200901281H



SOAH DOCKET NO. 304-07-1833.26
CPA HEARING NO. 47,929

RE: **************
TAXPAYER NO.: **************
AUDIT OFFICE: Audit - **************
AUDIT PERIOD: January 1, 2001 THROUGH December 31, 2004

Limited Sales, Excise, And Use Tax/RDT

BEFORE THE COMPTROLLER 
OF PUBLIC ACCOUNTS 
OF THE STATE OF TEXAS

SUSAN COMBS
Texas Comptroller of Public Accounts

ROBIN ROBINSON
Representing Tax Division

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


COMPTROLLER’S DECISION

************** (Petitioner), requested a redetermination of the sales tax 
assessed against him by the Texas Comptroller of Public Accounts (TCPA). The 
Staff of the TCPA (Staff) filed a Motion for Summary Disposition, asserting 
that there is no genuine issue as to any material fact and that the TCPA is 
entitled to a decision in its favor as a matter of law. The Administrative Law 
Judge (ALJ) agrees with the Staff and grants the motion for summary 
disposition.

I. JURISDICTION, NOTICE, AND PROCEDURAL HISTORY 

There are no contested issues of notice, jurisdiction, or venue in this 
proceeding. Therefore, these matters are addressed in the findings of fact and 
conclusions of law without further discussion here. 

On December 13, 2005, the TCPA issued to Petitioner a Notification of Audit 
Results. Petitioner requested a redetermination of that Notification in a 
Statement of Grounds filed on January 12, 2006. In that Statement of Grounds 
Petitioner raised three contentions that have been combined and restated by 
Staff in two contentions.

On February 27, 2007, Staff issued a Notice of Hearing setting this case before 
the State Office of Administrative Hearings (SOAH) for an oral hearing on March 
26, 2007. On February 28, 2007, Staff filed a Motion for Summary Disposition 
pursuant to 1 TEXAS ADMIN. CODE (TAC) 155.57, serving a copy on Petitioner’s 
attorney of record, **************. Petitioner did not file a response. Staff’s 
Motion for Summary Disposition was considered without a hearing.

II. REASONS FOR DECISION

A. Contentions

1. Petitioner contends that photography charges purchased for his magazine 
should not be scheduled in Exam 201-Manufacturing Purchases of the Audit 
because they are nontaxable, the same as writer’s fees.

2. Petitioner contends that his prior refund should not have been disallowed in 
Exam 203 of the audit because 151.051 and 151.320 of the Tax Code (Code) and 34 
TAC 3.299 are unconstitutional.

B. Legal Standards

Code 151.051 imposes a state sales tax on the sale of a taxable item in this 
state. Code 151.010 includes tangible personal property in the definition of 
“taxable item.” Code 151.320 provides that subscriptions to magazines “that are 
sold for a semiannual or longer period and are entered as second class mail are 
exempted” from sales tax. TCPA rule found at 34 TAC 3.299 tracks Code 151.320, 
changing the term “second class mail” to the currently accurate “periodicals 
class mail.”

According to the Rules of Practice and Procedure of the SOAH [ENDNOTE: (1)] an 
ALJ may issue a proposal for decision by summary disposition “if the pleadings, 
affidavits, materials obtained by discovery, admissions, matters officially 
noticed, stipulations, or evidence of record show there is no genuine issue as 
to any material fact and that a party is entitled to a decision as a matter of 
law.”

C. Facts Established by Documentary Evidence [ENDNOTE: (2)]

Petitioner publishes a monthly magazine, **************. Seventy percent of 
Petitioner’s magazines go to free subscribers, and 30% are paid subscriptions. 
Petitioner was audited for sales tax compliance for the period of January 1, 
2001, through December 31, 2004. The TCPA issued a Notification of Audit 
Results on December 13, 2005, in the amount of $**************, including tax, 
and interest. Included in Exam 201 of the audit were 70% of photography 
purchases made by Petitioner on which no sales tax was paid. Further, Exam 203 
of the audit was the scheduling of 70% of a sales tax refund received by 
Petitioner in 2001 for sales tax paid on printing charges. 

D. Analysis

The sale of photography services has long been treated as the taxable sale of 
tangible personal property, not the performance of a nontaxable service. 34 TAC 
3.312(a); State Tax Automated Research System (STAR) Accession No. 200104173L 
[ENDNOTE: (3)]; Comptroller Decision No. 30,720 (1994). As a result, the 
purchase by Petitioner of the photography services was taxable as a matter of 
law.

The essence of the sale of printing services is the sale of tangible personal 
property. Comptroller Decision No. 27,942 (1993). Code 151.318(a) exempts from 
sales tax tangible personal property used or consumed in or during the actual 
manufacturing of tangible personal property for ultimate sale. Code 151.320 
exempts from sales tax the sales of magazines that are sold for a semiannual or 
longer period. Petitioner only had paid subscriptions for 30% of its magazine 
distributions. As a result, 70% of the printing services it purchased were not 
used in the manufacturing of magazines that were sold, and sales tax was due on 
those services. For that reason, the refund was only valid for 30% of the sales 
tax paid on the printing services. 

