200611885H



HEARING NO.  40,767

RE:  *********
TAXPAYER NO.:  *********
AUDIT OFFICE:  *********
AUDIT PERIOD:  JANUARY 1, 1994 THROUGH JUNE 30, 1997

SALES AND USE TAX TAX/RDT

BEFORE THE COMPTROLLER 
OF PUBLIC ACCOUNTS 
OF THE STATE OF TEXAS

ROY G. SCUDDAY
Administrative Law Judge

ROBIN S. HOUSTON
Representing Tax Division

*********
Representing Petitioner


COMPTROLLER'S DECISION


PRELIMINARY DISCUSSION:

This case was heard at an oral hearing on April 18, 2006.  The PETITIONER, 
Petitioner, was represented at the hearing by attorneys ATTORNEY A, and 
ATTORNEY B, who called as a witness MANAGER, Risk Manager for Petitioner.  The 
Tax Division was represented at the hearing by Assistant General Counsel Robin 
City B, who called as a witness Belinda Maves, with the City B Audit Office.  

Unless otherwise indicated, Section references are to Title 2, Texas Tax Code 
Ann. (Vernon 2002), and Rule references are to sections of Title 34, Texas 
Administrative Code.  Notice has been taken of Comptroller’s records pertinent 
to Petitioner or the issues raised in this case.

On August 10, 2006 Petitioner filed Exceptions to the July 26, 2006 Proposed 
Comptroller’s Decision.  The Tax Division filed its Response to these 
Exceptions on August 24, 2006.  The ALJ and the Comptroller have considered the 
Petitioner’s Exceptions and the Tax Division’s Response, and this Comptroller’s 
Decision represents the ruling thereon.

AGREEMENT OF THE PARTIES:

At the oral hearing, Petitioner submitted Petitioner’s Exhibit 1 setting forth 
the items agreed to by the parties.

PETITIONER’S CONTENTIONS:

1.  Petitioner contends that its purchases of paper and plastic bags 
constituted exempt purchases of wrapping and packaging supplies.

2.  Petitioner contends that its purchases of refrigeration and freezer units, 
refrigerant, and repair parts and services were exempt because they were used 
to maintain the temperature of Petitioner’s manufactured items.

3.  Petitioner contends that its purchases of supplies and equipment 
constituted exempt manufacturing equipment.

4.  Petitioner contends that its purchases of equipment were exempt because 
they qualified as exempt quality control items.

5.  Petitioner contends that its purchases of services to remove industrial 
solid waste from its facilities constituted non-taxable services.

6.  Petitioner contends that its purchases of services to restore and repair 
real property that had been damaged in natural disasters were not taxable.

7.  Petitioner contends that it erroneously accrued and remitted local sales 
tax on its purchases of paper and plastic bags.

8.  Petitioner contends that it purchased non-taxable new construction 
services.

9.  Petitioner contends that its purchases of computer-related items were not 
subject to tax because they were transformed into other items outside of Texas.

10.  Petitioner contends that its purchase of services to remove a section of a 
dairy refrigerator was not subject to tax.

11.  Petitioner contends that its rental of a tent was exempt because it was 
donated to a charitable organization.

GENERAL FINDINGS OF FACT:

1.  The PETITIONER (Petitioner) is a grocery retailer.

2.  Petitioner was audited for sales and use tax compliance for the period 
January 1, 1994 through June 30, 1997.  As a result, on September 1, 2000 the 
Comptroller sent Petitioner a Texas Notification of Audit Results showing a 
credit amount due Petitioner.  Petitioner’s timely filed request for 
redetermination seeking additional credits resulted in this proceeding.

3.  Petitioner sells private label items to end consumers through its 
supermarkets.

4.  During the audit period, Petitioner operated several manufacturing plants, 
including dairies, deli or bakery plants, grocery product plants, ice cream 
plants, beverage plants, meat plants, and cheese plants.

5.  Petitioner’s supermarkets also contain numerous manufacturing departments, 
including bakeries, delicatessens, meat departments, and floral departments.

6.  Petitioner ships its manufactured goods to its supermarkets where its 
employees place the items on store shelves and into refrigeration and freezer 
units.

