8908H0954G08



HEARING NO. 24,967


IN RE: **************
TAXPAYER NO.: **************
AUDIT OFFICE: **************
AUDIT PERIOD: April 1, 1984 through December 31, 1987

SALES TAX

BEFORE THE COMPTROLLER
OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS

CHARLES C. BAILEY
Chief Administrative Law Judge

CASSANDRA J. CHURCH
Representing Tax Division

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


COMPTROLLER'S DECISION


PETITIONER'S CONTENTION

Petitioner acted as an agent in helping to sell a customer's secured property. 
Petitioner did not repossess its collateral and sell it to reduce its 
customer's loan.

FINDINGS OF FACT

1. Tony Luna, audit supervisor, appeared for the Tax Division. PERSON A, 
Petitioner's president, appeared for the taxpayer.

2. Petitioner is a bank in the CITY B area. Its audit was originally based on 
an estimated audit derived form its franchise tax reports. This was due to a 
lack of cooperation on the part of the previous chief executive officer who 
allowed the auditor access only to silver and gold sales records.

3. When the witness, PERSON A took over the bank all of the issues were 
resolved except the instant contention which involves the sale of certain 
property held by the bank as collateral.

4. Pursuant to a series of Note-Security Agreements, Petitioner took as 
collateral "equipment, machinery, accounts receivable, inventory, furniture and 
fixtures" from COMPANY C.

5. When these notes fell into default, Petitioner contacted COMPANY C both on a 
personal level by telephone and by a Notice of Disposition of Collateral on 
default dated March 23, 1987.

6. On March 27, 1987, the Petitioner received several Offers to Purchase. It 
accepted an offer to purchase the equipment identified in the Notice of 
Disposition & Collateral on Default from COMPANY D on March 27, 1987. This 
equipment was the same equipment Petitioner held as collateral for its notes 
with COMPANY C.

7. The same day, March 27, 1987, a bill of sale was made out between Petitioner 
and COMPANY D for $************** to be paid for the equipment noted in the 
Notice of Disposition of Collateral on Default. The copy offered into evidence 
was not signed by Petitioner.

8. A check for $************** from COMPANY D payable to "PETITIONER" was 
issued on March 30, 1987. On March 31, 1987, Petitioner reduced COMPANY C's 
debt to the bank by $**************.

9. This property constituted some but not all of the assets of COMPANY C.

CONCLUSIONS OF LAW

Petitioner's argument that it only acted as an agent for COMPANY C is based on 
the testimony of its witness PERSON A. While PERSON A did an excellent job of 
explaining why it would have been better practice for the bank to act as an 
agent or broker for COMPANY C, his testimony cannot overcome the hard evidence 
found in the business records concerning this transaction.

These records, which were provided by Petitioner's previous counsel, leaves a 
clear trail down which this Administrative Law Judge can find a repossession 
and subsequent sale. The evidence simply fails to support Petitioner's 
contention that it acted as an agent.

Neither has Petitioner proven an occasional sale exemption. The Petitioner has 
held more than once financial institution conduct business that often leads to 
repossession and sale of secured property and, therefore, are supposed to 
collect tax on the sale. Comptroller's Decisions #16,489 (1987) and 15,974 
(1984).

While there is some question as to whether title actually passes to the bank, 
it is clear that the bank or other similarly situated financial institution may 
require and actually conduct foreclosure sales pursuant to the Uniform 
Commercial Code. As such, the bank becomes the seller, and must collect the 
sales tax which becomes due at the sale. TEX. TAX CODE ANN. Section 151.005(1) 
(Vernon 1982) defines a sale as the transfer of title or possession of tangible 
personal property. Petitioner has contracted with its customer to have the 
right to sell certain secured tangible personal property upon default of a 
note.

Pursuant to this agreement the bank becomes the seller under facts as are found 
in this case and is liable for collecting and remitting the tax. TEX. TAX CODE 
ANN. Section 151.008 (Vernon 1982). 

SIGNED this the 7th day of July, 1989.


CHARLES C. BAILEY
Chief Administrative Law Judge


ORDER OF THE COMPTROLLER

The above decision of the administrative law judge, resulting in Petitioner's 
liability being as set out in Attachment "A" which is incorporated by 
reference, is approved and adopted in all respects. This decision becomes final 
on the 1st day of September, 1989, and the total sum of the tax, penalty and 
interest amounts is due and payable with twenty (20) days thereafter. If such 
sum is not paid within such time, an additional penalty of ten per cent of the 
taxes due will accrue, 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 on or before the date this decision becomes 
final, and must state the grounds upon which the motion is based.

RENDERED and ISSUED on this the 17th day of August, 1989.


BOB BULLOCK
Comptroller of Public Accounts
of the State of Texas




ACCESSION NUMBER: 8908H0954G08   
SUPERSEDED: N 
DOCUMENT TYPE: H 
DATE: 08/17/1989
TAX TYPE: SALES