200904348H



SOAH DOCKET NO. 304-08-0352.26
CPA HEARING NO.  48,030

RE: **************
TAXPAYER NO.: **************
AUDIT OFFICE: **************
AUDIT PERIOD: June 1, 2001 THROUGH January 31, 2005

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

KARI HONEA
Representing Tax Division

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


COMPTROLLER’S DECISION

************** (“Petitioner”) seeks redetermination of a sales and use tax 
audit assessment made by the Texas Comptroller of Public Accounts 
(“Comptroller”).  Petitioner contends the audit tax assessment should be 
reduced, and that penalty and interest assessments should be waived.  
Comptroller Staff (“Staff”) reviewed resale certificates and documentation 
Petitioner presented and agreed to audit adjustments that reduce the tax 
assessment, but disagreements remain so the matter was referred to the State 
Office of Administrative Hearings (“SOAH”).  In his proposal for decision, the 
Administrative Law Judge (“ALJ”) recommends the audit be amended as agreed by 
Staff, that two additional audit assessments be adjusted, and that the 
remaining liability be upheld.

I.  PROCEDURAL HISTORY, NOTICE & JURISDICTION

There are no issues of notice or jurisdiction in this proceeding.  Therefore, 
these matters are set out in the Findings of Fact and Conclusions of Law 
without further discussion here.

The dispute was referred to SOAH for a decision based on the written 
submissions of the parties.  Petitioner was represented by **************.  
Staff was represented by Assistant General Counsel Kari Honea.  The record 
closed January 25, 2008.

II.  REASONS FOR DECISION

A. Background Facts

Petitioner has been audited for compliance with Texas sales and use tax laws on 
two occasions.  Both audits scheduled equipment transfers Petitioner made to 
affiliates as a “divergent use” of equipment Petitioner had purchased tax free 
based on the sale-for-resale exemption. [ENDNOTE: (1)]  Affiliates receiving 
the equipment obtained permanent possession, and tax assessments were based on 
the original purchase price of the equipment.  Petitioner’s first audit 
assessment was upheld by Comptroller’s Decision No. 42,142 (2005).

In some cases, when Petitioner made tax-free equipment purchases based on the 
sale-for-resale exemption it provided its vendors with a resale certificate.  
In other cases it issued an exemption certificate, and sometimes Petitioner did 
not issue any certificate at all.  After purchasing the equipment Petitioner 
leased it to affiliated companies, and remitted tax on the rental charges.  
Subsequently, Petitioner sold the equipment in direct sales to third parties 
and auctions, or transferred it to affiliated companies.

The current audit covers the period from June 1, 2001 through January 31, 2005, 
and the Comptroller assessed Petitioner with a tax liability of 
$**************, plus penalties and interest accrued as of January 17, 2006.  
After the audit was issued Petitioner asked for redetermination, and provided 
documentation (such as resale certificates, and federal income tax returns) to 
support an assessment reduction.  Staff reviewed the documentation, and agreed 
to remove certain transactions, and estimates the tax liability reduction is 
$**************. [ENDNOTE: (2)]

B. Evidence

Staff presented Petitioner’s prior audit, and its associated 
penalty-and-interest waiver worksheet and Texas Notification of Audit Results.  
Staff also presented the current audit report, and its associated audit plan, 
penalty-and-interest worksheet, and Texas Notification of Audit Results.  
Petitioner presented the following exhibits:

A. Spreadsheets listing disputed transactions;
B. Sales and use tax returns and associated work papers;
C. Accounting records related to audit Record ID No. 2949-22;
D.  Accounting records related to audit Record ID No. 2949-23;
E. Exemption certificates;
F.  Spreadsheet listing equipment purchase prices, and the affidavit of 
INDIVIDUAL A;
G.  Spreadsheet listing issued exemption certificates;
H. Fair Market Value Computations, and the affidavits of INDIVIDUAL B, and 
INDIVIDUAL C.

C. Contentions

Petitioner contends that the audit erroneously assesses tax on divergent use on 
36 equipment transfers it made to affiliated companies. [ENDNOTE: (3)] 
Alternatively, Petitioner contends that, if disputed equipment transfers are 
taxable as a divergent use, then tax should be based on established fair market 
rental values, not the original purchase price.