7.  Petitioner’s customers remove goods from the shelves and refrigeration and 
freezer units, place them in their shopping baskets, proceed to a checkout 
counter where a cashier scans the items and places them in paper or plastic 
bags, pay for the items, and carry them out of the supermarket in the paper or 
plastic bags.

PETITIONER’S FIRST CONTENTION:

FINDING OF FACT NO. 8.  

During the audit period, Petitioner purchased paper bags from COMPANY A and 
plastic bags from COMPANY B for its supermarkets.  Petitioner did not delineate 
between the bags used in its bakery, delicatessen, floral, or meat department 
areas from those used at its checkout counters.

FINDING OF FACT NO. 9.  

During the audit period, Petitioner purchased stretch film wrap from COMPANY C 
to shrink wrap products located on pallets in its distribution center for 
shipment to its supermarkets.  Petitioner did not document what, if any, goods 
manufactured at the distribution center were wrapped with the stretch film.

DISCUSSION AND CONCLUSIONS OF LAW:

Petitioner’s first contention should be denied.

Petitioner contends that the use of the plastic bags, paper bags, and stretch 
wrap qualifies for the exemption under Section 151.318 and Rule 3.314.   
Because Petitioner is seeking an exemption from tax, the burden of proof is on 
Petitioner to show by clear and convincing evidence that it comes within the 
statutory exemption.

Section 151.302(c) provides that external packaging such as bags used for 
packing tangible personal property for the purpose of furthering the sale of 
the tangible personal property, “may not be purchased by the person for 
resale.”   Rule 3.314(b)(1) provides that sales tax is not due on packaging 
supplies “purchased by manufacturers for use as a part of the completion of the 
manufacturing process,” which is complete “when the tangible personal property 
being produced has been packaged by the manufacturer as it will be sold.”  The 
rule also provides that any additional packaging “necessary to transfer the 
product from the manufacturer's distribution center or from the manufacturer's 
warehouse to the manufacturer's customer would also be exempt from tax.”

Petitioner first argues that the manufacturing process is not completed until 
the items are bagged at the checkout counters, citing Rule 3.300(a)(9)(A) that 
provides that completion of the manufacturing process includes packaging that 
the product has “when it is transferred by the manufacturer to another.”  
However, in view of the language of both Section 151.302, and Section 151.318, 
as well as Rules 3.300 and 3.314, the only reasonable interpretation of the 
exemption is that manufacturing is complete when the product is packaged for 
sale, such as wrapped, boxed, etc., not when several packaged products are 
placed into a bag for transport by the customer.

Based on the above interpretation, plastic and paper bags used at the checkout 
counters to hold grocery items for the customer are clearly not exempt because 
the manufacturing of the items has been completed prior to that point, while 
paper and plastic bags used to package items directly from the delicatessens, 
meat departments, bakeries, etc. would be exempt because that packaging is the 
completion of the manufacturing process.  However, Petitioner has not 
sufficiently delineated between the bags used for the latter purposes from the 
bags used at checkout.  (Petitioner’s assertion that 11% of its products were 
manufactured in-store based on percentage of retail sales is not clear and 
convincing evidence.)

Similarly, stretch wrap used to wrap manufactured items on pallets for 
distribution to the supermarkets would be exempt.  However, Petitioner has not 
documented what goods, if any, manufactured at the distribution center were 
wrapped with the shrink wrap.  As a result, Petitioner has failed to show by 
clear and convincing evidence that the purchases are exempt.

PETITIONER’S SECOND CONTENTION:

FINDING OF FACT NO. 10.  

Petitioner ships items from its meat plants and dairies as well as items from 
other suppliers by refrigerated trucks to its supermarkets.  These items along 
with items from its in-store bakeries, delicatessens, meat departments, and 
floral departments are stored in refrigeration and freezer units in the stores. 
These units serve to control the temperature of the items while they are 
displayed to the customers.  

FINDING OF FACT NO. 11     

The Texas Department of Health requires food manufacturers to store food in a 
way that minimizes contamination, including the use of refrigeration and 
freezing.  Petitioner’s supermarkets are often subjected to health inspections 
by local health departments, including the measuring of the temperature of each 
refrigerated area.  

