GEO Group, one of the world's largest private prison companies, told the Texas Supreme Court Wednesday it shouldn’t have to pay sales taxes on items and equipment it buys to operate prisons in Texas.
The GEO Group’s argument hinges on the word “instrumentality” — according to the Texas Administrative Code, both unincorporated “agents” and “instrumentalities” of the state of Texas or the United States are exempt from sales taxes.
GEO argues its housing of detainees is a governmental function because it contracts with the U.S. government and with Texas counties to operate the prisons. Thus, it says, the company falls under a narrow definition of an instrumentality.
The company asked the high court to rule it's entitled to a nearly $4 million refund for overpaid sales tax.
Justices immediately questioned why GEO would be considered an unincorporated extension of the government when it’s a for-profit corporation.
Danielle Ahlrich, an attorney for GEO, argued they fall within that category because the company is in charge of what is usually a governmental responsibility.
“We would argue that instrumentalities, for purposes of the sales tax exemption, are those that perform a specific function,” Ahlrich said.
GEO Group is an international corporation with 11 facilities across Texas and a head office in San Antonio. Most of the facilities at issue are U.S. Immigration and Customs Enforcement, or ICE, detention facilities, Ahlrich said.
Facilities like these have brought in millions of dollars in profit for GEO as immigration surges. Most of the company's government funding came from ICE, Newsweek reported.
But GEO has also been scrutinized on a federal level. Prisoners led riots in 2008 and 2009 at GEO’s Reeves County prison — what’s been called the world’s largest private prison — over poor medical care for inmates. A federal investigation into Reeves found the prison, which mostly houses undocumented immigrants, had minimal oversight, over-punished inmates and suffered from understaffing.
"When you're running a facility where the primary motive is to turn profit, you see the result of that, the outcome of that, in what happens to people that are held in those facilities," said Krish Gundu with Texas Jail Project, a detainees' rights group. "Poor medical care, neglect, abuse, just civil rights violations, all of that and more."
GEO is responsible for paying for equipment and items such as electricity, natural gas, mattresses, food and clothing to operate its prisons in Texas. GEO paid sales tax on the items between 2011 and 2014, but the state comptroller determined its tax payment came up short, according to court documents.
GEO wanted a refund on the taxes it had paid, claiming the instrumentality exemption, but the comptroller rejected GEO’s claims and the company sued.
Both a Travis County district court judge and the Seventh Court of Appeals sided with the state and ruled GEO was not a government agent or instrumentality, and therefore not exempt from paying sales taxes.
GEO also wants to return its case to the trial court to present evidence under a different standard that’s easier to prove. The company argues its challenge to the comptroller’s tax ruling is subject to the “preponderance of evidence” standard, not the higher and more difficult-to-meet “clear and convincing evidence” standard that the Seventh Court of Appeals found was applicable.
Rance Craft with the attorney general’s office once again told justices GEO is an entirely independent contractor, not any sort of government actor.
The state argued in court filings that if GEO was considered an instrumentality, it would expand tax exemption status to every independent company that contracts with the government.
“Somebody can't just show up at the comptroller at a trial court and say, 'I'm an instrumentality of the United States and I'm done, give me my tax refund,’” Craft said.
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