      TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN


                                       NO. 03-03-00431-CV



  Appellants, Alon USA, LP and Alon USA GP, Inc.//Cross-Appellant, The State of Texas

                                                  v.

   Appellee, The State of Texas//Cross-Appellees, Alon USA, LP and Alon USA GP, Inc.




     FROM THE DISTRICT COURT OF TRAVIS COUNTY, 250TH JUDICIAL DISTRICT
         NO. GV102519, HONORABLE SCOTT H. JENKINS, JUDGE PRESIDING



                                           OPINION


                Appellants, Alon USA, LP and Alon USA GP, appeal from the trial court’s judgment

awarding the State of Texas damages for unpaid motor fuel taxes for the months of December 2000

and January 2001. The lawsuit involved unpaid fuel taxes for the months of September, October,

and December 2000, and January 2001. Appellee, the State of Texas, cross-appeals the trial court’s

denial of damages for the first two months at issue. We will affirm that part of the trial court

judgment awarding damages to the State for the months of December 2000 and January 2001, and

reverse and render judgment awarding damages to the State for the months of September and

October 2000.


                                        I. BACKGROUND

                Although Alon USA LP, Alon USA GP, Inc. (collectively Alon), and the State of

Texas are the only parties to the lawsuit, several actors were involved in the transactions giving rise
to the suit. Appellant Alon USA, LP is a Texas limited partnership in the business of refining and

selling motor fuel in the state of Texas under the Fina brand. It also provides credit card processing

and collection services to gas stations operating under the Fina brand. Appellant Alon USA GP, Inc.,

is a Texas corporation and Alon’s general partner. Vista Stores LLC (“Vista”) is a Texas limited

partnership that leased fifty-three gas stations in the Dallas/Fort Worth Metroplex area, selling motor

fuel under the Fina brand. Vista was the parent company of Akard Street Fuels LP (“Akard”), a

Texas limited partnership engaged in the business of buying motor fuel from Alon for resale to Vista.

               During the liability period, Alon had a dual role, acting both as a gasoline distributor

and a provider of credit card processing and collection services. Alon, Vista, and Akard followed

a business model where Akard would buy tax-free gasoline from Alon on credit and resell to Vista

on a tax-paid basis. Alon provided credit card processing services to Vista and, as a result, would

owe Vista money every time a customer paid with a credit card at a Vista gas station. Alon thus had

a right to receive payment from Akard for Akard’s purchases of fuel and Vista had a right to receive

payment for Alon for credit card purchases at Vista gas stations. Instead of forwarding these credit

card payments to Vista and demanding payment from Akard, Alon adopted the practice of setting

off these payments against each other. Instead of paying Vista, it would issue credit memos against

Akard’s fuel debt. After Vista and Akard declared bankruptcy, the State sued Alon for payment of

Akard’s past due gasoline taxes. A full understanding of the transactions and the basis for the

lawsuit requires a chronological depiction of the facts.

               The facts in this case are not in dispute. In December 1998, Vista acquired leasehold

interests in fifty-three Fina branded convenience store gas stations from FinaServe, Inc., a subsidiary



                                                  2
of Fina. Vista and Fina also entered into a Branded Contract, requiring Vista to purchase gasoline

exclusively from Fina and operate the gas stations under the Fina logo and trademark. The contract

also required Vista to purchase at least 5,000,000 gallons of gasoline each month. Fina, through its

bundle of equipment and services known as FinaNet, would provide Vista with credit card

acceptance, authorization, and other services necessary to accept payments by credit card. Fina also

offered Vista customers its own private label credit card (“Fina card”). Customers at Vista gas

stations could use their Fina Cards or any other major credit card (“bank cards”). The Branded

Contract also established that Fina would provide credit card collection services to Vista for a fee,

and that all of Vista's credit card sales would be transferred and assigned to Fina. As a result, under

the Branded Contract, Fina operated both as Vista's exclusive supplier of gasoline and Vista's sole

provider of credit card services.

               Under this arrangement, Vista operated as a “Dealer,” the “operator of a service

station or other retail outlet and who delivers motor fuel into the fuel supply tanks of motor vehicles

or motorboats.” Tex. Tax Code Ann. § 153.001(4).1 Fina operated as a “Distributor,” a person who

“regularly makes sales or distributions of gasoline that are not into the fuel supply tanks of motor

vehicles, motorboats, or aircraft.” Id. § 153.001(9)(a). A distributor must obtain a distributor’s

permit. Id. § 153.107. A tax of 20 cents per gallon is imposed on the first sale or use of gasoline.



       1
           The motor fuels chapter of the Texas Tax Code, Chapter 153, in effect during the events
at issue in this appeal, was repealed effective December 31, 2003. See Act of June 10, 2003, 78th
Leg., R.S., ch. 199, § 1, 2003 Tex. Gen. Laws 199 (enacting new Chapter 162 of the Tax Code
pertaining to motor fuel taxes). The tax collection scheme giving rise to the events at issue in this
case was replaced by a system requiring tax collection at the terminal rack. See, e.g., § 162.101 of
the new motor fuel tax provision. For purposes of convenience, we will refer to the former Chapter
153 as “Tax Code § 153 .”

                                                  3
Id. §§ 153.101(a), 153.102(a). A distributor is exempt from collecting the gasoline tax when it sells

to another distributor, but must include the tax when it sells to dealers. Id. §§ 153.104(3). As a

result, all sales of gasoline from Fina (the distributor) to Vista (the dealer) had to be executed on a

tax-paid basis, with Fina charging Vista the gasoline tax at the statutory rate of 20 cents per gallon.

