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Note: Under Texas law, all distributors of cigarettes must maintain a minimum cash balance in the Cigarette Recovery Tax Fund ("Fund") or provide other "sufficient collateral" as a means of prepaying required cigarette tax stamps. Acceptable as sufficient collateral are "certificates of deposit, treasury notes, treasury bills, or other types of collateral acceptable to the comptroller." Distributors are entitled to a threepercent (3%) refund for the cost of affixing the stamps to cigarette packages if they participate in the Fund or provide other sufficient collateral.

Distributor, formerly a participant in the Fund, withdrew from that program and, instead, offered to cause an irrevocable LC to be issued to the state in lieu of participation in the Fund. Comptroller rejected this proposal, concluding that an irrevocable LC was not "sufficient collateral" for prepayments on the required cigarette tax stamps. No longer a participant in the Fund, Distributor paid two stamp invoices directly to Comptroller and could not seek a refund for the cost of affixing the stamps to the cigarette packages. Distributor alleged that the cost of affixing the stamps was an additional tax.

Distributor brought this action against Comptroller, seeking various remedies including "an injunction prohibiting the Comptroller from denying [Distributor] the right to provide its letter of credit as collateral in lieu of Fund participation and from 336 requiring its continued participation to obtain stamps without prepayment; [and] ... a declaration that it could pledge an irrevocable letter of credit in lieu of participating in the Fund ... ."

In turn, Comptroller moved for summary judgment on various jurisdictional and substantive grounds.

The District Court of Travis County, Livingston, J., ruled in favor of Comptroller, denying Distributor's action against the Comptroller for lack of jurisdiction, "stating that [Distributor] had not established jurisdiction under the protest statutes" to bring suit against the Comptroller; that the Comptroller was protected by sovereign immunity, and dismissed the non-jurisdictional issues of the case.

The Court of Appeals of Texas, Third Circuit (Austin), Law, C.J., Patterson, J., and Puryear, J., in an opinion by Puryear, J., modified and affirmed the decision of the trial court to reflect Distributor's lack of jurisdiction and Comptroller's sovereign immunity under applicable Texas and federal statutes, and affirmed the trial court's decision that the Distributor did not have jurisdiction.

[JEB/jcs]

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