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鈥檚 previous ruling.
In a nearly unanimous decision, the state鈥檚 highest court rejected the company鈥檚 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 鈥渨holly owned鈥� by the state or country.
鈥淕EO 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 鈥榰nincorporated instrumentality鈥� of the United States and this State," Busby wrote. 鈥淲e disagree.鈥�
Justice Debra Lehrmann did not participate in the decision.
Geo Group is one of the world鈥檚 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. as of 2023.
The company has faced backlash on a national level. Juvenile detention centers under their purview faced allegations , including sexual harassment and excessive use of force.
Prisoners led riots in 2008 and 2009 at GEO鈥檚 Reeves County prison 鈥� what鈥檚 been called the world鈥檚 largest private prison 鈥� A federal investigation into Reeves found the prison, which mostly houses undocumented immigrants,
GEO asked the higher court justices to overturn an appeals court ruling that found its purchases did not qualify under the states鈥� sales tax exemption for items utilized by federal or state governments because the company isn鈥檛 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 鈥渋nstrumentality鈥� exemption. In Texas, are exempt from sales taxes.
The trial court denied the prison company鈥檚 refund claim, ruling it did not prove it was a government entity through 鈥渃lear and convincing evidence.鈥�
The Seventh Court of Appeals affirmed that decision, stating GEO鈥檚 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 鈥� the comptroller鈥檚 tax ruling is subject to the 鈥減reponderance of evidence鈥� standard rather than the tougher 鈥渃lear and convincing evidence,鈥� Geo Group said.
Still, the Supreme Court said it failed to prove its case under this standard.
鈥淎lthough 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,鈥� Busby鈥檚 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 鈥渋ndependent contractor,鈥� not an agent of the government.
Neither GEO Group nor Attorney General Ken Paxton鈥檚 office responded to requests for comment.
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