The tax would ultimately be passed on to the consumer, as Vista charged the state gasoline tax at the

pump. Because gasoline was sold on a tax-paid basis, Fina was responsible for remitting the

appropriate gasoline tax to the taxing authority.2

                Although the Branded Contract required Fina to provide Vista with credit card

collection services for a fee, in practice Vista's credit card revenues were used as a credit against

Vista's liability for gasoline purchases. Fina would provide Vista with bi-weekly statements,

showing matured credit card receipts of Vista's sales of gasoline and non-gasoline items as a credit

against Vista's gasoline purchases.3


        2
         For illustration purposes only, we will assume that Fina sold gasoline at $1 per gallon.
Since Fina and Vista transacted on a tax-paid basis, Fina would add the gasoline tax to the price,
charging Vista $1.20 per gallon. If Vista ordered 100 gallons, it would owe Fina $120.
        3
           We will build upon the previous example in which Vista purchased 100 gallons of gasoline
from Fina for $1.20 per gallon on a tax-paid basis incurring $120 in liability to Fina. Assuming
Vista's price structure included only an additional $.10 per gallon to cover operational costs and
profit, Vista would charge its customers $1.30 per gallon. If a customer purchased 50 gallons of
gasoline at $1.30 per gallon charging the whole purchase on her Fina credit card, for a total of $65,
Fina would simply show a $65 entry on its bi-weekly statement to Vista and credit the whole $65
amount against Vista's gasoline liability. At the end of the transaction, Fina's books would show
Vista's liability at $55, with its original liability of $120 reduced by the $65 credit. It is worthy of
notice that, in this process, Fina credited Vista's fuel liability, which consisted only of the cost of fuel
plus the gasoline tax ($60 for the 50 gallons purchased by the customer), with the full amount
charged by Vista to its customers, which included not only the cost of fuel and gasoline tax, but also
the amount added by Vista to cover its operating costs and profit ($65). If the customer, in addition
to purchasing gasoline, had also purchased other items at Vista's convenience stores, the total
purchase would be credited to Vista's fuel liability, even though it included non-gasoline items. Not

                                                     4
               The distributor making the first taxable sale or use of the gasoline is allowed to retain

the tax on two percent of the taxable gallons of gasoline it sells to compensate it “for the expenses

of collecting, accounting for, reporting, and remitting the tax collected and for keeping records.” Tax

Code § 153.105(e). The distributor makes money not only by keeping the two percent statutory

discount but also by retaining the amount it receives from dealers for 25-55 days until it must remit

the tax to the Comptroller on the 25th of the following month. See id. § 153.118. However, a

distributor cannot simultaneously operate as a dealer. Id. § 153.001(9)(A). In order to take

advantage of the statutory discounts and payment schedules allowed distributors, Vista created its

own distributor, Akard. Akard obtained a distributor's permit enabling it to buy gasoline from Fina

on a tax-free basis, effective July 1, 1999. Fina’s contract was only with Vista; Fina was under no

obligation to sell gasoline to Akard. However, Fina started to sell gasoline to Akard on a tax-free

basis. Fina ceased to include the gasoline tax on its price to Akard but continued to apply Vista’s

credit card revenues as a credit to Akard’s liability for gasoline purchases. Fina also continued to

provide Vista with bi-weekly statements, showing matured credit card receipts of Vista’s sales of

gasoline and non-gasoline items as a credit against Akard’s gasoline purchases.4



surprisingly, Vista operations were never consistently profitable. Since Fina was the party ultimately
responsible for remitting the appropriate gasoline tax to the taxing authority, these tax-paid
transactions are not the basis for the issues presented in this case.
       4
           As a hypothetical transaction, we will assume Akard purchased 100 gallons of gasoline
from Fina for $1.00 per gallon on a tax-free basis incurring $100 in liability to Fina. Akard then
added the $.20 per gallon to the gasoline price and passed it on to Vista at $1.20 per gallon.
Assuming Vista's price structure included only an additional $.10 per gallon to cover operational
costs and profit, Vista would charge its customers $1.30 per gallon. If a customer purchased 50
gallons of gasoline at $1.30 per gallon charging the whole purchase on her Fina credit card, for a
total of $65, Fina would credit the whole $65 amount against Akard's gasoline liability, even though
Akard's liability consisted only of the gasoline cost. At the end of the transaction, Fina's books

                                                  5
               Akard basically operated as a vehicle to allow Vista to purchase gasoline tax-free

from Fina. Akard purchased gasoline exclusively from Fina and sold it exclusively to Vista. Akard's

accounting results were consolidated with those of Vista, its only "customer." Akard did have a

separate banking identity, but its bank account was a zero balance account linked to Vista's so that

every payment item was covered by funds pulled from Vista's account. In substance, Fina treated

Akard as the same entity as Vista and did not modify its Branded Contract to include Akard. It

simply considered Akard as a name change, often referring to the new company as "Akard/Vista".

               In August 2000, Alon acquired Fina's distributor network in Texas, Oklahoma, and

New Mexico, along with Fina's refinery in Big Spring, Texas and Fina's pipeline network in these

states. As a result of the acquisition, Fina conveyed its interest in the Branded Contract to Alon.

               Alon was under no obligation to continue to sell gasoline to Akard since the Branded

Contract was only between Vista and Alon, as Fina's successor in interest. However, Alon chose to

continue Fina's practice of selling gasoline to Akard on a tax-free basis and applying Vista's credit

card revenues as a credit to Akard's liability for gasoline purchases. Alon, as Fina did before it,

provided Vista with bi-weekly statements, showing matured credit card receipts of Vista's sales of

gasoline and non-gasoline items as a credit against Akard's gasoline purchases.5



would show Akard's liability at $35, with its original liability of $100 reduced by the $65 credit.
Akard, as the distributor, would keep its statutory discount of two percent and owe the taxing
authority $18 in taxes. Assuming another customer purchased 10 gallons of gasoline from Vista at
$1.30 per gallon and also $20 in convenience store goods, charging a total of $33 on his credit card,
Fina would credit the whole $33 amount to Akard's fuel account.
       5
           Alon advanced gasoline credit to Akard in the amount of the total credit card charge
effectuated by the customer at a Vista convenience store gas station, less processing charges, by
issuing a credit memo against receivables due from Akard. However, the amount customers charged
on their credit cards at Vista stations was necessarily greater than Akard's tax-free gasoline purchases

                                                   6
               In August 2000, Akard started having difficulties paying its gasoline tax obligations.

As of December 6, 2000, it owed the state $2.5 million in gasoline tax, representing past due taxes

for August, September, and October 2000. On this date, Alon's credit manager notified Vista by e-

mail that he was aware of the tax deficiency. At the time, Alon was holding $432,000 as a cash

deposit to cover future fuel purchases. The deposit was created by withholding credit card credits

due Vista.6 As of January 5, 2001, the cash deposit had increased to $659,000 and Alon intended

to continue withholding credit card credits due Vista until the security deposit totaled $1 million.

