Jerry McKinney, D/B/A Jerry McKinney Motor Company, A/K/A Jerry McKinney Motors v. Ron Wright, as Tax Assessor Collector of Tarrant County ( 2018 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-17-00100-CV
JERRY MCKINNEY, D/B/A JERRY APPELLANTS
MCKINNEY MOTOR COMPANY,
A/K/A JERRY MCKINNEY MOTORS
V.
RON WRIGHT, AS TAX ASSESSOR APPELLEE
COLLECTOR OF TARRANT
COUNTY
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FROM THE 67TH DISTRICT COURT OF TARRANT COUNTY
TRIAL COURT NO. 067-283422-16
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MEMORANDUM OPINION1
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Appellant Jerry McKinney, d/b/a Jerry McKinney Motor Company, a/k/a
Jerry McKinney Motors appeals from the trial court’s judgment in this suit under
chapter 23 of the Texas Tax Code. We affirm.
1
See Tex. R. App. P. 47.4.
I. BACKGROUND
McKinney is a Texas motor vehicle dealer to whom the Texas Department
of Motor Vehicles has issued a general distinguishing number. See Tex. Tax
Code Ann. § 23.121(a)(3) (West 2015). He was required to file with the Tarrant
County Tax Assessor-Collector a Dealer’s Motor Vehicle Inventory Tax
Statement providing certain information about every motor vehicle that he sold
over the previous month or indicating that no motor vehicles were sold during the
previous month. See id. § 23.122(e), (f) (West 2015). In addition, McKinney was
required to deposit with the Tarrant County Tax Assessor-Collector a monthly
unit property tax imposed on certain motor vehicles sold over the previous
month. See id. § 23.122(b).
McKinney was required to file his monthly Dealer’s Motor Vehicle Inventory
Tax Statements and deposit his unit property tax no later than the tenth day of
the month. See id. § 23.122(b), (f). For each statement he failed to timely file,
McKinney was subject to a misdemeanor fine not to exceed $100, with each day
of noncompliance constituting a separate violation. Id. § 23.122(m). In addition,
for each month or part of a month in which McKinney failed to timely file a
statement, he forfeited a penalty of $500. Id. § 23.122(n). With respect to the
unit property tax, if McKinney failed to pay the amount due, he was subject to a
penalty of five percent of the amount due. See id. § 23.122(o). And if he failed
to pay the amount due within ten days after it was due, he was subject to an
additional penalty of five percent of the amount due. See id.
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The trial court conducted a bench trial in which the parties stipulated to all
the findings of fact adopted by the trial court and agreed to the admissibility of
Plaintiff’s Exhibits 1 and 2. After the stipulations and admission of the exhibits,
the parties rested and closed. The stipulated facts established that McKinney
had failed to pay $1,904.07 in unit property taxes from 2014 through 2016 as
required by section 23.122(b); that because of his failure to timely pay those unit
property taxes, he owed $223.67 in late-payment penalties under section
23.122(o); and that because of his failure to timely file his Dealer’s Motor Vehicle
Inventory Tax Statements, he owed penalties in the amount of $127,002.95
under section 23.122(n). The trial court rendered judgment accordingly. In three
issues, McKinney challenges the $127,002.95 in penalties he was assessed
under section 23.122(n).
II. CONSTITUTIONALITY
In his first issue, McKinney argues that the $127,002.95 in penalties
violates the Texas constitution’s prohibition against excessive fines. See Tex.
Const. art. I, § 13. In his second issue, McKinney argues the penalties violate
the Fourteenth Amendment’s Due Process Clause because of their excessive
nature. See U.S. Const. amend. XIV, § 1.
A. APPLICABLE LAW
Article I, section 13 of the Texas constitution provides that “[e]xcessive bail
shall not be required, nor excessive fines imposed.” Tex. Const. art. I, § 13. The
term “fines” in this provision includes civil penalties. Pennington v. Singleton,
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606 S.W.2d 682, 690 (Tex. 1980). Prescribing fines is a matter within the
discretion of the legislature. State v. Morello, No. 16-0457, 2018 WL 1025685, at
*6 (Tex. Feb. 23, 2018). And “we will not override the legislature’s discretion,
except in extraordinary cases, where it becomes so manifestly violative of the
constitutional inhibition as to shock the sense of mankind.” Id. (cleaned up).