FINDING OF FACT NO. 12.  

During the audit period, Petitioner purchased refrigeration units, freezer 
units, refrigerant, and repair parts and services for the units.  Petitioner 
did not delineate between the units, refrigerants, and repairs used for its 
in-store manufactured items and the units, refrigerants, and repairs used for 
items from other suppliers, nor between its private label items that were 
already packaged for sale and those that were not.

FINDING OF FACT NO. 13.  

On March 28, 1994, Petitioner purchased a salad/soup bar for use in one of its 
supermarkets.  The salad bar was used to keep salads it prepared chilled to 
prevent contamination.

FINDING OF FACT NO. 14.  

During the audit period, Petitioner purchased valves, gauges, filters, 
switches, etc. for refrigeration and freezer units at its DAIRY COMPANY in CITY 
A.  Petitioner has not documented what specific pieces of equipment the parts 
were for.

FINDING OF FACT NO. 15.  

On August 30, 1996 Petitioner purchased freezer suits from COMPANY C for its 
employees to wear inside its refrigeration and freezer units.  Petitioner has 
not documented in which refrigeration and freezer units the suits were used.

DISCUSSION AND CONCLUSIONS OF LAW:

Petitioner’s second contention should be denied.

Petitioner contends that the use of the refrigeration and freezing units, 
refrigerant, and repair parts and services qualifies for the exemption under 
Sec. 151.318, because refrigeration is part of the manufacturing process, and 
because it is required to meet public health purposes.  

The first part of Petitioner’s argument has been adequately answered in the 
discussion regarding the first contention.  As for the public health argument, 
Section 151.318(a)(10), which exempts tangible personal property used or 
consumed in the actual manufacturing if it is “necessary and essential to 
comply with federal, state, or local laws or rules that establish requirements 
for public health purposes,” was not added to the statute until 1999, well 
after the audit period in this case.  During the audit period, Rule 
3.300(d)(3)(B) provided that necessary and essential materials that met the 
exemption of Section 151.318 included materials “other than machinery or 
equipment, used in manufacturing to satisfy or comply with requirements of law 
or regulations for public health or pollution control purposes.”  Inasmuch as 
the rule specifically excluded machinery and equipment from the exemption, the 
refrigeration and freezing equipment, and the repairs thereto, would not be 
exempt.

As for the refrigerant, the Texas Department of Health does require that 
refrigeration and freezing be used to prevent contamination of foods.   
However, this same issue was involved in Comptroller Decision No. 38,964 (2004) 
regarding Petitioner.  That decision held that Petitioner’s use of “refrigerant 
to maintain the temperatures” of frozen foods and other items that are already 
processed and packaged when they arrive at Petitioner’s stores “was not a 
further exempt processing of those products, because such use was subsequent to 
the completion of the manufacturing process that is stated in Rule 3.314(b)(1) 
as being when the item has ‘been packaged by the manufacturer as it will be 
sold.’”  And, as discussed above, Petitioner has not sufficiently delineated 
between the refrigerant used for its in-store manufacturing departments and 
that used for items from its distribution centers or other suppliers.  
Accordingly, Petitioner has not shown by clear and convincing evidence that the 
refrigerant was used or consumed in a manufacturing process.

Petitioner argues that its purchase of the salad bar qualifies as manufacturing 
equipment under Section 151.318(a)(10) because the equipment is necessary to 
comply with state health regulations regarding maintaining temperature of 
foods.  The Tax Division responds that equipment used to keep food chilled is 
not exempt manufacturing equipment.  Tax Policy Letter dated November 1, 1999 
(STAR Accession No. 9911843L) states that, among other items, salad bars do not 
qualify for the exemption.  The basis for this conclusion is that salad bars 
and other food chillers do not process the food, only maintain it.  As a 
result, even though health regulations may require the equipment it cannot 
qualify for the exemption.  

In regard to the equipment and repairs at the dairy and the freezer suits, by 
not tying the purchases to specific equipment or units, Petitioner has not 
shown by clear and convincing evidence that the purchases are exempt.

