The GEO Group, Inc., a Florida corporation, and its subsidiary GEO Corrections and Detention, LLC (together, GEO) own and operate correctional facilities that house federal and state inmates, and between 2011 and 2014 they operated detention facilities in Texas under contracts with various government clients.¹ In some cases GEO contracted directly with federal or state agencies, and in others federal agencies contracted with Texas counties, which subcontracted the function to GEO.² GEO bought electricity, natural gas, food, furniture, and other supplies for the facilities without paying sales tax, and after a compliance audit the Comptroller assessed a deficiency.³

GEO challenged the deficiency at an administrative hearing, where the Comptroller rejected its claim that the purchases were tax-exempt, and after its motion for rehearing was denied GEO paid the stipulated $3,937,103.71 and sued for a refund in district court under Tax Code chapters 112 and 151.¹ After a bench trial, the trial court found GEO was neither an agent nor an instrumentality of the United States or Texas and had not shown exemption by "clear and convincing evidence," and the Amarillo Court of Appeals affirmed, rejecting GEO's argument that the standard of proof was too high.² GEO petitioned for review on April 10, 2023, and the Comptroller responded on August 4, 2023; the Court requested merits briefing on September 29, 2023, granted the petition on August 30, 2024, heard argument on October 30, 2024, and decided the case on March 14, 2025, with Justice Lehrmann not participating.³

Petition for review from the Seventh Court of Appeals in a tax-refund suit under Tax Code chapters 112 and 151; argued October 30, 2024, and decided March 14, 2025.⁴

GEO presents whether the court of appeals erred in holding that clear and convincing evidence applies in a tax-refund suit because Comptroller Rule 3.322(a)(2) prescribes it, and whether GEO is exempt as an unincorporated instrumentality of the government under Tax Code section 151.309.¹ The Comptroller presents whether the courts below erred in holding that GEO, a for-profit company that provides detention services to multiple governments, is not an instrumentality, and whether the evidentiary standard of review warrants merits review.² The Court decided the standard of proof and whether GEO is a government agent or instrumentality.³

The Court reviews the trial court's conclusions of law de novo and its findings of fact for sufficiency of the evidence, and questions about the construction of statutes and administrative rules are questions of law reviewed de novo.¹

What standard of proof applies in the refund suit.

Petitioners (GEO): The Tax Code provides that tax-refund issues are tried de novo, and a trial de novo applies a preponderance-of-the-evidence standard, so the court of appeals erred by upholding a clear-and-convincing standard imposed by Comptroller Rule 3.322(a)(2).¹

Respondents (the Comptroller and the Attorney General): The trial court correctly held GEO to the clear-and-convincing standard in Rule 3.322(a)(2), which is consistent with Texas law's disfavor of tax exemptions, and GEO did not preserve a challenge to the rule.²

Whether GEO is a government agent or instrumentality.

Petitioners (GEO): GEO performs a quintessential government function by housing detainees and so qualifies as an instrumentality of the federal and state governments.³

Respondents (the Comptroller and the Attorney General): GEO is an independent contractor providing services to multiple government clients and not an instrumentality of any of them.⁴

GEO argued that the court of appeals' holding that Comptroller Rule 3.322(a)(2) sets a clear-and-convincing standard conflicts with Third Court of Appeals precedent that a taxpayer bringing a refund suit must prove its case by a preponderance of the evidence.¹ The Comptroller responded that review is not warranted because the court of appeals correctly resolved the case on the law and the undisputed findings of fact.²

• Texas Taxpayers and Research Association filed an amicus curiae letter brief on August 27, 2024.

Holding

GEO must prove its entitlement to the exemption by a preponderance of the evidence in the trial de novo, but it failed to prove that it is an agent or instrumentality of the federal or state government under the statute and the Comptroller's rule, so it is not entitled to a refund.¹

Reasoning

Standard of proof. The Tax Code provides that refund-suit issues "shall be tried de novo as are other civil cases," the Court has long held that the preponderance standard is a feature of a trial de novo, and it departs from that standard in civil cases only in extraordinary circumstances.² The Comptroller's principles that exemptions are strictly construed and that the claimant bears the burden are rules of construction used to resolve questions of law and do not alter the standard for proving facts.³ Rule 3.322(a)(2) says the section is "administered" using the clear-and-convincing standard, which suggests it applies only to the administrative process, and the Comptroller's authority as part of the executive branch does not extend to dictating the standard of proof in court, so a taxpayer in a de novo trial need only prove entitlement by a preponderance.⁴ The Court acknowledged the oddity of the higher administrative standard but noted that the choice is unchallenged.⁵

Instrumentality. The statute and rule exempt the United States, its unincorporated instrumentalities, and the State, and the Court noted that GEO did not explain how a private, for-profit corporation, or limited liability company could be "unincorporated," but it did not rest its decision on that point.⁶ Applying the rule's definition, GEO is not a military entity, its contracts do not explicitly state that it is an agent, it is not wholly owned by a government, it is not named as an agent or instrumentality by statute, and it lacks substantially all of the listed characteristics, such as being managed by government officers and not organized for private profit.⁷ The Court declined to substitute GEO's "quintessential government function" test for the rule's narrower definition, and read the entities the rule covers as those declared agents or instrumentalities or that could reasonably be viewed as an arm of the government, not merely performing a governmental function.⁸ Ample evidence supports the finding that GEO is not an instrumentality, including contract provisions calling it an independent contractor, disclaiming any principal-agent relationship, and making it responsible for taxes.⁹

Disposition

The Court affirmed the court of appeals' judgment.¹⁰

Vote Breakdown

Majority Opinion by Justice Busby

Joined by Blacklock, C.J., and Bland, Boyd, Devine, Huddle, Sullivan, and Young, JJ.

Did Not Participate

Lehrmann, J.