereunder, or the use of the Aircraft by sgent or the provision of # taxable transportation service by Agent using the Alrcraft. Agent shall be responsi ‘le for income and excise taxes on Agent’s income eamed for N6BOAF Charter Management and Lease Agreement Page 2 of 8 charter flights, rej asitioning flights, and non-revenue operations, if any, (id) all12, 13, 14, \ providing services under this Agrecment, (b) If any taxes are required by applicable low to be paid by Agent directly to the appropriate taxing jurisdiction (e.g. FET), Agent shall remit such taxes directly to the appropriate taxing jurisdiction promptly at the time required b * Applicable Law. Books and Records: The books and records of / gent (Including all bills, vouchers and related data) relating to the Aircraft shall be maintained in accordance vith generally accepted accounting principles, to the extent applicable, Such books and records shall be mi Je available for Inspection by Owner, or Owner's designees upon reasonable notice snd during normal busines hours. Non-Solicitation of Employees. Agent, on behalf of itself and its reprosentativ s, agrees that it will not, during the period of this Agreement and for one (1) year thereafter, for any reasor whatsoever, directly or Indirectly, Individually or on behalf of persons not now parties to this Agreement, ai or endeavor to solicit or induce any of Owner's employees to feave Owner In order to accept employment o ‘any kind with any other person or entity, including Agent. a b. Owner, on behalf of itself and its representati ss, agrees that it will not, during the perlod of thls Agreement and for one (1) year thereafter, for any reasor whatsoever, directly or indirectly, individually or on behalf of persons not now parties to this Agreement, ai | or endeavor to solicit or induce any of Agent's employees to leave Agent in order {o accept employment of any kind with any other person or entity, including Owner. Non-Solicitation of Customers Agent, on behalf of itself and its representatis 2s, agrees that it will not, during the period of this Agreement a and for two (2) years thereafter, for any reas: n whatsoever, directly or indirectly, individually or on behalf of persons not now partics to this Agreem: nt, aid or endeavor to solicit or induce any of Customer's Specific Industry Customers to leave Custom» r In any way. ’b. Owner, on behalf of itself and its representat! es, agrees that it will not, during the period of this Agreement and for (wo (2) years thereafter, for any reas' n whatsoever, directly or indirectly, individually or on behalf of persons not now parties to this Agreement, ald or endeavor to solicit or induce any of Agent's Customers to leave Agent, or Agent's Affiliated Compan es in any way. 15, Obligation: During the term of this Agreement 1 1d any extensions hereto, the Parties shall have the following duties, obligations and rights with respect to mana jement of the aircraft, a, Crew: Agent shall be responsible for provic ing flight crews. Agent shall be responsible for conducting a background check, and periodic drug and al ohol screening of all pilots and flight crew members. Agent shall schedule all crewmembers training as cquired by law. Agent shall be responsible for the cost of training pilots, Notwithstanding the foregoin ; sentence, Owner shall be responsible for the cost of one (1) Initial Simulator Training event (defined in E hibit “A” to this Agreement) per year. Further, should Owner terminate this Agreement before the expirati in of the Initial term, as provided for in Paragraph 2 of this Agreement, or otherwise, Owner shall be esponsible for the cost of training pilots, Agent shall be responsible for pilot salaries, and benefits, Owner shall be responsible for paying Agent a Daily Crew Expensé as set forth on Exhibit “A” for all Dwner flights. Owner shall not be responsible for any such Daily Crew Expense for any day during wh :h the Aircraft shall be used for both an Owner flight and a charter flight. Should such an event occur, a J the Owner flight oxtends into additional days past the day of such event, Owner shall be responsible for C aily Crow Expenses for each such additional day, The flight crews used for flights of the Owner's aircraf shall meet or exceed F.A.R. 91 or F,A.R, 135 standards and those requirements set forth by the Owner's insurance company for flight proficiency, safety, aviation knowledge, and all requirements for conditic 1s for the coverage under the Owner's insurance policy. All flights shall have a pilot and co-pilot. Agent hall maintain a scheduling log and shall