200607684H



HEARING NO. 45,632

RE: ************** 
TAXPAYER NO.: ************** 
AUDIT OFFICE: **************
AUDIT PERIOD: JULY 1, 1999 THROUGH DECEMBER 31, 2002

SALES AND USE TAX/RFD

BEFORE THE COMPTROLLER 
OF PUBLIC ACCOUNTS 
OF THE STATE OF TEXAS

ELEANOR H. KIM
Chief Administrative Law Judge

JACK ARVIN
Representing Tax Division

************** 
Representing Claimant

COMPTROLLER'S DECISION

PRELIMINARY DISCUSSION:

At Claimant’s request, this Decision is based on the written submissions of the 
parties.

Official notice has been taken of all records of the Comptroller's office that 
pertain to Claimant and the issues involved in the case.  Unless otherwise 
indicated, all Section references are to Title 2 of Texas Tax Code and all 
references to Rules are to sections of Title 34, Texas Administrative Code. 

AGREEMENT:

In its Response dated December 7, 2005, the Tax Division agreed that Claimant 
is entitled to additional refund on eleven (11) transactions.

CLAIMANT’S CONTENTION:

Claimant contends that it is entitled to an additional refund.

FINDINGS OF FACT:

1. On March 26, 2003, ************** (“Claimant”) filed a claim for refund for 
sales and use tax paid during the period of July 1, 1999 through December 31, 
2002.  Claimant was also audited for sales and use tax compliance for the 
period of August 1, 1999 through August 31, 2003.  Claimant requested that the 
verified refund be applied to offset its audit liability.  

2. Upon verification, the refund claim was granted in part and denied in part.  
On June 23, 2004, the Comptroller’s examining auditor notified Claimant that 
part of its claim was being disallowed, but revised the partial denial letter 
on September 14, 2004 by specifying that the reasons for the disallowance were 
noted in his schedules attached to the June 23, 2004 letter.  Thereafter, on 
September 22, 2004, the auditor issued the final refund package stating that 
the original refund request was reduced “due to missing or inadequate 
documentation.”  Claimant’s request for hearing on the denial resulted in the 
docketing of this proceeding.

3. During this proceeding, Claimant submitted a list containing 15 contested 
transactions and documentation in support of its claim.  The Tax Division is in 
agreement with 11 transactions, which are included in the Agreement section.  
The remaining four contested transactions relate to COMPANY A and COMPANY B.

4. Claimant submitted invoices for two transactions with COMPANY B (Invoice 
Nos. 42445635 and 42445649).  Both invoices contain the description of 
“Stretchair w/ 24” rear wheel” and have a separately-stated charge of “tax.”  
On Exam No. 500 (titled “Tax Paid to Vendor”) refund schedule that was attached 
to the September 22, 2004 notification, the auditor gave credits for tax paid 
on Invoice Nos. 4244635 and 42445649, which are identified as Record Id Nos. 
2690-1044 and 2690-1043, respectively.  The auditor’s notation on the refund 
schedules indicates that the transactions were originally disallowed because 
there was no proof of tax payment, but that Claimant subsequently provided 
evidence of tax payment. 

5. Claimant seeks refund of sales tax on two transactions with COMPANY A 
(Invoice Nos. 25 and 26).  Invoice No. 25 describes the item purchased as 
“Transportation & Rigging of Cath. Lab. To new Hospital Facility” and Invoice 
No. 26 contains the description of “Equipment Service.”  Both invoices contain 
a separately-stated charge identified as “Texas sales tax [at] 8.25%.”  
Comptroller system indicates that the vendor is not and has never held a Texas 
sales and use tax permit.

CONCLUSIONS OF LAW AND DISCUSSION:

Claimant’s contention should be granted to the extent agreed to by the Tax 
Division, but otherwise denied.

After verifying documentation, the Tax Division agreed to refund tax paid on 11 
of the 15 transactions contested by Claimant, but asserts no refund is due on 
the remaining four transactions.  The Tax Division contends that Claimant is 
not entitled to the tax refund sought on two transactions with COMPANY A 
because the vendor is not permitted in Texas and has not paid the tax to the 
state of Texas.  The Tax Division also contends that no refund is due on the 
two transactions with COMPANY B because they do not qualify for the exemption 
claimed. 

Neither party seems to be aware of it, but the evidence of record demonstrates 
that the auditor already gave credits for the COMPANY B transactions at issue 
in Exam No. 500.  See, Finding of Fact No. 4.  The credit allowance will be 
upheld unless the Tax Division can establish on Exceptions that the credits 
were granted in error.  

At issue then is the remaining two contested transactions involving COMPANY A.  
Claimant submitted invoices showing a separately-stated charge of “Texas sales 
tax,” but this evidence is not sufficient to prove that the claimed refund is 
due when Comptroller records support the Tax Division’s contention that the 
vendor in question was never permitted for Texas sales and use tax.  The permit 
status of the vendor is a critical fact and controls the disposition of the 
issue.  

Permitted vendors collect tax in trust for the state of Texas and are required 
to remit taxes collected from their customers.  Fleming Foods of Tex., Inc. v. 
Rylander, 6 S.W.3d 278 (Tex. 1999).  If a permitted vendor fails to remit tax, 
the agency may refund the tax to the purchaser and should assess the vendor for 
tax collected, but not remitted.  See, STAR Accession No. 200011997L (November 
17, 2000) (Response to Question No. 6).  In contrast, if the vendor is not 
permitted and fails to remit tax collected, the agency will not refund the tax 
to the purchaser.  See, Id. (Response to Question No. 5).  The stated basis for 
the distinction between permitted and non-permitted vendors can be found in 
STAR Accession No. 200210510L (October 15, 2002).  It evidences the agency’s 
determination that the state’s interest overrides those of the purchasers who 
bought items from non-permitted vendors, irrespective of the Comptroller’s 
authority to pursue non-permitted vendors under Section 111.016(a), Rule 
3.2(c), and Texas case law.  Because the vendor in question was not permitted, 
the auditor’s denial of the refund claim was in accordance with existing agency 
policy.  

Claimant has not offered any compelling or persuasive arguments why the policy 
should be reconsidered or changed.  No evidence was presented to prove that the 
vendor in question either remitted the tax to Texas or was permitted under a 
different name during the applicable period.  Consequently, Claimant has failed 
to establish its entitlement to the refund on the two contested transactions.

RECOMMENDATION:

Based upon the foregoing findings of fact, conclusions, and discussion, 
additional refund should be granted to Claimant, as agreed to by the Tax 
Division, but the denial of the remaining contested items should be upheld.

Signed July 13, 2006.


ELEANOR H. KIM
Chief Administrative Law Judge

HEARING NO. 45,632

ORDER OF THE COMPTROLLER

The above decision of the Administrative Law Judge is approved and adopted in 
all respects.  This decision becomes final twenty-three (23) days from the date 
of this Order.

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 on July 13, 2006.


CAROLE KEETON STRAYHORN
Texas Comptroller




ACCESSION NUMBER: 200607684H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 07/13/2006
TAX TYPE: SALES