Texas Comptroller of Public Accounts STAR System
AP 99 (Supercedes AP 88)
Date: October 18, 2005
To: All Audit Personnel
From: David Rock, Audit HQ
Subject: Assigned Refunds and Refund Request from Non Permitted Taxpayers
Effective June 20, 2003, in order for non-permitted taxpayers to seek a refund
directly from the State, a completed Assignment of Right to Refund form (form
#00-985, available through Window on State Government, commonly referred to in
Audit Division as a Refund Assignment Form, or RAF) for EACH vendor to whom tax
was paid in error must be submitted with the claim. Without the assignment
form, the non-permitted taxpayer does not have a valid claim for refund. There
is no refund claim, and therefore, no tolling event, until the refund
assignment form is presented to the Comptroller. This change was made in HB
2425 in the 78th Regular Legislative session (2003). For procedures to be
followed when a non-permitted taxpayer requests refund without providing the
required assignment forms, refer to AP 91.
Refunds CAN be assigned to permitted and non-permitted taxpayers but refunds to
non-permitted taxpayers MUST have been assigned. Whenever the assignor assigns
his right to refund to the assignee, the assignee steps into the shoes of the
assignor and assumes ALL of the assignor’s rights. These rights include the
assignor’s statute of limitations. To capture the assignors and assigned
refund amounts, the tax processing system will recognize exams in WATS that
include a vendor number as an assigned refund. Auditors can still use “dummy
uploads” (exams for each vendor with the vendor’s taxpayer number) to verify
that vendors are permitted and that local tax refunds were properly allocated.
When a “dummy upload” is used in a “non-RAF” situation, the vendor numbers must
be deleted from the exams and the refund re-uploaded before being sent to the
For all refunds filed prior to June 20, 2003: All refunds, for permitted and
non-permitted taxpayers, will be refunded under the purchaser’s taxpayer
number. No refund assignment forms or exams with the vendor’s taxpayer number
should be included with these assignments, even if the purchaser was not
permitted. Separate vendor exams are not required and exams should NOT include
Refunds filed on or after June 20, 2003:
* non-permitted taxpayers: Refund assignment forms are required. A separate
exam, that includes the vendor name and taxpayer number, is required for each
* permitted taxpayers: Exams should not include vendor numbers UNLESS a valid
refund assignment situation exists. Unusual situations will occur where a
permitted taxpayer will be assigning their refund to another permitted
taxpayer. When these situations occur, the basis for
* the assigned refund must be thoroughly explained in the “Notes to Reviewer”
comment in Agency Work Manager (AWM). A word of caution about assignment
forms: These should only be accepted in valid assignment situations (see
* Taxpayers who were permitted and non-permitted during the refund period:
separate refund assignments should be generated, on AWM, for the period when
the taxpayer was permitted and for the period when the taxpayer was not
permitted. Statute of limitation on these types of accounts will differ since
the seller’s statute will control the non-permitted periods (RAFs required) and
the purchaser’s statute will control the permitted period. Refunds generated
on AWM for permitted and non-permitted periods should never be merged. In the
assignment covering the purchaser’s permitted period, exams should not include
vendor taxpayer numbers. For periods when the purchaser was not permitted,
separate exams with vendor taxpayer numbers and assignment forms are required.
ASSIGNMENT OF RIGHT TO REFUND FORMS (aka Refund Assignment Forms)
Credit interest stops accruing based on when the Assignment of Right to Refund
form is delivered to the state. When the purchaser obtains an assignment of
refund from a seller, the purchaser steps into the shoes of the seller,
therefore, statute of limitations is based on the seller’s situation. Also, a
non-permitted taxpayer cannot get “retroactively” permitted to avoid having to
provide assignment forms. The taxpayer had to have been permitted at the time
of the transaction to avoid the requirements of the June 20, 2003, law change
for non-permitted taxpayers (run XIPERM for permit date information).
Valid vs. invalid assignments
Statute tolls on assigned refunds based on when a VALID assignment form is
A non-permitted vendor, who collected tax from his non-permitted customer,
assigns his rights to his non-permitted customer—statute has not tolled because
the assignment is not valid. The non-permitted vendor has no rights to assign.
