200904384H



SOAH DOCKET NO. 304-07-2331.73
CPA HEARING NO.  47,683

RE: **************
TAXPAYER NO.: **************
AUDIT OFFICE: Revenue Accounting -  Advanced Collections  Processing
AUDIT PERIOD: January 1, 2001 THROUGH November 30, 2004

Mixed Beverage Gross Receipts Tax/RDT

BEFORE THE COMPTROLLER 
OF PUBLIC ACCOUNTS 
OF THE STATE OF TEXAS

SUSAN COMBS
Texas Comptroller of Public Accounts

TREVOR MOORE
Representing Tax Division

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


COMPTROLLER’S DECISION

************** (Petitioner) requested a redetermination of the mixed beverage 
gross receipts tax assessed against it by the Texas Comptroller of Public 
Accounts (TCPA).  The Staff of the TCPA (Staff) responded that the assessment 
should not be adjusted.  After considering the evidence and argument presented 
at hearing, the Administrative Law Judge (ALJ) recommends that the liability be 
dismissed.

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 January 25, 2006, the TCPA issued to Petitioner a Notice of Tax/Fee Due as a 
successor of COMPANY A.  On February 3, 2006, Petitioner requested a 
redetermination of the assessment.  Petitioner raised one contention.

On April 2, 2007, Staff issued a Notice of Filing [ENDNOTE: (1)] referring this 
case to the State Office of Administrative Hearings (SOAH) for hearing on 
written submission.  On April 17, 2007, the ALJ issued a Scheduling Order 
setting the record closing date for May 14, 2007.  Staff was represented by 
Trevor Moore, Assistant General Counsel.  Petitioner was represented by 
attorney **************.  The record closed on that date. 

II.  REASONS FOR DECISION

A. Contention

Petitioner contends that it is not liable for the tax liability of 
**************. (COMPANY A), in that there was no fraudulent transfer of the 
assets of COMPANY A to Petitioner.

B. Legal Standards

Tax Code Section 183.021 (Code) imposes a mixed beverage gross receipts tax in 
this state.  Code Section 111.024(a) provides that a person who acquires a 
business or the assets of a business from a taxpayer through a fraudulent 
transfer or a sham transaction is liable for any tax, penalty, and interest 
owed by the taxpayer.

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

COMPANY A was incorporated on January 8, 1987, and its named directors were 
INDIVIDUAL A, INDIVIDUAL B, and INDIVIDUAL C.  In 1987, COMPANY A issued 52,000 
shares to INDIVIDUAL C, and 24,000 shares each to his sons INDIVIDUAL A and 
INDIVIDUAL B.  INDIVIDUAL C was elected president, INDIVIDUAL A was elected 
vice-president, and INDIVIDUAL B was elected secretary-treasurer.  On February 
17, 1990, INDIVIDUAL C resigned as director and president of COMPANY A, and 
transferred 24,000 shares to each of his sons, retaining 4,000 shares.  
INDIVIDUAL A was elected president, and INDIVIDUAL B was elected 
vice-president/secretary/treasurer.  On March 13, 2002, INDIVIDUAL C 
transferred his remaining 4,000 shares of COMPANY A equally to each of his 
sons.  On that same date, INDIVIDUAL B was elected president/treasurer, and 
INDIVIDUAL A was elected vice-president/secretary.  On November 18, 2003 
INDIVIDUAL A resigned as a director of COMPANY A and transferred his 50,000 
shares to INDIVIDUAL B, who was now the sole officer, director, and shareholder 
of COMPANY A. 

************** (Petitioner) was incorporated on December 31, 1996.  
Petitioner’s Franchise Tax Public Information Report beginning May 11, 2000 
named INDIVIDUAL C as the sole officer and director.  

On November 26, 2004 INDIVIDUAL A as owner issued a Notice of Termination of 
Tenancy to COMPANY A, terminating the lease at **************, and revoking the 
right of COMPANY A to use the name “COMPANY B.”  On November 30, 2004, a Notice 
of Eviction was issued to COMPANY A.  In December 2004 INDIVIDUAL A entered 
into a lease with Petitioner, but the lease does not include a description of 
the leased premises or the fixtures and equipment included therein.  However, 
Petitioner did begin operating a Bring Your Own Bottle club known as the 
COMPANY C in the same location as COMPANY A had operated its club, using the 
tables and chairs that were the property of INDIVIDUAL A, the building owner.

COMPANY A was audited for mixed beverage gross receipts tax compliance for the 
period of January 1, 2001 through November 30, 2004.  The audit resulted in a 
liability in the amount of $************** including tax, interest, and 
penalty.  The auditor held an exit conference with INDIVIDUAL B on October 22, 
2004 to discuss the audit findings.  The audit liability against COMPANY A 
became final on February 28, 2005.  The Comptroller assessed Petitioner, as 
transferee from COMPANY A pursuant to a fraudulent transfer, in a Notice of 
Tax/Fee Due dated January 25, 2006 the amount of $**************, including 
tax, penalty, and interest.  Petitioner timely requested a redetermination 
hearing.

