Texas Comptroller of Public Accounts    STAR System


201101003H



SOAH DOCKET NO. 304-10-5909.26
CPA HEARING NO. 100,446

RE: ************* 
TAXPAYER NO.: ************* 
AUDIT OFFICE: ************* 
AUDIT PERIOD: October 1, 2004 THROUGH October 31, 2006

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

LIAT DEVERE
Representing Tax Division

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


COMPTROLLERíS DECISION

************* (Petitioner) seeks redetermination of a sales tax assessment made 
by the Business Activity Research Team (BART) of the Texas Comptroller of 
Public Accounts (Comptroller) on Petitionerís purchase of a fishing vessel, the 
VESSEL A.  Petitioner contends no Texas tax is due because she purchased the 
vessel out-of-state for use outside of Texas.  Comptroller Staff (Staff) 
disagrees, and asserts that Petitioner has failed to establish that it is 
entitled to an exemption from tax.  In his Proposal for Decision, the 
Administrative Law Judge (ALJ) recommends that the assessment should be 
affirmed in its entirety.

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 case was referred to the State Office of Administrative Hearings for a 
decision based on the written submissions of the parties.  Petitioner was 
represented by ************* of the law firm of COMPANY A.  Staff was 
represented by Assistant General Counsel Liat†DeVere.  The ALJ closed the 
record on November 5, 2010.

II.  REASONS FOR DECISION

A.  Evidence Presented

Staff submitted the following exhibits: the 60-day letter, the Texas 
Notification of Exam Results, Texas boat registration history, and the BART 
audit documentation, including the ITS Work Manager Comments, abstract of title 
documents, the bill of sale, and an affidavit executed by Petitioner.  Staff 
also submitted the administrative record, which consists of the pleadings filed 
while this case was pending before the Comptroller.  Attached to the pleadings 
was U.S. Coast Guard vessel documentation.  Petitioner also submitted the 
Comptrollerís Release of State Tax Lien Filed in Error.  No objections were 
raised regarding any of these documents and each is admitted into the record.

B.  Background and Issues Presented

On October 4, 2004, Petitioner purchased an 85.9 foot 2002 fishing vessel from 
the COMPANY B, which had repossessed the vessel from a previous owner. 
[ENDNOTE: (1)] The vessel was first registered in Texas on October 18, 2004. 
[ENDNOTE: (2)] At the time of purchase the vesselís home port was CITY A, 
Louisiana.  After the purchase it was transferred to CITY B, Alabama.  The 
vessel was again relocated, but this time to CITY C, Louisiana, where it 
remained until September 19, 2005, when it was moved to CITY D, Louisiana, in 
order to avoid Hurricane Rita.  Hurricane Rita made landfall at CITY C, 
Louisiana, on September 24, 2005, leaving the harbor badly damaged and 
unusable.  Due to the damage to the CITY C harbor the vessel was relocated to 
CITY E, Texas, where it still remains.

BART investigated the purchase of the VESSEL A and determined that it had been 
brought into Texas for storage or use.  BART requested information showing that 
the tax had been paid upon the vesselís purchase.  Petitioner was unable to 
provide such proof.  Consequently, on June 12, 2007, a Texas Notification of 
Exam Results was issued to Petitioner for the exam period of October 1, 2004, 
through July 31, 2005, assessing a liability consisting of use tax, the 
standard 10 percent penalty, and interest accrued through the date of 
notification. [ENDNOTE: (3)] Petitioner timely requested a redetermination 
hearing and raised the following contentions:

1.  Petitioner clearly intended to use the vessel only in Louisiana, where the 
vessel was purchased and would have remained had it not been for the damage 
Hurricane Rita inflicted on the vesselís home port of CITY C, Louisiana, which 
has made it impossible for the vessel to return.

2.  The doctrine of res judicata precludes reconsideration of the taxability of 
the vesselís purchase.  When the Comptroller released the lien that had been 
filed in error against Petitioner due to the assessment of tax, the sales and 
use tax liability was released and relinquished by the Comptroller.