Additionally, Petitioner contends the taxability amounts for audit Record ID 
Nos. 2949-22 and -23 are incorrect.  Petitioner asserts taxable amounts for the 
transactions should be the amount employees paid Petitioner when they purchased 
the equipment, not Petitioner’s original purchase price.

Lastly, Petitioner contends the Comptroller should waive all penalty and 
interest assessments.

D. Authorities, Argument, and Analysis

1. Equipment Transfers

(a) No Resale Certificate Given

Petitioner contends that, since it did not actually give vendors a resale 
certificate, the 36 transfers at issue are not subject to the tax on divergent 
use assessments.  According to Petitioner, it issued an exemption certificate 
in eight of the contested transactions, and no certificate of any kind in the 
other 28 transactions.  Petitioner distinguishes the facts in this hearing from 
its first audit, because contested transactions in its first audit all involved 
transactions in which a resale certificate had been issued when the equipment 
was purchased tax free.

Staff first argues that Petitioner’s reading of Tax Code Section 151.154 is too 
restrictive, and states the reasonable reading of the statute is that the 
Legislature intended to impose tax consequences on purchasers who purchased a 
tax-free item, and then made a taxable use of the item.  Staff contends that is 
exactly what Petitioner did when it transferred its equipment to affiliates.  
According to Staff, Petitioner cannot avoid compliance with the divergent use 
statute by not issuing resale certificates.

A tax is imposed on each sale of a taxable item in this state. [ENDNOTE: (4)]  
A “sale” is a transfer of title or possession of tangible personal property 
when it is done for consideration. [ENDNOTE: (5)] Additionally, gross receipts 
of a seller are presumed taxable, unless the seller accepts a properly 
completed resale or exemption certificate. [ENDNOTE: (6)] Sales and use taxes 
are transactional taxes, and both the seller and purchaser can be held liable 
for the tax. [ENDNOTE: (7)]

A tax is imposed when a purchaser “who gives a resale certificate” makes a 
divergent use. [ENDNOTE: (8)]  A purchaser is also liable for divergent use if 
it “certifies in writing” that the item will be used in an exempt manner. 
[ENDNOTE: (9)] Or, as the Comptroller provides by rule, tax is due on divergent 
use by a purchaser who purchased an item “under a resale certificate” or “under 
a valid exemption certificate.” [ENDNOTE: (10)]

Petitioner’s interpretation follows the literal reading of the statute and 
rules.  However, the cardinal rule of statutory interpretation is that effect 
must be given to what the legislature intended. [ENDNOTE: (11)] Even when 
statutory language is unambiguous other factors may be considered to determine 
the legislative intent. [ENDNOTE: (12)] Importantly, the statute must be 
construed in context and as a whole, with an attempt to harmonize various 
provisions. [ENDNOTE: (13)]

When a seller is audited by the Comptroller it is required to provide a resale 
or exemption certificate to support tax-free sales, because the Tax Code 
presumes that all gross receipts of a seller are taxable unless the seller 
accepts a properly completed certificate. [ENDNOTE: (14)] A purchaser issues a 
resale or exemption certificate when claiming an exemption, however the 
purchaser is not legally required to maintain a copy of the certificate it 
issues.  “Failure on the purchaser’s part to give an exemption [certificate] at 
the time of purchase has never been considered a bar that would prevent the 
purchaser from showing that the purchase was in fact exempt.” [ENDNOTE: (15)]  
To require the issuance of a certificate to claim any statutory exemption would 
defeat the legislative intent behind the exemption.  The Comptroller’s 
long-standing policy has been to allow a purchaser to claim an exemption even 
without the issuance of a certificate, and that policy extends to Tax Code 
Section 151.154 and 151.155.

If a purchaser can claim an exemption, including the sale-for-resale exemption, 
without issuing a certificate, then it follows that the purchaser should be 
held liable for divergent use of a tax-free item.  The Comptroller’s policy 
treats similarly situated taxpayers equally, and is therefore reasonable.  
Accordingly, the fact that Petitioner did not issue a resale certificate when 
it made tax-free equipment purchases based on the sale-for-resale exemption 
does not prevent the Comptroller from assessing tax if Petitioner subsequently 
made a divergent use of the equipment.  Therefore, there is no material 
difference in equipment transfers assessed in Petitioner’s two audits.

