Sovereign Immunity Prevents Taxpayer From Suing State

Friday, April 17th, 2015

Texas Department of Revenue

A Texas taxpayer sued the state comptroller after being assessed for unpaid sales tax. The taxpayer claimed that a part of the tax code was unconstitutional and that a tax rule was not authorized. The taxpayer had not gone through the normal administrative process to challenge the assessment. The taxpayer also did not pay the disputed tax or post a bond before suing the state.

The Court of Appeals ruled that the taxpayer's suit should be dismissed. It stated that sovereign immunity did not allow the suit. Sovereign immunity protects a state from lawsuits unless the state legislature agrees to be sued. The legislature does this by creating a law that expressly allows lawsuits against the state. Without such a law, a court must dismiss a suit against the state.

The Texas tax code does allow the state to be sued on tax disputes. However, it only allows (1) suits after a taxpayer has paid tax under protest, (2) suits for injunction after the taxpayer has paid tax or posted a bond, and (3) suits for a refund of paid taxes. The Court stated that these were the only ways a taxpayer could sue to challenge an assessment of a state tax.

The taxpayer did not pay the tax or post a bond, so it could not sue the state over the tax. Because the tax code only allowed suits after a taxpayer had paid or posted a bond, sovereign immunity prevented the taxpayer from suing the state.

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