Texas Comptroller of Public Accounts    STAR System


201005683H



SOAH DOCKET NO. 304-10-2699.75
CPA HEARING NO. 101,635

RE: **************
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

SUSAN COMBS
Texas Comptroller of Public Accounts

STANLEY COPPINGER
Representing Tax Division

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


COMPTROLLER’S DECISION

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 
incorrect. 

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 
from UK.”

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 
recommended.

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 
from UK.”

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.


SUSAN COMBS
Texas Comptroller of Public Accounts

by: Martin A. Hubert
Deputy Comptroller


ENDNOTE(S):

(1) Notification of Estimation Procedures for State Tax Audit.
(2) Audit Exams 1 and 1A.
(3) Auditor's pre-hearing comments.




ACCESSION NUMBER: 201005683H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 05/04/2010
TAX TYPE: HOTEL