Texas Comptroller of Public Accounts    STAR System


200402491H 



HEARING NO. 43,207 

RE:  ************** 
TAXPAYER NO.:  ************** 
AUDIT OFFICE:  ************** 
AUDIT PERIOD:  01/01/97  THROUGH  12/31/00 

SALES AND USE TAX/RDT 

BEFORE THE COMPTROLLER 
OF PUBLIC ACCOUNTS 
OF THE STATE OF TEXAS 

ROY G. SCUDDAY 
Administrative Law Judge 

VICTOR JOHN SIMONDS 
Representing Administrative Hearings Section 

**************
Representing Petitioner 


COMPTROLLER'S DECISION

PRELIMINARY DISCUSSION:

This case was heard at an oral hearing held in Dallas, Texas, on September 4, 
2003. Petitioner **************, was represented at the hearing by attorney 
**************, who called as witness **************, President of Petitioner. 
The Administrative Hearings Section (AHS) was represented by Assistant General 
Counsel Victor John Simonds, who called as a witness Joanne Wilson, an auditor 
in the ************** Audit Office.

Unless otherwise indicated, Section references are to Title 2 of the Texas Tax 
Code, and Rule references are to sections of Title 34, Texas Administrative 
Code. Notice has been taken of all Comptroller's records pertinent to 
Petitioner or the issues raised in this case.

AGREEMENT OF THE PARTIES:

In its Position Letter dated April 7, 2003, the AHS agreed to delete Record ID 
452-114 from Exam 7 of the audit. At the hearing, the AHS agreed to delete 
Records ID 452-86 and 452-111 from Exam 7 of the audit.

PETITIONER'S CONTENTIONS:

1.  Petitioner contends that its sales of aircraft were exempt from sales tax 
because the aircraft were sold for the purpose of providing flight instruction.

2.  Petitioner contends that its sale of an aircraft was exempt from sales tax 
because the aircraft were sold as an occasional sale.

3.  Petitioner contends that its sale of an aircraft was exempt from sales tax 
because the aircraft was sold for resale.

4.  Petitioner contends that it is insolvent. 

FINDINGS OF FACT:

1.  **************, (Petitioner) is in the business of providing aircraft 
flight training.

2.  Petitioner was audited for sales and use tax compliance for the period 
January 1, 1997, through December 31, 2000. As a result, on June 19, 2002, the 
Comptroller sent Petitioner a Texas Notification of Audit Results showing an 
amount due that included tax, penalty on late-filed returns, and interest 
though the date of the Notice. Petitioner's timely filed request for 
redetermination resulted in this proceeding.

3.  Petitioner has been permitted for sales tax since March 24, 1994. In 1998, 
Petitioner was in the business of providing flight training, and owned two 
aircraft to provide that training. At that time Petitioner was shutting down 
the company and seeking to sell the assets. On March 24, 1998, Petitioner sold 
one of the aircraft and accessories to MR. AND MRS. , who indicated that they 
were going to continue using the aircraft for their personal flight training. 
No sales tax was included in the sales price. The MR. AND MRS. did not provide 
an exemption certificate to Petitioner. There is no documentation that the MR. 
AND MRS. had a sales tax permit. The auditor scheduled the sale in Exam 7 of 
the audit. (Petitioner sold the other aircraft and accessories and received an 
exemption certificate.) Petitioner has not shown that the aircraft and 
accessories sold in these two sales represented the entire operating assets of 
the company.

4.  In late 1998, Petitioner secured an aircraft dealership, and reopened its 
business. On October 4, 2000, Petitioner purchased an aircraft from the factory 
for ************** (INDIVIDUALS), and then sold the aircraft to INDIVIDUALS. 
According to Petitioner's invoice for the transaction, no sales tax was 
included in the sales price. On October 14, 2000, INDIVIDUALS leased the 
aircraft back to Petitioner in order that it could provide flight training to 
INDIVIDUALS. On December 22, 2000, INDIVIDUALS terminated the lease agreement. 
INDIVIDUALS did not provide an exemption certificate to Petitioner. There is no 
documentation that INDIVIDUALS had a sales tax permit. The auditor scheduled 
the aircraft sale to INDIVIDUALS in Exam 7 of the audit.

5.  Petitioner has shown net income for the years 2000, 2001, 2002, and the 
first nine months of 2003. Petitioner has loaned Petitioner's president over 
$************** in recent years. Petitioner's total assets exceed its total 
liabilities. The AHS recommended against any insolvency relief.