D. Analysis

A person who acquires a business or the assets of a business from a taxpayer 
through a fraudulent transfer or sham transaction is liable for any tax, 
penalty, and interest owed by the taxpayer.  A transfer of a business or the 
assets of a business is considered fraudulent or a sham transaction if the 
transfer was made with the intent to evade, hinder, delay or prevent the 
collection of a state tax, or without receiving reasonably equivalent value in 
exchange for the transfer. [ENDNOTE: (3)]  As grounds for the assessment 
against Petitioner, Staff argues that the transfer was for the purpose of 
evading state taxes, and that no consideration was received for the transfer.

In determining whether the transfer was made with the intent to evade, hinder, 
delay, or prevent the collection of tax, Code Section 111.024(c) states that 
consideration may be given, among other factors, to whether: 

(1) the transfer was to a current or former business insider, associate, or 
employee of the taxpayer or to a person related to the taxpayer within the 
third degree of consanguinity by blood or marriage;

(2) the transfer was to a third party who subsequently transferred the business 
or assets of the business to a current or former business insider, associate, 
or employee of the taxpayer or to a person related to the taxpayer within the 
third degree of consanguinity by blood or marriage;

(3) the taxpayer retained possession or control of the business or the assets 
of the business after the transfer or transaction;

(4) the taxpayer’s business and the transferee’s business are essentially 
operated as a single business entity at the same location;

(5) before the transfer or the transaction occurred, the taxpayer had either 
been subjected to or apprised of impending collection action by the comptroller 
or by the attorney general;

(6) the transfer or transaction was concealed;

(7) the taxpayer was insolvent at the time of the transfer or became insolvent 
not later than the 31st day after the date the transfer or transaction 
occurred; or

(8) the transfer or transaction involved all or substantially all of the 
taxpayer’s assets.

Staff argues that the transfer from COMPANY A to Petitioner meets the criteria 
set forth in Code Section 111.024(c).  Petitioner’s sole officer is INDIVIDUAL 
C, a former officer and shareholder of COMPANY A, and the father of INDIVIDUAL 
B, the sole officer and shareholder of COMPANY A at the time of the audit.  
Staff asserts that the club was transferred from COMPANY A to Petitioner and 
operated in the building owned by INDIVIDUAL A, also a former officer and 
shareholder of COMPANY A, and son of INDIVIDUAL C and brother of INDIVIDUAL B.  
The name and location of the club have remained the same.  COMPANY A knew of 
the audit at the time of the transfer to Petitioner.  Staff alleges that the 
transfer of the club from COMPANY A to Petitioner was concealed from the TCPA 
to evade the payment of the tax, that all or substantially all of the assets of 
COMPANY A were transferred to Petitioner, and that no consideration was given 
for the business.

Petitioner responds that there was no transfer from COMPANY A to Petitioner.  
COMPANY A was evicted from the building for nonpayment of rent, the tables and 
chairs as well as the name “COMPANY B” were owned by the building owner, and 
those assets were transferred under a lease to Petitioner from the building 
owner, INDIVIDUAL A.

Because Code Section 111.024 is an imposition statute, the burden of proof is 
on Staff to make a prima facie case showing that the transfer was made with the 
intent to evade, hinder, delay, or prevent the collection of a state tax.  
Comptroller’s Decision Nos. 44,886 and 44,890 (2005).  Staff has failed to make 
such a case.

As argued by Petitioner there is no evidence of a transfer from COMPANY A to 
Petitioner.  Rather, this case concerns a family argument that resulted in the 
eviction of COMPANY A from the building and the new operation of a club with 
the same name of the corporation of the father.  Clearly there is a 
relationship between the principals of the corporations, and COMPANY A knew 
about the audit liability.  However, there is no evidence that COMPANY A 
retained possession or control of the business or assets, that COMPANY A’s 
business and Petitioner’s business were operated as a single business entity, 
that the transaction was concealed, that COMPANY A was insolvent, or that the 
transaction involved the transfer of any of the assets of COMPANY A.

As seen from the foregoing discussion, most of the factors enumerated in the 
statute have not been shown to support the Staff’s case, and the factors that 
have been established do not, under the circumstances of this case, prove fraud 
or an intent to evade the tax.  See, Comptroller Decision No. 44,506/44,507 
(2006).  The audit had been conducted prior to COMPANY A’s eviction, but there 
is no evidence that Petitioner acted from any motive other than to take 
advantage of a vacancy to operate the club.  Families, just as any other 
business associates, can have a falling out, and the fact that one family 
member steps into a vacuum caused by that falling out is not, without more 
evidence, sufficient to find that a transfer occurred, much less that it was a 
fraudulent transfer.

III.  CONCLUSION

The assessment against Petitioner should be dismissed.

IV.  FINDINGS OF FACT

1. ************** (COMPANY A) operated the COMPANY B at **************, CITY A, 
Texas.

