Texas Supreme Court advisory

Contact: Osler McCarthy, staff attorney for public information
512.463.1441 or click for email

Monday, August 22, 2011

In an order Monday the Texas Supreme Court set a briefing schedule in the constitutional challenge to Texasí business-margin tax on limited partnerships, and instructed parties to address three specific issues.

In its lawsuit, Allcat Claims Service L.P. and John Weakly v. Susan Combs, Comptroller of Public Accounts and Greg Abbott, Attorney General, filed directly with the Supreme Court, Allcat alleges the margin tax is an unconstitutional personal income tax and the comptrollerís calculation of its tax liability amounts to unequal taxation violating the Texas Constitution. The company seeks attorneys fees for that part of its complaint seeking to declare the margin tax unconstitutional under the Uniform Declaratory Judgments Act.

Legislators approved the margin tax on limited partnerships in school-finance reform passed in 2006. In that law, House Bill 3, the Legislature gave the Supreme Court original and exclusive jurisdiction for injunctive and declaratory remedies for challenges under the school-reform law and required that the Court must rule on any challenge within 120 days of its filing.

By its order the Court instructs the parties to address (1) whether the original jurisdiction vested in the Court by House Bill 3 violates the Texas Constitutionís article V, section 3; (2) whether the margins tax is a tax on income prohibited by the so-called Bullock amendment (Texas Constitution article VIII section 24(a)); and (3) whether the unequal-taxation and attorneys fees claims are beyond House Bill 3ís jurisdictional grant.

Each side will have 21 days for submitting briefs, with Allcatís due September 12 and the stateís October 3. Allcat will have a 7-day deadline for its reply.

Oral argument tentatively will be set October 24-28.