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Summary:
- Texas Supreme Court denies GEO Group’s $4M tax refund claim.
- The court rejects GEO’s argument that it qualifies as a government entity.
- The ruling affirms a lower court decision, marking a loss for the private prison giant.
AUSTIN, TEXAS – The Texas Supreme Court ruled Friday that GEO Group, one of the world’s largest private prison companies, is not entitled to a $4 million sales tax refund, affirming a previous lower court decision.
In a near-unanimous verdict, the court rejected GEO Group’s argument that it should be exempt from state sales taxes because it functions as a government entity under its contracts with the federal and state governments. The decision marks a significant setback for GEO, which operates 11 facilities across Texas, including several U.S. Immigration and Customs Enforcement (ICE) detention centers.
Justice Brett Busby, writing for the majority, stated that GEO Group does not meet the definition of an “unincorporated instrumentality” of the federal or state government, and as such, does not qualify for the tax exemption. GEO had argued that its purchases of items for government contracts should be exempt from sales tax, similar to other entities that operate on behalf of the government.
“We disagree with GEO’s assertion that its purchases are exempt from taxation,” Busby wrote. “It is not a government agent nor an instrumentality of the state or federal government.”
Background of the Case
GEO Group, which has faced national criticism over its prison operations, including allegations of abuse and poor conditions, sought to recoup taxes paid on items purchased for its Texas facilities between 2011 and 2014. The company claimed its operations should qualify for sales tax exemptions based on its role in running detention centers for ICE and other government agencies.
However, the state comptroller found that GEO’s tax payments were insufficient. GEO then contested the deficiency, arguing that as a government contractor, it should be considered a government entity for tax purposes. When the company’s refund request was denied, it filed a lawsuit, claiming an exemption under Texas tax law, which grants sales tax relief to certain entities operating as unincorporated instruments of the government.
Court’s Ruling
The trial court and the Seventh Court of Appeals both rejected GEO’s claims, stating that its relationship with the government was too indirect to qualify for the exemption. The Supreme Court concurred, concluding that GEO’s status as a for-profit corporation precluded it from being considered an agent or instrumentality of the government.
In addition, the Court found that the lower “clear and convincing evidence” standard applied to the case, and GEO failed to meet the required burden of proof. Even under a “preponderance of evidence” standard, the court found no grounds for overturning the prior rulings.
Implications for GEO Group
This ruling further complicates the legal and financial challenges faced by GEO Group, which has long been under scrutiny for its role in the private prison industry. The company operates several ICE detention centers in Texas, generating millions in profits from contracts with the federal government.
Despite the setback, GEO Group remains a key player in the private prison industry, but this decision may have lasting consequences for its tax strategies moving forward.
Neither GEO Group nor Texas Attorney General Ken Paxton’s office responded to requests for comment on the ruling.
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