TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-21-00035-CV
Cheddar’s Casual Café, Inc., Appellant
v.
Glenn Hegar, Comptroller of Public Accounts of The State of Texas; and Ken Paxton, Attorney General of The State of Texas, Appellees
FROM THE 126TH DISTRICT COURT OF TRAVIS COUNTY NO. D-1-GN-19-006943, THE HONORABLE DUSTIN M. HOWELL, JUDGE PRESIDING
OPINION
Cheddar’s Causal Café, Inc. (Cheddar’s) appeals the trial court’s final judgment
denying its refund claim for alleged overpayment of sales taxes for certain items purchased for
use in its restaurants. Cheddar’s had claimed its refund entitlement under the “Sale for Resale”
exemption in section 151.302 of the Texas Tax Code. See Tex. Tax Code § 151.302(a) (“The
sale for resale of a taxable item is exempted from the taxes imposed by this chapter.”); see
also id. § 151.006 (defining “sale for resale”). Cheddar’s also challenged the validity of one
of the Comptroller’s rules related to the sale-for-resale exemption. See 34 Tex. Admin. Code
§ 3.293(h)(5) (Comptroller of Pub. Accounts, Food; Food Products; Meals; Food Service). After
a bench trial, the trial court rendered a final judgment disallowing the exemption and denying
the rule challenge. Cheddar’s contends that the trial court erred in disallowing the exemption
and denying the rule challenge. We will affirm the trial court’s final judgment. BACKGROUND1
Cheddar’s operated as a casual restaurant. When Cheddar’s served its dine-in
customers, it provided them with dishes, glasses, and utensils—items the parties refer to as
“smallwares”—for use within the restaurant premises while eating. Cheddar’s reused the
smallwares for future dine-in customers and for training its personnel on the menu items. After
customer dining, Cheddar’s personnel sorted, cleaned, sanitized, re-sorted, dried, and staged the
smallwares to be reused by subsequent dine-in customers. Cheddar’s waitstaff returned used bar
glasses to the bar for cleaning and reuse and used new clean glasses for customers who requested
refills. Although Cheddar’s did not tell its customers that they could take the smallwares from
the restaurant premises, there were instances in which customers stole the smallwares.
Contending that the smallwares qualify for the sale-for-resale exemption,
Cheddar’s sued under chapters 112 and 151 of the Tax Code for a refund of $265,937.86 in
sales and use tax, plus interest, for the period from January 1, 2010 through July 31, 2013.2
Cheddar’s also brought a challenge to the validity of administrative rule 3.293(h)(5), which
provides that “items must not be reusable by the seller to qualify for the sale for resale
exemption.” See Tex. Gov’t Code § 2001.038 (providing that validity or applicability of rule
1 The facts recited in this section are drawn from unchallenged trial court findings of fact. See Trevino v. Munoz, 583 S.W.2d 840, 843 (Tex. App.—San Antonio 1979, no writ) (holding that when appellant does not challenge sufficiency of evidence to support trial court’s findings of fact, appellate court will accept findings as correct recitation of facts). 2 In 2011, 2015, 2019, and 2021 the legislature amended several provisions of chapter 151 of the Tax Code. See Act of June 28, 2011, 82d Leg., 1st C.S., ch. 4, § 12, 2011 Tex. Gen. Laws 5254; Act of May 21, 2015, 84th Leg., R.S., ch. 426, 2015 Tex. Gen. Laws 1675; Act of May 21, 2019, 86th Leg., R.S., ch. 638, §3, 2019 Tex. Gen. Laws 1876, 1876–77; Act of May 24, 2021, 87th R.S., ch. 401, § 2, 2021 Tex. Gen. Laws 795, 796. Unless otherwise indicated, we cite to the provisions in effect during the tax period in question. 2 may be determined in declaratory judgment action); 34 Tex. Admin. Code § 3.293(h)(5). After a
bench trial, the district court concluded that Cheddar’s was not entitled to a refund of sales and
use tax on the smallwares and that Comptroller rule 3.293(h)(5) is a valid rule. Cheddar’s then
perfected this appeal.
