200711046H



HEARING NO.  47,007

RE: **************
TAXPAYER NO.: **************
AUDIT OFFICE: **************
AUDIT PERIOD: June 1, 1998 Through August 31, 1998

SALES AND USE TAX/RFD

BEFORE THE COMPTROLLER 
OF PUBLIC ACCOUNTS 
OF THE STATE OF TEXAS

ROY G. SCUDDAY
Administrative Law Judge

ROBIN ROBINSON
Representing Tax Division

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


COMPTROLLER’S DECISION

PRELIMINARY DISCUSSION:

This case was transferred from Judge Greco’s docket to this Administrative Law 
Judge.  Based on the request of Claimant, this case was considered on written 
submissions from the parties.  

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 Claimant or the issues raised in this case.

On January 25, 2007, Claimant filed Exceptions to the January 10, 2007, 
Proposed Comptroller’s Decision.  The Tax Division filed its Response to these 
Exceptions on February 1, 2007.  The ALJ and the Comptroller have considered 
the Claimant’s Exceptions and the Tax Division’s Response, and this 
Comptroller’s Decision represents the ruling thereon.

AGREEMENT OF THE PARTIES:

The Tax Division agreed to certain refunds as set forth in its Position Letter 
dated April 18, 2006, and its Response to Reply and Proposed Findings of Fact 
dated November 9, 2006.

CLAIMANT’S CONTENTIONS:

1. Claimant contends that its purchase of services from COMPANY A constituted 
non-taxable real property maintenance services or non-taxable maintenance of 
tangible personal property.

2. Claimant contends that it purchased services that are not subject to sales 
tax.

3. Claimant contends that the sales tax rate in effect at the inception of its 
lease with COMPANY C should be applied to the subsequent lease payments.

FINDINGS OF FACT:

1. The ************** (Claimant) is a grocery retailer.

2. Claimant was audited for sales and use tax compliance for the period June 1, 
1998 through August 31, 1998.  During the course of the audit, Claimant 
identified items for which Claimant had allegedly erroneously paid tax. On 
August 18, 2005, the Comptroller agreed to a partial refund of those items. 
Claimant’s timely filed request for a hearing on the partial denial of the 
refund resulted in this proceeding.

3. Claimant entered into a Maintenance Agreement with ************** (COMPANY 
A) to establish a program whereby COMPANY A would provide monthly preventative 
maintenance and breakdown repairs to heating, ventilation, air conditioning, 
and refrigeration equipment at Claimant’s grocery stores.  As part of the 
agreement, COMPANY A would perform all necessary routine repair work.

4. While the COMPANY A invoices in the record are fairly consistent in the 
total monthly charges, the invoices do not specify the basis of the charges, 
i.e., inspection, adjustments, repairs, etc.

5. Claimant’s supermarkets are required by local health departments to maintain 
perishable food at or below a certain temperature to protect against the rapid 
growth of infectious food-borne illnesses.

6. On May 14, 1999, ************** (COMPANY B) invoiced Claimant for installing 
a replacement evaporator fan motor for a pizza prep table at a store in CITY A.

7. Items prepared for use in the making of a pizza including vegetables, meat, 
cheese, and pizza dough, are stored in refrigerated portions of the pizza 
preparation table to prevent contamination prior to being used.

8. On October 1, 2000, ************** (COMPANY C) invoiced Claimant for the 
lease of computers and software.  The invoice states that it was to serve as a 
supplement to the “COMPANY C customer agreement for licensed programs.”  That 
agreement is not in the record.  The sales tax rate charged on the invoice is 
7.875%.

DISCUSSION AND CONCLUSIONS OF LAW:

CLAIMANT’S FIRST CONTENTION:

Claimant’s first 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.

Claimant contends that the agreement with COMPANY A establishes that the 
charges were for nontaxable maintenance of real property pursuant to Rule 
3.357(a)(7).  The agreement does establish that the services were scheduled and 
periodic.  However, the invoices do not establish the charges only were for 
services to real property, or that they only included minor repairs.  Nor has 
Claimant shown the nature of the equipment to establish whether the charges 
were for real property or tangible personal property, and if the latter, 
whether the charges could be exempt as repairs of tangible personal property 
required by regulation in order to protect the environment pursuant to Section 
151.338, or as taxable repairs to comply with public health and safety 
regulations.  Accordingly, Claimant has failed to meet its burden to show that 
the services are not subject to sales tax, and the refund was properly denied.

CLAIMANT’S SECOND CONTENTION:

Claimant’s second contention should be denied.

Claimant contends that, the repair of the fan motor of the pizza preparation 
table by COMPANY B qualifies either as a nontaxable repair of tangible personal 
property required by regulation in order to protect the environment pursuant to 
Section 151.338, or as a nontaxable repair of manufacturing equipment pursuant 
to Section 151.3111.

As was the case regarding the refrigeration units, the requirement to 
refrigerate pizza ingredients prior to use appears to be related to public 
health and safety regulations, not the protection of the environment.  Claimant 
has failed to show by clear and convincing evidence that the repair of the fan 
motor was for the latter reason.

In regard to the claim that the preparation table qualifies as manufacturing 
equipment, Comptroller Decision No. 40,286 (2006) held that because Section 
151.318(c)(4) excludes from the exemption “machinery and equipment . . . used 
to maintain or store tangible personal property,” warmers and coolers that were 
not shown to be used in the actual manufacturing of food for sale were not 
exempt, even though their use was required by regulation to prevent growth of 
microorganisms and contamination.  Following that Decision, Claimant has failed 
to show that the refrigeration units of the preparation table were used in the 
actual manufacturing of the pizza, i.e., that they were “indispensable and 
integral to the compliance of the federal, state or local law established for 
public health” during the actual making of the pizza.  Accordingly, the refund 
was properly denied.

CLAIMANT’S THIRD CONTENTION:

Claimant’s third contention should be denied.

Claimant asserts that the COMPANY C invoice represented charges on a fixed-term 
operating lease entered into prior to the date of the invoice when the sales 
tax rate was lower.  

Once again, Claimant has failed to meet its burden to show that the improper 
tax rate was charged.  Without the original lease, there is no way to determine 
whether it was an operating lease, the date of its commencement, etc.  As a 
result, Claimant has failed to show that the tax was collected in error, and 
the refund was correctly denied.

RECOMMENDATION:

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

ROY G. SCUDDAY
Administrative Law Judge


Hearing No. 47,007

ORDER OF THE COMPTROLLER

The above decision is approved and adopted in all respects.  This decision 
becomes final twenty days after the date Claimant 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 Claimant 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 1st day of November 2007.


SUSAN COMBS
Texas Comptroller of Public Accounts

by: Martin A. Hubert
Deputy Comptroller




ACCESSION NUMBER: 200711046H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 11/01/2007
TAX TYPE: SALES
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