Affirmed and Memorandum Opinion filed April 19, 2016.




                                    In The

                   Fourteenth Court of Appeals

                            NO. 14-15-00027-CV

  GLENN HEGAR, COMPTROLLER OF PUBLIC ACCOUNTS OF THE
  STATE OF TEXAS; AND KEN PAXTON, ATTORNEY GENERAL OF
              THE STATE OF TEXAS, Appellants
                                      V.

             CHECKFREE SERVICES CORPORATION, Appellee

                   On Appeal from the 53rd District Court
                           Travis County, Texas
                  Trial Court Cause No. D-1-GN-13-003667

                 MEMORANDUM OPINION

      CheckFree Services Corporation contracted with several banks to provide
bill pay services through these banks’ on-line banking services to the banks’
customers.    An auditor from the Texas State Comptroller determined that
CheckFree should have collected sales tax on its sales of these services to the
banks. CheckFree tendered partial payment of assessed sales taxes and interest.
Following the conclusion of administrative proceedings that affirmed the auditor’s
determination and denied CheckFree’s refund claim, CheckFree filed suit against
the Comptroller and the Texas State Attorney General (collectively, the
Comptroller) seeking a refund.

        After a bench trial, the trial court signed a judgment in favor of CheckFree,
awarding it a refund of the taxes it paid, plus interest. In a single issue, the
Comptroller asserts that the trial court erred in concluding that the services
CheckFree provided to the banks were not taxable data processing services.

                                   I. Background

        The underlying dispute arises from CheckFree’s refund claim for $3 million
paid in sales taxes on the sale of its bill pay services to three banks during the tax
period from June 1, 2005 through July 31, 2008. An auditor determined that,
during this period, CheckFree had engaged in taxable “data processing services”;
CheckFree paid the $3 million following the audit. CheckFree challenged the
auditor’s determination through administrative proceedings, but was unsuccessful.
It then filed suit against the Comptroller, seeking a refund of the $3 million it had
paid.

        The parties filed pre-trial briefing, and the trial court conducted a two-day
bench trial. After the bench trial, the trial court signed a judgment in favor of
CheckFree ordering the Comptroller to refund CheckFree the $3 million in sales
and use tax it had paid and awarding CheckFree statutory interest. The court
signed detailed findings of fact and conclusions of law. Based on these findings,
the trial court made numerous legal conclusions that the transactions at issue in this
case were “bill pay services” that were not taxable “data processing services” as
defined either by the Texas Tax Code or the Comptroller’s administrative rules.
The Comptroller timely noticed its appeal of the trial court’s judgment.
                                          2
3
                                II. Standards of Review1

       Findings of fact entered in a case tried to the court are entitled to the same
force and dignity as a jury’s verdict on jury questions. McNeil Interests, Inc. v.
Quisenberry, 407 S.W.3d 381, 386 (Tex. App.—Houston [14th Dist.] 2013, no
pet.) (citing Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex. 1994)). “Where, as
here, a case is tried without a jury and the trial court issues findings of fact, the
reviewing court is bound by any unchallenged finding unless the evidence is
legally insufficient to support it.”         Saulsberry v. Ross, No. 14-14-00798-CV,
–S.W.3d–, 2015 WL 6692271, at *3 (Tex. App.—Houston [14th Dist.] Nov. 3,
2015, no pet.) (citing Tenaska Energy, Inc. v. Ponderosa Pine Energy, LLC, 437
S.W.3d 518, 523 (Tex. 2014)); see City of Keller v. Wilson, 168 S.W.3d 802, 827–
28 (Tex. 2005) (describing legal sufficiency standard of review). We review a trial
court’s conclusions of law drawn from the facts de novo to determine their
correctness. BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex.
2002).

       Further, the Comptroller’s issue concerns statutory construction, a question
of law that we review de novo. See First Am. Title Ins. Co. v. Combs, 258 S.W.3d
627, 631 (Tex. 2008). Our primary concern in construing a statute is the express
statutory language.      See Galbraith Eng’g Consultants, Inc. v. Pochucha, 290
S.W.3d 863, 867 (Tex. 2009). “We thus construe the text according to its plain
and common meaning unless a contrary intention is apparent from the context or
unless such a construction leads to absurd results.” Presidio Indep. Sch. Dist. v.
Scott, 309 S.W.3d 927, 930 (Tex. 2010) (citing City of Rockwall v. Hughes, 246

       1
         This case was transferred to our court from the Third Court of Appeals by order of the
Supreme Court of Texas. Therefore, we must decide the case in accordance with the Third
Court’s precedent if our decision would be otherwise inconsistent with its precedent. See Tex. R.
App. P. 41.3.

