200709977H




HEARING NO.  46,092  

RE: **************  
TAXPAYER NO.: **************
AUDIT OFFICE: **************
AUDIT PERIOD: JANUARY 1, 2000 THROUGH SEPTEMBER 30, 2002

SALES AND USE TAX/RDT

BEFORE THE COMPTROLLER 
OF PUBLIC ACCOUNTS 
OF THE STATE OF TEXAS

ELEANOR H. KIM
Administrative Law Judge

DEANNE Z. CUMMINGS-SCOTT
Representing Tax Division

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


COMPTROLLER'S DECISION

PRELIMINARY DISCUSSION:

An oral hearing was held on August 15, 2006 in Austin, Texas.  The Tax Division 
was represented by Ms. DeAnne Cummings-Scott, who presented the testimony of 
Anthony Hill, an auditor with the Comptroller’s office.  Petitioner appeared 
and represented himself.  

Official notice has been taken of all records of the Comptroller's office that 
pertain to Petitioner 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.

On January 5, 2007, a Proposal for Decision was issued in the above referenced 
matter.  The parties were given fifteen days from the date of the Decision to 
file exceptions.  No exceptions were filed, and the Comptroller has determined 
that the Administrative Law Judge’s Proposal for Decision in these cases should 
be adopted as written.

AGREEMENT:

In its Post-Hearing Response dated November 28, 2006, the Tax Division agreed 
to amend the audit by deleting the adjustments for the first and second 
quarters of 2000.

PETITIONER’S CONTENTIONS:

1. Petitioner contends that the estimation procedures should be modified.

2. Petitioner requests relief.

FINDINGS OF FACT:

1. Petitioner operated an automobile body shop in **************, Texas.  

2. Petitioner was audited for sales and use tax compliance for the 
above-captioned period and was assessed a tax deficiency of $************** 
plus the standard 10% penalty and interest pursuant to a Texas Notification of 
Audit Results dated April 8, 2004.  Petitioner’s request for redetermination 
resulted in this proceeding.

3. Petitioner operated the business without a sales tax permit and neither 
filed returns nor remitted sales tax during the audit period.  

4. During the audit, Petitioner made available sales invoices for the second, 
third, and fourth quarters of 2002, and the first quarter of 2003.  On his 
invoices, Petitioner separately stated labor and materials charges and charged 
a sales tax amount.  Petitioner wrote up his invoices based on insurance 
estimates that were provided to him by his customers. 

5. Based on Petitioner’s sales, the auditor determined that Petitioner should 
have reported sales tax on a quarterly basis.  

6. The auditor issued a Notification of Estimation Procedures informing 
Petitioner that his material sales would be estimated based on available 
information.  The auditor used available sales invoices and divided the total 
amount of the invoices by four, which represents the number of quarters for 
which records were available.  The estimation procedures resulted in the 
computation of $**************, which was used to estimate sales for each 
quarter from January 1, 2000 through March 31, 2002.  The estimated sales were 
scheduled in the audit and the tax assessment related to the estimated sales 
was $**************.  

7. Based on evidence that Petitioner did not operate the business during the 
first and second quarters of 2000, the Tax Division has agreed to delete those 
two quarters from the audit (see Agreement section), which means that the total 
tax assessment related to the estimates sales will be reduced by 
$**************, and penalty and interest will be reduced proportionately.  

8. The auditor also scheduled $************** as the actual tax amount that 
Petitioner collected, but did not remit during the second and third quarters of 
2002 (i.e., April 1, 2002 through September 30, 2002).

9. Petitioner sold his house, which had liens attached to it.  The sale 
proceeds were used to pay his liabilities, including the audit liability.  