Similarly, with respect to due process, the legislature has wide discretion
when it comes to imposing fines and violates due process in doing so “only
where the penalty prescribed is so severe and oppressive as to be wholly
disproportioned to the offense and obviously unreasonable.” Pennington,
606 S.W.2d at 690 (quoting St. Louis, Iron Mountain, & S. Ry. Co. v. Williams,
251 U.S. 63, 66–67 (1919)).
B. STATE V. GALVESTON, HARRISBURG & SAN ANTONIO RY. CO.,
97 S.W. 71, 78–79 (TEX. 1906)
McKinney argues that the penalties are an excessive fine under the
supreme court’s decision in State v. Galveston, Harrisburg & San Antonio Ry.
Co., 97 S.W. 71, 78–79 (Tex. 1906), in which he contends the court held that as
a matter of law, a penalty exceeding 4,000% of the amount of delinquent tax is
an excessive fine under article I, section 13 and therefore void. McKinney
argues that because the $127,002.95 in penalties exceeds 6,500% of the amount
of tax he failed to pay, the penalties constitute an excessive fine and are thus
void under Galveston. We conclude Galveston is not applicable.
4
In Galveston, the legislature had enacted a statute that imposed an annual
tax upon railroads that operated in the state. See 97 S.W. at 72. The railroads
were required to pay the tax by October 1 every year. Id. If by November 1 a
railroad had not paid the tax, the statute imposed a penalty of $200 per day until
it paid the amount due. Id. at 73. Believing the tax to be unconstitutional, four
railroads refused to pay the tax, and the State consequently sued them, seeking
both the unpaid tax and the outstanding penalties. Id. at 73. The State prevailed
at trial, and the trial court entered judgment in its favor for the amount of tax due,
but it refused to enter judgment on the penalty, finding that it was “so excessive
and unreasonable that [it was] void.” Id. The court of civil appeals reversed, and
the State appealed, arguing the trial court had erred by failing to enter judgment
on the penalty. Id. at 78.
In evaluating whether the penalty was unconstitutionally excessive, the
supreme court noted it was imposed for the railroads’ failure to pay the assessed
tax. Id. It stated that the penalty assessed against one of the railroads would
have amounted to 100% of the delinquent tax it owed, and the penalty assessed
against a second railroad would have amounted to 4,000% of the delinquent tax
it owed. Id. The court concluded that
[t]he assessment of a penalty of [100%] for the failure to pay a tax
would seem to be sufficiently excessive to authorize a court to
declare it to be excessive, but the assessment of more than
[4,000%] upon the amount detained can leave no possible question
that the penalties are out of all proportion to the amount of money
detained, and the law must be held to be void for the penalties.
5
Id. at 78–79.
The statute and facts at issue in this case differ from those in Galveston.
The statutory penalties McKinney challenges here were imposed not for his
failure to pay the assessed unit property taxes but rather for his failure to file his
statutorily mandated motor vehicle inventory tax statements.2 And for that
reason, his reliance on Galveston is misplaced. For in Galveston, the court
analyzed whether the penalty at issue was an excessive fine by comparing the
amount of tax the railroads failed to pay with the amount of penalty imposed for
their failure to pay that tax. See id. But McKinney’s argument is based on a
different comparison, one the Galveston court did not make. McKinney
compares the amount of unit property tax he failed to pay not with the amount of
penalties imposed for his failure to pay but with the amount of penalties imposed
for his failure to file his monthly motor vehicle inventory tax statements.
Galveston is therefore inapposite.
C. THE PENALTIES DO NOT “SHOCK THE SENSE OF MANKIND”
McKinney also argues the penalties are excessive because they are
“wholly disproportioned to the offense” of failing to file his monthly motor vehicle
2
We note that McKinney did incur a penalty for his failure to pay the unit
property taxes he owed. The penalty for that failure amounted to $223.67, which
is less than 12% of the $1,904.07 in tax he failed to pay, a far cry from the 100%
and 4,000% penalties the two railroads in Galveston had respectively incurred for
their failure to pay taxes.