An equipment transfer to an affiliated company without consideration is a 
divergent use of the equipment purchased by Petitioner.  Petitioner exercised a 
power incidental to ownership when it transferred the equipment without 
consideration.  The Comptroller has long considered giving tangible personal 
property away as a use of the property. [ENDNOTE: (16)]  That use is divergent 
from the exempt use (purchase for leasing) Petitioner claimed when it purchased 
the equipment tax free.  Therefore, the transfers are taxable under Tax Code 
Section 151.154, and Petitioner’s contention should be denied.

(b) Sales for Book Value

In its Statement of Grounds Petitioner asserted, alternatively, that the 36 
contested assessments were erroneous because they were sales for consideration 
with the taxable price being the book value of the equipment at the time of 
transfer.  Staff contends that, like transfers scheduled in Petitioner’s first 
audit, Petitioner never received cash, property, payables, or any other 
tangible interest from its affiliates.

Petitioner did not provide any evidence to show it received any consideration 
for the transfers.  Even if Petitioner recorded these transfers as sales based 
on book value there must be some evidence that Petitioner received 
consideration for a sale to have occurred.  Petitioner has not provided such 
evidence.  Bare assertions are insufficient to rebut the presumption of 
correctness afforded the audit. [ENDNOTE: (17)]  Therefore, Petitioner’s 
contention should be denied.

(c) Occasional Sales

Petitioner’s second alternative contention is that the equipment at issue is 
exempt from tax as occasional sales. [ENDNOTE: (18)] Other than making the 
assertion, Petitioner did not provide any argument or evidence to support this 
contention.  Therefore, Petitioner’s second alternative contention does not 
show audit error, and should be denied.

2. Fair Market Rental Value

Petitioner provided evidence to show that the fair market rental value for the 
equipment is 2.5% of the original purchase price per month, and contends that, 
if the equipment is subject to tax for divergent use, then the assessment 
should be based on the fair market rental value.  Petitioner also provided 
evidence to show that the tax it remitted on lease payments for the equipment 
at issue was substantial, and actually exceeded what would have been due on the 
original purchase price of the equipment. [ENDNOTE: (19)]

Staff counters by asserting that fair market rental value is an available 
option only when the divergent use is limited to a finite period of time.  
Staff contends there is no fair market rental value here, because Petitioner’s 
affiliates obtained permanent possession of the equipment.

Petitioner collected and remitted tax on the lease payments, but those payments 
represent different taxable transactions than the tax on divergent use at issue 
here.  When a person makes a divergent use of a taxable item, the person is 
liable for tax based either on the fair market rental value of the item during 
the period of divergent use or the original purchase price if no fair market 
rental value exists. [ENDNOTE: (20)]  Petitioner is liable for tax on divergent 
use, but tax is due on each divergent use and is not a one time event. 
[ENDNOTE: (21)]

Thus, if the divergent use is a reoccurring one, the amount of tax due based on 
fair market rental value may end up exceeding the amount that would have been 
due were the tax based on the original purchase price.  That is why the 
Legislature provided that, “at any time,” the person making the divergent use 
may cease paying tax on the fair market rental value and pay sales tax on the 
original purchase price, but there is no credit for taxes previously paid. 
[ENDNOTE: (22)]

When Petitioner transferred the equipment at issue to its affiliates it was a 
permanent transfer.  Under the statute, Petitioner may calculate tax for its 
divergent use based on the monthly fair market rental value of the equipment at 
issue, but the tax would be assessed each and every month the divergent use 
existed.  Thus, if that choice were made it would be a costly one.  By 
assessing tax on the original purchase price, Staff effectively assumed 
Petitioner would have chosen to cap the tax at the original purchase price. 
[ENDNOTE: (23)]  Therefore, Petitioner’s contention that the audit is erroneous 
should be rejected.

3. All Terrain Vehicles

Petitioner’s current audit also includes tax assessments on two transactions 
Petitioner completed with individual employees.  Specifically, Petitioner 
purchased two all terrain vehicles (or “4-wheelers”) and paid $************** 
for one, and $************** for the other.  It subsequently sold the vehicles 
to two of its employees.  The audit assesses tax on the transactions with the 
employees based on Petitioner’s original purchase prices.  Petitioner concedes 
the transactions are taxable sales, but contends the assessment should be based 
on $************** and $**************. [ENDNOTE: (24)] Staff denied the 
requested adjustment, because Petitioner did not provide invoices or cancelled 
checks.