A permitted purchaser, a monthly filer, is providing an assignment form from
his permitted vendor, a yearly filer. If the sole purpose of the assignment is
to obtain vendor’s statute of limitation, the assignment is not valid. For the
permitted purchaser, statute is determined based on his filer type.
When a non-permitted purchaser pays tax in error to a permitted seller, the
purchaser can either go back to the seller for a refund, or come directly to
the state for refund. However, in order for the purchaser to come directly to
the state for refund, the purchaser must obtain an Assignment of Right to
Refund form from the seller
(http://www.window.state.tx.us/taxinfo/taxforms/01-135.pdf). The following
discussion describes the procedures for dealing with a claim filed by a
A separate exam must be created for each vendor who issued a refund assignment
and credits must be scheduled accordingly. The date received (the postmark
date or received date if hand delivered) for each refund assignment form must
be entered as an exam footnote. This date should also be written or stamped on
each assignment form. When generating a refund verification assignment on AWM,
the “Received Date” is the date Audit Division received the claim. The
“Postmark Date” is the actual postmark date on the claim package. If hand
delivered, these dates will be the same. The credit interest cut-off date is
based on the earliest postmark date of the claims included in each AWM refund
Per Rule 3.286(e)(5), non-permitted taxpayers must be treated as monthly
filers. The “reporting period” of a non-permitted taxpayer will always be
monthly, but because the tax was paid by the seller, the scheduling date must
reflect the seller’s reporting period. In other words, depending on the
invoice date and the filer type of the seller, the following should be used as
a rule of thumb:
* Yearly: Schedule transactions using a December date;
* Quarterly: Schedule transactions using a March, June, September, or December
* Monthly: Schedule transactions using the invoice date.
There are many exceptions to the above rule. The examples in this section will
help to clarify the proper procedures that need to be followed.
If the date of the transaction falls beyond the seller’s reporting period
(i.e., the seller’s return is not yet due) then those transactions should be
identified in the cover letter, stating that those transactions were not
addressed in this claim because the tax was not yet due or reported. This
should not be a “denial” that would have to involve filing for a hearing. For
example, a non-permitted purchaser submits a refund claim in March 2005 for an
invoice dated January 2005, and the seller is a yearly filer. Even though the
non-permitted purchaser is considered a monthly filer, the seller has not
reported this transaction yet, and a refund cannot be granted. The taxpayer
should be made aware that this transaction was not considered for this reason
and that the item can be requested again after the due date of the return has
If the purchaser was both permitted and non-permitted within the refund period,
the refund must be processed in separate AWM assignments, as discussed above.
Remember that the statute of limitations for non-permitted purchasers is that
of the seller. Statute of limitations for permitted purchasers is the
purchaser’s own statute. Claims that are separated because of permit status
should not be merged.
Credit interest stops on the day the Refund Assignment form is submitted to the
State. If these forms are presented on different dates, the earliest date will
determine the interest cut-off date.
A non-permitted taxpayer filed a refund claim for August 2002 through December
2002, postmarked February 26, 2004, and provides the following:
Refund assignment form from NMO Company, a monthly filer, signed February 1,
Original invoice date: November 30, 2002
Refund assignment form from ABC Company, a quarterly filer, signed February 20,
2004 Original invoice date: August 22, 2002
Refund assignment form from XYZ Company, a yearly filer, signed January 2, 2004
Original invoice date: November 30, 2002
NMO Exam: Schedule transaction date as November 2002
ABC Exam: Schedule transaction date as September 2002 (August 2002 falls in
the 3rd quarter of 2002)
XYZ Exam: Schedule transaction date as December 2002
Date that credit interest stops: February 26, 2004 (postmark date of claim).
In August 2005, you are verifying a refund claim postmarked on July 1, 2005,
filed by Taxpayer E, a non-permitted taxpayer, stating the refund period as May
1, 2001 through March 31, 2005. The claim included three vendors and RAFs were
provided for all three. All vendors are active for sales tax and have been
permitted for the entire refund period.