DISCUSSION AND CONCLUSIONS OF LAW:

PETITIONER'S FIRST CONTENTION:

Petitioner's contention that the aircraft it sold to the MR. AND MRS.  was 
exempt from sales tax as an occasional sale should be denied. As stated in 
several Comptroller Decisions, the taxpayer has the burden of proof, by clear 
and convincing evidence, that a transaction is exempt from taxation, pursuant 
to Comptroller's Rules of Practice and Procedure 1 .40(2)(A). When claiming an 
exemption, the taxpayer must bring itself clearly within the express terms of 
an exemption statute. See Comptroller's Decision No. 25,639. Statutory 
exemptions from taxation are subject to strict construction since they are the 
antithesis of equality and uniformity and because they place a greater burden 
on other taxpaying businesses and individuals. Bullock v. National Bancshares 
Corp., 584 S.W.2d 268, 27 1-272 (Tex. 1979). An exemption cannot be raised by 
implication, but must affirmatively appear, and all doubts are resolved in 
favor of the taxing authority and against the claimant. Id.

Sec. 151.304(a) exempts from sales tax the "occasional sale of a taxable item." 
Subsection (b)(2) defines "occasional sale" as "the sale of the entire 
operating assets of a business or of a separate division, branch, or 
identifiable segment of a business." Subsection (f) provides that the exemption 
does not apply to the holder of a sales tax permit. Inasmuch as Petitioner held 
a sales tax permit, has not shown that it sold the entire assets of the 
company, and, in fact, did not go out of business, the MR. AND MRS.  sale is 
not exempt as an occasional sale.

PETITIONER'S SECOND CONTENTION: 

Petitioner's second contention that the aircraft sales were exempt because the 
aircraft were used for flight training should be denied. 

Sec. 151 .328(a)(2) exempts the sale of aircraft used for flight instruction if 
the purchaser has a sales tax permit, and the aircraft is actually used for 
such training. In both the MR. AND MRS.  and INDIVIDUALS transactions, there is 
no evidence that either of the purchasers had sales tax permits, nor did either 
of the purchasers issue Petitioner exemption certificates although requested to 
do so. In regard to the MR. AND MRS.  transaction, there is no evidence that 
the aircraft was actually used for flight training. Accordingly, the sales were 
not exempt from sales tax under that statute.

PETITIONER'S THIRD CONTENTION:

Petitioner's third contention that the aircraft sale to INDIVIDUALS was exempt 
as a sale for resale should be denied.

Sec. 151.302(a) exempts a sale for resale from sales tax. Sec. 151.054(a) 
presumes that all gross receipts of a seller are "subject to sales tax unless a 
properly completed resale or exemption certificate is accepted by the seller." 
Inasmuch as Petitioner did not secure a resale or exemption certificate from 
INDIVIDUALS, it has not brought itself within the exemption.

PETITIONER'S FOURTH CONTENTION:

Petitioner's fourth contention should be denied.

Sec. 111 .102 provides that the Comptroller may settle a claim when the 
taxpayer is insolvent. Petitioner's financial records do not show that it is 
insolvent. As a result, no relief should be granted. However, Petitioner may 
contact its local enforcement office to work out the details of a payout 
agreement.

RECOMMENDATION:

The audit liability should be adjusted to make the agreed-upon deletions and 
the amended audit liability should be upheld in its entirety.

Signed February 10, 2004.


ROY G. SCUDDAY
Administrative Law Judge


HEARING NO. 43,207


ORDER OF THE COMPTROLLER


The above decision of the Administrative Law Judge, resulting in Taxpayer's 
liability as set out in Attachment "A" which is incorporated by reference, is 
approved and adopted in all respects.  This decision becomes final twenty-three 
(23) days from the date of this Order, and the total sum of the tax, penalty, 
and interest amounts is due and payable within twenty (20) days thereafter.  If 
such sum is not paid within such time, an additional penalty of ten percent of 
the taxes due will accrue, and interest will continue to accrue.

If a rehearing is desired, a Motion for Rehearing must be filed with the 
Administrative Law Judge no later than twenty-three (23) days after the date of 
this Order, and must state the grounds upon which the motion is based.

RENDERED and ISSUED February 10, 2004.


CAROLE KEETON STRAYHORN 
Texas Comptroller 




ACCESSION NUMBER: 200402491H   
SUPERSEDED: N 
DOCUMENT TYPE: H 
DATE: 02/10/2004 
TAX TYPE: SALES