Petitioner asserts these transactions were informal transactions with employees 
in which no formal invoice was issued, and presented copies of the general 
ledger entries for July 2002 to support its contention.

Petitioner’s evidence is sufficient to show the sale prices collected from the 
two employees.  The taxable amount for audit Record ID 2949-22 should be 
$**************.  The taxable amount for audit Record ID 2949-23 should be 
$**************.

4. Penalty Waiver

Petitioner acknowledges that the errors in its two audits are identical, and 
concern a single issue.  However, Petitioner notes that the initial Proposed 
Comptroller’s Decision for its first audit rejected Staff’s taxability 
arguments.  It was not until Staff filed exceptions, on February 21, 2003, that 
the argument was made that the transfers Petitioner made to its affiliates were 
subject to tax on divergent use pursuant to Tax Code Section 151.154.  Thus, 
divergent use was not even argued until all the transactions at issue had 
already occurred.  Additionally, Petitioner contends the underlying issue is a 
complex one.  Petitioner contends these factors support penalty waiver.

Staff disagrees, and contends Petitioner had notice that the transfers at issue 
were considered taxable when its first audit was issued on November 21, 2001; 
i.e., before any of the transactions at issue occurred.  Staff notes the 
overall error in Petitioner’s first audit was 22.86%.  The overall error rate 
for Petitioner’s current audit was initially calculated at 72.08%, and the 
primary error in both audits relates to the Petitioner’s failure to remit tax 
on the equipment transfers Petitioner made to its affiliates.  Additionally, 
Staff notes that Petitioner filed late returns for September 2001, November 
2003, March 2004, and April 2004.

Penalties are automatically imposed on delinquent sales taxes. [ENDNOTE: (25)]  
The Comptroller has the discretionary authority to waive penalties if a 
taxpayer has exercised reasonable diligence to comply with tax laws. [ENDNOTE: 
(26)  In making the reasonable diligence determination the Comptroller reviews 
audit error rate, [ENDNOTE: (27)] and the factors set forth in 34 TEX. ADMIN. 
CODE Section 3.5(c). [ENDNOTE: (28)]  Some factors are considered more 
important than others; [ENDNOTE: (29)] for example, the Comptroller does not 
exercise her discretion to waive penalty for periods for which reports are not 
timely filed because failure to timely file facially reflects a lack of 
reasonable diligence. [ENDNOTE: (30)]

Another factor that carries significant weight is whether a taxpayer has been 
audited previously, and if so, have previously identified errors been 
corrected. [ENDNOTE: (31)]  The Comptroller has consistently denied penalty 
waiver when a taxpayer’s audit shows the same or similar errors to those found 
in a prior audit, and the error rate shows that there has been no compliance 
improvement. [ENDNOTE: (32)]  However, when a number of factors must be 
considered, the Comptroller looks at the totality of the circumstances to 
determine whether a taxpayer has exercised reasonable diligence. [ENDNOTE: 
(33)]  Petitioner has the burden to prove, by a preponderance of the evidence, 
that an audit assessment is incorrect. [ENDNOTE: (34)]

Petitioner’s overall error in the current audit (which is 62.83% after 
accounting for Staff agreed reductions) is significantly higher than the 22.86% 
error rate in its first audit, and the primary error is the same in both.

It is true that the most recent equipment transfer scheduled in the audit was 
completed prior to the time Staff raised the tax on divergent use argument in 
the hearing on Petitioner’s first audit.  And it is also true that some of the 
issues presented by Tax Code Section 151.154 are complex.  However, the basic 
taxability issue is not.

When a taxpayer buys tangible personal property tax free, based on an 
exemption, and then subsequently uses the property in a divergent manner, tax 
is due.  That is not a particularly complex matter.  In Petitioner’s first 
audit, the equipment transfers were found to be taxable even though the 
ultimate outcome was on a different basis.  Either way though, tax was due, and 
Petitioner did not remit any when it made the transfers at issue in the current 
audit.

The ALJ concludes Petitioner did not meet the reasonable diligence standard and 
Staff’s denial of penalty waiver is justified.

5. Interest Waiver

Petitioner contends the current audit was delayed while the auditor waited for 
a final hearing decision on Petitioner’s first audit.  And, Petitioner asserts 
the final hearing decision on its first audit was delayed by the fact that 
Staff did not raise Tax Code Section 151.154 as an argument in Petitioner’s 
first audit until the exceptions stage to the initial proposed decision.  
Petitioner contends that this was an undue delay that entitles it to interest 
waiver for the period February 21, 2003 (the date Staff filed its exceptions) 
through June 8, 2005 (the date the final decision was issued).  Staff’s 
response is only that it did not cause any undue delay.