PETITIONER’S THIRD CONTENTION:

FINDING OF FACT NO. 16.  

During the audit period, Petitioner purchased jackcoats, trousers, and gloves 
from COMPANY D. for its Dairy.  Petitioner has not documented that these items 
are necessary and essential to the manufacturing process.

FINDING OF FACT NO. 17.  

In September 1996 Petitioner purchased a replacement switchgear from ELECTRIC 
COMPANY A.  The switchgear was to replace the disconnect a switch in the motor 
control center that services the engine room, front office, and boiler room at 
the Dairy.  Petitioner has not documented that the engine room and boiler room 
are necessary and essential to the manufacturing process.

FINDING OF FACT NO. 18.  

On January 14, 1997 Petitioner purchased an angle clamp, coveralls, lantern and 
battery, jacket, and bib overall from COMPANY E and COMPANY F for its Dairy.  
Petitioner has not documented that these items are necessary and essential to 
the manufacturing process.

FINDING OF FACT NO. 19.  

In December 1996 Petitioner purchased services from COMPANY G  The services 
were to remove two tanks at the Dairy in which cottage cheese was stored and 
replace them with two new tanks.  Petitioner has not documented that these 
tanks were a necessary and essential part of the cottage cheese manufacturing 
process.

FINDING OF FACT NO. 20.  

During the audit period, Petitioner purchased shirts, pants, and coveralls from 
UNIFORM CO. A for employees at its Dairy, and uniforms from UNIFORM CO. B for 
employees in both the Dairy and the PLANT plant.  Petitioner has not documented 
that these items are necessary and essential to the manufacturing process.

FINDING OF FACT NO. 21.  

In April 1994 Petitioner began the construction of an orange juice processing 
system at its Dairy.  As part of that construction, Petitioner was invoiced by 
INSULATION COMPANY for insulation work.  Petitioner has not documented that the 
insulation provided was necessary and essential to the manufacturing process.

FINDING OF FACT NO. 22.  

During the audit period, Petitioner purchased palletizers, depalletizers, and 
other equipment for its beverage plant and agitators for its Dairy.  Petitioner 
has not documented how these items were used in the manufacturing process.

DISCUSSION AND CONCLUSIONS OF LAW:

Petitioner’s third contention should be denied.

Petitioner argues that the freezer suits and gloves purchased from COMPANY D, 
and the work clothes purchased from COMPANY E qualify as safety apparel under 
Rule 3.300(d)(10).  (During the audit period, the rule provision was 
3.300(d)(7)(B).)  In order to qualify under that provision, the clothing would 
have to be “necessary and essential to the manufacturing process” and the 
“manufacturing process would not be possible without its use.”  However, as 
noted by the Tax Division, Petitioner has not shown by clear and convincing 
evidence that these items were necessary and essential to the manufacturing 
process.

Petitioner argues that the uniforms purchased from UNIFORM CO. A and UNIFORM 
CO. B qualify as work clothing required by health regulations and are exempt 
pursuant to Section 151.318(a)(9).  However, as was true regarding the 
refrigerant issue, this section was not added to the statute until 1999, well 
after the audit period in this case.  During the audit period, Rule 
3.300(d)(7)(B) as discussed above controlled.  In order to qualify under that 
provision, the uniforms would have to be “necessary and essential to the 
manufacturing process” and, as stated in Rule 3.300(d)(7)(B) the “manufacturing 
process would not be possible without its use.”  As noted by the Tax Division, 
Petitioner has not shown by clear and convincing evidence that these items were 
necessary and essential to the manufacturing process.

Petitioner argues that the switchgear purchased from ELECTRIC COMPANY A is 
exempt because the engine room and boiler rooms service the manufacturing 
equipment.  The switchgear was to replace the disconnect switch in the motor 
control center that services the engine room, front office, and boiler room.  
However, as noted by the Tax Division, Petitioner has not shown by clear and 
convincing evidence that the engine room and boiler room are necessary and 
essential to the manufacturing process.

Petitioner asserts that the two tanks were used in the manufacturing of cottage 
cheese, thereby qualifying as manufacturing equipment.  However, there is 
nothing in the record to show that the tanks were necessary and essential to 
the actual manufacturing of cottage cheese.  As a result, Petitioner has failed 
to meet its burden to show by clear and convincing evidence that its purchase 
of the services is within the exemption.

