                      REVISED - MAY 22, 1998

                 UNITED STATES COURT OF APPEALS

                      FOR THE FIFTH CIRCUIT



                           No. 97-20629


   In the Matter of TRANS STATE OUTDOOR ADVERTISING CO., INC.

                                                           Debtor




              TEXAS COMPTROLLER OF PUBLIC ACCOUNTS,

                                                         Appellee,


                              VERSUS


           TRANS STATE OUTDOOR ADVERTISING CO., INC.,

                                                         Appellant.



          Appeal from the United States District Court
               For the Southern District of Texas
                           May 18, 1998


Before REAVLEY, DeMOSS, and PARKER, Circuit Judges.

ROBERT M. PARKER, Circuit Judge:

     Trans State Outdoor Advertising Co., Inc. appeals the decision

of the district court reversing the bankruptcy court and finding

that it lacked jurisdiction under 11 U.S.C. § 505(a)(2)(A) to

redetermine the tax liability assessed by the Comptroller. Finding

no error, we affirm the district court.
                                 BACKGROUND

     In 1991, the Comptroller performed a sales and use tax audit

on Trans State Outdoor Advertising Co, Inc. (hereinafter “Trans

State”)for the audit period October 1, 1987 through June 30, 1991.

In November 1991, the Comptroller issued an invoice to Trans State

assessing a deficiency due to taxable purchases for which no tax

was paid.    In December 1991, Trans State sent a letter to the

Comptroller,     requesting      a     redetermination        hearing     on    the

Comptroller’s    sales   and     use       audit   assessment.     This    letter

initiated Administrative Hearing No. 29,369.               The Tax Division of

the Comptroller filed its position letter.                Trans State responded

asserting that some of the invoices scheduled in the audit were the

result of purchases by companies other than Trans State.                       Trans

State blamed its former president and accountant for misapplying

Trans State funds by using Trans State’s funds and name for

purchases without authority to do so.              The Tax Division responded

that because there was no documentation presented to support the

removal of the invoices at issue from the audit, and because the

invoices were billed in Trans State’s name and paid with Trans

State   funds,   Trans   State       was    responsible    for   the    sales   tax

liability.

     The Administrative Law Judge considered all the submissions

and entered his Proposed Comptroller’s Decision on August 14, 1992.

The Administrative Law Judge recommended that the audit stand

without change.      Trans State filed written exceptions to the

proposed Decision, to which the Tax Division responded.                         The


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Administrative Law Judge issued the Comptroller’s Decision on

January 21, 1993, rejecting Trans State’s contention that the tax

liability was the responsibility of another company that had used

Trans State’s funds and name for the invoices at issue, without

authorization.   On the same date, the Comptroller issued the Order

of the Comptroller, approving and adopting the decision of the

Administrative Law Judge.      The order became final twenty days

thereafter.   Trans State did not appeal the order.

     On   February   24,   1993,   Trans   State   filed   a   bankruptcy

proceeding under Chapter 11 of the Bankruptcy Code.        On August 16,

1993, the Comptroller filed a claim for prepetition sales and use

taxes and interest, in the amount of $41,318.46.

     The Chapter 11 plan was confirmed on August 18, 1994.            In

October 1994, Trans State filed an objection to the allowance of

the Comptroller’s claim in its bankruptcy.         The bankruptcy court

held a hearing and concluded in a letter ruling that it had

jurisdiction to hear the claims objection.         At the trial on the

merits, Trans State representatives testified that Trans State had

entered into oral agreements with contractors from which it made

purchases to include all sales taxes in the contractors’ invoices,

and that Trans State did not owe taxes to the state because Trans

State had paid the taxes to the contractors.       The auditor from the

Comptroller’s office testified that Trans State had no records to

support its assertion that it had paid the taxes to the sellers

when the purchases were made.

     The bankruptcy court issued a second letter ruling in May


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1996, finding that Trans State had requested that its supplier of

materials and services include the sales taxes in its invoice and

that the seller agreed to do so.         The bankruptcy court agreed with

the Comptroller that the sales tax was not separately stated on the

seller’s invoices and that there was no written statement that the

stated price included the tax.             Despite the absence of such

documentation    which   is   required    by     the   Texas    Tax   Code,   the

bankruptcy court concluded that Trans State, the purchaser, did not

owe any taxes to the Comptroller.

     The Comptroller appealed the bankruptcy court’s decision. The

district court reversed, finding that the bankruptcy court did not

have jurisdiction under 11 U.S.C. § 505(a)(2)(A) to redetermine the

tax liability.   Because of its ruling on the jurisdictional issue,

the district court did not reach the merits of the Comptroller’s

tax claim.   Trans State filed a timely notice of appeal from the

district court’s decision.

