Texas Comptroller of Public Accounts STAR System
SOAH DOCKET NO. 304-10-2699.75
CPA HEARING NO. 101,635
TAXPAYER NO.: **************
AUDIT OFFICE: **************
AUDIT PERIOD: January 1, 2004 THROUGH September 30, 2007
Hotel Occupancy Tax/RDT
BEFORE THE COMPTROLLER
OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS
Texas Comptroller of Public Accounts
Representing Tax Division
The Texas Comptroller of Public Accounts (Comptroller) audited **************
(Petitioner) for hotel occupancy tax compliance and assessed a tax deficiency.
Petitioner requested redetermination contending that the estimated audit
overstated the actual tax and that the assessment should be determined from his
bank records. Comptroller Staff (Staff) takes the position that the bank
records cannot be verified for completeness and that the estimated audit was
based on the best information available. In his Proposal for Decision, the
Administrative Law Judge (ALJ) recommends no changes to the audit because
Petitioner has not shown by a preponderance of the evidence that the audit is
I. PROCEDURAL HISTORY, NOTICE & JURISDICTION
Staff referred the case to the State Office of Administrative Hearings for
hearing based on the written submissions of the parties. There are no
contested issues of notice or jurisdiction in this proceeding. Therefore,
those matters are set out in the Findings of Fact and Conclusions of Law
without further discussion here.
Claimant was represented by ************** of the **************. The
Comptroller was represented by Assistant General Counsel Stanley Coppinger.
The record closed on March 22, 2010, by order of ALJ Alvin Stoll.
II. REASONS FOR DECISION
A. Evidence Submitted
Staff submitted the administrative record that included the audit schedules,
Record of Audit Planning, Activities and Audit Results, Penalty and Interest
Worksheet, a Texas Notification of Audit Results, and the examining auditor’s
pre-hearing comments. Staff also submitted the pleadings of the parties while
the case was pending before the Comptroller. As attachments to a request for
hearing form, Petitioner submitted: (1) Petitioner’s federal income tax returns
for 2004 through 2007; (2) bank statements for accounts with BANK A and BANK B
for various periods from January 2004 through January 2007; (3) four hotel
guest registration slips; (4) eight promissory notes; (5) several bank
statements for a trust account with BANK C; and (6) a .pdf file labeled “Monies
B. Background and Issues Presented
During an audit period of January 1, 2004, through September 30, 2007,
Petitioner operated a motel under the name MOTEL A in CITY A, Texas. The
examining auditor determined during initial field work that the only available
records were 2004, 2005, 2006, federal income tax returns, some bank
statements, and customer questionnaires. There were no detailed or summary
reports to support reported taxable receipts. Because Petitioner did not
maintain the records for a detailed or sampled audit in compliance with
Comptroller policy, estimation techniques were used. Petitioner’s motel had 16
available rooms. An average nightly room rental of $************** was taken
from rates stated on customer questionnaires. The average occupancy rate was
taken from HOTEL A Reports for the CITY A area during the audit period.
[ENDNOTE: (1)] Estimated total taxable receipts were estimated from the
formula: average room rate times number of rooms available times occupancy rate
equals estimated revenue. Credit was given for reported taxable receipts, and
tax was assessed on the difference at the hotel occupancy tax rate of six
percent. [ENDNOTE: (2)] Tax, penalty, and interest was assessed by Texas
Notification of Audit Results dated April 16, 2008.
On redetermination Petitioner contends that the audit should be based on the
bank statements, loan documentation, and partner distribution documents. Staff
in its Position Letter responded that the bank deposit records could not be
verified for accuracy. Monthly deposits did not match the summary records that
Petitioner did have, and they did not correspond to the monthly debits and
checks. Petitioner accepted only cash from the customers and there were no
internal controls to verify that all receipts were deposited. [ENDNOTE: (3)]
Staff took the position that the bank records were not reliable and that the
information used in the estimated audit was the best information available. In
response to the Position Letter, Petitioner submitted additional records and
documents. Petitioner did not explain the documents or show how they supported
an alternate audit method. Accordingly, Staff in its most recent filing
recommended that the estimated audit be affirmed without change.
