Texas Letter Ruling 9211L1205B03: Statute Of Limitations — Tax Refund On Federal Contracts — Federal Law Vs. State Law

Plain-English summary

This document is not a ruling addressed to a taxpayer -- it is an internal November 20, 1992 memo from the Comptroller's Tax Administration staff (John Christian) to the Credits Verification section (Sandi Skaggs), explaining how the agency should handle a specific type of refund claim while a related case was pending before the U.S. Supreme Court.

The background case, United States of America v. State of California and California Board of Equalization, 932 F.2d 1346 (9th Cir. 1991), involved a private contractor that managed drilling operations on federal land in California. The contractor paid California sales and use tax under protest (funded by the U.S. government under its contract), was denied a refund, and the U.S. government itself sued for the balance. The U.S. argued it was entitled to a federal six-year statute of limitations under 28 U.S.C. Sec. 2415 (which governs quasi-contract claims); California argued the claim was really a state tax refund claim, barred because suit wasn't filed within California's own 90-day deadline after denial. The Ninth Circuit sided with California, and the U.S. Supreme Court had just granted review, partly because the Ninth Circuit's decision conflicted with an Eleventh Circuit case, United States v. Broward County, Florida, 901 F.2d 1005 (11th Cir. 1990).

The memo explains why this matters in Texas: if the Supreme Court ultimately gives the U.S. government a six-year window, that could affect refund claims from federal contractors in Texas who bought taxable items for resale to the federal government under the Day & Zimmerman v. Calvert (DZ) line of cases. The Comptroller's stated position -- to be applied unless and until the Supreme Court says otherwise -- is that these refund claims are governed entirely by state law, meaning Texas's own four-year statute of limitations, regardless of whether the state tax was reimbursed directly or indirectly by the federal government. The memo directs staff to deny any refund claim that falls outside the four-year state period even if it would be timely under the federal six-year period, while noting the claimant can request a hearing and argue federal preemption to an administrative law judge. It also notes Texas sits in the Fifth Circuit, so it isn't bound by either the Ninth or Eleventh Circuit decisions, though the agency might have to follow whatever the Supreme Court ultimately decides.

What this means for you

Federal contractors and their vendors/suppliers

If you (or your vendor) paid Texas sales or use tax on items purchased for resale to the U.S. government and are considering a refund claim under the Day & Zimmerman v. Calvert line of cases, this memo shows the Comptroller's 1992 position: your claim is subject to Texas's own state-law statute of limitations (described here as four years), not a longer federal statute of limitations, even if the government reimbursed the tax. Claims filed outside the state deadline were to be denied, with the option to request a hearing and argue federal preemption before an administrative law judge.

Accountants and tax professionals

This is an internal policy/strategy memo, not a binding ruling issued to a taxpayer -- it explains the agency's litigation posture while a U.S. Supreme Court case was pending, and cannot be relied on by any taxpayer as ruling authority. It is useful mainly as historical background on how the agency reasoned about the interplay between the federal six-year limitations period under 28 U.S.C. Sec. 2415 and Texas's state refund-claim deadline for federal-contractor claims. Because the memo was written in anticipation of a still-undecided Supreme Court case, always confirm current law and any subsequent Comptroller guidance before relying on this reasoning.

Anyone researching old STAR documents

This letter is dated 1992 and refers to a Supreme Court case that, at the time of writing, had not yet been decided ("No decision should come down anytime soon."). The memo itself acknowledges the agency's position could change depending on how the Supreme Court ultimately ruled, so it should not be treated as a current or final statement of Texas law without further research.

Common questions

Q: Is this document a ruling I can rely on?
A: No. It is an internal staff memo from Tax Administration to the Credits Verification section, not a letter ruling issued to a taxpayer. It cannot support a detrimental-reliance claim.

Q: Does the federal six-year statute of limitations in 28 U.S.C. Sec. 2415 apply to Texas sales/use tax refund claims from federal contractors?
A: According to this 1992 memo, no -- the Comptroller's position was that such claims are governed entirely by Texas's own (shorter) state-law statute of limitations, described in the memo as four years, regardless of whether the tax was reimbursed by the federal government.

Q: What was the underlying court case about?
A: United States of America v. State of California and California Board of Equalization, 932 F.2d 1346 (9th Cir. 1991) -- a dispute over whether the U.S. government could use a federal six-year statute of limitations to seek a refund of California sales and use tax paid by a federal drilling contractor, after the state-law refund deadline had passed. The Ninth Circuit ruled for California; the U.S. Supreme Court had granted review as of this memo's date.

Q: What should happen to a refund claim that's timely under the federal six-year period but late under Texas's four-year period?
A: Per this memo, it should be denied. The claimant could then request a hearing and argue to an administrative law judge that the state statute of limitations is preempted by federal law.

