Private prison company GEO Group is not entitled to a $4 million sales tax refund, the Texas Supreme Court ruled Friday, affirming a lower court’s previous ruling.
In a nearly unanimous decision, the state’s highest court rejected the company’s argument that it functions as a government entity while contracting with Texas and the federal government.
Writing for the majority, Justice Brett Busby said GEO Group does not qualify for exemption under its definition of acting as a military entity or an agent of the federal government and is not “wholly owned” by the state or country.
“GEO contends the purchases it made pursuant to its contracts with the federal government, state government, and various counties are exempt from taxation because it qualifies as an ‘unincorporated instrumentality’ of the United States and this State," Busby wrote. “We disagree.”
Justice Debra Lehrmann did not participate in the decision.
Geo Group is one of the world’s largest private, for-profit prison companies with 11 facilities across Texas.
Most of the facilities at issue are U.S. Immigration and Customs Enforcement detention centers, which have brought in millions of dollars in profit for GEO as immigration increases. Most of the company's government funding came from ICE as of 2023.
The company has faced backlash on a national level. Juvenile detention centers under their purview faced allegations of poor conditions and abuse from guards, including sexual harassment and excessive use of force.
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.
GEO asked the higher court justices to overturn an appeals court ruling that found its purchases did not qualify under the states’ sales tax exemption for items utilized by federal or state governments because the company isn’t an agency or instrumentality of the government. Rather, the intermediate court found they were acting as a private corporation.
The company paid sales tax on the items between 2011 and 2014, but the state comptroller determined its tax payment came up short, according to court records.
GEO then challenged the deficiency in an administrative hearing, which the comptroller denied.
The company paid the rest of the taxes due before suing for a refund in district court, claiming an “instrumentality” exemption. In Texas, unincorporated “agents” and “instrumentalities” of the state or federal government as defined under the Texas Administrative Code are exempt from sales taxes.
The trial court denied the prison company’s refund claim, ruling it did not prove it was a government entity through “clear and convincing evidence.”
The Seventh Court of Appeals affirmed that decision, stating GEO’s relationship with the government was too indirect to qualify for tax exemption.
In its petition to the Texas Supreme Court, the company argued their case should be reviewed under a different standard – the comptroller’s tax ruling is subject to the “preponderance of evidence” standard rather than the tougher “clear and convincing evidence,” Geo Group said.
Still, the Supreme Court said it failed to prove its case under this standard.
“Although we conclude that a preponderance of the evidence standard applies, we agree that GEO Group is not entitled to a tax refund because it is neither a government 'agent' nor 'instrumentality' under the statute and rules,” Busby’s opinion said.
GEO is also a for-profit company, failing to meet criteria to be considered an instrumentality, the high court said, and many of its contracts explicitly stated it was an “independent contractor,” not an agent of the government.
Neither GEO Group nor Attorney General Ken Paxton’s office responded to requests for comment.
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