                                               4
S.W.3d 621, 625–26 (Tex. 2008)). We “‘read the statute as a whole and interpret it
to give effect to every part.’” Railroad Comm’n of Tex. v. Tex. Citizens for a Safe
Future & Clean Water, 336 S.W.3d 619, 628 (Tex. 2011) (quoting City of San
Antonio v. City of Boerne, 111 S.W.3d 22, 25 (Tex. 2003)).

      We construe administrative rules, which have the same force and effect as
statutes, in the same manner as statutes. Rodriguez v. Serv. Lloyds Ins. Co., 997
S.W.2d 248, 254 (Tex. 1999). Unambiguous comptroller rules must be construed
in accordance with their plain language. See Cirrus Exploration Co. v. Combs, 427
S.W.3d 464, 471 (Tex. App.—Austin 2014, pet. denied).           Finally, “[t]axing
statutes are construed strictly against the taxing authority and liberally for the
taxpayer.” See Morris v. Houston Indep. Sch. Dist., 388 S.W.3d 310, 313 (Tex.
2012).

                                   III. Applicable Law

      Although the Comptroller has been granted exclusive jurisdiction to interpret
what “taxable services,” including “data processing services,” means,2 the
Comptroller may not interpret this term in a manner contrary to the tax code. See,
e.g., Combs v. Home & Garden Party, Ltd., No. 03-09-00673-CV, 2010 WL
4367054, at *5 (Tex. App.—Austin Nov. 3, 2010, no pet.) (mem. op.) (citing
DuPont Photomasks, Inc. v. Strayhorn, 219 S.W.3d 414, 419 (Tex. App.—Austin
2006, pet. denied)).       Through section 151.0035 of the Texas Tax Code, the
Legislature has provided examples of what the term “data processing service”
includes:

      “Data processing service” includes word processing, data entry, data
      retrieval, data search, information compilation, payroll and business
      accounting data production, . . . and other computerized data and

      2
          See Tex. Tax Code § 151.0101(b).

                                             5
      information storage or manipulation. “Data processing service” also
      includes the use of a computer or computer time for data processing
      whether the processing is performed by the provider of the computer
      or computer time or by the purchaser or other beneficiary of the
      service. . . .
Tex. Tax. Code § 151.0035.

      As part of its role to interpret what may be taxed as “data processing
services” under the Code, the Comptroller has enacted Rule 3.330(a)(1) to define
what “data processing services” are. See 34 Tex. Admin. Code § 3.330(a)(1). This
subsection provides in pertinent part:

      Data processing services--the processing of information for the
      purpose of compiling and producing records of transactions,
      maintaining information, and entering and retrieving information. It
      specifically includes word processing, payroll and business
      accounting, and computerized data and information storage or
      manipulation. The charge for data processing services is taxable
      regardless of the ownership of the computer. Examples of data
      processing services include entering inventory control data for a
      company, maintaining records of employee work time, filing payroll
      tax returns, preparing W-2 forms, and computing and preparing
      payroll checks.
Id. The Comptroller has also defined what “data processing services” are not:

      Data processing does not include the use of a computer by a provider
      of other services when the computer is used to facilitate the
      performance of the service or the application of the knowledge of the
      physical sciences, accounting principles, and tax laws, e.g., the use of
      a computer to provide interpretive or enhancement geophysical
      services or the use of a computer by a CPA firm, enrolled agent, or
      bookkeeping firm to produce a financial report, prepare federal
      income tax, state franchise or sales tax returns, or charges for
      temporary secretarial personnel who as part of their function use word
      processing equipment.
Id.


                                         6
      With the appropriate standard of review and applicable law in mind, we turn
to the Comptroller’s sole issue: whether the trial court erred in determining that
the services that CheckFree provided were not taxable data processing services
under the Texas Tax Code and the Comptroller’s administrative rules.

                                    IV. Discussion

      As the plaintiff in a tax-refund case, CheckFree had the burden of proving,
by a preponderance of the evidence, that it is entitled to a refund of the sales tax it
paid on the services it provided to the banks because those services were not
subject to a tax. See Roark Amusement & Vending, L.P. v. Combs, No. 03-10-
00105-CV, 2011 WL 255535, at *2 (Tex. App.—Austin Jan. 26, 2011) (mem. op.),
aff’d, Combs v. Roark Amusement & Vending, L.P., 422 S.W.3d 632 (Tex. 2013);
GATX Terminals Corp. v. Rylander, 78 S.W.3d 630, 634 (Tex. App.—Austin
2002, no pet.).