On October 28, 2010, Staff issued a Texas Notification of Amended Exam Results 
extending the exam period through October 31, 2006. [ENDNOTE: (4)] Staff 
explained that the extension was necessary ďin the event it is determined that 
use tax was due when the vessel was brought into the State after Hurricane Rita 
instead of when Petitioner registered in the State.Ē [ENDNOTE: (5)]

C.  ALJís Analysis

The use tax is imposed on the storage, use, or other consumption in Texas of a 
taxable item purchased from a retailer for storage, use, or other consumption 
in this state. [ENDNOTE: (6)]  Tangible personal property brought into the 
state by a purchaser is presumed, in the absence of evidence to the contrary, 
to have been purchased for use in this state, and the person using, storing, or 
consuming the taxable item is liable for the tax. [ENDNOTE: (7)]  However, 
ď[i]f taxable items were purchased out of state and used outside Texas for more 
than one year before the date of entry into Texas, the purchase will not be 
presumed to have been for use in Texas.Ē [ENDNOTE: (8)] In order for this 
provision to apply, the use outside Texas must be substantial and constitute a 
primary use for which the property was purchased. [ENDNOTE: (9)]

The record in this case establishes that the VESSEL A was purchased out of 
state and brought into Texas where it has remained.  The presumption that it 
was purchased for use or storage in Texas applies, and is supported by such 
facts as its history of registration in Texas.  The vessel has been 
continuously registered in Texas since October 18, 2004.  Petitioner has 
acknowledged that it purchased fishing tags which she secured from the Texas 
Parks and Wildlife Department for use when the vessel entered Texas waters in 
pursuit of shrimp.

In order for the Section 151.105 presumption not to apply, Petitioner must show 
that the vessel was used outside of Texas for more than a year.  The vessel was 
purchased on October 4, 2004.  Petitioner in her affidavit acknowledged that 
the vessel was relocated from CITY C, Louisiana, to CITY E, Texas, after 
Hurricane Rita damaged the CITY C harbor.  However, Petitioner did not state on 
which date she relocated the VESSEL A from Louisiana to CITY E. The affidavit 
is worded so as to avoid stating when the vessel was relocated:

After the passing of Hurricane Rita, the harbor of CITY C, Louisiana was badly 
damaged and remains in unusable conditions.  Since that day, VESSEL A had to 
relocate to CITY E, TX and remains until today.

Petitioner must establish that the vessel was used outside of Texas for more 
than a year before the vessel was relocated to CITY E.  However, she has not 
disclosed the date the relocation occurred.  Hurricane Rita made landfall on 
the Louisiana and Texas border on September 24, 2005.  Given the sequence of 
events recited by Petitioner it is very likely that the VESSEL A was moved to 
CITY E shortly after the hurricane hit CITY C, Louisiana, thus, negating the 
likelihood that the vessel entered Texas after it had been used outside the 
state for a year.  Petitioner has failed to show that Section 3.346(c)(5) 
applies, therefore, the presumption in Tax Code Section 151.105 has not been 
avoided.

Petitioner argues that the Comptrollerís decision to release the lien that was 
filed against her because of the use tax assessment operates as res judicata 
against reconsideration of the assessment.  This argument is without substance. 
The release of the lien did not involve a judicial determination by any party 
that the assessment was made in error.  The taxability of the purchase of the 
VESSEL A will be determined for the first time in this redetermination hearing.

The ALJ finds that the vessel was purchased out of state and brought into Texas 
for use or storage and that Petitioner has failed to show that the audit 
assessment was in error.  Consequently, the ALJ recommends that the audit 
assessment should be affirmed in its entirety.

III. FINDINGS OF FACT

1.  ************* (Petitioner) was assessed by the Texas Comptroller of Public 
Accounts (Comptroller) for use tax for the period October 1, 2004, through July 
31, 2005.  Petitioner was assessed tax, the standard penalty, and accrued 
interest pursuant to a Texas Notification of Exam Results dated June 12, 2007.

2.  Petitioner requested redetermination of the assessment.

3.  On August 19, 2010, Comptroller Staff (Staff) referred the case to the 
State Office of Administrative Hearings for a hearing on the partiesí written 
submissions.

4.  Staff issued a Notice of Hearing by Written Submission 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.

5.  On October 4, 2004, Petitioner purchased an 85.9 foot 2002 fishing vessel 
from the COMPANY B, which had repossessed the vessel from a previous owner.