C. Analysis and Recommendations
The hotel occupancy tax is imposed at the rate of six percent of the price paid
for a room in a hotel. The person owning, operating, managing, or controlling
a hotel is required to collect and remit the tax to the state. TEX. TAX CODE
ANN. Section 156.052 and 156.053. The Comptroller is given access to the books
and records of a hotel owner or operator to determine the correctness of a
report or the amount of taxes due. TEX. TAX CODE ANN. Section 156.152. When
taxpayer records are incomplete the Comptroller may base an audit on the best
records that are available. TEX. TAX CODE ANN. Section 111.0042, 111.0043, and
111.008. The audit records submitted by Staff indicate that the audit was
conducted in compliance with the Comptroller’s auditing procedures and that it
is entitled to a presumption of correctness. Petitioner therefore bears the
burden of proof to establish that the audit is not based on the best
information available or is otherwise in error. 34 TEX. ADMIN. CODE Section
1.40(2)(B). The records that Petitioner submitted do not provide a basis for
an alternate computation of taxable receipts. Petitioner has not met the
required burden of proof and consequently no changes to the audit can be
III. FINDINGS OF FACT
1. ************** (Petitioner) was audited by the Texas Comptroller of Public
Accounts (Comptroller) for hotel occupancy tax compliance for the period
January 1, 2004, through September 30, 2007, and assessed a tax deficiency.
2. Petitioner timely requested a redetermination.
3. On February 18, 2010, Comptroller Staff (Staff) referred the case to the
State Office of Administrative Hearings. Staff issued a Notice of Filing to
Petitioner on the same day.
4. 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.
5. The audit was estimated based on the number of rooms in Petitioner’s hotel,
an average room rental taken from customer questionnaires, and a regional
average occupancy rate.
6. On redetermination, Petitioner submitted; (1) Petitioner’s federal income
tax returns for 2004 through 2007; (2) bank statements for accounts with BANK A
and BANK B for various periods from January 2004 through January 2007; (3) four
hotel guest registration slips; (4) eight promissory notes; (5) several bank
statements for a trust account with BANK C; and (6)a .pdf file labeled “Monies
7. The information Petitioner submitted was not supported by source documents
or summary records and could not be verified for accuracy and completeness.
IV. CONCLUSIONS OF LAW
1. The Comptroller has jurisdiction over this matter pursuant to TEX. TAX CODE
ANN. 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 ANN. ch. 2003.
3. The Comptroller provided proper and timely notice of the hearing pursuant to
TEX. GOV’T CODE ANN. ch. 2001.
4. The Comptroller is authorized to estimate a taxpayer’s liability based on
the best information available, pursuant to TEX. TAX CODE ANN. Section
111.0042(d) and 34 TEX. ADMIN. CODE Section 3.281(c).
5. On the basis of the preceding Findings of Fact, Staff was justified in
estimating the tax liability, and the audit was based on the best records
available as contemplated by TEX. TAX CODE ANN. Section 111.0042(d) and 34 TEX.
ADMIN. CODE Section 3.281(c).
6. Petitioner did not meet its burden of proof pursuant to TEX. TAX CODE ANN
Section 1.40(2)(B) to show by a show by a preponderance of the evidence that
the audit results are erroneous.
7. Based on the above Findings of Fact and Conclusions of Law, the audit should
be affirmed in its entirety.
Hearing No. 101,635
ORDER OF THE COMPTROLLER
On March 23, 2010, the State Office of Administrative Hearings’ (SOAH)
Administrative Law Judge, Alvin Stoll, 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, except for minor changes to correct typographical or clerical errors,
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. 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 4th day of May 2010.
Texas Comptroller of Public Accounts
by: Martin A. Hubert
(1) Notification of Estimation Procedures for State Tax Audit.
(2) Audit Exams 1 and 1A.
(3) Auditor's pre-hearing comments.
ACCESSION NUMBER: 201005683H
DOCUMENT TYPE: H
TAX TYPE: HOTEL