Comptroller says ruling could save taxpayers a potential $2 billion.

By Peggy Fikac
San Antonio Express-News
May 14, 2002

AUSTIN - A state district judge Monday rejected San Antonio-based USAA's claim for a $120 million tax refund plus interest.

Comptroller Carole Keeton Rylander applauded the ruling, saying it saved the state treasury as much as $2 billion.

"If they had prevailed, every other insurance company would have come in asking for the same thing," Rylander said. "That's why I leveled every weapon in my arsenal at 'em. It is a significant impact for Texas taxpayers."

USAA, which sought to recoup taxes it said it overpaid, is considering its options, said Cyndi Taylor Krier, USAA's vice president for Texas governmental relations.

"If we decide to appeal and prevail, any refund we ultimately receive in this case will be used to help hold the line on the cost of insurance and other financial services for the military families who depend on us," said Krier, a former state lawmaker and former Bexar County judge.

USAA's case focuses on a provision in state law that dates to 1907. The provision said that insurance companies, which pay premium taxes, are exempt from most other state taxes.

The law was changed last year so that insurance companies would have to pay sales and use taxes, as well as premium taxes from that point on, USAA said. But it said the Legislature didn't block USAA's refund claim.

State District Judge Margaret Cooper ruled that the company must pay sales, motor vehicle and fuel taxes, Rylander said.

"USAA should pay the same taxes everyone else does," Rylander said. "USAA is wrong on the law."

Krier disagreed.

"USAA is owned by millions of members of America's fighting forces," Krier said. "We cannot understand why anyone would insist that those who defend our freedom pay more taxes to the state of Texas than the law requires."

The ruling comes as Texas already faces a potential $5 billion hole in the funding needed to keep its commitment to programs, including state-employee health insurance in the next two-year budget period.

"That's why it's mighty nice to have this $2 billion protected," said Rylander, a Republican who is being challenged by Democrat Marty Akins.

Akins said in a statement that the financial ramifications would be "devastating" should the state ultimately lose.

But, he added, "The job of the comptroller is to collect every penny that is owed the people of Texas - not a penny more and not a penny less, and not create headlines for yourself demonizing a responsible corporate citizen and major Texas employer. Ms. Rylander should be more concerned with working with the business community, not against them."

Cathy DeWitt of the Texas Association of Business, which took neither side in the lawsuit, said other companies were lined up to follow USAA's lead if it prevailed.

The ruling "is significant in that the state is already on a shoestring budget," she said.

The state was represented by Austin lawyer Roy Minton. Rylander said it marked only the second time in her state political career that she asked the attorney general for permission to hire outside counsel.

"There are fine folks at the attorney general's office, and there are fine folks in my office," Rylander said. But she added, "Roy Minton is one of the finest trial attorneys I know. That was my comfort level to ensure we protect that $2 billion."

Minton so far has billed the state about $300,000 for his services and has been paid $281,000, Rylander said. She said the legal bill is covered by savings in her agency's budget, because she has kept down the number of full-time employees.

The state will ask that USAA be required to pay all attorneys' fees, Rylander said.

pfikac@express-news.net