DISCUSSION
Our decision requires us to construe various provisions of chapter 151 of the Tax
Code. “When construing a statute, our chief objective is effectuating the Legislature’s intent,
and ordinarily, the truest manifestation of what lawmakers intended is what they enacted.”
Combs v. Roark Amusement & Vending, L.P., 422 S.W.3d 632, 635 (Tex. 2013) (citing First
Am. Title Ins. v. Combs, 258 S.W.3d 627, 632 (Tex. 2008)). “This voted-on language is what
constitutes the law, and when a statute’s words are unambiguous and yield but one interpretation,
‘the judge’s inquiry is at an end.’” Id. (quoting Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson,
209 S.W.3d 644, 651-52 (Tex. 2006)). “We give such statutes their plain meaning without resort
to rules of construction or extrinsic aids.” Id. (citing Texas Lottery Comm’n v. First State Bank
of DeQueen, 325 S.W.3d 628, 635, 637 (Tex. 2010)). “On the other hand, ‘[i]f a statute is
vague or ambiguous, we defer to the agency’s interpretation unless it is plainly erroneous or
inconsistent with the language of the statute.’” Id. (quoting Texas Dep’t of Ins. v. American Nat’l
Ins., 410 S.W.3d 843, 853 (Tex. 2012)).
Subsection 151.051(a) imposes a sales tax “on each sale of a taxable item in this
state.” Tex. Tax Code § 151.051(a). “‘Taxable item’ means tangible personal property and
taxable services.” Id. § 151.010. The smallwares at issue in this case are undisputedly “tangible
personal property.” See id. § 151.009 (defining tangible personal property as “personal property
3 that can be seen, weighed, measured, felt, or touched or that is perceptible to the senses in any
other manner”). The legislature has provided several exemptions from the sales and use tax,
including the sale-for-resale exemption: “The sale for resale of a taxable item is exempted from
the taxes imposed by this chapter.” Id. § 151.302(a). “Sale for resale” includes, relevant here,
the sale of tangible personal property to a purchaser who acquires the property for the purpose of
reselling it (1) with or as a taxable item in the form or condition in which it was acquired or
(2) as an attachment to or integral part of other tangible personal property. Id. § 151.006(a)(1).
“Tax exemptions are narrowly construed and the taxpayer has the burden to ‘clearly show’ that
an exemption applies.” Southwest Royalties, Inc. v. Hegar, 500 S.W.3d 400, 404 (Tex. 2016)
(quoting Bullock v. National Bancshares Corp., 584 S.W.2d 268, 271-72 (Tex. 1979) (stating
“all doubts are resolved in favor of the taxing authority”)).
The Tax Code does not define “resell,” but it does define “sale or purchase,”
relevant here, as:
● a transfer of title or possession of tangible personal property, see Tex. Tax Code § 151.005(1); or
● the furnishing, preparation, or service of food, meals, or drinks, see id. § 151.005(6).
Cheddar’s argues that it is entitled to the sale-for-resale exemption under subsection 151.302(a)
for two reasons. First, Cheddar’s maintains that it transferred possession of the smallwares to
its dine-in customers, which constitutes a “sale” by virtue of the definition of sale found
in subsection 151.005(1). Second, Cheddar’s contends that its furnishing meals to dine-in
customers constitutes a sale of the smallwares by virtue of the definition “sale” found in
subsection 151.005(6). We consider each argument in turn.