The Comptroller has set forth three limited circumstances in which she will 
exercise her discretionary authority for interest waiver, and they are:  (1) 
undue delay caused by Comptroller personnel; (2) reliance on advice provided by 
the Comptroller’s office; and (3) natural disaster. [ENDNOTE: (35)]

The Comptroller has held that Staff may alter its position on any issue at any 
time in the hearings process, until the rendition of a Comptroller’s Decision. 
[ENDNOTE: (36)] Staff timely filed exceptions in the hearing related to 
Petitioner’s first audit, and it would be inappropriate to effectively penalize 
them for doing what they are legally entitled to do.

Additionally, Petitioner is asking that interest assessments made against 
current audit assessments be waived, based on purported undue delay in events 
related to the first audit.  Therefore, for Petitioner to prevail it must 
connect the dots and show, with evidence, that the current audit was unduly 
delayed by Comptroller personnel, and then that the delay in first audit caused 
interest to accrue against assessments made in the current audit.

A review of the record shows Petitioner signed the current audit questionnaire 
on September 23, 2004.  The audit entrance conference was not held until May 
11, 2005.  And the audit plan shows the delay between the two events was 
because the auditor was waiting for a final hearing decision on Petitioner’s 
first audit.  The auditor’s decision to wait is understandable.  The record 
indicates 27 months passed before a final decision was issued after Staff filed 
exceptions on the initial Proposed Comptroller’s Decision.  However, Petitioner 
presented no evidence to show that the delay was unreasonable.  For instance, 
did Petitioner demand that the auditor complete the current audit or did it 
agree to wait for the outcome of the first?  The evidence is inconclusive, and 
Petitioner has the burden of proof.  Therefore, Petitioner failed to show undue 
delay, and Staff’s decision to deny interest waiver is justified.

III. FINDINGS OF FACT

1. The Texas Comptroller of Public Accounts (“Comptroller”) audited 
************** (“Petitioner”) for sales and use tax compliance for the period 
October 1, 1998 through May 31, 2001 (“the first audit”).  Equipment Petitioner 
purchased tax free utilizing the sale-for-resale exemption was assessed tax on 
divergent use when the equipment was transferred.  The assessments were based 
on the original purchase price.  Petitioner’s contention that no tax was due 
was denied in Comptroller’s Decision No. 42,124 (2005).

2. The Comptroller issued an audit related to Petitioner’s sales and use tax 
compliance for the period June 1, 2001 through January 31, 2005 (“the current 
audit”).  The Texas Notification of Audit Results was issued January 17, 2006, 
and assessed a tax liability of $**************, plus penalties and interest 
accrued as of the statement date.

3. Staff agreed, in its Position Letter, that Petitioner’s audit tax assessment 
should be reduced.  The estimated tax reduction is $**************.

4. In the current audit, equipment Petitioner purchased tax free was assessed 
tax on divergent use when it transferred the equipment to affiliates.  The tax 
assessment was based on the equipment’s original purchase price.

5. Petitioner requested redetermination of the current audit assessment.

6. On October 2, 2007, Comptroller Staff issued a Notice of Hearing to 
Petitioner.  The Notice of Hearing contained a statement of the 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.

7. The record closed on January 25, 2008, and a Proposal for Decision was 
prepared based on the written submissions of the parties.

8. Petitioner purchased equipment tax free by claiming an exemption, but did 
not issue resale certificates on all its purchases.

9. Thirty-six pieces of equipment Petitioner purchased tax free were 
subsequently transferred to affiliates.  Petitioner did not receive any 
consideration from its affiliates.

10. On July 15, 2002, Petitioner sold two all terrain vehicles to two different 
employees.  The sales are scheduled for tax as audit Record ID No. 2949-22 and 
-23.

11. Petitioner sold one all terrain vehicle for the sale price of 
$**************.  The transaction is scheduled at Record ID No. 2949-22.

12. Petitioner sold one all terrain vehicle for the sale price of 
$**************.  The transaction is scheduled at Record ID No. 2949-23.