                                 ANALYSIS

     The   bankruptcy    court   held     that    it   had     jurisdiction    to

determine the tax liability of Trans State.             A bankruptcy court’s

conclusions of law are reviewed de novo.               In re Herby’s Foods,

Inc., 2 F.3d 128, 130 (5th Cir. 1993).

     A bankruptcy court’s power to determine tax liability is set

forth in 11 U.S.C. § 505(a) which provides in pertinent part:

     § 505. Determination of tax liability

     (a)(1)    Except as provided in paragraph (2) of this
     subsection, the court may determine the amount or
     legality of any tax, any fine or penalty relating to a
     tax, or any addition to tax, whether or not previously

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     assessed, whether or not paid, and whether or not
     contested before and adjudicated by a judicial or
     administrative tribunal of competent jurisdiction.

     (2)    The court may not so determine--

          (A) the amount or legality of a tax, fine, penalty,
     or addition to tax if such amount or legality was
     contested before and adjudicated by a       judicial or
     administrative tribunal of competent jurisdiction before
     the commencement of the case under this title . . . .

11 U.S.C. § 505(a)(emphasis added). Although § 505(a)(1) gives the

bankruptcy court power to decide the amount or legality of most

taxes, this grant of authority is limited by § 505(a)(2)(A).            The

key to resolving the jurisdictional issue is hinged upon the

determination of whether the Comptroller’s administrative hearing

process was an adjudication “by         a    judicial or administrative

tribunal of competent jurisdiction” prior to the filing of the

bankruptcy   petition.    If   it   was     such   an   adjudication,   the

bankruptcy court did not have jurisdiction to redetermine Trans

State’s tax liability under § 505(a)(2)(A).

     The Texas Administrative Code sets out the rules governing

taxpayers’ disputes over the amount of taxes assessed by the

Comptroller.    34 Tex. Admin. Code § 1.1 et seq.             Section 1.3

provides that contested cases are within the jurisdiction of

administrative law judges. The taxpayer may request a hearing, and

if the taxpayer makes such a request, the administrative law judge

is authorized to conduct a hearing, examine witnesses, rule on

evidence, and propose decisions to the Comptroller of Public

Accounts.    34 Tex. Admin. Code § 1.7.

     The conduct of the hearing is governed by § 1.21 of the


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Administrative Code.         The rules of evidence promulgated by the

Texas Supreme Court apply.            Any party may request the assigned

administrative law judge to subpoena witnesses or require document

production, or the judge may do so independently.                       The witnesses

testify    under    oath,    and     all       contested    cases       heard   by   an

administrative law judge are recorded.              34 Tex. Admin. Code § 1.21.

      The assigned administrative law judge prepares a proposed

decision to which the parties may file exceptions.                        Before the

proposed decision is given effect, it must be approved by the

Comptroller.     34 Tex. Admin. Code § 1.28.               A motion for rehearing

may be filed within twenty days; otherwise, the Comptroller’s

decision becomes final.       The taxpayer may appeal this decision by

filing suit in state district court if the taxpayer has first paid

the tax under protest.       Tex. Tax Code Ann. § 112.052 (Vernon Supp.

1998).    The trial of the issues is de novo.                Tex. Tax Code Ann. §

112.054.

      Trans State argues that the Comptroller’s decision does not

amount to an adjudication under § 505(a)(2)(A) and, thus according

to Trans State, the bankruptcy court had jurisdiction to determine

its      sales   tax    liability.         Trans    State     maintains     that     the

Comptroller’s decision was nothing more than an assessment and

could hardly       be   considered    an       adjudication    by   a    judicial     or

administrative      tribunal.        Trans        State     emphasizes      that     the

administrative judge merely provided the Comptroller with proposed

findings and conclusions and a recommendation; the Comptroller was

not bound by the administrative judge’s decision.                       According to


                                           6
Trans State, the Comptroller is an interested party, and is no more

an administrative or judicial tribunal than is the Internal Revenue

Service.

     Trans State cites only one case in support, In re Washington

Manufacturing Co., 120 B.R. 918 (Bankr. M.D. Tenn. 1990).                In that

case, real property had been assessed by the County Board of

Equalization in 1985 pursuant to a debtor’s prepetition request.