As of January 25, 2001, the security deposit had increased to approximately $880,000, and to over

$900,000 as of February 9, 2001. On February 9, 2001, Vista sued Alon for a temporary restraining

order to allow Vista to use the deposit to buy gasoline. The temporary restraining order was granted,

allowing Vista to charge gasoline purchases against the deposit, up to $942,783. Akard took




from Alon, because Vista passed on to the customer the $.20 per gallon gasoline tax, Vista's
operational costs and Vista's profit. Customer charges also included credit card purchases of
non-gasoline items at Vista's convenience stores. As an example, assume a customer purchased 10
gallons of gasoline at $1.30 per gallon plus $30 in cigarettes for a total credit card charge of $43.
Within 2 days of that charge, Alon would advance to Akard the $43 in gasoline credit minus Alon's
processing fee. When the customer finally paid her $43 credit card bill, the financial institution
would remit the whole $43 to Alon because, under the Branded Contract, Vista credit card sales were
transferred and assigned to Fina and, thus, to Alon as Fina's successor in interest.
       6
          One of the conditions Fina originally imposed on Vista, in order to secure credit for fuel
purchases, was a deposit of $200,000 in an escrow account. Alon continued this practice. This was
not a separate bank account but just an escrow account on Alon’s books. Alon, however, gradually
increased the required deposit by continuously withholding Vista’s credit card receipts. This ever-
increasing escrow account reached $919,315 in February 2001, when Vista sued Alon and obtained
a temporary restraining order allowing Akard to have gasoline purchases credited against this
amount. Akard subsequently drew down on the escrow account by making gasoline purchases until
it had a zero balance.

                                                 7
advantage of the temporary restraining order before it was dissolved the following week, pulling

$770,000 in fuel. Alon applied the remainder of the deposit to Akard's account.

                The Comptroller suspended Akard's distributor's permit on February 2, 2001. At the

time, Akard owed the state past due taxes for the months of September, October, and December

2000, and January 2001 ("the liability period").

                The State of Texas sued Alon under three theories of liability: (1) as a statutory

trustee under section 111.016(a) of the Texas Tax Code for receiving or collecting a tax or money

represented to be a tax in the form of credit card payments at gasoline outlets operated by Vista

during the liability period; (2) as a tortfeasor in the conversion of trust funds; and (3) as a tortfeasor

for breach of fiduciary duty regarding trust funds. The trial court awarded judgment for the State in

the amount of $548,129.88, representing gasoline tax received or collected by Alon on credit card

sales transactions occurring in the months of December 2000 and January 2001 at the Vista gas

stations, together with statutory penalty and interest, plus court costs and $50,000 in attorney's fees.

The court denied recovery for the months of September and October 2000. Alon appeals the trial

court's award. The State cross-appeals the trial court's denial of recovery for the months of

September and October 2000.


                                          II. DISCUSSION

                Alon presents seven issues on appeal: (1) Alon could not be liable as a statutory

trustee because it never received or collected a tax or money represented to be a tax pursuant to Tax

Code section 111.016(a); (2) even if Alon received or collected a tax or money represented to be a

tax, there is no evidence of the actual amount of taxes collected; (3) the opinion testimony and report


                                                    8
of the State's damages expert are unreliable and inadmissible as a matter of law, and therefore, are

no evidence of damages; (4) there is no "transfer" of trust property in the Fina card transactions and,

as a result, the trial court erred as a matter of law in finding that a “wrongful transfer” has occurred;

(5) there is no “wrongful transfer” as a matter of law in the context of bank card transactions; (6)

there is no evidence of damages because the State's damages evidence does not distinguish between

bank card and Fina card transactions; and (7) the only month in which Alon even arguably had

reason to believe Akard was not paying its gasoline tax was January 2001 and, as a result, in the

alternative, Alon is entitled to a remittitur of $340,037.35 plus penalty and interest.


A. Liability as a Statutory Trustee

     1.    Receiving or collecting a tax or money represented to be a tax

                 Alon argues that it was not a statutory trustee because it never received or collected

a tax or money represented to be a tax:


          Any person who receives or collects a tax or any money represented to be a tax from
          another person holds the amount so collected in trust for the benefit of the state and
          is liable to the state for the full amount collected plus any accrued penalties and
          interest on the amount collected.


Tex. Tax Code Ann. § 111.016(a) (West 2002).

                 Alon contends that the application of section 111.016(a) to Alon or other third-party

credit card processors does not fall within the letter of the statute and flies in the face of proper

statutory construction. Matters of statutory construction are questions of law, subject to review de

novo. State Dep’t of Highways & Pub. Transp. v. Payne, 838 S.W.2d 235, 238 (Tex. 1992). “In



                                                    9
interpreting a statute, a court shall diligently attempt to ascertain legislative intent and shall consider

at all times the old law, the evil, and the remedy.” Tex. Gov’t Code Ann. § 312.005 (West 2002).

The starting point is to look to the plain and common meaning of the statute’s words, viewing its

terms in context and giving them full effect. Liberty Mut. Ins. Co. v. Garrison Contractors, Inc., 966

S.W.2d 482, 484 (Tex. 1998). Because canons of statutory construction may be cited to support

conflicting interpretations of a disputed statute, we must also consider the good sense of the

situation, using a simple construction of the available language. Gables Realty L.P. v. Travis Cent.

Appraisal Dist., 81 S.W.3d 869, 873 (Tex. App.—Austin 2002, pet. denied). We consider a statute

as a whole and do not consider its provisions in isolation. Continental Cas. Ins. Co. v. Downs, 81

S.W.3d 803, 805 (Tex. 2001); Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, 493 (Tex. 2001).