Petitioner asserts that the insulation provided by INSULATION COMPANY was to 
insulate pipes through which its orange juice and dairy products flowed.  
However, Petitioner has not shown by clear and convincing evidence that the 
piping involved was necessary and essential to the manufacturing process.

Finally, because Petitioner has not provided documentation to show how the 
palletizers, depalletizers, and agitators are used in the manufacturing 
process, it has not shown by clear and convincing evidence that the items were 
necessary and essential to the manufacturing process.

PETITIONER’S FOURTH CONTENTION:

FINDING OF FACT NO. 22.

During the audit period, Petitioner purchased photometer cells, thermometers, 
inspection kits, and milk filters for its Dairy.  Petitioner has not documented 
how these items are necessary and essential to the quality control process.

DISCUSSION AND CONCLUSIONS OF LAW:

Petitioner’s fourth contention should be denied.

Petitioner asserts that the photometers, thermometers, inspection kits, and 
milk filters are used in its quality control process, and are exempt pursuant 
to Section 151.318(a)(8).  However, during the audit period, Rule 
3.300(d)(3)(A) provided that materials “used to test the quality of the product 
after the manufacturing process is complete are not exempt.”  Petitioner has 
not shown by clear and convincing evidence that the items at issue were used in 
the quality control process before the manufacturing process was complete.

PETITIONER’S FIFTH CONTENTION:

FINDING OF FACT NO. 23.

During the audit period, Petitioner contracted with various waste management 
providers to dispose of the waste resulting from its supermarkets and other 
facilities.  Although requested to do so, Petitioner has not provided manifests 
demonstrating how the waste management providers classified the waste at its 
stores and facilities.    

DISCUSSION AND CONCLUSIONS OF LAW:

Petitioner’s fifth contention should be denied.

Section 111.104(a) provides that a refund can only be made if the Comptroller 
finds that the tax had been “unlawfully or erroneously collected.”  Unlike the 
situation where the Comptroller is seeking to assess a tax, a refund concerns a 
situation where the taxpayer is seeking to have the tax returned on the basis 
that its collection was in error.  In that case, the burden logically belongs 
with the taxpayer to show that the tax was collected in error.

This specific issue was previously addressed in Comptroller Decision No. 38,964 
(2004), and, before that, in Comptroller Decision No. 36,084A (1998).  As in 
those decisions, Petitioner has not shown that it paid tax in error because it 
has not shown that the wastes removed pursuant to the specific invoices offered 
by Petitioner were the result of actual manufacturing or processing, and that 
the removal charges were nontaxable because they were for industrial solid 
waste.

PETITIONER’S SIXTH CONTENTION:

FINDING OF FACT NO. 24.

In April 1995 Petitioner’s Dairy suffered severe hail damage.  Petitioner paid 
ELECTRIC COMPANY A, COMPANY G, and INSULATION COMPANY to repair the damage from 
the hailstorm, which consisted of replacing the entire roof of the 100,000 
square foot facility.

FINDING OF FACT NO. 25.

In late 1995 CONTRACTORS repaired smoke damage suffered by one of Petitioner’s 
supermarkets as the result of a fire.

FINDING OF FACT NO. 26.

Late in 1995 approximately 95% of the roof of Petitioner’s PLANT Company 
facility collapsed due to heavy rain.  Petitioner contracted with ELECTRIC 
COMPANY B, FIRE PROTECTION, and COMPANY G to repair the roof and other related 
damage to the 212,000 foot facility.

DISCUSSION AND CONCLUSIONS OF LAW:

Petitioner’s sixth contention should be denied.

Petitioner contends that real property repairs it incurred as a result of 
casualty losses are not subject to tax.

Effective October 1, 1993, Section 151.350(a)(2) narrowed the property casualty 
repairs exemption to “property damaged within a disaster area” and defined 
“disaster area” as one declared to be so by the governor or the president.  
That change was carried forward in Rule 3.292(h) for tangible personal 
property, effective February 10, 1994, and in Rule 3.357(c)(5) for real 
property, effective March 23, 1995. 