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inventory tax statements and are “obviously unreasonable and grossly excessive
to the State’s legitimate interest in collecting taxes.”
Under tax code section 23.122(f), a motor vehicle dealer has the duty to
file a motor vehicle inventory tax statement every month.3 See Tex. Tax Code
Ann. § 23.122(f). The duty to file those statements exists even for months in
which the dealer sells no motor vehicles and, thus, owes no unit property tax.
See id. The failure to file a statement is a misdemeanor, and each day during
which a dealer fails to file a statement constitutes a violation. See id.
§ 23.122(m). In addition, a dealer’s failure to file or timely file a statement results
in a penalty of “$500 for each month or part of a month in which a statement is
not filed or timely filed after it is due.” Id. § 23.122(n).
The $127,002.95 in penalties that McKinney complains of were assessed
under section 23.122(n). While the amount of those penalties is not
insubstantial, section 23.122(n) is clear that the amount accrues monthly. See
Morello, 2018 WL 1025685, at *6. The tax assessor-collector notified McKinney
at least as early as November 2013 informing him that he had accrued a penalty
of $1,000 for failing to comply with section 23.122(n), and he was notified on at
least twelve occasions between November 8, 2013, and December 16, 2015,
The statements are to include at least the following information: “(1) a
3
description of each motor vehicle sold; (2) the sales price of the motor vehicle;
(3) the unit property tax of the motor vehicle if any; and (4) the reason no unit
property tax is assigned if no unit property tax is assigned.” Tex. Tax Code Ann.
§ 23.122(e).
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that he had failed to file his statements and that statutory penalties were
continuing to accrue. See id. It was McKinney’s own delay in complying with his
statutory duty to file his statements that resulted in the continued accrual of civil
penalties. See id. Therefore, the amount of the penalties does not “shock the
sense of mankind.” Id. (quoting Pennington, 606 S.W.2d at 690) (holding that
$325,600 civil penalty for failing to comply with a provision of the water code,
which accrued under a statute providing for a $50 per day penalty for failure to
comply, was not unconstitutionally excessive and did not violate due process
where the statute imposing it was clear that it accrued daily, the defendant was
notified of his violations, and the defendant’s own delay in complying with the
statute caused the continued accrual of civil penalties). We overrule McKinney’s
first two issues.
III. EXEMPLARY DAMAGES
In his third issue, McKinney broadly argues that the $127,002.95 in
statutory civil penalties are subject to the requirements of chapter 41 of the civil
practice and remedies code. He contends the Tarrant County Tax Assessor-
Collector failed to comply with chapter 41, necessitating that we reverse the trial
court’s judgment and remand the case.
Chapter 41 applies “to any action in which a claimant seeks damages
relating to a cause of action.” Tex. Civ. Prac. & Rem. Code Ann. § 41.002(a)
(West 2015). Thus, McKinney’s argument necessarily assumes that by seeking
to collect a penalty assessed under tax code 23.122(n), a county tax assessor-
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collector is a “claimant seek[ing] damages relating to a cause of action.” See id.
As the supreme court has recently noted, “[c]hapter 41 does not define
‘damages’ but uses the term broadly to include compensatory, economic,
noneconomic, future, and exemplary damages, all of which are defined.” Wal-
Mart Stores, Inc. v. Forte, 497 S.W.3d 460, 465 (Tex. 2016). Thus, the supreme
court concluded, “[c]hapter 41 applies to ‘any action’ in which exemplary
damages are sought.” Id.
