Texas Comptroller of Public Accounts STAR System
SOAH DOCKET NO. 304-08-0352.26
CPA HEARING NO. 48,030
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
Texas Comptroller of Public Accounts
Representing Tax Division
************** (ďPetitionerĒ) seeks redetermination of a sales and use tax
audit assessment made by the Texas Comptroller of Public Accounts
(ďComptrollerĒ). Petitioner contends the audit tax assessment should be
reduced, and that penalty and interest assessments should be waived.
Comptroller Staff (ďStaffĒ) 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 (ďSOAHĒ). In his proposal for decision, the
Administrative Law Judge (ďALJĒ) 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 ďdivergent useĒ 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. Petitionerís first audit
assessment was upheld by Comptrollerís 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)]
Staff presented Petitionerís 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
G. Spreadsheet listing issued exemption certificates;
H. Fair Market Value Computations, and the affidavits of INDIVIDUAL B, and
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 Petitionerís original purchase price.
Lastly, Petitioner contends the Comptroller should waive all penalty and
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 Petitionerís 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 ďsaleĒ 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 ďwho gives a resale certificateĒ makes a
divergent use. [ENDNOTE: (8)] A purchaser is also liable for divergent use if
it ďcertifies in writingĒ 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 ďunder a resale certificateĒ or ďunder
a valid exemption certificate.Ē [ENDNOTE: (10)]
Petitionerís 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. ďFailure on the purchaserís 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.Ē [ENDNOTE: (15)]
To require the issuance of a certificate to claim any statutory exemption would
defeat the legislative intent behind the exemption. The Comptrollerís
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 Comptrollerís 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 Petitionerís 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 Petitionerís 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 Petitionerís 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, Petitionerís
contention should be denied.
(c) Occasional Sales
Petitionerís 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, Petitionerís 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 Petitionerís
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.
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, ďat any time,Ē 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.
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, Petitionerís contention that the audit is erroneous
should be rejected.
3. All Terrain Vehicles
Petitionerís current audit also includes tax assessments on two transactions
Petitioner completed with individual employees. Specifically, Petitioner
purchased two all terrain vehicles (or ď4-wheelersĒ) 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 Petitionerís 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
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.
Petitionerís 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
Comptrollerís Decision for its first audit rejected Staffís 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 Petitionerís first audit was 22.86%. The overall error rate
for Petitionerís current audit was initially calculated at 72.08%, and the
primary error in both audits relates to the Petitionerís 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 taxpayerís 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)]
Petitionerís 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 Petitionerís 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 Petitionerís 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
The ALJ concludes Petitioner did not meet the reasonable diligence standard and
Staffís 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 Petitionerís 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 Petitionerís
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). Staffís
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 Comptrollerís 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 Comptrollerís Decision.
[ENDNOTE: (36)] Staff timely filed exceptions in the hearing related to
Petitionerís 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 Petitionerís
first audit. The auditorís 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 Comptrollerís 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 Staffís decision to deny interest waiver is justified.
III. FINDINGS OF FACT
1. The Texas Comptroller of Public Accounts (ďComptrollerĒ) audited
************** (ďPetitionerĒ) for sales and use tax compliance for the period
October 1, 1998 through May 31, 2001 (ďthe first auditĒ). 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. Petitionerís contention that no tax was due
was denied in Comptrollerís Decision No. 42,124 (2005).
2. The Comptroller issued an audit related to Petitionerís sales and use tax
compliance for the period June 1, 2001 through January 31, 2005 (ďthe current
auditĒ). 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 Petitionerís 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 equipmentís 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
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. Petitionerís overall error rate, after accounting for Staff agreed
adjustments, is 62.83%.
15. The primary error in both of Petitionerís 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 Petitionerís 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
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. Govít Code ch. 2003.
3. The Comptroller provided proper and timely notice of the hearing pursuant to
Tex. Govít 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 Comptrollerís assessment is erroneous. 34 TEX. ADMIN. CODE Section
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
Comptrollerís 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 Hearingsí
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 ALJís
recommendation letter and determined that the ALJís PFD should be adopted as
The above decision resulting in Taxpayer's liability as set out in ďAttachment
A,Ē 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.
Texas Comptroller of Public Accounts
by: Martin A. Hubert
(1) TEX. TAX CODE Section 151.302.
(2) See Tax Divisionís Position Letter, dated November 6, 2006.
(3) See Exhibit A, Petitionerís Reply to the Tax Divisionís 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
(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) Comptrollerís Decision No. 11,964 (1982). See also Comptrollerís Decision
Nos. 29,172 (1993); and 18,940 (1987).
(16) Comptrollerís Decision No. 28,488 (1993).
(17) Comptrollerís Decision No. 45,496 (2006). See also Baker v. Bullock, 529
S.W.2d 279 (Tex. Civ. App.óAustin 1975, writ refíd n.r.e.).
(18) TEX. TAX CODE Section 151.304.
(19) See Exhibit B, Petitionerís Reply to the Tax Divisionís Position Letter,
March 23, 2007.
(20) TEX TAX CODE Section 151.154(b) and (c); and 151.155(b) and (c). See also
Comptrollerís 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 Petitionerís first audit. See Comptrollerís Decision No.
(24) Petitionerís Statement of Grounds states the vehicles were sold for
$************** and $**************. The supportive accounting documentation
Petitioner submitted supports those amounts. Petitionerís 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) Comptrollerís Decision No. 43,615 (2005).
(28) The following factors are considered: (1) the taxpayerís 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 Comptrollerís office which caused imposition of penalty.
(29) Comptrollerís Decision No. 29,960 (1994), and Comptrollerís Decision No.
(30) See Comptrollerís Decision No. 42,586 (2004) (citing to Comptrollerís
Decision Nos. 29,537 (1993), 34,829 (1996), 36,644 (1998), 34,933 (1998),
39,368 (2002) and 41,516 (2003)).
(31) Comptrollerís Decision No. 46,717 (2006), and Comptrollerís Decision No.
(33) Comptrollerís 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) Comptrollerís Decision Nos. 42,142 (2005) and 25,060 (1990
ACCESSION NUMBER: 200904348H
DOCUMENT TYPE: H
TAX TYPE: SALES