Statutes imposing a tax must be strictly construed against the taxing authority and liberally construed

in favor of the taxpayer. Gables Realty L.P., 81 S.W.3d at 872.

                The trust language of section 111.016(a), added effective July 21, 1987, clarified the

status of collected gasoline tax receipts because the Texas Tax Code provisions dealing in general

with the collection of gasoline taxes do not contain trust fund language. See, e.g., Tax Code

§ 153.105 (imposing an obligation on any person making a sale or use of gasoline on which the tax

has not been previously paid to add the tax to the selling price and collect it from the purchaser).

The legislative intent in enacting section 111.016(a) was thus to make clear that collected taxes,

including gasoline taxes, are trust funds. The tax was initially imposed to generate funds for the

state's use, and thus the state is the beneficiary of the tax, not the distributor, the dealer, or other

parties in the supply chain that act as the intermediary sales tax collectors.



                                                    10
               The gasoline tax statute recognizes that, although multiple actors may be involved

in the supply chain, the consumer is ultimately responsible for paying the tax, as expressly stated in

section 153.105(a):


       In each subsequent sale of gasoline on which the tax has been collected, the amount
       of the tax shall be added to the selling price so that the tax is paid ultimately by the
       person using or consuming the gasoline for the purpose of propelling a vehicle upon
       the public highways of this state.


Tax Code § 153.105(a) (West 2002).

               Reading sections 111.016 and 153.105(a) together, when a consumer pays for

gasoline purchased for the purpose of propelling a vehicle upon the public highways of this state,

the selling price includes the gasoline tax and any person who receives or collects that payment from

the consumer holds the amount so collected in trust for the benefit of the state and is liable to the

state for the full amount of gasoline tax collected plus any accrued penalties and interest on the

amount of gasoline tax collected.

               A distributor can sell to another distributor on a tax-free basis but must include the

tax when selling to a dealer. Tax Code § 153.104(3). Akard (the distributor) purchased gasoline tax-

free from Alon (in its role as a distributor). Vista (the dealer) purchased gasoline from Akard (the

distributor) on a tax-paid basis and then added the gasoline tax to the price it charged consumers at

the pump, as required by section 153.105(a). The gasoline selling price thus had two components,

the cost of the gasoline and the gasoline tax. When a consumer pays for gasoline with cash, the

amount paid consists of these same two components, the cost of the gasoline and the gasoline tax.

When Vista receives the cash payment from the consumer, it holds the amount corresponding to the

                                                 11
gasoline tax in trust for the benefit of the state and is liable to the state for the gasoline tax amount

collected plus any accrued penalties and interest.

                When a consumer pays for gasoline by charging the selling price on a credit card, the

amount charged consists of the same two components as in a cash transaction, the cost of the

gasoline and the gasoline tax. The total charge the consumer later sees in his credit card bill, even

if listed as a consolidated amount, is still comprised of the cost of the gasoline and the gasoline tax.

When the consumer pays his credit card bill, the amount paid for the gasoline purchase contains the

same two components. Just like the dealer in a cash transaction, when the credit card provider

receives the payment from the consumer, it holds the amount corresponding to the gasoline tax in

trust for the benefit of the state.

                In our case, Alon had a dual role, operating not only as Akard’s gasoline distributor

but also as Vista’s credit card processing and collection services provider. As a result, Alon, through

its financial network known as FinaNet, would ultimately receive the consumers’ payments for credit

card purchases at Vista gas stations. The amount corresponding to the gasoline tax would constitute

trust funds for the benefit of the State.

                Alon argues that these credit card transactions did not constitute trust funds because

(1) Alon was liable to Vista for credit card purchases at Vista stations regardless of whether or not

the consumer actually paid his credit card bill and (2) Alon, under the Branded Contract, owed Vista

only days after the purchase, long before Alon ultimately collected from the consumer. However,

when the credit card provider assumes the responsibility to pay the dealer before it collects from the

consumer, as Alon did in this case, the amount owed to the dealer that corresponds to the gasoline



                                                   12
tax constitutes trust funds for the benefit of the state, even if it will only later be collected from the

consumer.7


     2.       Setoff as a defense to liability as a statutory trustee

                   Alon argues that it never collected any taxes because, when a consumer paid his credit

card bill for gas purchases charged on a credit card at a Vista gas station,8 Alon (in its role as a credit

card provider) had already “prepaid” Vista (the dealer) the amount charged by issuing a credit memo

against Akard’s (the distributor) trade debt to Alon (in its role as a distributor) for gasoline

purchases. Alon asserts that, as a result, even if any trust funds were involved, they would have been

fully transferred to Akard by means of the setoff. The question we must resolve is thus whether the

credit memo issued against Akard’s account relieved Alon of liability for the taxes collected through

the credit card receivables.

                   In order to determine whether Alon’s credit memos issued against Akard’s account

constituted a proper setoff we must consider (a) the mutuality of obligations and (b) the trust fund

nature of the funds.




          7
          Alon also argues that, since it offset Akard’s liability against payments due to Vista
regardless of whether the customer paid its credit card charges, the funds in question cannot
constitute trust funds. This argument is inapplicable in this case, since the State only sought to
recover funds actually collected by Alon from Vista customers and the expert calculations contain
deductions for uncollected amounts.
          8
          Customers charged their purchases at Vista gas stations using the Fina card and bank cards.
However, under the Branded Contract, all of Vista’s credit card sales were assigned to Alon and
there is no difference, for the purposes of this analysis, whether customers used a Fina card or a bank
card.

                                                      13
         (a) The Mutuality of Obligations

               A claim of right to withhold payment and apply it against a debt has traditionally been

treated as a setoff. United States v. Isthmian S.S. Co., 359 U.S. 314, 318 (1959) (superseded by

statute on other grounds as stated in Hornbeck Offshore Operators v. Ocean Line, 849 F. Supp. 434,

449 (E.D. Va. 1994)). However, in order for one demand to be set off against another, both demands

must mutually exist between the same parties. Dallas/Fort Worth Airport Bank v. Dallas Bank &

Trust Co., 667 S.W.2d 572, 575 (Tex. App.—Dallas 1984, no writ) (citing Western Shoe Co. v.