Petitioner argues that this interpretation has been overturned by Steamatic of 
Austin, Inc. et al v. Rylander, Cause No. 97-02651, Travis County District 
Court.  However, as discussed in Comptroller Decision No. 40,239 (2004), the 
Steamatic case is not a basis for relief because the apparent basis of the 
decision was the langauge of Rule 3.357(c)(5) during the period at issue, i.e. 
prior to October 1, 1993.  In the instant hearing, the evidence indicates that 
neither the damage nor the repairs occurred when the prior version of the Rule 
relied on in the court case was in effect. 

Inasmuch as the damages incurred by Petitioner were not in a declared disaster 
area, the costs of repair are taxable.  See Comptroller Decision No. 38,952 
(2004).

PETITIONER’S SEVENTH CONTENTION:

FINDING OF FACT NO. 27.

In 1996 Petitioner purchased paper bags from ABC CORPORATION, and the bags were 
delivered to Petitioner in City B.  Petitioner accrued and paid 2% City B local 
tax on the bags.  The ABC CORPORATION invoices show a billing address in 
*******, Ga., and include an address in City C that is the location of a 
regional bag plant.  City C charged a 1.5% local tax rate.  There is no 
evidence in the record to show that orders were placed at the City C location.

DISCUSSION AND CONCLUSIONS OF LAW:

Petitioner’s seventh contention should be denied.

Rule 3.374(b)(1) provides that if a retailer has only one place of business and 
it is in a taxing city, the sales of the retailer are subject to city sales tax 
based upon the “location of the place of business.”  “Place of business” is 
defined as not including a warehouse, storage yard, etc. “unless at least three 
orders for taxable items are received by the retailer at the location during a 
calendar year.”

In order for the City C tax rather than the City B tax to be applicable, since 
Petitioner is seeking a refund, Petitioner would have to show that ABC 
CORPORATION’s City C location qualified as a “place of business.”  Because 
Petitioner has not done so, it is not entitled to refund of the difference 
between the two local tax rates.

PETITIONER’S EIGHTH CONTENTION:

FINDING OF FACT NO. 28.

In December 1996 Petitioner purchased services from COMPANY G Contractors.  The 
services were to drill piers, pour foundations, and reset two raw milk silos on 
a new foundation.  COMPANY G’s invoice was a lump-sum charge.

DISCUSSION AND CONCLUSIONS OF LAW:

Petitioner’s eighth contention should be denied.

Petitioner argues that the replacement of a concrete pad with a new pad was new 
construction.  The Tax Division responds that the work performed by COMPANY G 
was part of a larger contract to repair the silos.   

Comptroller's Decision No. 34,112 (1995) held that the interior demolition or 
gutting of certain floors of a building constituted the taxable "modification, 
making over, or upgrading of the improvement." Comptroller's Decision No. 
34.340 (1997) held that the demolition and replacement of a skating rink within 
an integral part of existing buildings, not located outside and separate from 
them, was taxable real property repairs.  Comptroller's Decision No. 34,956 
(1997) held that the demolition and replacement of a loading dock area that was 
an integral part of a warehouse was taxable real property repair.

Following these precedents, the demolition and replacement of the pad that 
supported the silos within the dairy building was a taxable repair of real 
property.

PETITIONER’S NINTH CONTENTION:

FINDING OF FACT NO. 29.

On May 26, 1994 COMMUNICATION CO. invoiced Petitioner for SYNC cables that were 
shipped from Michigan to ******* in ******, Illinois, prior to being shipped to 
Texas to be used as part of Petitioner’s computer systems.  Petitioner has not 
documented what was done to the cables in Illinois, nor how the cables were 
changed before going to Texas.

FINDING OF FACT NO. 30.

On August 22, 1996 ****** invoiced Petitioner for computer software that was
shipped from Ohio to Petitioner in ******, Ohio, where it was installed on
computers sent to Texas.

DISCUSSION AND CONCLUSIONS OF LAW:

Petitioner’s ninth contention should be denied.

