Martens, Todd & Leonard: Texas Supreme Court Orders Sales Tax Refund on Toys

Mar 27, 2013, 19:14 ET from Martens, Todd & Leonard

AUSTIN, Texas, March 27, 2013 /PRNewswire/ -- On March 8, 2013, the Texas Supreme Court ordered the Texas Comptroller to refund the hundreds of thousands of dollars in sales tax that Roark Amusement & Vending, L.P. ("Roark") paid on its purchases of the toys that it used to stock its coin-operated amusement crane machines.  Roark's machines were located in restaurants, and shopping malls throughout Texas.

Martens, Todd & Leonard represented Roark through the final victory in the Texas Supreme Court.  Jimmy Martens argued Roark's case before the trial court, Court of Appeals, and the Texas Supreme Court. 

Roark's victory may result in significant refunds for taxpayers who paid Texas sales tax on items they gave to customers with the services they provided.  Roark's victory may also result in these taxpayers paying no Texas sales tax on future purchases.  While the facts of Roark's case are narrow, the Texas Supreme Court's opinion has potential implications for large numbers of taxpayers.


Roark owned coin-operated amusement crane machines that held toys.  A customer could win a toy by skillfully moving a joystick to maneuver a mechanical claw to grab the toy and drop it into a chute. Roark initially paid sales tax when it bought the toys but later sued to get the taxes back.

Sales Tax Issue

The Texas Supreme Court's opinion broadly holds that anyone who buys property to transfer to a customer as an integral part of a taxable service qualifies for the exemption.

Importantly, the Court held that whether the taxpayer actually collects tax on its services doesn't matter to qualify for the exemption.  As a result, the opinion may affect potential refund claims by:

  • Hotels;
  • Government contractors;
  • Exempt entities service businesses; and
  • Agriculture and manufacturing services businesses.

The Court's opinion also holds that a taxpayer doesn't need to provide the item every time it provides the service. This may affect:

  • Life vests, floats, and similar items provided to amusement park patrons;
  • Light bulbs, floor wax, toilet paper, and similar items provided to janitorial service customers; and
  • Bowling balls and bowling shoes provided to bowling alley customers.

Limits on Comptroller Authority

The Roark opinion defines broad limits on the Texas Comptroller's authority.  The limits extend well beyond the facts raised in the Roark case.

The Texas Supreme Court rejected the Comptroller's attempts to extend her authority beyond the law's plain language through her rules.  The Court wrote:

Regardless of which Comptroller Rule applies, the Comptroller cannot through rulemaking impose taxes that are not due under the Tax Code . . .

This and other portions of the opinion that limit the Comptroller's authority will provide taxpayers, courts, and the Comptroller with important guidance when interpreting the tax laws.

For more information, contact Jimmy Martens with Martens, Todd & Leonard, the law firm that litigated Roark's case, at (512) 542-9898 or

About Martens, Todd & Leonard

Martens, Todd & Leonard is a trial and appellate law firm headquartered in Austin, Texas, handling only tax cases.  The firm specializes in Texas franchise and Texas sales tax cases.  The firm's attorneys have handled cases all the way through the Texas Supreme Court and U.S. Supreme Court.  The firm's attorneys speak and write frequently on a variety of tax topics, and have published articles in publications such as The Journal of State Taxation, the Texas Bar Journal, the Texas Lawyer, and the Texas Tech Administrative Law Journal.  For more information, please visit  

SOURCE Martens, Todd & Leonard