200510428L



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 
RPC.

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 
vendor numbers.

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 
vendor.

*  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 
discussion below).

*  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 
provided.

Example 1:
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.

Example 2:
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 
non-permitted purchaser.

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 
verification.

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 
date;
* 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 
passed.

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.

Example 1
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, 
2004
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).

Example 2:
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.

Example 3:
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 
August 2005.
* The exam for BBB will reflect the receipt date of the assignment form in a 
comment.
* 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. 

Caution:
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 
form.

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 
period---XITXPI.12345678910.26.0505.

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 
taxpayers.

Example 1:
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.

Example 2:
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 
and 034. 

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
SUPERSEDED: N
DOCUMENT TYPE: L
DATE: 10/18/2005
TAX TYPE: SALES