Petitioner contends that no use tax was due on the cables and computer software 
because Petitioner did not make a taxable use of them in Texas and relies on 
Sharp v. Morton Buildings, 953 S.W.2d 300, 304 (Tex. App. - Austin 1997, pet. 
denied).  In that case, the court of appeals held that a taxpayer's 
out-of-state purchases of raw materials, which were used out of state to 
manufacture into building components (i.e., new taxable items), were not 
subject to Texas use tax.  

When components, rather than raw materials, are both purchased and assembled 
out of state, the Comptroller has determined such facts to be distinguishable 
from the facts of the Morton Buildings case.  See Comptroller's Decision No. 
42,035 (2004) (Pre-manufactured components maintain the same nature, utility, 
and function after they are installed in the film projection systems); 
Comptroller's Decision No. 43,075 (2004) (bill validators and coin 
acceptors/changers retain their identity after installation in vending 
machines); Comptroller’s Decision 40,794 (2005) (computers, computer equipment 
and software retained their identity after installation in computer systems, 
gift registry kiosks, network servers and point-of-sale stands.)  Following 
these decisions, Petitioner’s contention regarding the computer software should 
be denied.

As for the cables, Petitioner has not shown how, or even if, the cables were 
changed in Illinois prior to being shipped to Texas.  As a result, the record 
is not sufficient to determine the applicability of Morton Buildings.

PETITIONER’S TENTH CONTENTION:

FINDING OF FACT NO. 31.

On January 19, 1996 Petitioner contracted with REFRIGERATION CO. to pump down 
and disconnect 56 feet of dairy cases so that they could be moved from the 
wall, then repipe the cases.  REFRIGERATION CO. also contracted to pump down a 
baker freezer and retarder so they could be moved, and then reconnect them.  
The charge was a lump sum charge and was not broken down between the dairy 
cases and the baker freezer.

DISCUSSION AND CONCLUSIONS OF LAW:

Petitioner’s tenth contention should be denied.

Petitioner asserts that the services performed by REFRIGERATION CO. were not 
taxable services.  While the moving of the dairy cases and freezer were 
nontaxable services if provided on a stand-alone basis, the repiping of the 
dairy cases was taxable remodeling of tangible personal property.  

Inasmuch as Petitioner is seeking a refund for tax paid on the charge to 
REFRIGERATION CO., as discussed above it is Petitioner’s burden to show what 
part of the charge was not subject to tax, which it has not done.

PETITIONER’S ELEVENTH CONTENTION:

FINDING OF FACT NO. 32.

On March 30, 1995 TENT CO. invoiced Petitioner for a tent, tables and chairs 
for delivery to UNIVERSITY for the FUNDRAISER.

DISCUSSION AND CONCLUSIONS OF LAW:

Petitioner’s eleventh contention should be denied.

Petitioner contends that the lease of the tent, tables, and chairs was exempt 
from sales tax under Section 151.155(e) because it donated them to the 
FUNDRAISER, a IRC Section 501(c)(3) entity.  The Tax Division responds that 
Petitioner did not issue an exemption certificate when it leased the tent and 
has not provided documentation from FUNDRAISER to verify the purported 
donation.

Petitioner cites Comptroller Decision No. 11,964 (1982) in support of its 
contention.  That Decision held that Section 151.155(b) (now (e)) should be 
construed to “authorize the purchase of any item tax free, so long as the item 
is donated to one of the tax exempt entities named therein and no intervening 
beneficial use is made of the item.”  However, in order to verify that the tent 
was used by the FUNDRAISER rather than Petitioner itself, Petitioner should 
provide documentation from FUNDRAISER verifying the donation, which it has not 
done.

RECOMMENDATION:

An additional amount should be credited to reflect the agreement of the 
parties, and the denial of the balance of the refund claim should be upheld. 

SIGNED November 2, 2006.


ROY G. SCUDDAY
Administrative Law Judge

HEARING NO. 40,767

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 November 2, 2006.


CAROLE KEETON STRAYHORN
Texas Comptroller




ACCESSION NUMBER: 200611885H   
SUPERSEDED: N 
DOCUMENT TYPE: H  
DATE: 11/02/2006   
TAX TYPE: SALES