Amarillo Nat’l Bank, 94 S.W.2d 125, 128 (Tex. 1936)).

               In Conoco, Inc. v. Amarillo Nat’l Bank, 14 S.W.3d 325 (Tex. App.—Amarillo 2000,

no pet.), Conoco acted both as a supplier and a provider of credit card processing and collection

services to Centergas, a wholesaler and retailer of petroleum products. Conoco set off the amount

it owed Centergas for credit card sales against Centergas’s debt to Conoco for the purchase of

inventory. Id. at 327. As part of a loan agreement, Amarillo National Bank had taken a security

interest in Centergas’s accounts receivable, which was duly perfected and continued. Id. After

Centergas filed for bankruptcy, the bank brought an action against Conoco, alleging conversion of

accounts receivable in the form of the credit card proceeds that were part of the bank’s collateral

under the loan agreement with Centergas. Id. On appeal, the court held that the bank’s suit was

barred by the statute of limitations because the bank knew, or should have known, that Conoco had

been offsetting accounts receivable against Centergas’ debt. Id. at 329. The court did not question

Conoco’s ability to apply a setoff against Centergas’ debt since the mutuality of obligations clearly




                                                 14
existed in this case: the demand Conoco had against Centergas for purchases of inventory matched,

at the time of setoff, the demand Centergas has against Conoco for credit card receivables.

               In contrast, the demand which Alon held against Akard in this case was not matched,

at the time of setoff, by any demand Akard had against Alon. Vista, not Akard, had a right to receive

a payment from Alon as a result of credit card purchases at Vista gas stations. Similarly, the debt

related to fuel purchases constituted a right of Alon to receive a payment from Akard, not Vista.

During the liability period, Vista never purchased fuel from Alon. All fuel purchases were made by

Akard and the debt account reflected Akard’s debt for these purchases, not Vista’s. Consequently,

Vista did not have a debt account with Alon capable of being setoff against Vista’s right to receive

payment from Alon, as Vista’s credit card processing and collections provider, for credit card

purchases at Vista gas stations.

               It is undisputed that Vista created Akard as a separate entity in order to operate as a

distributor and purchase gasoline tax-free, thereby taking advantage of the 2% statutory discount.

Alon, however, never had a contract with Akard and was under no obligation to sell to Akard.

Alon’s contractual obligation was to sell gasoline to Vista. Because Vista is a dealer, not a

distributor, Alon could only do so on a tax-paid basis. Alon would have incurred no liability if it had

operated in this way, as established in its contract. However, Alon decided to treat Vista and Akard

as separate entities for the purpose of selling gasoline tax-free to Akard but treat them as the same

entity for purposes of the setoff.      This approach is inherently inconsistent and setoff was

inappropriate because there was no mutuality of obligations.




                                                  15
          (b) The Trust Fund Nature of the Funds

                Additionally, setoff is not permitted if the funds involved are trust funds. Citizens

First Nat'l Bank of Tyler v. Cinco Exploration Co., 540 S.W.2d 292, 295 (Tex.1976); Texas

Mortgage Serv. Corp. v. Guadalupe Sav. & Loan Ass’n, 761 F.2d 1068 (5th Cir. 1985); South Cent.

Livestock Dealers, Inc. v. Security State Bank of Hedley, 551 F.2d 1346, 1350-51 (5th Cir. 1977).

In the context of financial transactions, it is settled that a bank with knowledge of the trust character

of money deposited in an account cannot use the trust funds to offset the depositor’s debt. National

Indem. Co. v. Spring Branch State Bank, 348 S.W.2d 528, 529 (Tex. 1961); First Nat’l Bank v.

Arrow Oil & Gas, Inc., 818 S.W.2d 159, 161 (Tex. App.—Amarillo 1991, no writ); Security State

Bank v. Valley Wide Elec., 752 S.W.2d 661, 665 (Tex. App.—Corpus Christi 1988, writ denied).

In addition, it is the bank’s duty to segregate the funds in a mixed account before applying any to

overdrafts. Security State Bank, 752 S.W.2d at 665 (citing Steere v. Stockyards Nat’l Bank, 256

S.W. 586, 591 (Tex. 1923); Allied Bank West Loop, N.A. v. C.B.D. & Assoc., Inc., 728 S.W.2d 49,

58 (Tex. App.—Houston [1st Dist.] 1987, writ ref'd n.r.e.); First Nat’l Bank v. Winkler, 146 S.W.2d

201, 205 (Tex. Civ. App.—Austin 1940 ), aff’d, 161 S.W.2d 1053 (Tex.1942)); City State Bank v.

National Bank of Commerce, 261 S.W.2d 749, 752 (Tex. Civ. App.—Fort Worth 1953, writ ref’d

n.r.e.). If a bank knows that all or part of funds deposited with it may constitute trust funds and with

such knowledge applies “the whole of such funds to the discharge of the depositor's debt to it, it

thereby becomes a party to the misapplication thereof as against the fiduciaries, and can no longer

assert immunity from liability for its wrongful act.” First Nat’l Bank of Schulenburg, Tex., v.

Winkler, 146 S.W.2d 201, 205 (Tex. Civ. App.—Austin 1940), aff’d, 161 S.W.2d 1053, 1942 (Tex.



                                                   16
1942); Canyon Lake Bank v. New Braunfels Utils, 638 S.W.2d 944, 947 (Tex. App.—Austin 1982,

no writ).