4 Did Cheddar’s transfer possession of the smallwares to its dine-in customers?
The Tax Code also does not define “transfer” or “possession” and we therefore
give the words their plain and common meaning. McIntyre v. Ramirez, 109 S.W.3d 741, 745
(Tex. 2003). This Court has determined that the plain and common meaning of “transfer” is
“to make over or negotiate the possession or control of (a right, title, or property) by a legal
process usually for a consideration; convey.” Fitness Int’l, LLC v. Hegar, No. 03-15-00534-CV,
2016 WL 3391606, at *3 (Tex. App.—Austin June 16, 2016, pet. denied) (mem. op.) (citing
Webster’s Third New Int’l Dictionary 2426-27 (2002)). This Court has also determined that the
plain and common meaning of “possession” is “‘the act or condition of having in or taking into
one’s control or holding at one’s disposal’ and ‘actual physical control or occupancy of property
by one who holds for himself and not as a servant of another without regard to his ownership and
who has a legal right to assert interests in the property against all others having no better right
than himself.’” Id. (quoting Webster’s Third New Int’l Dictionary 1770 (2002)). Therefore,
under subsection 151.302(a), Cheddar’s is entitled to the sale-for-resale exemption if it gave
“possession or control of [the smallwares at issue to dine-in customers] by a legal process”
and the dine-in customers had control of the smallwares or held them at their disposal with a
“legal right to assert interests in [the smallwares] against all others.” See id.. Based on these
definitions and this record, there can be no reasonable conclusion that Cheddar’s purchased the
smallwares for the purpose of reselling them by transferring legal possession of them to its dine-
in customers so as to make the dine-in customers’ rights equal or superior to Cheddar’s rights or
so that they could hold the smallwares at their disposal.
The trial court found that Cheddar’s provided the smallwares to dine-in customers
for use within the restaurant premises while eating and, after use, sorted, cleaned, sanitized, re-
5 sorted, dried, and staged the smallwares for reuse by the next dine-in customer. Cheddar’s did
not hold or secure any smallwares for dine-in customers who left them at the table after dining
and did not encourage dine-in customers to take the smallwares with them when they left the
restaurant, although there were “instances where smallwares were stolen.” Although Cheddar’s
asserts that the dine-in customers could do as they wished with the smallwares while dining, that
demonstrates at most that the dine-in customers had “possession” while they were eating, not
that Cheddar’s “transferred” possession of the smallwares to the dine-in customers. The fact that
the customers were not expected or even permitted to take the smallwares with them after eating
evidences that possession of the smallwares was not “transferred” to them. See id. (holding that
although gym members had “control” of particular equipment while using it, Fitness retained
superior legal possession of equipment and merely provided access to and use of equipment
under terms and conditions within its own discretion and therefore did not “transfer” or “resell”
equipment). Cheddar’s at all times retained superior legal possession of the smallwares and
merely provided access to and use of the smallwares to the dine-in customers while eating. See
Hegar v. Gold’s Texas Holdings Grp., 598 S.W.3d 730, 734 (Tex. App.—Austin 2020, pet.
denied) (holding that no “transfer” took place when Gold’s provided access to its equipment
pursuant to its membership agreement and rules while retaining superior legal possession under
terms and conditions completely within its own discretion).