dispatch all use of the Aircraft by Agent, and shall coordinate all repairs and maintenance of the Aircraft so os to minimize interference with any scheduled or anticipate | utilization. At Owner’s request, Agent shall present flight- scheduling requirements for prospective ct wter flights to Owner for prior approval In Owner's solo discretion as far in advance of the date «f the proposed charter flight as is reasonably practicable, Notwithstanding Owner’s approval of any ch rter flight, in the event that any Owner requests to charter the N680AF Charter Management and Lease Agreement Page 3 of 8Aircraft at a time that conflicts with a schedu’ id charter flight of a non Owner the Owner may preempt such other charter flight upon not less than forty-ei hi hours advance notice to Agent. b. Insurance: Agent shall, at Owner's expense, secure all aircraft, risk, hull, and liability insurance, including war risk coverage, in an amount no less han $50,000,000.00 for bodily injury, including injury to passengers and/or property. Said insurance st sl] include the following provisions, (i) Owner, its officers, directors, partne s, owners, shareholders, members, agents and employees are included as additional insureds. (ii) If the insurance is canceled for any reason whatsoever, or any change is made which materially affects the coverage provided to Age it or Owner, such cancellation or change shall not be effective for thirty (30) days or such other j eriod as is customarily obtainable in the aviation insurance industry in dhe case of any “war risk and allied perils,” coverage after receipt by Agent from such insurers of written notice of such car: :ellation or change. (iii) Such insurance as fs afforded for A; ent and Owner shall not be invalidated duc to any negléct of the Owner's Agent, Agent, or custom 21. . A certificate of insurance and a copy of eac t Insurance policy covering the Aircraft will be provided to Owner, evidencing the foregoing provisions p jor to the commencement of this Agreement, Such insurance shall be maintained in full force and effect du Ing the term of this Agreement and the failure to maintain the insurance will constitute a material breach o the Agreement. At Owner's request, Agent shall cause the company issuing the insurance policy caller for herein to add Owner's lender or lenders as additional insured. Limitation of Linbility: Agent's liability -» Owner arising from any accident, injury or property loss involving the Alrcraft will be strictly limite | to any recovery obtained under any applicable insurance policies provided for herein and in force at fe time of such‘ accident, injury or property loss, except (i) to the extent recovery under any such policy is denied as a result of Agent's gross negligence, willful misconduct, or illegal acts . d. Maintenance of Aircraft: Owner will | > responsible for all maintenance costs including engine maintenance programs on the Aircraft. To cor iply with FAA Regulations, the Aircraft will be maintained in accordance with all applicable FAR'S and Agent’s Operations Specifications at all times. Agent will facilitate owner's maintenance and pilot te m with scheduled and non-scheduled maintenance for the aircraft, All aircraft maintenance shall be pt formed by persons or entities selected by Agent, and such persons or entities shall be qualified to perfo m the work required. Any warranties, guaranties, or similar rights relating to parts, repairs, and maintenar 26 of the Aircraft will be the property of Owner. All Aircraft maintenance will need to be, preformed and » oordinated with agent's Director of Maintenance. All flights whether FAR 135 charter or Part 91 shal be conducted in accordance with FAR 135 maintenance standards, Agent shall maintain complete re ords of all maintenance performed on the Aircraft, and shall make such records available for Inspection a id copying by Owner or Owner’s designee, upon reasonable nofico and during normal business hours. c. Fuel: Agent shall be responsible for the pay nent of all fuel, except the owner shall pay agent for all fuel actually used in flights chartered by owner a agents published rate, less the discount provided in Exhibit “A” attached hereto, subject to the credit desc ibed in Section 5 hereof, f Miscellaneous: Agent shall be responsible for any other duties associated with the operation and management of the aircraft required by FA : 135 operations and Owner hereby specifically authorizes Ayent to provide such services, to contract ar such services as necessary to effectuate the Intent of this Agreement, and to make changes to the A