               In U.S. Fidelity & Guaranty Co. v. Adoue & Lobit, 137 S.W. 648, aff’d on reh’g, 138

S.W. 383 (Tex. 1911), the court declared that a bank receiving a deposit in the depositor’s name as

“guardian” had notice of the trust character of the funds, as a matter of law, and could not apply the

trust funds to the depositor’s individual indebtedness. Adoue, 137 S.W. at 652. In Reed v. Valley

Fed. Savs. & Loan Co., 655 S.W.2d 259 (Tex. App.—Corpus Christi 1983), the court, relying on

Adoue, ruled that a certificate of deposit in the name of “[trustee’s name], Minor, by [guardian’s

name], Guardian” placed the bank on notice of the trust character of the funds and the bank could

neither apply the funds to repayment of the guardian’s personal debt to the bank nor return the

balance of the funds to the guardian individually without incurring liability. Reed, 655 S.W.2d at

263-64.

               In the present case, Alon operated both as a fuel distributor and as a provider of credit

card processing and collection services. This business structure placed Alon in the same position

as the financial institutions in the cases above and made it subject to the same restrictions on setoff.

Consequently, Alon should be liable if it acted with notice of the trust fund nature of the funds.

               Alon had notice that it was dealing with funds that included taxes and therefore

constituted trust funds. It knew that Fina, its predecessor in interest, sold to Vista on a tax-paid

basis. It knew Vista operated gas stations and included the gasoline tax in the amount it charged

consumers at the pump, whether they paid with cash or credit card. In addition, Alon’s own contract

with its credit card processor expressly states that the amount charged by the customer using its



                                                  17
credit card, the “aggregate charge slip amount,” includes “all charges, delivery costs, applicable taxes

and other fees.” Alon itself directly owned 150 gas stations in West Texas and could not have been

unaware of the imposition of gasoline tax on sales of gasoline in the state. As a result, Alon had

notice that taxes were included in credit card transactions and thus had notice of the trust fund nature

of the charges, especially since it also operated such a large number of gas stations of its own.

                We overrule appellants’ first issue.


B. Evidence of the Actual Amount of Taxes Collected

                In its second point of error, Alon argues that, even if it received a tax or money

represented to be a tax, there is no evidence of the actual amount of such taxes as a matter of law.

Alon claims the actual amount of gasoline taxes can be determined only by evidence of the amount

of fuel sales by credit card at the Vista Stores and that such evidence does not exist.


     1.   Standard of Review

                In reviewing the legal sufficiency of the evidence, we must consider all of the

evidence in the light most favorable to the prevailing party and must indulge every reasonable

inference in favor of the prevailing party. Associated Indem. Corp. v. CAT Contracting, Inc., 964

S.W.2d 276, 285-86 (Tex. 1998). We will sustain a no-evidence point of error if: (1) the record

discloses a complete absence of evidence of a vital fact; (2) the court is barred by rules of law or rule

of evidence from giving weight to the only evidence offered to prove a vital fact; (3) the only

evidence offered to prove a vital fact is no more than a mere scintilla; or (4) the evidence establishes




                                                   18
conclusively the opposite of the vital fact. Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d

328, 334 (Tex. 1998).


    2.    Sufficiency of the Evidence

                Alon provided Vista with point-of-sale systems and equipment that enabled Vista’s

customers to pay for purchases using credit cards. Alon alleges that, once a customer paid using a

credit card, only the total amount charged for the sale was recorded and, thus, there is no record of

how much of the sale constituted gasoline, gasoline taxes, items purchased at the convenience store,

sales taxes, or other items. In other words, even though Alon was providing credit card processing

services to gas stations and even though it knew that gasoline taxes were usually included in the total

amount charged by customers on their credit cards at Vista gas stations, it chose to keep only a

consolidated record of the total amount charged. In addition, even though it knew the funds

collected from customers to pay for the purchases charged on credit card at Vista gas stations usually

contained payment for the gasoline taxes, it chose to commingle those funds and apply them as a

setoff to Akard’s liability to Alon for fuel purchases. It now claims that, since there is no direct

record indicating how much of the total amount charged by customers on their credit cards at Vista

gas stations corresponded to gasoline taxes, there is no evidence of the amount of taxes collected by

Alon.

                However, a determination such as the one made by the State in this case is expressly

authorized under section 111.008(a), which reads:



         If the comptroller is not satisfied with a tax report or the amount of tax required to
         be paid to the state by a person, the comptroller may compute and determine the

                                                  19
          amount of tax to be paid from information contained in the report or from any other
          information available to the comptroller.


Tex. Tax Code Ann. § 111.008(a) (West 2002).

                 The Comptroller may determine or redetermine the amount of tax required to be paid

by any person on the basis of any information within his possession. Texas Comptroller of Public

Accounts, Decision No. 10,210 (1981). Where the person’s own acts or failures cause the

Comptroller to be without good or adequate information, then the Comptroller is justified in

estimating the tax due on such information as is available. Id. Allowing parties to escape liability

simply by alleging that no direct record of the taxes was kept would in fact discourage businesses

from keeping appropriate records.

                 In other cases, the courts have approved various estimates and found them sufficient

if the method used was reasonably calculated to reflect the taxes due. United States v. Fior D’Italia,

536 U.S. 238 (2002) (estimate of FICA tax liability for unreported tips determined by applying an

average percentage tip to all sales); Maganini v. Quinn, 221 P.2d 241 (Cal. Ct. App. 1950) (total

number of drinks sold, records kept on cash register tape, established price for each brand applied

to inventory sold); Fillichio v. Department of Revenue, 155 N.E.2d 3 (Ill. 1958) (gross receipts

determined according to best judgment and information); W. T. Grant Co. v. Joseph, 140 N.E.2d 244

(N.Y. 1957) (estimate of taxes on total number of sales where taxpayer had no record of individual

sales).

                 Alon cites several cases where the evidence presented by the State was considered

insufficient to establish the amount of taxes collected. Herrera v. State, No. 03-01-00101, 2002 Tex.