* Vendor ABC is a monthly filer;
* Vendor DEF is a quarterly filer;
* Vendor GHJ is a yearly filer.
* Each vendor will be scheduled on a separate exam.
* Vendor (assignor’s) taxpayer number will be included in all exams.
* Each exam will reflect the receipt date of the assignment form in a comment
For the vendor ABC Exam, since ABC is a monthly filer, invoice dates can be
used to schedule in WATS. Additionally, since ABC is a monthly filer, invoices
for May 2001 are out of statute and should be denied. Credit interest stops on
July 1, 2005.
For the vendor DEF Exam, reflect in WATS dates in March, June, September and
December. For example, if an invoice is dated January 2003, schedule the
transaction date in WATS as March 2003. All transactions are within statute.
Credit interest stops on July 1, 2005.
For the vendor GHJ Exam, invoices in 2001 through 2004 should reflect in WATS
dates in December of each respective year. For invoices in 2005, no refund is
warranted. The vendor is a yearly filer and the 2005 annual sales tax return
has not yet been filed. Taxpayer should be notified that the claim for this
vendor has not been verified and that a subsequent claim can be filed after the
2005 annual return has been filed.
Same situation as Example 2, but Taxpayer E filed another claim for refund on
October 1, 2005, for the refund period May 1, 2001 through August 31, 2005.
This claim included only one vendor, BBB, who was a quarterly filer for the
refund period. An assignment form was provided.
* An additional refund assignment will be generated on AWM for May 2001 through
* The exam for BBB will reflect the receipt date of the assignment form in a
* Vendor (assignor’s) taxpayer number will be included in the exam.
Invoices dated May 2001 and June 2001 are out of statute. Because vendor BBB
is a quarterly filer, his statute controls for his non-permitted customer who
is treated as a monthly filer. For vendor BBB, all transactions will be
scheduled with a March, June, September or December date. Because the vendor
is a quarterly filer, transactions falling in the third quarter of 2005 would
ordinarily have been scheduled in September 2005, but because the refund period
only went through August 2005, July and August 2005 invoices should be
scheduled in WATS with an August 2005 date. This is assuming that by the time
you are verifying the claim, the due date for the 3rd quarter 2005 return has
passed. Credit interest accrual will stop on October 1, 2005.
Credit Interest on Refunds
The rate of interest paid on refunds claimed on or after September 1, 2005 has
changed due to legislative amendments made to Tax Code Section 111.064 during
the 79th Regular Session.
Under prior law, the interest rate on eligible refunds was 1 percent over the
prime rate as published in the Wall Street Journal on the first business day of
each calendar year (“Prime +1”). For refund claims filed on or after September
1, 2005, the new interest rate will be the lesser of Prime +1 or the annual
rate earned on deposits in the state treasury during December of the previous
calendar year (“Treasury Pool”). Both interest rates will be determined as of
January 1 of each calendar year.
For this law change, a new field, “Credit Interest Indicator”, has been added
to the AWM work item detail window. It will be populated with either a P
(“Prime +1”) or a T (“Treasury Pool”). Once all the AWM edits are in place,
this field will be automatically filled in based on the postmark date indicated
when the AWM refund verification assignment was generated. If the field is
blank, before the refund is uploaded, the auditor should have their supervisor
complete the field and enter an appropriate mandatory comment.
Merging AWM Refunds
Multiple claims submitted by non-permitted taxpayers can be considered for
merging if all of the following criteria have been met:
* All of the claims that are going to be merged have been filed within the
statute of limitations, as applied separately to each claim;
* All claims that are going to be merged are for the same issues;
* The same consultant submitted the claims that are going to be merged;
* The refund periods are continuous; and
* Only refunds with the same credit interest indicator should be merged.
One thing to remember is that, once merged, the latest refund claim filed will
take on the rights of the oldest refund claim filed. Because of credit
interest rules, the AWM surviving refund should be the first claim filed.
If claims are merged, the first filing date will control when credit interest
stops accruing. If claims are not merged, credit interest will stop at a later
date for each subsequent claim.
