The Supreme Court of Texas ruled that a corporation that owns and operates correctional facilities was not exempt from sales and use taxes as an unincorporated instrumentality of the United States or Texas. The corporation runs private prisons and enters into contracts with federal and state government agencies to house inmates. The Comptroller assessed the corporation for unpaid sales and use tax on supplies necessary to operate the facilities. The corporation contended that it was a tax-exempt unincorporated instrumentality of the United States and Texas – a type of “governmental entit[y]” – because it performed quintessential government functions.
On appeal, the court concluded that the corporation failed to establish by a preponderance of the evidence that it was an unincorporated instrumentality of the federal and state governments. First, the corporation did not establish that it was an entity identified by the regulation as exempt. It could not prove that: (1) it is a military entity; (2) its contracts explicitly and unequivocally state that it was an agent of the governments; (3) it is wholly owned by the federal or state government, and (4) its contracts specifically named the corporation as an agent of the United States or Texas. Second, the court determined that the corporation also did not satisfy four of the six required characteristics to qualify as an otherwise exempt government instrumentality.
GEO Group, Inc. et al. v. Hegar, No. 23-0149 (Tex. Mar. 14, 2025).