                                                  20
App. LEXIS 951 (Tex. App.—Austin, Feb. 7, 2002, no pet.) (not designated for publication); Parker

v. State, 40 S.W.3d 555 (Tex. App.—Austin 2001, no pet.); N.S. Sportswear, Inc. v. State, 819

S.W.2d 230 (Tex. App.—Austin 1991, no writ). These cases are distinguishable because the State

had relied solely on a certificate, assessment, or report issued by the Comptroller establishing the

amount of taxes due, without any consideration of the amount actually collected from customers.9

               In this case, the State did consider the amount of gasoline taxes Alon actually

collected from customers and did not rely solely on the Comptroller’s certificate showing how much

gasoline tax Vista owed. The State obtained from Vista’s accountants actual figures for, among

other data, total sales and total cash sales. It then subtracted the amount of actual cash sales from

the total sales to obtain the amount of credit card sales. These were actual sales figures from Vista’s

accounting records for the periods in question, not collection averages or estimates. The State then

applied the percentage of credit card sales to the gallons of gasoline sold for each month to arrive

at how many gallons of gasoline were purchased with credit cards each month. The percentage of

credit card sales yielded by such calculation varied from a low of 21% for January 2001 to a high

of 28% for December 2000. These figures are very conservative in contrast with other testimony at

trial, including testimony from Vista’s Chief Financial Officer, who testified that credit card sales

made up 35-50% of Vista’s revenue and gasoline sales amounted to 69% of revenues. Vista’s




       9
           These cases also consider whether the cash or accrual method was used. Such
considerations are not applicable here because the data refer to amounts actually received by Alon
and the method originally used by Vista or Akard to report its taxes is irrelevant. In addition, the
gasoline tax was collected at the pump at the time of sale and the cash or accrual method is not
applicable. Ghashim v. State, 104 S.W.3d 184, 187 (Tex. App.—Austin 2003, no pet.).

                                                  21
income statements for the period confirmed the figures provided by Vista’s CFO.10 The amount

corresponding to the gasoline tax was calculated by applying the gasoline tax of 20 cents per gallon

to the number of gallons purchased with credit cards each month. During discovery, Alon was able

to introduce its own information regarding “chargebacks,” amounts Alon did not actually collect

because the credit card used was a stolen one, or there was some other mechanical problem in the

credit process which prevented the cardholder’s payment. The State deducted the chargebacks from

the gasoline tax amount. The State thus relied not on the Comptroller’s assessment, which amounted

to over $4 million in taxes owed during the liability period, but instead produced a reasonable and

conservative estimate placing the amount actually collected by Alon at about $919,000. This amount

was calculated using actual sales figures for the period in question and deducting any amounts Alon

alleged it could not collect from customers. There is sufficient evidence in the record to show that

the State’s method was reasonable and the amount of taxes collected was not excessive or arbitrary.

               When an administrative body, charged with the duty of enforcing the tax laws, adopts

a formula to determine the tax in situations such as this, the courts should presume the formula is


       10
           Alon had previously received a copy of the same income statements presented at trial when
it entered into negotiations to acquire an interest in Vista. By the last quarter of 2000, Vista was
operating at a loss on both a net income and cash flow basis. There was already arrearage on the
gasoline tax corresponding to the month of September 2000. Vista and Alon started negotiating a
deal through which Vista would be restructured under a new entity, VistaDFWLocs, LLC, with Alon
contributing $6 million to purchase a portion of the ownership of the new entity. Most of the money
would go to pay down Vista's long term debt. In October 2000, Vista's president met with the CEO
of Alon's parent company to discuss the plan. Vista followed through with its part of the deal by
transferring its leasehold interest on the Fina branded gas stations to the new entity, VistaDFWLocs,
LLC. Vista also assigned its interest in the Branded Contract to Akard. The deal needed to be done
quickly because Vista was running out of money. Negotiations continued up until Vista's bankruptcy
filing in June 2001. However, Alon never executed the transfer of Vista's leasehold interest or the
assignment of the Branded Contract.

                                                 22
calculated to reach a reasonable result. Smith v. State, 418 S.W.2d 893, 896 (Tex. App.—Austin

1967, no writ). Where the tax cannot be determined with reasonable mathematical certainty from

the available records, and the taxing authority declares the tax due from all information available that

it deems reasonable, the burden to show that the determination was unreasonable, excessive, or that

it was reached capriciously or arbitrarily, shifts to the complainant. Id. (citing Smith v. State, 391

P.2d 718, 728 (Wash. 1964)).

                Once the State presented its estimate for the amount of taxes collected, Alon had the

burden to show that the determination was unreasonable, excessive, or that it was reached

capriciously or arbitrarily. Smith, 418 S.W.2d at 896. To overturn the amount established by the

State, Alon was required to show by competent evidence that the estimate was arbitrary or illegal and

that it was excessive. City of Arlington v. Cannon, 271 S.W.2d 414, 418 (Tex. 1954). The burden

was also on Alon to show that the method or formula used by the State was fundamentally wrong

and that its application substantially injured Alon. State v. Whittenburg, 265 S.W.2d 569, 573 (Tex.

1954). Proving merely that a tax was imposed is not sufficient to show a substantial injury; Alon

must also show that the tax was unjust. Smith, 418 S.W.2d at 897.

                After a careful review of the record, we conclude that Alon did not present any

evidence challenging the State’s assessment of tax liability. We overrule appellants’ second issue.


C. Reliability and Admissibility of Expert Testimony

                In their third issue, appellants argue that the opinion testimony and report of the

State's damages expert are unreliable and inadmissible as a matter of law and therefore are no

evidence of damages.

                                                  23
    1.   Standard of Review

               We review errors in the admissibility of expert testimony for an abuse of discretion.

Reliable Consultants, Inc. v. Jaquez, 25 S.W.3d 336, 345 (Tex. App.—Austin 2000, pet. denied).

A trial court abuses its discretion if it acts without reference to any guiding rules and principles.

Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985). We may reverse a

trial court's judgment based on an error in the admission of evidence only if we conclude that (1) the

trial court did in fact commit error and (2) the error was reasonably calculated to cause and probably

did cause rendition of an improper judgment. See Tex. R. App. P. 44.1(a); Gee v. Liberty Mut. Fire

Ins. Co., 765 S.W.2d 394, 396 (Tex. 1989).


