Texas Comptroller of Public Accounts STAR System
HEARING NO. 33,600
IN RE: **********
TAXPAYER NO.: **********
AUDIT OFFICE: **********
AUDIT PERIOD: 05/01/90 THROUGH 07/31/92
SALES AND USE TAX/RDT
BEFORE THE COMPTROLLER
OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS
Administrative Law Judge
Representing Tax Division
At Petitioner's request, this Decision is based on the written submissions of
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, including records of
prior audits, pertinent to Petitioner and the issues raised in this case.
The parties reached agreement with respect to certain items in this case. Those
agreements will be referred to in the Recommendation at the end of this
opinion. The Decision below treats substantively only the remaining contested
On August 18, 1995, Petitioner filed Exceptions to the August 4, 1995 Proposed
Comptroller's Decision. The Tax Division filed its Response on September 5,
1995. The ALJ and the Comptroller have considered the Exceptions and the
Response, and this Comptroller's Decision represents the ruling thereon.
1. Petitioner is due a credit, refund, or reimbursement for tax it erroneously
paid to ************** ("HRD") on the collection or removal of hazardous waste
or industrial solid waste.
2. Petitioner should not be assessed for sales of parts or equipment to
************** ("NTC"), because NTC was being audited when this issue was
raised with the auditor.
3. Petitioner is entitled to offsets equal to certain credit memos it issued in
the last months of the audit period.
FINDINGS OF FACT:
1. Petitioner manufactures and sells cans, can production equipment, and repair
parts for the can production equipment.
2. The Comptroller audited Petitioner for sales and use tax compliance for the
period May 1, 1990, through July 31, 1992. On September 22, 1993, as a result
of the audit, the Comptroller issued Petitioner a Texas Notice of Tax Due for
$**********, which included state and local taxes, penalty, and interest
through the date of the Notice. Petitioner's October 20, 1993 request for
redetermination placed the matter into the redetermination process. After
Petitioner submitted additional supporting evidence, the audit was amended,
and, on April 29, 1994, an Amended Texas Notice of Tax Due was issued to
Petitioner for $**********, which included state and local taxes, penalty, and
interest through the date of the Amended Notice. Petitioner disagreed with the
Amended Notice and filed a Statement of Grounds in late May of 1994.
3. The auditor scheduled (a) unsupported tax-free sales of production equipment
or parts, and (b) tax-free purchases of taxable assets, including purchases of
taxable real property repair and remodeling services.
4. The amended audit reflected:
a. the deletion of certain sales from exam 2 based on evidence that the goods
had been shipped outside Texas or evidence that tax had been accrued and
remitted by Petitioner's customers;
b. the deletion of certain purchases from exam 3 based on evidence that the tax
had been paid; and
c. a credit of $********** against state sales tax upon proof that Petitioner
had erroneously paid city sales tax before one of its plants was actually
inside the boundaries of a city with a local sales and use tax.
5. Petitioner also filed three refund claims, separate and apart from its
redetermination request. The claims covered all or part of the audit period as
"1) a claim filed in April of 1994 for $********** covering March 1, 1990,
through December 31, 1993 -- this claim was approved and processed for payment
in the amount of $********** (being the period outside the audit period), and
an additional amount was allowed by the auditor to reduce the audit
"2) a claim filed in August of 1994 for $********** covering August 1, 1990,
through May 31, 1993 - this claim was for taxes paid to [HRD], [which] executed
a seller's assignment form in favor of Petitioner (this claim was denied and is
the subject of Contention 1); and"
"3) a claim for taxes paid on filter media used in the manufacturing process at
the ********** plant...." [FOOTNOTE: Excerpt from the Tax Division's March 9,
1995 Position Letter.]
6. In manufacturing aluminum cans at one of its plants, Petitioner purchased
aluminum in coil form. In the center of each aluminum coil was a cardboard core
that supported the coil.
7. On May 26, 1994, Petitioner paid the Comptroller $********** in connection
with the audit. The Tax Division asserts that based on the stance it has taken
in this matter, Petitioner is presently due a refund of approximately
8. The auditor allowed Petitioner credit for sales to customers that he
confirmed were then being audited, but only for the portion of each customer's
audit that overlapped Petitioner's audit period. The auditor also allowed
credit for a few major transactions that were outside the customer's audit
periods, but only when he was able to determine that the customer had accrued
and remitted the tax. Petitioner has not submitted any evidence proving that it
is entitled to credits or deletions in addition to those that have already
been, or will be, made.