This Court has acknowledged that “the purpose of the sale-for-resale exemption
is to make sure that the same goods are not twice subject to sales tax, such that ‘only the
ultimate owner of the goods should be burdened by the sales tax.’” DTWC Corp. v. Combs,
400 S.W.3d 149, 153 (Tex. App.—Austin 2013, no pet.) (quoting Sharp v. Clearview Cable TV,
Inc., 960 S.W.2d 424, 426 (Tex. App.—Austin 1998, pet. denied)). Accordingly, we have
6 previously held that hotel consumables qualified for the sale-for-resale exemption because hotel
guests paid a fee for overnight lodging, after which they were “free to use the hotel consumables
in their rooms as they saw fit, including using the items, not using the items, or taking the items
with them when they left the hotel.” Id. at 151, 154-56. Similarly, in Gold’s Texas Holdings
Group, we considered whether a health club transferred possession of small fitness equipment to
members who could use them inside the health club subject to health club rules but were
prohibited from removing them from the club. We concluded that “[a]lthough members have
access to these items and may use them for a range of fitness activities, Gold’s ‘retains superior
legal possession of the items’” and that Gold’s failed to “clearly show that it transferred
possession or control” of the equipment to its members as required by section 151.006. Gold
Texas Holdings Grp., 598 S.W.3d at 736 (quoting Fitness Int’l, 2016 WL 3391606, at *3); see
also CEC Entm’t, Inc. v. Hegar, No. 03-18-00375-CV, 2019 WL 6603165, at *3 (Tex. App.—
Austin Dec. 5, 2019, pet. denied) (mem. op.) (“[O]ur holding is based on the fact that CEC does
not “transfer”—i.e., give possession or control of—the coin operated gaming equipment to its
customers because the customers only have access to use of the games or rides provided by
the equipment under CEC’s conditions and parameters.”). Here, although dine-in customers
had access to and could use the smallwares while eating, like the gym equipment, the dine-in
customers were not permitted to take the smallwares with them when they left the restaurant and,
although they could use them while eating consistent with Cheddar’s business model, the dine-in
customers did not gain superior legal possession of the smallwares. Cheddar’s failed to clearly
show that it transferred possession or control over the smallwares sufficient to constitute a
“transfer” under subsection 151.005(1) and thus Cheddar’s provision of the smallwares to its
dine-in customers does not constitute a “sale” for purposes of the sale-for-resale exemption.
7 See Tex. Tax Code § 151.006(a)(1) (“sale for resale” means property acquired for purpose of
reselling it).3
Cheddar’s argues that our construction of the term “transfer” should be guided by
the economic realities of a restaurant business and that the economic reality here is that “the
customers purchased the meals with the expectation that [Cheddar’s] would provide the items
necessary to eat the food.” Thus, Cheddar’s maintains, its purchase of the smallwares qualifies
for the sale-for-resale exemption because we must construe the “transfer” requirement in the
context of Cheddar’s business model. The economic reality doctrine, however, simply provides
that “in the area of tax law, like other areas of economic regulation, a plain-meaning
determination should not disregard the economic reality underlying the transaction in issue.”
Roark Amusement & Vending L.P., 422 S.W.3d at 637. The reality underlying the transactions at
issue here, whether economic or otherwise, is that Cheddar’s did not “transfer” its smallwares to
the customers who used them to eat a meal they paid for; it simply allowed them access to and
use of, on Cheddar’s terms, the smallwares while they consumed a dine-in meal.
3 Because we conclude that Cheddar’s provision of the smallwares to its dine-in customers for use while eating did not constitute a transfer of possession, or “sale,” of the smallwares for purposes of the sale-for-resale exemption, we need not address its argument that the smallwares are “an attachment to or integral part of” other tangible personal property sold such that their purchase of the smallwares qualifies as an exempt sale-for-resale. Subsection 151.006(a)(1) provides that a “sale for resale” occurs when a purchaser acquires the property for the purpose of “reselling” it either in the form acquired or as an attachment to or integral part of other tangible personal property. Both of these components require that the purpose be to “resell” the property. Having concluded that Cheddar’s did not acquire the smallwares for the purpose of transferring possession of them, i.e., selling them, it is immaterial whether the smallwares were a necessary tool to complete the sale of the food items served using them. Moreover, the fact that the smallwares were returned and reused for subsequent dine-in customers, rather than consumed or retained by the dine-in customer, belies Cheddar’s claim that the smallwares were an “attachment to” or “integral part” of the food items sold. While the smallwares could be considered an integral part of the service of the food items, they are not an integral part of or an attachment to the food items themselves. 8 Did Cheddar’s furnishing meals to dine-in customers constitute a “sale” of the smallwares?
