200712099L



DATE:  December 13, 2007

TO:  Mike Reissig, Associate Deputy Comptroller

FROM:  Kevin Koller, Assistant Director of Tax Administration

SUBJECT:  Guidelines for Detrimental Reliance 

Detrimental reliance (which is equivalent to the doctrine of equitable 
estoppel) is not mandated by either state law or judicial decision. It was 
simply adopted by the Comptroller in order to promote fairness and justice in 
the agency's dealings with taxpayers. A review of the practices of other states 
indicates that the Texas Comptroller’s office is one of the most “taxpayer 
friendly” states in regard to this issue.  

The basic notion is that where the Comptroller's office by certain 
communications or conduct directed to a given taxpayer has induced that 
taxpayer to act in particular manner, the Comptroller should not later adopt a 
contrary position or course of conduct that will cause the taxpayer loss, harm, 
or detriment as the result of its reliance on the earlier Comptroller action.  
The four elements or conditions which a taxpayer must successfully meet in 
order to be able to successfully rely on the policy of "detrimental reliance" 
are as follows:

1) the information or advice is satisfactorily proven (both as to the substance 
thereof and its direct communication to the taxpayer), meaning that it usually 
must be in writing; 

2) the taxpayer followed it;

3) the taxpayer gave sufficient information to have resulted in correct advice 
and did not misrepresent information or deliberately withhold or conceal 
information which would affect the advice; and 

4) taxpayer has suffered, or will suffer, harm unless the Comptroller adheres 
to the advice. 

Both sellers and purchasers of taxable items can receive detrimental reliance.  
However, with very few exceptions, this office has not waived tax and only 
waived penalty and interest when a purchaser receives detrimental reliance.  
The rationale is that the taxpayer would have bought the item anyway and paid 
the tax – the difference or harm encountered in an audit assessment being 
limited to additional penalties and interest on the taxes due.  

The Taxpayer Advisory Group asked the Comptroller to revisit the issue of 
detrimental reliance for purchasers.  In the spirit of fairness on which the 
original policy was established, the Comptroller determined that the following 
broadened guidelines will be used where a taxpayer has proven detrimental 
reliance related to taxable purchases (expressly met first three tests):

(1) All penalties and interest will be waived.

(2) Tax will be waived on materials directly utilized and consumed in the 
performance of a service or sale of a product for an unrelated third party.

(3) Tax can only be waived for indirect materials or services when the taxpayer 
can prove that these items were used in computing prices or bids. 

(4) Tax on assets or tools directly used in the performance of services or 
sales may be partially exempted based upon their purchase dates and remaining 
life of the assets.  This is presuming that prices can be increased on future 
sales.  A taxpayer with a long term contract or fixed bid can substantiate a 
larger waiver.  For the purposes of computing the remaining life and value of 
an asset, the Comptroller will use a 48 month useful life and straight line 
depreciation.  The taxpayer cannot use other methods of valuation. 

(5) Special consideration for full waiver and possible ongoing waiver will be 
made if a taxpayer can prove that the advice of this office was used in a 
decision to locate facilities in Texas.

The taxpayer must affirmatively prove and provide records as requested by this 
office for any waiver discussed above.  No consideration can be made or value 
assigned for “harm” based upon reputations or credibility of the parties.




ACCESSION NUMBER: 200712099L
SUPERSEDED: N
DOCUMENT TYPE: L
DATE: 12/13/2007
TAX TYPE: SALES