As for the contention regarding the constitutionality of the statutes as they 
affect the refund, in administering the tax laws, an agency may not determine 
the constitutionality of a statute. Texas State Board of Pharmacy v. Walgreen 
Texas Co., 520 S.W. 2d 845 (Tex. Civ. App. – Austin 1975, writ ref’d n.r.e.). 
Petitioner raises a clear challenge to the statutes as enacted by the 
Legislature, and this issue cannot be decided in an administrative proceeding. 

III. CONCLUSION

The TCPA is entitled to summary disposition of this case as there are no 
material issues of fact in dispute. Photography charges are taxable as the sale 
of tangible personal property, and subject to sales tax. Printing charges used 
in magazines that are not sold are subject to sales tax. The constitutionality 
of statutes cannot be determined in an administrative proceeding. As a result, 
the assessment should be upheld in its entirety.

V. FINDINGS OF FACT

1. ************** (Petitioner) publishes a monthly magazine, **************.

2. Petitioner was audited for sales tax compliance for the period of January 1, 
2001, through December 31, 2004. Included in Exam 201 of the audit were 70% of 
photography purchases made by Petitioner on which no sales tax was paid. Exam 
203 of the audit scheduled 70% of a sales tax refund received by Petitioner in 
2001 for sales tax paid on printing charges.

3. On December 13, 2005, the Texas Comptroller of Public Accounts (TCPA) issued 
to Petitioner a Notification of Audit Results, in the amount of 
$**************, including tax, and interest. Petitioner timely requested 
redetermination of the audit liability.

4. On February 27, 2007, the TCPA issued a Notice of Hearing setting this case 
before the State Office of Administrative Hearings (SOAH) in an oral hearing on 
March 26, 2007.

5. The notice of hearing contained a statement of the time, place, and nature 
of the hearing; a statement of the legal authority and jurisdiction under which 
the hearing was to be held; a reference to the particular sections of the 
statutes and rules involved; and a short, plain statement of the matters 
asserted.

6. On February 28, 2007, the Staff of the TCPA (Staff) filed a motion for 
Summary Disposition pursuant to SOAH Rule 155.57. Petitioner did not file a 
response to the Motion.

7. Seventy percent of Petitioner’s magazines were distributed to subscribers 
for no charge.

8. Petitioner purchased photography services for which he did not pay sales 
tax.

9. Petitioner secured a refund in 2001 of 100% of the sales taxes he paid for 
printing services.

V. CONCLUSIONS OF LAW

1. The Texas Comptroller of Public Accounts of the State of Texas had 
jurisdiction of this matter under TEX. TAX CODE ANN. chs. 111 and 151.

2. The State Office of Administrative Hearings has jurisdiction over all 
matters relating to conducting a hearing in this proceeding, including the 
preparation of a proposal for decision with findings of fact and conclusions of 
law, pursuant to TEX. GOV’T CODE ANN. ch. 2003.

3. Petitioner received proper and timely notice on the proceedings and hearing, 
pursuant to TEX. GOV’T CODE ANN. 2001.051 and 2001.052.

4. The sale of photography services is the taxable sale of tangible personal 
property pursuant to 34 TAC 3.312(a).

5. The essence of the sale of printing services is the sale of tangible 
personal property. Comptroller Decision No. 27,942 (1993).

6. An agency may not determine the constitutionality of a statute. Texas State 
Board of Pharmacy v. Walgreen Texas Co., 520 S.W. 2d 845 (Tex. Civ. App. — 
Austin 1975, writ ref’d n.r.c.).

7. Based on the foregoing Findings of Fact and Conclusions of Law, Petitioner’s 
request for audit adjustments and relief should be denied.


Hearing No. 47,929

ORDER OF THE COMPTROLLER

On March 30, 2007, the State Office of Administrative Hearings’ Administrative 
Law Judge, Roy G. Scudday, issued a Proposal for Decision in the above 
referenced matter to which Petitioner filed Exceptions on April 16, 2007. The 
Tax Division filed a Response on April 18, 2007. On April 19, 2007, the 
Administrative Law Judge issued a letter recommending no changes to the 
Proposal for Decision. The Comptroller has considered the Exceptions, the 
Response and ALJ’s recommendation letter and determined that the ALJ’s 
decision, including the decision on exceptions, should be adopted without 
change and this decision represents the ruling thereon.

The above decision resulting in Taxpayer's liability as set out in “Attachment 
A,” which is incorporated by reference, is approved and adopted in all 
respects. The decision becomes final twenty days after the date Petitioner 
receives notice of this decision, and the total sum of the tax, penalty, and 
interest amounts is due and payable within twenty days thereafter. If such sum 
is not paid within such time, an additional penalty of ten percent of the taxes 
due will accrue, and interest will continue to accrue. 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 14th day of January 2009.


SUSAN COMBS
Texas Comptroller of Public Accounts

by: Martin A. Hubert
Deputy Comptroller


ENDNOTE(S):

(1) 1 TAC 155.57

(2) The facts are not in dispute.  These factual matters are taken from the 
Audit, Audit Plan, Position Letter, and Motion for Summary Disposition.

(3) Texas Comptroller of Public Accounts (TCPA) State Tax Automated Research 
System (STAR) HomePage.  30 March 2007 
http://cpastar2.cpa.state.tx.us/index.html. 




ACCESSION NUMBER: 200901281H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 01/14/2009
TAX TYPE: SALES