9. The auditor examined certain credit memos Petitioner issued toward the end
of the audit period, some of which were for large amounts (in excess of
$**********). Some of the credits were allowed, especially where there was
evidence that the goods were shipped outside of Texas. However, most of the
time he did not give a credit, because the credit amounts could not be matched
to prior positive amounts scheduled in the audit. In other words, there were no
positive amounts to be offset.
DISCUSSION AND CONCLUSIONS OF LAW:
The audit should be further amended in accordance with the discussion set out
in the Tax Division's March 9, 1995 Position Letter. Petitioner's remaining
contentions should be denied.
In its first contention, Petitioner claims to be due a credit, a refund, or
reimbursement for tax it paid to HRD for the collection and disposal of the
cardboard center cores of the aluminum coils referred to in Finding of Fact No.
6. Petitioner contends that these cardboard cores constituted industrial solid
waste or hazardous waste. However, this contention should be denied because the
cardboard coils did not qualify as industrial solid waste or hazardous waste.
Effective October 1, 1987, the Texas Legislature made "removal or collection of
garbage, rubbish, or other solid waste" a taxable service. On April 25, 1988,
by emergency rule, the Comptroller said that garbage, rubbish, or other solid
waste did not include hazardous wastes or industrial solid wastes. [FOOTNOTE:
In 1991, the Legislature amended the Sales and Use Tax Act, incorporating the
exclusion for hazard waste and industrial solid waste into the statute. The
Comptroller initially defined industrial solid waste as it is "defined in the
Texas Civil Statutes, Texas Solid Waste Disposal Act, Article 4477-7, with the
exception of industrial solid waste which meets the definition of garbage or
municipal solid waste as defined in the Texas Solid Waste Act." See Rule 3.356
(a)(4)(E). The Legislature then redefined industrial solid waste, without
substantive change, as follows: ...(19) "industrial solid waste" means solid
waste resulting from or incidental to a process of industry or manufacturing,
or mining or agricultural operations. ..." (Health and Safety Code Ann.,
Section 361.003 (Vernon 1992).]
The Comptroller's Tax Administration Division has, in letter rulings, defined
industrial solid waste to mean waste products resulting from the actual
manufacturing process (e.g., sawdust from lumber mills, slag from steel
manufacturing, and waste lumber left over from the manufacturing of doors and
shutters.). [FOOTNOTE: See , e.g., Comptroller's microfiche document no.
9209L1193F12.] Conversely, the Tax Administration Division has also said that
industrial solid waste does not include empty shipping containers or discarded
shipping refuse. [FOOTNOTE: Id.]
The cardboard cores on which aluminum was delivered to Petitioner are clearly
not hazardous waste. Neither are the cores waste products from an actual
manufacturing process. The cardboard cores fit into the category of shipping
refuse, and the collection of those cores is a taxable real property service.
Section 151.0048(3). Petitioner's first contention should be denied.
With respect to Petitioner's second contention, the record shows that the
auditor allowed credit for sales to purchasers that he was able to confirm were
at that time also being audited. However, he properly only gave credit for the
portion of a customer's audit period that overlapped Petitioner's audit period.
As to other transactions, which the auditor was unable to verify, Petitioner's
contention must fail because it has not carried its burden of proof. See Rule
1.40(2)(B). Therefore, Petitioner's second contention should be denied.
Finally, Petitioner's third contention fails for lack of proof. As noted in
Finding of Fact No. 9, Petitioner issued some sizable credit memos late in the
audit period, and the auditor allowed those credits where there was sufficient
evidence that Petitioner shipped the goods outside the state. However, most of
the credits were rejected because Petitioner could not match them to earlier
transactions (positive amounts) that had been picked up in the audit. I
conclude that the auditor properly disallowed credits when the corresponding
debits could not be found.
The audit should be amended in accordance with the Tax Division's March 9, 1995
Position Letter, and then affirmed.
Signed this 16th day of January, 1996.
Administrative Law Judge
Hearing No. 33,600
ORDER OF THE COMPTROLLER
The above decision of the Administrative Law Judge, resulting in Petitioner'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 (20)
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 clerk
of the Administrative Law Judges within twenty (20) days from the date of this
Order, and must state the grounds upon which the motion is based.
RENDERED and ISSUED this 16th day of January, 1996.
Comptroller of Public Accounts
of the State of Texas
ACCESSION NUMBER: 9601898H
DOCUMENT TYPE: H
TAX TYPE: SALES