    2.   Expert Testimony

               For an expert’s testimony to be competent, it must be shown that he is trained in the

science about which he testifies or has knowledge of the subject matter of the fact issue in question.

Reliable Consultants, Inc., 25 S.W.3d at 345. The undisputed evidence in the record shows that the

State’s expert witness, Comptroller Auditor Charles Hobbs, had at least 27 years of professional

experience working as an auditor with the Comptroller, performing many gasoline tax audits

involving convenience store gas stations. He audited major oil companies who, like Alon, issued

their own credit card. He held a Master of Business Administration degree and had been a Certified

Public Accountant for over 20 years. On the basis of these qualifications and using actual figures

from Vista’s accounting records, financial statements, and chargeback information provided by Alon,

he calculated the tax Alon collected on credit card sales of gasoline at Vista gas stations.




                                                 24
               Mr. Hobbs testimony was relevant and was even corroborated by other evidence on

the record, such as the testimony from Vista’s CFO. Thereafter, it was for the trier-of-fact to

consider the expert testimony, along with all the other evidence, and to determine the ultimate issues

of liability and damages. We find the State’s expert testimony reliable considering his qualifications.

In admitting it, the trial court did not act unreasonably or without regard to any guiding rules and

principles. Having determined that the trial court did not abuse its discretion, we need not conduct

a harm analysis. We overrule appellants’ third issue.


D. Liability as a Transferee

               In their forth issue, appellants argue that, to the extent the trial court’s decision was

based on the analysis of Texas trust law in In re Amber’s Stores, Inc., 205 B.R. 828, 831 (Bankr.

N.D. Tex. 1997), there is no "transfer" of trust property in the Fina card transactions and,

accordingly, there can be no “wrongful transfer.”

               Amber’s Stores is factually dissimilar to this case. In Amber’s Stores, the stores

gathered all their daily receipts and deposited them into an account. In re Amber’s Stores, 205 B.R.

at 830. All the funds in that account were transferred daily to a central account controlled by a bank,

which then applied the funds towards Amber’s Stores’ debt. Id. Unlike the present case, the money

paid by the customers to Amber’s Stores was first put under the dominion and control of the store,

which then deposited the funds into the bank account. As a result, the court in Amber’s Stores

properly characterized the bank as a transferee and not a statutory trustee for the purposes of section

111.016(a). Id. at 831.




                                                  25
                In the present case, Vista never had a chance to exercise dominion and control over

its credit card payments. Instead, Alon remained in control of the funds at all times and cannot be

viewed as a transferee. Even when Vista demanded the approximately $919,000 held by Alon in

excess of Akard’s fuel debt as a deposit in an escrow account, it was necessary for Vista to obtain

a temporary restraining order allowing Akard to draw fuel purchases against such funds. It is clear

from the record that Alon never transferred dominion and control over the credit card payments for

both the Fina cards and bank cards to either Vista or Akard. As a result, the trust funds remained

in Alon’s possession at all times and Alon is liable not as a transferee but, as shown in section A

above, as a statutory trustee. We overrule appellants’ forth issue.

                Since Alon’s fifth and sixth points of error are based on Alon’s liability as a

transferee, there is no need to reach these arguments because Alon is liable not as a transferee but

as a statutory trustee.

                Alon’s seventh point of error, that the only month in which Alon even arguably had

reason to believe Akard was not paying its gasoline tax was January 2001, is also based on Alon’s

liability as a transferee because it is only in the context of a transfer of trust funds that the

transferee’s knowledge that taxes were owed by the transferor at the moment of the transfer becomes

relevant. In this case, Alon is liable as a statutory trustee and such knowledge is not required, as

discussed in section A.3.b above.


E. Cross-Appeal

                In its cross-appeal, appellee argues that the trial court erred in not awarding judgment

to the State and against Alon for the amount of tax, penalty, and interest due for September and

                                                  26
October 2000. Appellee bases its argument on three theories of liability: (1) statutory trustee liability

pursuant to section 111.016 of the Texas Tax Code, (2) common law conversion, and (3) breach of

fiduciary duty. Because we concluded, in section A above, that Alon is liable as a statutory trustee

under section 111.016 of the Texas Tax Code, we agree that the trial court erred in not awarding

judgment to the State for the months of September and October 2000. Accordingly, we sustain

appellee’s cross-point. We reverse the trial court judgment denying damages for September and

October 2000. Having given the State all the relief requested in its cross-appeal, we need not reach

the issues of whether Alon would also be liable under theories of common law conversion or breach

of fiduciary duty.


                                        III. CONCLUSION

                We conclude that Alon is liable as a statutory trustee under Texas Tax Code section

111.016(a). The trial court improperly considered liability under section 111.016 to require notice

that tax payments were outstanding. However, the plain language of section 111.016 creates a trust

whenever anyone receives or collects a tax or money represented to be a tax and imposes no

knowledge or notice requirement. Alon’s application of Vista’s credit card receipts as a setoff

against Akard’s fuel purchases is not a defense to tax liability because there was no mutuality of

obligations and, more importantly, because Alon had notice of the trust fund nature of the funds.

As the provider of credit card processing and collection services for Vista gas stations, Alon had

notice of the trust fund nature of a portion of the credit card receipts it came to hold and

inappropriately applied such trust funds as setoff. There was enough evidence for the State to

accurately calculate the amount of taxes actually collected by Alon. The trial court did not abuse its

                                                   27
discretion in admitting the testimony of the State’s expert. We, therefore, affirm that part of the trial

court judgment awarding damages to the State for the months of December 2000 and January 2001,

including interest, attorney’s fees, and court costs. We reverse that part denying judgment for the

months of September 2000 and October 2000 and, based on the findings of fact on the record, render

judgment against Alon for the sum of $680,274.18 ($544,371.28 in Texas Gasoline Tax, $54,437.13

in penalties pursuant to section 111.061, and $81,465.77 in interest).




                                                W. Kenneth Law, Chief Justice

Before Chief Justice Law, Justices Patterson and Puryear

Affirmed in Part; Reversed and Rendered in Part

Filed: May 26, 2005




                                                   28
