Texas Comptroller of Public Accounts STAR System
HEARING NO. 43,207
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
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.
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
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
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
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
ACCESSION NUMBER: 200402491H
DOCUMENT TYPE: H
TAX TYPE: SALES