The Tax Code includes in its definition of “sale” “the furnishing, preparation, or
service of food, meals, or drinks.” Tex. Tax Code § 151.005(6). Cheddar’s argues that because,
in its view, the term “meal” includes the smallwares in addition to the food the dine-in customer
consumed, the furnishing of a “meal” to a dine-in customer constituted a sale of the smallwares.
The linchpin of this argument is that the term “meal” refers not just to consumable food
items, but also to the utensils—the smallwares—used to serve the food items. In support of its
argument, Cheddar’s relies on the following dictionary definition of “meal”: “[t]he food served
and eaten in one sitting.” See American Heritage Dictionary 1088 (5th ed. 2011). For its part,
the Comptroller maintains that the smallwares are not included in the term “meal,” relying on a
different dictionary definition of “meal”: “1. an act or the time of eating a portion of food to
satisfy appetite 2. the portion of food eaten at a meal.” See Merriam-Webster Dictionary
www.merriam-webster.com/dictionary/meal. Thus, reading the first and second definitions
together, this dictionary defines “meal” as both the time or act of eating a portion of food to
satisfy an appetite and the actual food consumed to satisfy the appetite. The Comptroller asserts
that in the context of the statute, the correct definition of “meal” is the latter; i.e., the food
consumed to satisfy the appetite. This definition is consistent with the one sponsored by
Cheddar’s; i.e., food served and eaten in one sitting.
Cheddar’s, however, argues that the “meal” includes not just the food eaten in one
sitting, but also the items used to serve that food. Cheddar’s supports this argument by first
stating that “meal” must include the serving utensils because the statute uses both the terms
“food” and “meal,” indicating that “food” and “meal” are not the same thing. Cheddar’s reasons
9 that because the statute uses both the term “meal” and “food,” “meal” cannot be equivalent
to “food.” Cheddar’s argues that the term “meal” includes “matters outside the confines of
food,” and those matters are the smallwares. See Southwest Royalties, Inc. 500 S.W.3d at 402
(interpreting statute that included terms “manufacturing, processing, or fabrication” and
determining that, while processing may be a type of “manufacturing,” statute’s use of separate
term “processing” indicated that legislature “understood and intended that ‘processing’ includes
matters outside the confines of ‘manufacturing’”). There is no support, however, in either the
statute’s text or the common meaning of the term “meal” to indicate that it includes more than
food items. The dictionary definitions provide that “meal” is a category of food; that is, food
eaten in one sitting.4 The two terms mean different things, and neither of them includes items
that are not food. Cheddar’s assertion that the term “meal” includes smallwares seems to derive
from the statute’s use of the terms “furnish” and “service” in its definition of a sale as “the
furnishing, preparation, or service of food, meals, or drinks.” We understand Cheddar’s to argue
that use of the terms “furnish” and “service” indicates that the smallwares fall within the scope of
the term “meal” because the meal could not be “furnished” or “served” without the smallwares.
We are unpersuaded by this argument for two reasons. First, the terms “furnishing” and “service
of” refer to both “food” and “meals,” which undercuts Cheddar’s assertion that the difference
between a “meal” and “food” is that meal includes serving utensils while food does not. Second,
the statute defines “sale for resale” as a sale of tangible personal property to a purchaser who
acquires it for the purpose of reselling it. See Tex. Tax Code § 151.006(a)(1). In the context of
the sale-for-resale exemption, it is plain that the qualifying tangible personal property is the food,
4 In fact, in its appellate briefing, Cheddar’s states: “The feature that distinguishes a meal from simply food is that a meal is food served and eaten in one sitting.” (Emphasis added). 10 meals, or drinks, and the “furnishing, preparation, and service” of that tangible personal property
is the qualifying resale. See First Nat’l Bank of Fort Worth v. Bullock, 584 S.W.2d 548, 551
(Tex. App.—Austin 1979, writ ref’d n.r.e.) (“[T]he tangible personal property consist[s] of food,
meals and drink, the sale of which consist[s] of the furnishing, preparation, and serving of those
items for consideration.”). Having rejected Cheddar’s interpretation of the term “meals” in the
statute to include the smallwares, we conclude that its furnishing of meals to dine-in customers
did not constitute a “sale” of the smallwares within the scope of the sale-for-resale exemption.