13. Petitioner filed its return late for September 2001, November 2003, March 
2004, and April 2004.

14. Petitioner’s overall error rate, after accounting for Staff agreed 
adjustments, is 62.83%.

15. The primary error in both of Petitioner’s audits related to its failure to 
remit tax on equipment it transferred to affiliates.

16. Petitioner did not exercise reasonable diligence in complying with tax laws 
in the current audit.

17. Petitioner failed to provide evidence that it detrimentally relied on 
erroneous advice provided by a Comptroller employee.

18. Petitioner failed to provide evidence that it was in a natural disaster 
during the audit period.

19. The auditor decided to wait for the outcome of Petitioner’s redetermination 
hearing in the first audit.

20. Petitioner failed to provide evidence to show that the delay by the auditor 
was undue delay.

IV. CONCLUSIONS OF LAW

1. The Comptroller has jurisdiction over this matter pursuant to Tex. Tax Code 
ch. 111.

2. The State Office of Administrative Hearings has jurisdiction over matters 
related to the hearing in this matter, including the authority to issue a 
proposal for decision with findings of fact and conclusions of law pursuant to 
Tex. Gov’t Code ch. 2003.

3. The Comptroller provided proper and timely notice of the hearing pursuant to 
Tex. Gov’t Code ch. 2001.

4. If a purchaser who gives a resale certificate makes any use of the taxable 
item other than retention, demonstration, or display while holding it for sale 
in the regular course of business, the purchaser shall be liable for payment of 
the sales tax on the fair market rental value of the taxable item, or if there 
is no fair market rental value the original purchase price shall be the measure 
of tax.  TEX. TAX CODE Section 151.154.

5. Tax on divergent use is due when a purchaser buys an item based on an 
exemption, even if no actual certificate is issued.

6. Petitioner has the burden of proving, by a preponderance of the evidence, 
that the Comptroller’s assessment is erroneous.  34 TEX. ADMIN. CODE Section 
1.40(2)(B).

7. Sale tax is due on the sales price of tangible personal property sold.  TEX. 
TAX CODE Section 151.051.

8. Based on Finding of Fact Nos. 10 and 11, and Conclusion of Law No. 7, the 
taxable amount for audit Record ID No. 2949-22 should be reduced from 
$************** to $**************.

9. Based on Finding of Fact Nos. 10 and 12, and Conclusion of Law No. 7, the 
taxable amount for audit Record ID No. 2949-23 should be reduced from 
$************** to $**************.

10. Penalties and interest are imposed on delinquent tax.  TEX. TAX CODE ANN. 
Section 111.060 and 111.061.

11. The Comptroller waives penalties when there is a showing that the taxpayer 
acted with reasonable diligence to comply with tax laws.  TEX. TAX CODE Section 
111.103 and 34 TEX. ADMIN. CODE SECTION 3.5(c).

12. Based on Finding of Fact Nos. 13 - 16, and Conclusion of Law No. 11, Staff 
correctly refused to waive penalty.

13. The Comptroller waives interest when there is a showing of undue delay 
caused by Comptroller personnel, reliance on advice provided by the 
Comptroller’s office, or natural disaster.  34 TEX. ADMIN. CODE SECTION 3.5(d).

14. Based on Finding of Fact Nos. 17 - 20, and Conclusion of Law No. 11, Staff 
correctly refused to waive interest assessments.

15.  Other than adjustments agreed to by Staff (Finding of Fact No. 3), and two 
adjustments recommended by the ALJ (Conclusion of Law Nos. 8, and 9), 
Petitioner has not met its burden to show audit results are incorrect, and no 
further relief should be granted.

Hearing No. 48,030

ORDER OF THE COMPTROLLER

On February 13, 2008, the State Office of Administrative Hearings’ 
Administrative Law Judge (ALJ), Victor John Simonds, issued a Proposal for 
Decision in the above referenced matter to which Taxpayer filed Exceptions on 
March 31, 2008.  The Tax Division filed a Response on April 3, 2008.  The 
Comptroller has considered the Exceptions, Response, and the ALJ’s 
recommendation letter and determined that the ALJ’s PFD should be adopted as 
written.

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.  In addition, Attachment A reflects additional interest waiver made 
pursuant to 34 TEX. ADMIN. CODE Section 3.5(d), as a result of undue delay 
caused by Comptroller personnel in processing the decision.  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 23rd day of April 2009.