6.  The vessel was first registered in Texas on October 18, 2004, and has 
continued to be registered in Texas to the present date.  At the time of 
purchase the vesselís home port was CITY A, Louisiana.

7.  After the purchase the vessel was transferred to CITY B, Alabama.  The 
vessel was again relocated, but this time to CITY C, Louisiana, where it 
remained until September 19, 2005, when it was moved to CITY D, Louisiana, in 
order to avoid Hurricane Rita.

8.  Hurricane Rita made landfall at CITY C, Louisiana, on September 24, 2005, 
leaving the harbor badly damaged and unusable.  Due to the damage to CITY C 
harbor the vessel was relocated to CITY E, Texas, where it still remains.

9.  Petitioner has not disclosed when the VESSEL A was relocated to CITY E, 
Texas.

10.  On August 15, 2008, the Comptroller issued a Release of State Tax Lien 
Filed in Error, which had been filed as a result of the tax assessed because of 
Petitionerís purchase of the VESSEL A.

11.  On October 28, 2010, Staff issued a Texas Notification of Amended Exam 
Results extending the exam period through October 31, 2006.

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. GOVíT CODE ch. 2003.

3.  The Comptroller provided proper and timely notice of the hearing pursuant 
to TEX. GOVíT CODE ch. 2001.

4.  Petitioner has the burden of proving by a preponderance of the evidence 
that the Comptrollerís assessment is erroneous.  34 TEX. ADMIN. CODE Section 
1.40(2)(B).

5.  The use tax is imposed on the storage, use, or other consumption in Texas 
of a taxable item purchased from a retailer for storage, use, or other 
consumption in this state.  TEX. TAX CODE ANN. Section 151.101(a).

6.  Tangible personal property brought into the state by a purchaser is 
presumed, in the absence of evidence to the contrary, to have been purchased 
for use in this state, and the person using, storing, or consuming the taxable 
item is liable for the tax.  TEX. TAX CODE ANN. Section 151.102 and 151.105.

7.  If taxable items were purchased out of state and used outside Texas for 
more than one year before the date of entry into Texas, the purchase will not 
be presumed to have been for use in Texas.  In order for this provision to 
apply, the use outside Texas must be substantial and constitute a primary use 
for which the property was purchased.  34 TEX. ADMIN. CODE Section 3.346(c)(5).

8.  Based on Findings of Fact Nos. 5 - 9 and Conclusions of Law Nos. 5 - 7, 
Petitionerís purchase of the VESSEL A was subject to use tax.

9.  Based on Finding of Fact No. 10, the release of the lien does not affect 
the taxability of the purchase of the VESSEL A.

10.  Based upon the foregoing Findings of Fact and Conclusions of Law, the 
audit assessment should be affirmed in its entirety.

Hearing No. 100,446

ORDER OF THE COMPTROLLER

On November 22, 2010, the State Office of Administrative Hearingsí (SOAH) 
Administrative Law Judge (ALJ), Peter Brooks, 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 ALJís 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 ďAttachment 
A,Ē 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 26th day of January 2011.


SUSAN COMBS
Texas Comptroller of Public Accounts

by: Martin A. Hubert
Deputy Comptroller

ENDNOTE(S)
(1) Affidavit of PETITIONER and Bill of Sale.
(2) Texas boat registration history.
(3) The purchase of the vessel is subject to sales and use tax, and not the 
boat and boat motor sales tax, because it is over 65 feet in length.  See TEX. 
TAX CODE ANN. Section 160.001(2) and TEX. PARKS & WILDLIFE CODE ANN. Section 
31.003.
(4) The Notification was issued before the record closed on November 5, 2010, 
which was also the due date for partiesí to file their reply briefs.
(5) See Staffís Reply to Petitionerís Brief and TEX.TAX CODE ANN. Section 
151.511 allowing amendments to the assessment. 
(6) TEX. TAX CODE ANN. Section 151.101(a).
(7) TEX. TAX CODE ANN. Section 151.102 and 151.105.
(8) 34 TEX. ADMIN. CODE Section 3.346(c)(5).
(9) Id. and see COMPTROLLERíS DECISION UPON REHEARING NO. 15,639 (1986).




ACCESSION NUMBER: 201101003H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 01/26/2011
TAX TYPE: SALES