Assignment to Right to Refund Forms should be included as exhibits in the
refund package. If the non-permitted taxpayer has submitted multiple claims
that have been merged, the postmark date should be written on each assignment
Non-permitted taxpayers and sampled refunds
Effective October 1, 1999, Texas Tax Code Section 151.430, allows only
permitted taxpayers to submit refund claims using a projection based on a
sampling of transactions. Non-permitted taxpayers cannot submit refund claims
that have been sampled/projected; their refund claims must be submitted on a
detail basis. Auditors are allowed to use sampling procedures to verify
detailed refund claims submitted by non-permitted taxpayers.
Reduce refund claims from non-permitted taxpayers for timely filer discounts
Whenever the assignor (seller) assigns his right to refund to the assignee
(purchaser is a non-permitted taxpayer), the assignee steps into the shoes of
the assignor and assumes ALL of the assignor’s rights. If the seller submits a
refund claim related to reported taxable sales or purchases, his refund claim
would be reduced any timely filer (.005 or ½ percent) or pre-payment (.0125 or
1.25 percent) discount he was allowed when he filed his sales tax return.
Because the non-permitted taxpayer was assigned the right to refund from his
vendor, the refund claim for the non-permitted taxpayer should be reduced for
any discounts his assigning vendor was allowed.
For more information about reporting discounts allowed, see State Sales and Use
Tax Rule 3.286(g). To determine what discounts were allowed, run the XITXPI
inquiry on the tax processing system (CICS) for a particular report period.
This inquiry will show the dollar amount of each discount allowed, if any.
Example: XITXPI.taxpayer number.tax type.report
Non-permitted taxpayer filer type
Per State Sales and Use Tax Rule 3.286(e)(5), non-permitted taxpayers must be
treated as monthly filers. However, there will be cases where due to CICS
constraints taxpayers may have to be treated as either quarterly or yearly
Taxpayer submitted refund claim for January 2001 through August 2005. Review
of XISUMM, XISTAT and XIPERM shows that taxpayer was permitted in May 2002 and
was treated as a yearly filer for 2002 through 2004. Taxpayer closed his sales
tax permit as of December 31, 2004.
Because taxpayer was initially set up as a yearly filer for 2002, he should be
treated as yearly for the entire 2002 through 2004 years. For January 2001
through December 2001 (months for periods prior to being permitted) and for
January 2005 through August 2005 (months after taxpayer was permitted), this
taxpayer should be treated as monthly.
Taxpayer submitted refund claim for January 2001 through August 2004. Review
of XISUMM, XISTAT, XIPERM and AWM, indicates that BART (Business Activity
Research Team) processed a VDA (Voluntary Disclosure Agreement) on this
taxpayer for April 2001 through December 2002, and permitted the taxpayer as of
January 2003 as a quarterly filer. For the VDA period taxpayer was treated as
quarterly filer. Taxpayer closed out sales tax permit as of December 2003.
CICS will reflect a quarterly collection record for each quarter between 012
In this example, for the refund, taxpayer will be treated a quarterly filer for
April 2001 through December 2003. For January through March 2001 and for 2004,
he should be treated as monthly filer.
Summary: If CICS reflects a collection record for a particular period, the
taxpayer must be treated using the filer type indicated for those periods, even
if the taxpayer was not permitted in those periods. In Example 2, even though
taxpayer was not permitted from April 2001 through December 2002, because the
taxpayer was set up as quarterly, the quarterly filer type must be used in
processing the refund. Beginning in May 2005, BART began treating all
non-permitted taxpayers as monthly.
If you have any questions regarding these procedures, please contact the Area
Manager of Technical Support, the Technical Support supervisor, or the refund
subject matter expert in Audit Headquarters.
As STAR is the Comptroller's research system for Texas tax policy issues,
only tax-specific audit policy memos (AP Memo) are included here. AP memos
not on STAR can be found on Window on State Government on the
Audit Memos web page.
ACCESSION NUMBER: 200510428L
DOCUMENT TYPE: L
TAX TYPE: SALES