The debtor failed to timely appeal the County Board’s decision in

1985, and the bankruptcy court concluded that it was without

authority to determine the amount of the debtor’s tax liability

pursuant to § 505(a)(2)(A) for the 1985 year. The bankruptcy court

adopted the commonly accepted rule that it was authorized “to

determine the amount of the debtors’ tax liability unless that

liability was finally determined via both a contest before and an

adjudication by a judicial or administrative tribunal prior to

commencement   of   the   debtors’      bankruptcy   case.”        Id.   at   919.

However, the bankruptcy court did conclude that it had authority to

determine the debtor’s 1988 tax liability because the City and

County’s reassessment of the 1988 tax liability was not made prior

to commencement of the bankruptcy case.

     Washington Manufacturing appears to support the Comptroller’s

position,   not   that    of   Trans    State.     What    is     emphasized   in

Washington Manufacturing is that timing is of utmost importance.

If the tax liability is determined by the state prepetition through

an   adjudicative    system,      the       bankruptcy    court     is   without

jurisdiction to redetermine the tax liability.


                                        7
       In the case sub judice, the district court concluded that the

proceeding before the administrative judge was quasi-judicial, and

therefore amounted to an adjudication by an “administrative or

judicial tribunal” under § 505(a)(2)(A) of the Bankruptcy Code.

The district court reasoned that the proceeding was adversarial

before a tribunal of competent jurisdiction.               We agree.       Trans

State was afforded the opportunity to subpoena and call witnesses

to testify at a contested hearing wherein the rules of evidence

would be applied.      Trans State also had the opportunity to appeal

the Comptroller’s decision in state district court for de novo

review once paying the tax under protest.            See Tex. Tax Code Ann.

§ 112.052 (Vernon Supp. 1998); Tex. Tax Code Ann. § 112.054.

Moreover, Trans State could have filed for bankruptcy before the

decision of the Comptroller became final and had his tax liability

determined by the bankruptcy court.            See 11 U.S.C. § 505(a)(1).

       Other courts facing similar circumstances have held that the

bankruptcy     court   was   without       jurisdiction   to   determine    tax

liability once the matter had been adjudicated by a quasi-judicial

tribunal.     See United States v. Utah Construction & Mining Co., 384

U.S.    394     (1966)(holding    that        an   administrative      board’s

determinations were final and conclusive, having provided the

parties with a full and fair opportunity to litigate with respect

to all claims as to which the board had jurisdiction and an

opportunity to seek court review of any adverse findings); Arkansas

Corp. Commission v. Thompson, 313 U.S. 132 (1941)(holding that

Arkansas Corporation Commission’s determination of tax liability


                                       8
which was not appealed in state court became a final decision and

could not be relitigated in bankruptcy court as the Commission had

full power to summon witnesses and hear evidence and state statute

provided the right to appeal in state court); City Vending of

Muskogee v. Oklahoma Tax Commission, 898 F.2d 122 (10th Cir.),

cert. denied, 498 U.S. 823 (1990)(holding that the bankruptcy court

lacked jurisdiction to determine whether sale of cigarettes to

Indian tribes was exempt from the state cigarette tax under the

Commerce Clause because Oklahoma Tax Commission determined it

lacked authority to hear constitutional claims, and taxpayer failed

to appeal this determination to the Oklahoma Supreme Court); City

of Amarillo v. Eakens, 399 F.2d 541 (5th Cir. 1968), cert. denied,

393 U.S. 1051 (1969)(referee was precluded from redetermining the

property valuation for tax purposes because it previously had been

adjudicated before the Potter County Board of Equalization and

taxpayer failed to seek judicial review); In re El Tropicano, Inc.

128 B.R. 153 (Bankr. W.D. Tex. 1991) (holding that Bexar County

Appraisal District was an administrative or judicial tribunal of

competent jurisdiction as the taxpayer had the opportunity to

appear,   offer   evidence,   and   appeal   the   Appraisal   District’s

decision; thus the bankruptcy court did not have jurisdiction over

tax liability redetermination under § 505(a)(2)(A)).

     The district court further emphasized that the purpose behind

section 505 of the bankruptcy code is to protect the estate from

the potential loss incurred because of a debtor’s failure, due

either to financial inability or mere indifference, to contest


                                    9
potentially incorrect assessments.     In this case the purposes

underlying section 505 would not be served by allowing Trans State

to relitigate in a federal forum.    See In re Northwest Beverage,

Inc., 46 B.R. 631, 635 (Bankr. N.D. Ill. 1985).

     For the reasons assigned by the district court, we agree that

the bankruptcy court was without jurisdiction to redetermine the

tax liability of Trans State under § 505(a)(2)(A).    Accordingly,

the judgment of the district court reversing the bankruptcy court

is AFFIRMED.

     AFFIRMED.




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