      In an effort to meet this burden, CheckFree presented two witnesses:
Russell Kohl, the senior vice president of tax and treasury of CheckFree’s parent
company, Fiserv Corporation, and Mary Beth Lawson, the vice president of
product management for Fiserv.3 Both Kohl and Lawson testified live and via
excerpts from depositions that were read into the trial transcript.

      Kohl and Lawson described CheckFree’s services, largely focusing on three
types of activities that CheckFree provides to the banks: (1) the electronic delivery
platform that CheckFree used to facilitate the performance of the bill pay service
provided to the bank’s customers, (2) the actual bill pay service, and (3) other
aspects of the transactions, such as invoices, reports, and customer service that
were provided to the banks and the bank’s customers. Lawson explained that the
      3
         During the majority of the time of the audit, Lawson was the director of platform
services for CheckFree.

                                            7
technology platform through which the bill pay services operated was neither sold
nor licensed to the banks.

      Pursuant to agreements with the banks, CheckFree provided an electronic
bill pay service to the bank’s customers (the users). The banks were responsible
for obtaining user authorizations to enroll in the bill pay services. By means of the
bill pay service, the users could initiate and authorize payments from their accounts
to selected payees. The users were approved and enrolled by CheckFree, and
CheckFree conducted a “soft credit check” on the users. CheckFree agreed to
execute the delivery of all payments as instructed by the users, except in certain
cases such as when users provided incorrect instructions or had insufficient funds.
CheckFree determined the method of payment, generally using the Automated
Clearing House (ACH) to debit the users’ accounts and credit the payees’ accounts,
but in about twenty percent of the cases, CheckFree provided paper checks to
payees.

      CheckFree provided the banks with a dedicated connection that was owned
and operated by CheckFree. CheckFree monitored and supported the network
hardware, software, and mainframe operations. CheckFree employed thousands of
professionals who monitored transactions to prevent fraud and to ensure
compliance with banking regulations.         CheckFree also provided professional
support directly to the banks’ users in cases where payments were not made as
instructed.   CheckFree prepared numerous reports for the banks, containing
detailed information regarding the users and payments that were processed during
the report periods.

      By linking to CheckFree’s system through the banks’ online banking portals,
users could receive bill summaries from some payees and schedule payments. For
other payees, users entered payment data, including payee information, payment

                                         8
amounts, and payment due dates into CheckFree’s system. Once admitted to a user
interface, users could access CheckFree’s portal to add payees, make payments,
view pending payments, and perform other tasks related to bill payment.
CheckFree retained the users’ billing and payment data for retrieval by the users
for ninety days. CheckFree retained the data pursuant to banking regulations for
seven years.

      The contracts with each of the banks were entitled “CheckFree Services
Corporation Electronic Commerce Service Agreement” and were very similar,
although the type of services provided by CheckFree varied slightly for each bank.
For example, two of the banks entered into agreements with CheckFree for
implementation of CheckFree’s electronic commerce system to access only
CheckFree’s electronic bill payment service, but the third bank opted to implement
CheckFree’s electronic commerce system to access CheckFree’s electronic bill
payment service as well as CheckFree’s electronic banking services. Services to
the banks for which taxes were assessed included invoiced charges for monthly
infrastructure fees; fees for paper and electronic transactions; processing charges
for new subscriber set-ups; processing charges for non-sufficient funds, stop
payments, and claims; subscriber fees for active and inactive users; subscriber fees
for banking and bill pay; monthly minimum charges; service hosting fees;
processing charges for telecommunications minutes and VPN lines; and transaction
fees for excess payments and excess sessions.

      Based upon this evidence, the trial court’s findings and conclusions properly
focused on the “essence of the transaction” at issue, rather than simply the
involvement of a computer, to determine the nature of the services CheckFree
provided.      Cf. Roark Amusement & Vending, 422 S.W.3d at 637 & n.14
(explaining that the “economic realities underlying the transactions in issue”

                                         9
should not be disregarded in determining the plain meaning of taxing statutes and
noting the long-standing tradition of focusing on the “essence” or “object” of a
transaction to determine whether a tax is due). In accord with the Comptroller’s
rule, the trial court was required to determine whether CheckFree does something
more than “compiling and producing records of transactions, maintaining
information, and entering and retrieving information,” such as providing physical
science, legal, or accounting services based on the information—i.e., providing
professional services that are facilitated by the use of a computer. See id.

      Here, in addition to the numerous findings describing the general nature of
CheckFree’s services, the trial court made the following unchallenged finding:
“CheckFree has thousands of skilled and/or certified professionals who collaborate
in the performance of these professional services centered around bill payment.”
The finding is supported by the testimony of Lawson and Kohl regarding the role
of the professionals employed by CheckFree:

 Bill pay service is a professional service requiring accredited or certified
   professionals across several areas including ACH processing, financial crime
   investigation, treasury, anti-money laundering, and accounting.