2. COMPANY A was audited for mixed beverage gross receipts tax compliance for 
the period of January 1, 2001, through November 30, 2004. 

3. On February 28, 2005, the audit liability assessed by the Texas Comptroller 
of Public Accounts (TCPA) against COMPANY A, in the amount of $**************, 
including tax, penalty, and interest, became final.

4. On January 25, 2006, the TCPA issued to ************** (Petitioner) a Notice 
of Tax/Fee Due, in the amount of $**************, including tax, penalty, and 
interest, for the liability of COMPANY A.

5. On April 2, 2007, the TCPA issued a Notice of Filing of this case before the 
State Office of Administrative Hearings (SOAH) for a written submission 
hearing.  Pursuant to a Scheduling Order issued by the Administrative Law Judge 
on April 17, 2007, the record closed on May 14, 2007.

6. The notice of filing 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. COMPANY A was incorporated on January 8, 1987, and its named officers, 
directors, and shareholders were INDIVIDUAL C and his sons INDIVIDUAL A, 
INDIVIDUAL B.

8. On February 17, 1990, INDIVIDUAL C resigned as director and president of 
COMPANY A, and transferred 24,000 of his shares in COMPANY A to each of his 
sons, retaining 4,000 shares.  On March 13, 2002, INDIVIDUAL C transferred 
2,000 shares in COMPANY A to each of his sons.

9. On November 18, 2003 INDIVIDUAL A resigned as a director of COMPANY A and 
transferred his 50,000 shares to INDIVIDUAL B, who was now the sole officer, 
director, and shareholder of COMPANY A. 

10. COMPANY A leased space in the building at ************** from INDIVIDUAL A, 
the owner of the building, where COMPANY A operated the COMPANY B.  On November 
26, 2004, INDIVIDUAL A issued a Notice of Termination of Tenancy to COMPANY A, 
and revoked the right of COMPANY A to use the name “COMPANY B.”  On November 
30, 2004, a Notice of Eviction was issued to COMPANY A. 

11. Petitioner was incorporated on December 31, 1996, and its sole officer, 
director, and shareholder was INDIVIDUAL C.

12. In December 2004, INDIVIDUAL A entered into a lease with Petitioner in the 
space vacated by COMPANY A.  Petitioner proceeded to begin operating a Bring 
Your Own Bottle club known as the COMPANY C, using the tables and chairs that 
were the property of INDIVIDUAL A, the building owner.

13. COMPANY A did not retain possession or control of the COMPANY B after 
Petitioner began operating it.

14. COMPANY A’s business and Petitioner’s business are not operated as a single 
business entity at the same location.

15. There was no transfer of the assets or business from COMPANY A to 
Petitioner.

V.  CONCLUSIONS OF LAW

1. The TCPA had jurisdiction of this matter under Tex. Tax Code Ann. chs. 111, 
151, and 171.

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 of the proceedings and hearing, 
pursuant to Tex. Gov’t Code Ann. Section 2001.051 and 2001.052.

4. Staff has the burden to prove by a preponderance of the evidence that the 
imposition of tax was correct. 

5. Staff failed to prove by a preponderance of the evidence that COMPANY A 
transferred a business or the assets of a business to Petitioner with the 
intent to evade, hinder, delay, or prevent the collection of mixed beverage 
gross receipts tax.

6. Based on the foregoing Findings of Fact and Conclusions of Law, Petitioner’s 
liability should be dismissed.


Hearing No. 47,683

ORDER OF THE COMPTROLLER

On May 17, 2007, the State Office of Administrative Hearings’ (SOAH) 
Administrative Law Judge, Roy G. Scudday, issued a Proposal for Decision in the 
above referenced matter.  The parties were given fifteen days from the date of 
the Decision to file exceptions with SOAH.  No exceptions were filed, and the 
Comptroller has determined that the Administrative Law Judge’s Proposal for 
Decision should be adopted with one technical correction.  Accordingly, the 
decision has been modified in accordance with Texas Government Code Section 
2003.101 as follows:

- The Conclusions of Law, beginning with the second Conclusion of Law No. 4, 
have been renumbered as Conclusion of Law No. 5 and Conclusion of Law No. 6.

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.  This decision becomes final twenty days after the date Petitioner 
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 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 2nd day of April 2009.


SUSAN COMBS
Texas Comptroller of Public Accounts

by: Martin A. Hubert
Deputy Comptroller


ENDNOTE(S):
(1) The Notice of Filing is the same as a Notice of Hearing.
(2) The facts are not in dispute.  These factual matters are taken from the 
Request for Fraudulent Business Transfer Setup, Notice of Tax/Fee Due, Tax 
Division’s Response to Reply to Position Letter and Attachments, Petitioner’s 
Supporting Declaration for Response to Position Letter and Attachments, and Tax 
Division’s Response to the Supporting Declaration for Response to Position 
Letter and Attachments.
(3) TEXAS TAX CODE ANN. Section 111.024(a).




ACCESSION NUMBER: 200904384H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 04/02/2009
TAX TYPE: BEVERAGE