Is Comptroller rule 3.293(h)(5) a facially valid rule?
Section 2001.038 of the Texas Government Code allows a party to challenge the
validity of an agency rule through a declaratory judgment action if it is alleged that the rule or its
threatened application interferes with or impairs a legal right or privilege of the plaintiff. See
Combs v. Entertainment Publ’ns, Inc., 292 S.W.3d 712, 720 (Tex. App.—Austin 2007, no pet.).
We presume that an agency rule is valid, and the party challenging the rule has the burden of
demonstrating its invalidity. See Texas Ass’n of Psych. Assocs. v. Texas State Bd. of Exam’rs of
Psychs., 439 S.W.3d 597, 603 (Tex. App.—Austin 2014, no pet.). To establish a rule’s facial
invalidity, the challenger must show that the rule (1) contravenes specific statutory language;
(2) is counter to the statute’s general objectives; or (3) imposes additional burdens, conditions, or
restrictions in excess of or inconsistent with the relevant statutory provisions. See Harlingen
Family Dentistry, P.C. v. Texas Health & Hum. Servs. Comm’n, 452 S.W.3d 479, 481 (Tex.
App.—Austin 2014, pet. dism’d).
11 Cheddar’s challenges Comptroller rule 3.293(h)(5), alleging that it improperly
limits the type of tangible personal property or taxable item that can qualify for the sale-for-
resale exemption. The challenged rule provides, in pertinent part:
(h) Responsibilities of sellers of taxable food and beverages.
(5) A seller may give a resale certificate to a supplier for the tax-free purchase of items that are transferred to the customer with the food or beverages. Such items must not be reusable by the seller to qualify for the sale for resale exemption. [] Examples of items qualifying for the exemption include disposable paper products, wooden, plastic, and aluminum products that are transferred to the customer. Other examples include cake boxes, lunch boxes, disposable cups, paper and plastic containers, bottle wraps, butter chip trays, disposable paper or plastic plates, plastic knives, forks, and spoons, paper napkins, soda straws, toothpicks, french fry boxes, stir sticks, ice cream sticks, disposable souffle cups, hot dog trays, and other types of disposable trays.
34 Tex. Admin. Code § 3.293(h)(5). Cheddar’s first asserts that the rule is counter to the general
objective of the sale-for-resale exemption, which is to make sure that “the same goods are not
twice subject to sales tax, such that ‘only the ultimate owner of the goods should be burdened
by the sales tax.’” DTWC Corp., 400 S.W.3d at 153; Clearview Cable TV, 960 S.W.2d 424,
426 (Tex. App.—Austin 1998, pet. denied) (“Retailers are allowed to purchase goods tax-free
from wholesalers because the Tax Code recognizes that the consumer will ultimately own
and pay sales tax on the goods purchased from the retailers.”); see 7-Eleven, Inc. v. Combs,
311 S.W.3d 676, 684 (Tex. App.—Austin 2010, pet. denied) (noting that “purpose of the sale-
for-resale exemption is to prevent double taxation”). The sale-for-resale exemption achieves this
objective by exempting from sales tax the sale of tangible personal property by one entity, for
example a wholesaler, to another entity that acquires the property for the purpose of reselling it,
for example a retailer. See Clearview Cable TV, 960 S.W.2d at 426 (“The application of the
12 exemption is best exemplified by the transfer or sale of merchandise from wholesaler to retailer
to consumer. Retailers are allowed to purchase goods tax-free from wholesalers because the Tax
Code recognizes that the customer will ultimately own and pay sales tax on the goods purchased
from the retailers.”). The sales tax is collected from the ultimate consumer; i.e., the entity that
purchases the good from the retailer. Id. (“In other words, the Tax Code recognizes that the
same goods should not be taxed twice; only the ultimate owner of the goods should be burdened
by the sales tax.”).