Q: Is Texas bound by the Ninth Circuit or Eleventh Circuit decisions discussed in the memo?
A: No. The memo notes Texas was not a party to either case and sits in the Fifth Circuit, where there was no controlling case on point at the time. The memo does note Texas might have to follow the U.S. Supreme Court's eventual decision, depending on how narrowly it was drawn.

Citations and references

Statutes:

• 28 U.S.C. Sec. 2415 (federal six-year statute of limitations for quasi-contract claims)

Cases discussed in the memo:

• United States of America v. State of California and California Board of Equalization, 932 F.2d 1346 (9th Cir. 1991), cert. granted 61 U.S.L.W. 3256 (1992)
• United States v. Broward County, Florida, 901 F.2d 1005 (11th Cir. 1990)
• Day & Zimmerman v. Calvert (referenced as "DZ")

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9211L1205B03

Original ruling text

DATE: November 20, 1992

TO: Sandi Skaggs, Credits verification

FROM: John Christian-Tax Administration

SUBJECT: United States of America v. State of California and California Board
of Equalization

You asked about a case about which some refund claimants have been asking. The
case is United States of America v. State of California and California Board of
Equalization, 932 F.2d 1346 (9th Cir. 1991), cert. granted 61 U.S.L.W. 3256
(1992). The U.S. lost in the Court of Appeals, and the U.S. Supreme court
granted review last month. No decision should come down anytime soon.

QUESTION: Is the U.S. entitled to a federal six-year statute of limitations on
a refund claim for California sales and use taxes, or does state law bar the
refund?

FACTS: A private company (*) managed drilling operations on federal
land in California. California assessed against * $* in sales
and use taxes imposed on federal construction contractors. * paid under
protest (with money provided by the U.S. under its contract with *) and
pursued administrative refunds, which were denied. * filed suit in
state court. In January 1988, the states settled for $* and the suits
were dismissed. In May 1988, the U.S. filed suit in federal district court
seeking a refund of the remainder. The U.S. added a claim for restitution
based on quasi-contract theory under federal common law. The district court
granted summary judgment to California, holding the tax refund claim was barred
because * did not follow California's statutory claim procedure.

U.S. ARGUMENT: The U.S. says it is entitled to a six-year statute of
limitations under 28 U.S.C.Sec. 2415, which governs limitations on a cause of
action in quasi-contract.

CALIFORNIA ARGUMENT: California says the cause of action is a refund claim for
state taxes, which is barred by state law because the U.S. failed to file suit
within 90 days of the state's denial of ***'s refund claim.

NINTH CIRCUIT HOLDING: California won.

CERT. GRANTED: The U.S. Supreme Court agreed to hear the case, probably
because the 9th Circuit decision conflicts with an 11th Circuit decision in a
state property tax case. United States v. Broward County. Florida, 901 F.2d
1005 (11th Cir. 1990). The 9th Circuit said the 11th Circuit case was
incorrectly decided.

RELEVANCE TO TEXAS: If the Supreme Court holds that the U.S. gets a six-year
statute of limitations on California state sales and use tax refund claims,
this might apply to refund claims from federal contractors who claim they
purchased taxable items for resale to the U.S. government under Day & Zimmerman
v. Calvert (DZ).

RECOMMENDED POSITION: Our position has been and should remain that sales and
use taxrefunds claimed under DZ are subject entirely to state law. This is
true regardless of whether the state taxes were reimbursed directly or
indirectly by the U.S. government. Our support is U.S. v. New Mexico and U.S.
v. State of California.

The cause of action is a state law claim for refund, not a federal common law
claim in quasi-contract. The applicable state statute of limitations is four
years. The person who paid the tax to the state (or his assignee, etc.) is the
person who has standing to claim a refund from us. That person will rarely, if
ever, be the U.S. government. It will usually be the vendor/supplier or the
federal contractor.

The 9th Circuit case supports our position. The 11th Circuit case does not.
Texas was not a party to either suit and is in the 5th Circuit, where there are
no cases in point. We are not bound by either case from the other circuits.
Depending on how narrowly drawn, we may be bound to follow the Supreme Court
decision when handed down. Until then, we will continue to apply our own
statutes of limitations to tax refund claims from federal contractors.

Anyone seeking to toll the federal statute of limitations in anticipation of a
victory in the Supreme Court is subject to the same restrictions as anyone
seeking to toll our four-year statute. Once a refund claim has been received
that is sufficient to toll the six-year statute, it should be denied if it is
outside the four-year statute (even if it appears valid in all other respects).
then have the opportunity to request a hearing on the denial, and may argue to
an administrative law judge that the state statute is preempted by the federal
law.

We have organized a new task force that will develop substantive guidelines for
tolling the statute of limitations for the different taxes.