McKinney argues that by collecting the penalty provided under tax code
section 23.122(n), the Tarrant County Tax Assessor-Collector is seeking
exemplary damages, making the requirements of chapter 41 applicable to this
case. He bases this assertion primarily on Forte, 497 S.W.3d at 467, but he also
relies on KBG Investments, LLC v. Greenspoint Property Owners’ Association,
Inc., 478 S.W.3d 111, 122–23 (Tex. App.—Houston [14th Dist.] 2015, no pet.),
and Henderson v. Love, 181 S.W.3d 810, 817 (Tex. App.—Texarkana 2005, no
pet.). However, all three of these cases involved a private litigant who sued to
recover the statutory penalties or damages at issue, making them distinguishable
from this case, where it is the government that seeks to collect the penalty at
issue.4 See Forte, 497 S.W.3d at 461–62 (addressing certified questions asking
4
Additionally, as we note below, the tax code does not authorize a private
party to recover the penalty provided by section 23.122(n). See Tex. Tax Code
Ann. § 23.122(n), (p). That is unlike Forte, where the supreme court answered
certified questions that “assume[d], perhaps incorrectly” that the pertinent statute
authorized a private suit to recover a statutory civil penalty rather than
authorizing only the government to do so, a question the supreme court declined
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whether civil penalties provided by occupations code section 351.603(b), “when
sought by a private person, are exemplary damages limited by Chapter 41 of the
Texas Civil Practice and Remedies Code” (emphasis added));5 KBG Invs., LLC,
478 S.W.3d at 116–23 (addressing whether statutory damages provided by
property code section 202.004(c), which had been sought by a private litigant,
constituted exemplary damages under chapter 41); Henderson, 181 S.W.3d at
816–17 (stating that liquidated damages provided by property code section
5.077(c), which had been sought by a private litigant, constituted exemplary
damages under chapter 41).
Unlike the cases McKinney relies upon, the penalties McKinney challenges
here were enforceable only by, and payable only to, the government. Section
23.122 expressly provides that “a dealer who fails to file or fails to timely file a
statement as required by this section shall forfeit a penalty.” See Tex. Tax Code
Ann. § 23.122(n). This section further provides “[t]he appropriate district
attorney, criminal district attorney, county attorney, collector, or person
designated by the collector shall collect the penalty established by this section in
to resolve. See Forte, 497 S.W.3d at 462, 464. It is also unlike KBG
Investments and Henderson, which involved statutes that authorized a private
party to recover the statutory damages at issue. See KBG Investments,
478 S.W.3d at 116; Henderson, 181 S.W.3d at 813–14.
5
The supreme court expressly declined to decide the merits of whether the
Texas Optometry Act truly did authorize private litigants to sue to recover the civil
penalties at issue but instead answered the certified questions as written by
assuming that it did. See Forte, 497 S.W.3d at 464.
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the name of the collector,” and it further provides that such penalty is “the sole
property of the collector, [and] may be used by no entity other than the collector.”
See id. § 23.122(n), (p). This section of the tax code specifically authorizes the
proper government official to collect a forfeited penalty—the amount of which is
set by the code provision—not to sue for damages. See id. McKinney has
pointed us to no authority, and our own research has not revealed any authority,
for the proposition that when a government sues to collect a statutory penalty
that is enforceable only by, and payable only to, the government, it is seeking
recovery of exemplary damages, thereby making chapter 41 applicable in such
cases. See Tex. Civ. Prac. & Rem. Code Ann. §§ 41.001(1), .002(a); see also
Forte, 497 S.W.3d at 465 (noting chapter 41 “applies to ‘any action’ in which
exemplary damages are sought”).
We further note that in Forte, the supreme court described the notion that
chapter 41 applies to the government’s collection of a statutory civil penalty as
“flawed” for at least two reasons: “First, the [government] could rarely, if ever,
recover damages, so the application of Chapter 41 would destroy [its]
enforcement powers under the [statute]. And second, the imposition of sanctions
by the government is limited by institutional constraints not present when the
claimant is a private person.” See Forte, 497 S.W.3d at 467. That same
reasoning applies to the statutory penalty McKinney challenges here.
We conclude that when collecting a penalty assessed under tax code
section 23.122(n), a county tax assessor-collector does not “seek[] damages”
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and that consequently, chapter 41 is inapplicable to this case. See Tex. Civ.
Prac. & Rem. Code Ann. § 41.002(a) (providing that chapter 41 applies “to any
action in which a claimant seeks damages relating to a cause of action”).
Accordingly, we overrule McKinney’s third issue.
IV. CONCLUSION
Having overruled McKinney’s three issues, we affirm the trial court’s
judgment. Tex. R. App. P. 43.2(a).
/s/ Lee Gabriel
LEE GABRIEL
JUSTICE
PANEL: SUDDERTH, C.J.; GABRIEL and KERR, JJ.
DELIVERED: June 14, 2018
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