Cheddar’s asserts that the rule is counter to the statute’s objective of avoiding
double taxation because it precludes a restaurant from claiming the sale-for-resale exemption
on “reusable” items like the smallwares. Cheddar’s argues that the dine-in customers are the
“ultimate consumers” because they “use the smallwares to enjoy their order.” Cheddar’s
maintains that because the rule requires Cheddar’s, who it contends is not the “ultimate
consumer” of the smallwares, to pay sales and use tax when it purchases the smallwares, the rule
interferes with the statutory objective of taxing only the “ultimate consumer” of the smallwares.
This Court has previously stated that the objective of the sale-for-resale exemption is to impose
sales and use tax only on the “ultimate owner of the goods.” See, e.g., DTWC Corp., 400 S.W.3d
at 153 (emphasis added). As explained above, although Cheddar’s provided its dine-in customers
access to and use of the smallwares, it did not transfer ownership or possession of them to the
dine-in customers. In fact, customers who took the smallwares with them after eating their meal
were considered to have stolen them. We reject Cheddar’s contention that the rule’s effect of
precluding Cheddar’s from claiming the sale-for-resale exemption for the smallwares is counter
to the statute’s objective of taxing only the ultimate owner of the smallwares.
13 Cheddar’s next argues that the word “transferred” in the rule causes it to
contradict or impose additional burdens, conditions, or restrictions on the definitions of “sale”
and “sale for resale” in Tax Code subsection 151.005(6). According to Cheddar’s, because the
Tax Code recognizes that a “sale” can mean “the furnishing, preparation, or service of food,
meals, or drinks,” the rule’s requirement that the tax-exempt items—here, the smallwares—be
“transferred to the customer with the food or beverages” imposes a transfer requirement not
found in subsection 151.005(6). Put differently, Cheddar’s argues that there is no requirement
that the smallwares be “transferred” to the dine-in customer in order for them to be sold since a
sale is defined as the “furnishing” or “service” of “meals,” which include the smallwares. We
have previously rejected Cheddar’s contention that the smallwares are part of the “meal” such
that merely furnishing or serving a “meal” constitutes a sale of the smallwares. Thus, the rule’s
requirement that the smallwares be “transferred” to the dine-in customers with the food or
beverages sold does not impose additional burdens, conditions, or restrictions on the definition of
“sale” found in subsection 151.005(6).
Next, Cheddar’s argues that the rule’s use of the words “are transferred” requires,
because it is in the past tense, that the smallwares have already been transferred to the dine-in
customers before they are entitled to the exemption, whereas the statute provides that tangible
personal property, like the smallwares, are tax-exempt at the time they are “acquired for the
purpose of reselling” them. See Tex. Tax Code § 151.006(a)(1). Cheddar’s claims that the
rule thereby “presents timing inconsistencies” in the availability of the sales tax exemption.
Specifically, the statute contemplates that the sale-for-resale exemption applies at the moment
the qualifying tangible personal property is acquired, regardless of what is actually done with it,
whereas Cheddar’s interprets the rule as requiring that the tangible personal property actually
14 have been transferred before it qualifies for the exemption—an imposition of a “requirement
on its future use.” We disagree that the use of the words “are transferred” in the rule creates a
timing inconsistency that places limitations not present in subsection 151.006(a)(1) on future use
of exempt tangible personal property. The rule states, in pertinent part, that “[a] seller may give
a resale certificate to a supplier for the tax-free purchase of items that are transferred to the
customer with the food and beverage.” 34 Tex. Admin. Code § 3.293(h)(5). The phrase “that
are transferred to the customer” modifies the term “item” and means simply that the certificate
may be presented if the purchaser acquired the property intending to transfer it to a customer, not
when the item is actually transferred to the customer. This is wholly consistent with subsection
151.006(a)(1), which provides that a “sale for resale” occurs if the purchaser acquires the tangible
personal property for the purpose of reselling it in the normal course of business. Tex. Tax Code
§ 151.006(a)(1). The words “are transferred” in the rule create no timing inconsistencies or
future use conditions beyond those existing in the statute.
