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



Administrative Law Judge

Representing Tax Division

Representing Petitioner



At Petitioner's request, this Decision is based on the written submissions of 
the parties.

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.


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.


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


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

DATE: 01/16/1996