CONCLUSIONS OF LAW AND DISCUSSION:

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

During the audit period, Petitioner repaired motor vehicles.  Labor charges to 
repair motor vehicles are not subject to tax.  SECTION 151.0101(a)(5)(C).  
However, materials incorporated in the repair of motor vehicles are subject to 
tax, but the tax responsibility depends on whether the repair of the motor 
vehicle was performed under a lump sum or separated contract.  The repairman is 
the consumer of all materials incorporated into the motor vehicle being 
repaired if a lump-sum contract is used, and as the consumer, the repairman 
must pay tax on the material purchases.  SECTION 151.060(b).  The repairman who 
uses a lump-sum contract is prohibited from collecting tax on any portion of 
the lump-sum charge to his customer.  Rule 3.290(g)(1) and (2).  In contrast, a 
repairman who uses a separate contract (i.e., material and labor charges are 
separately stated) is the seller of the materials incorporated into the motor 
vehicle being repaired.  SECTION 151.060(a).  The repairman who uses a 
separated contract may issue a resale certificate in lieu of paying tax to his 
suppliers when purchasing materials that will be incorporated into the 
customer's motor vehicle.  Rule 3.290(h)(1).  Tax must be collected from the 
customers on the agreed contract price of the materials.  Id.  

Petitioner’s available records showed that Petitioner separately stated labor 
and material charges, so Petitioner was required to collect sales tax on his 
material sales.  For two quarters in the audit period, Petitioner failed to 
remit collected sales tax in the amount of $**************.  All collected 
sales tax must be remitted to the state, so the assessment for the second and 
third quarters of 2002 was proper.  The remaining tax assessment relates to 
estimated taxable sales on which tax should have been reported and remitted.  
Petitioner contends that the estimation procedures should be modified.

The Comptroller is authorized to examine taxpayers’ records to determine tax 
compliance.  SECTION 111.004. [ENDNOTE]  If a taxpayer fails to maintain the 
required records, or the available records are inadequate, the Comptroller is 
authorized to employ an estimate or sampling audit procedures.  SECTIONS 
111.008(a) and 111.0042(d).  Petitioner had incomplete records; thus, the 
auditor’s use of estimation procedures was appropriate.  The standard of review 
is whether that estimation was based on the best information available.  
SECTION 111.0042(d) and Rule 3.281(b).  The auditor used available invoices to 
perform the estimation procedures, so the best information available standard 
was met.  The burden is on Petitioner to prove by a preponderance of the 
evidence that the audit is incorrect.  Rule 1.40.

Here, Petitioner provided evidence to show that the auditor erroneously 
included periods in which Petitioner was not in business, resulting in the Tax 
Division’s agreement to delete the first and second quarter of 2000 from the 
audit.  However, no other evidence was presented to show that the audit 
contains any additional errors.  Thus, Petitioner’s first contention should be 
granted to the extent agreed to by the Tax Division, but otherwise denied.

Petitioner requests relief from the audit liability.  Petitioner presented 
federal income tax returns and other documentary evidence to support his claim 
that he is in financial straits.  However, Comptroller records also show that 
Petitioner has paid the audit liability, which negates the Comptroller’s 
ability to exercise the authority granted by Section 111.102.  There is no 
legal basis for relief.

RECOMMENDATION:

Based upon the foregoing findings of fact, conclusions, and discussion, the 
audit should be amended in accordance with the Tax Division’s agreement, and 
the remaining audit adjustments should be upheld.  Any audit payments made in 
excess of the amended audit liability should be refunded to Petitioner.


ELEANOR H. KIM
Administrative Law Judge

Hearing No. 46,092

ORDER OF THE COMPTROLLER

The above decision resulting in a credit to Taxpayer as set out in “Attachment 
A,” which is incorporated by reference, is approved and adopted in all 
respects.  This decision becomes final twenty days after the date Petitioner 
receives notice of this decision.  If either party desires a rehearing, that 
party must file a Motion for Rehearing, which must state the grounds for 
rehearing, no later than twenty days after the date Petitioner receives notice 
of this decision.  Notice of this decision is presumed to occur on the third 
day after the date of this decision.

Signed on this 5th day of September 2007.


SUSAN COMBS
Texas Comptroller of Public Accounts

ENDNOTE: 

All taxpayers are required to maintain:  (a) records of gross receipts, 
including documentation in the form of receipts, invoices, and other pertinent 
sales records, (b) similar documentation relating to their purchases, and (c) 
records substantiating any claimed deduction or exclusion from tax.  SECTION 
151.025; see also, Rule 3.281(a)(2).  The required records must be kept for at 
least four years from the dates of the transactions.  SECTION 151.025(b).  




ACCESSION NUMBER: 200709977H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 09/05/2007
TAX TYPE: SALES