Finally, Cheddar’s argues that the word “reusable” in the rule renders the rule
invalid because it causes the rule to contradict or impose additional burdens, conditions, or
restrictions on the language in the Tax Code. The rule provides that the seller may give a resale
certificate to a supplier for the tax-free purchase of items that are transferred to the customer with
the food or beverages only if the item is not reusable by the seller of the food or beverage. See
34 Tex. Admin. Code § 3.293(h)(5). Cheddar’s asserts that by requiring that tangible personal
property not be “reusable” in order to qualify for the sale-for-resale exemption, the rule places
limitations on what tangible personal property can fall within the exemption that are not present
in the statute. Correlatively, Cheddar’s contends that because, in its view, the rule operates to
exclude reusable items from the sale-for-resale exemption, it contradicts the statute’s objective of
15 avoiding double taxation on all tangible personal property acquired for the purpose of reselling
it, not just non-reusable items. Cheddar’s argument focuses solely on the term “reusable” in the
statute and ignores the words that follow—“by the seller.” The rule disqualifies an item from the
sale-for-resale exemption only if it is “reusable by the seller,” not simply if it is a reusable item.
Rather than limit the types of tangible personal property that are exempt when transferred to the
customer with the food or beverages, the rule ensures that “reusable” items, like glasses, mugs,
or plates qualify for the exemption when they are transferred to the customer and therefore
cannot be reused by the seller. An example is a souvenir glass embossed with a restaurant’s logo
and containing the restaurant’s signature drink, which the customer is permitted, and in fact
expected, to take with them from the restaurant. The rule ensures that this type of reusable item
qualifies for the exemption even though it is not the typical disposable plate, plasticware, or
napkin that typically is transferred to a customer with food or beverages. The rule therefore
confirms, and is consistent with, the statutory intent that an item, whether reusable or non-
reusable, qualifies for the exemption if it is transferred to the customer, rather than remaining
available for reuse by the seller of the food or beverages.
Because Cheddar’s has failed to demonstrate that Comptroller rule 3.293(h)(5)
either (1) contravenes specific statutory language; (2) is counter to the statute’s general objectives;
or (3) imposes additional burdens, conditions, or restrictions in excess of or inconsistent with the
relevant statutory provisions, it has failed to carry its burden of establishing the rule’s facial
invalidity. See Harlingen Family Dentistry, P.C., 452 S.W.3d at 481; Texas Ass’n of Psych.
16 Assocs., 439 S.W.3d at 603. We conclude that the trial court did not err in denying Cheddar’s
challenge to this rule.5
CONCLUSION
For the reasons stated in this opinion, Cheddar’s purchase of the smallwares at
issue in this case did not qualify for the sale-for-resale exemption. Consequently, the trial court
did not err in determining that Cheddar’s was not entitled to a sales tax refund and rendering
judgment that Cheddar’s take nothing. Because Cheddar’s failed to establish that Comptroller
rule 3.293(h)(5) is facially invalid, the trial court correctly denied Cheddar’s rule challenge. We
overrule Cheddar’s appellate issues and affirm the trial court’s judgment.
__________________________________________ Chari L. Kelly, Justice
Before Chief Justice Byrne, Justices Triana and Kelly
Affirmed
Filed: April 7, 2022
5 Because our holdings are based on the application of the law to unchallenged findings of fact and do not depend on fact findings that were challenged on appeal, we need not address Cheddar’s evidentiary challenges to those facts that were not considered as part our analysis. See Tex. R. App. P. 47.1. 17