 CheckFree employs over 3,000 associates and professionals necessary to
   facilitate the bill pay service.

 These professionals manage the actual bill pay process and make decisions at
   multiple stages of the bill pay process.

 These professionals are responsible for critical monitoring and detection of
   fraud, money laundering, and other financial risks.

 These professionals are also responsible for compliance with complex
   government regulations.

                                          10
 A team deals with errors and other customer service issues that arise after bill
   payment occurs.

 These professionals are not a minor part of the bill pay service delivery; instead,
   they are the “secret sauce” of the service.

Because this evidence supports the trial court’s finding, we are bound by it. See
Saulsberry, 2015 WL 6692271, at *3 (explaining that we are bound by
unchallenged fact finding unless the evidence is legally insufficient to support it).

         The Comptroller also has not challenged the following findings by the trial
court:

         The delivery platform for the bill pay service, the Electronic
         Commerce System, also called the Genesis System, and other
         technology including software and equipment used to facilitate the
         performance of the bill pay service is not the service that CheckFree
         sells to the financial institutions. Rather, the technology and
         equipment are part of the delivery platform for the service, or the
         inputs that produce the service, but they are not the service.
                                           ***
         Lawson and Kohl explained the distinction between bill pay and data
         processing: the activities the Comptroller labels as data processing
         are actually incidental activities facilitating the delivery of bill pay
         services and are not the actual service.
         The functions or activities that are incidental to the bill pay service,
         such as, invoices, reports, and customer service, are not the service
         that CheckFree sells to the financial institutions.
These findings are likewise supported by legally sufficient evidence; thus we are
bound by them. See id.

         Additionally, none of the transactions for which CheckFree was audited and
paid taxes fall clearly within the activities enumerated in either the applicable
statute or agency rule. In other words, none of the services CheckFree was audited

                                           11
and paid taxes for consist of “the processing of information for the purpose of
compiling and producing records of transactions, maintaining information, [or]
entering and retrieving information.”         34 Tex. Admin. Code § 3.330(a)(1)
(emphasis added). Nor do any of these services consist of “word processing, data
entry, data retrieval, data search, information compilation, payroll and business
accounting data production, . . . [or] other computerized data and information
storage or manipulation.” Tex. Tax Code § 151.0035. To the contrary, the trial
court’s findings, excerpted above, establish that, to the extent that CheckFree
provided any of these services, they were ancillary to the professional bill pay
services provided by CheckFree for the bank’s customers–the electronic commerce
services that the bank purchased from CheckFree.          See Roark Amusement &
Vending, 422 S.W.3d at 637–38 (focusing on “economic realities” underlying
transaction to determine whether tax was due).

      The Comptroller would have us ignore the trial court’s factual findings in
this case and conclude that, because the users of the bill pay service input data into
CheckFree’s system, which CheckFree relied on to ultimately pay their bills,
CheckFree was selling taxable data processing services to the banks. But we may
not simply ignore the trial court’s findings; they are entitled to the same force and
dignity as a jury’s verdict. See McNeil Interests, 407 S.W.3d at 386. Despite our
de novo review of the statute and agency rule at issue here, we nonetheless must
defer to the trial court’s unchallenged fact findings regarding the nature of the
activities in this case. And these findings, detailed above, establish that CheckFree
provides a professional service—facilitated by the use of computers and an
electronic commerce system—that requires the oversight and management of
thousands of certified specialists to achieve the goal of paying the bills of the
banks’ customers.


                                         12
       In sum, we must strictly construe taxing statutes against the Comptroller and
liberally in favor of CheckFree. See Morris, 388 S.W.3d at 313. Under these
circumstances, we determine that the trial court’s unchallenged findings support
the trial court’s conclusion that CheckFree’s services do not fall within the
Comptroller’s definition of data processing services because that definition
specifically excludes providers of other professional services who use a computer
to facilitate the performance of their services.    See 34 Tex. Admin. Code §
3.330(a)(1); Tex. Tax Code § 151.0101(b) (providing the Comptroller with
exclusive jurisdiction to interpret what taxable services, including data processing
services, means); see also Tex. Tax. Code § 151.0035 (providing examples of
“data processing service”).

       For the foregoing reasons, we overrule the Comptroller’s sole issue on
appeal.

                                  V. Conclusion

       We have overruled the Comptroller’s single appellate issue. The judgment
of the trial court is affirmed.




                                       /s/    Sharon McCally
                                              Justice


Panel consists of Justices Jamison, McCally, and Wise.




                                         13