SUSAN COMBS
Texas Comptroller of Public Accounts

by: Martin A. Hubert
Deputy Comptroller

ENDNOTE(S):
(1) TEX. TAX CODE Section 151.302.
(2) See Tax Division’s Position Letter, dated November 6, 2006.
(3) See Exhibit A, Petitioner’s Reply to the Tax Division’s Position Letter, 
March 23, 2007.
(4) TEX. TAX CODE Section 151.051(a).
(5) TEX. TAX CODE Section 151.005.
(6) TEX. TAX CODE Section 151.054(a).
(7) Calvert v. Canteen Company, 371 S.W.2d 556 (Tex. 1963); and Bullock v. 
Foley Brothers Dry Goods, 802 S.W.2d 835 (Tex. App. - Austin 1990, writ 
denied).
(8) TEX. TAX CODE Section 151.154(a).
(9) TEX. TAX CODE Section 151.155(a).
(10) 34 TEX. ADMIN. CODE Section 3.285(e)(1) and 3.287(e)(1).
(11) Fleming Foods of Texas, Inc. v. Rylander, 6 S.W.3d 278 (Tex. 1999).
(12) USAA v. Strayhorn, 124 S.W.3d 722 (Tex. App. - Austin 2003, pet. denied).
(13) Fitzgerald v. Advanced Spine Fixation Sys., Inc., 996 S.W.2d 864 (Tex. 
1999); Helena Chem. Co. v. Wilkins, 47 S.W.3d 486 (Tex. 2001).
(14) TEX. TAX CODE Section 151.054(a).
(15) Comptroller’s Decision No. 11,964 (1982).  See also Comptroller’s Decision 
Nos. 29,172 (1993); and 18,940 (1987).
(16) Comptroller’s Decision No. 28,488 (1993).
(17) Comptroller’s Decision No. 45,496 (2006).  See also Baker v. Bullock, 529 
S.W.2d 279 (Tex. Civ. App.—Austin 1975, writ ref’d n.r.e.).
(18) TEX. TAX CODE Section 151.304.
(19) See Exhibit B, Petitioner’s Reply to the Tax Division’s Position Letter, 
March 23, 2007.
(20) TEX TAX CODE Section 151.154(b) and (c); and 151.155(b) and (c).  See also 
Comptroller’s Decision No. 42,124  (2005).
(21) State Tax Automated Research Accession No. 9906504L, June 23, 1999.
(22) TEX. TAX CODE Section 151.154(d).
(23) As was done in Petitioner’s first audit.  See Comptroller’s Decision No. 
42,142.
(24) Petitioner’s Statement of Grounds states the vehicles were sold for 
$************** and $**************.  The supportive accounting documentation 
Petitioner submitted supports those amounts.  Petitioner’s subsequent pleadings 
assert the vehicles were both sold for $**************.  The ALJ finds that the 
evidence does not support the latter assertion.
(25) TEX. TAX CODE Section 151.703 and 111.061. 
(26) TEX. TAX CODE Section 111.103.
(27) Comptroller’s Decision No. 43,615 (2005).
(28) The following factors are considered: (1) the taxpayer’s audit history; 
(2) the tax issues involved; (3) a change in Comptroller policy during the 
audit period; (4) size and sophistication of the taxpayer; (5) whether tax was 
collected and not remitted; (6) whether returns were timely filed; (7) 
completeness of records; (8) delinquencies in other taxes; and (9) reliance on 
advice provided by the Comptroller’s office which caused imposition of penalty.
(29) Comptroller’s Decision No. 29,960 (1994), and Comptroller’s Decision No. 
34,329 (1996).
(30) See Comptroller’s Decision No. 42,586 (2004) (citing to Comptroller’s 
Decision Nos. 29,537 (1993), 34,829 (1996), 36,644 (1998), 34,933 (1998), 
39,368 (2002) and 41,516 (2003)).
(31) Comptroller’s Decision No. 46,717 (2006), and Comptroller’s Decision No. 
43,615.
(32) Id.
(33) Comptroller’s Decision No. 46,377 (2006).
(34) 34 TEX. ADMIN. CODE Section 1.40(2)(B).
(35) 34 TEX. ADMIN. CODE Section 3.5(d).
(36) Comptroller’s Decision Nos. 42,142 (2005) and 25,060 (1990




ACCESSION NUMBER: 200904348H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 04/23/2009
TAX TYPE: SALES