In 2013, the Texas legislature introduced and approved House Bill 3525, which imposed a 55-cent-per-pack fee on cigarettes manufactured by companies that did not participate in the Texas tobacco Settlement Agreement. The Texas Small Tobacco Coalition and Global Tobacco, Inc. filed a lawsuit challenging the fee against the Texas Attorney General and Comptroller.
In their lawsuit, the plaintiffs sought declaratory and injunctive relief, alleging that the fee was in fact an unconstitutional tax. In particular, the plaintiffs argued that the law violated both the Equal Protection Clause and the Due Process Clause of the United States Constitution, as well as the Equal and Uniform Clause of the Texas Constitution. The trial court ruled in favor of the plaintiffs on summary judgment, resolving the case without a trial. In doing so, the trial court found that the law was unconstitutional “in its entirety.”
The Attorney General and Comptroller appealed the trial court’s ruling to the Third Court of Appeals in Austin, Texas. The State made several arguments on appeal, both procedural and substantive in nature, regarding why the trial court erred. The State’s substantive arguments challenged the trial court’s ruling declaring the law unconstitutional. In particular, the State argued that the law’s 55-cent-per-pack fee did not violate the Equal and Uniform Clause of the Texas Constitution, which requires that a tax must be equal and uniform. The State argued that the law comports with this requirement because the distinction was between non-settling manufacturers and settling manufacturers and that such a distinction was reasonable.
On August 15, 2014, the appellate court upheld the trial court’s decision. The appellate court recognized that, in Texas, courts evaluate the constitutionality of tax statutes with a presumption of validity. The appellate court further recognized that exact equality and uniformity is unattainable. However, the appellate court concluded that there “is no indication in this record that the taxed subject matter, cigarettes or cigarette products, differs even slightly when manufactured by Small Tobacco versus Big tobacco.” As a result, the appellate court concluded that “imposing a tax on only one class of identical products is not equal and uniform under Texas law and cannot be upheld.” In doing so, the appellate court noted that “[p]rotecting one company’s market share over another’s does not justify the unequal treatment of identical products.”