Texas Comptroller of Public Accounts    STAR System


201108258H



SOAH DOCKET NO. 304-11-5590.26
CPA HEARING NO. 104,636

RE: *************
TAXPAYER NO.: *************
AUDIT OFFICE: *************
AUDIT PERIOD: October 1, 2004 THROUGH June 30, 2007

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

KARI HONEA
Representing Tax Division

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


COMPTROLLER’S DECISION

************* (Petitioner) was audited for sales and use tax compliance 
pursuant to a managed audit agreement between Petitioner and the Texas 
Comptroller of Public Accounts (Comptroller). The audit resulted in a net 
credit due to Petitioner. Petitioner timely filed for redetermination 
contending that it was entitled to additional credits because credit interest 
should accrue on its gross credits before they are applied to assessments for 
the same period. Comptroller Staff (Staff) rejected Petitioner’s contention. In 
his Proposal for Decision, the Administrative Law Judge (ALJ) recommends that 
Petitioner’s contention should be denied and the audit affirmed without any 
changes.

I. PROCEDURAL HISTORY, NOTICE & JURISDICTION

On May 17, 2011, Staff referred the case to the State Office of Administrative 
Hearings for a hearing based on the written submissions of the parties. 
Petitioner was represented by ************* of COMPANY A. The Comptroller was 
represented by Assistant General Counsel Kari Honea. The record closed on June 
29, 2011.

There are no 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.

II. REASONS FOR DECISION

A. Background and Issues Presented

Petitioner is a subsidiary of COMPANY B, which owns and operates casual dining 
restaurants in the United States and Canada. Petitioner operates restaurants in 
Texas under the names COMPANY C, COMPANY D, and COMPANY E. Petitioner was 
audited, pursuant to a managed audit agreement, for compliance with respect to 
its sales and use tax compliance for the period October 1, 2004, through June 
30, 2007. The Comptroller on April 26, 2010, issued to Petitioner a Texas 
Notification of Amended Audit Results for a net credit of $*************, 
including credit interest in the approximate amount of $*************. 
Petitioner timely requested a redetermination hearing and raises only one 
contention. Petitioner contends that because this is a managed audit credit 
interest should have been computed on the gross amount found to have been paid 
erroneously for each reporting period, without regard to the amount of any 
liability found to have been due for the same period.

B. Evidence Submitted

Staff submitted the Audit Report, Audit Plan, Texas Notification of Amended 
Audit Results, the Amended Audit Report and the Amended Audit Plan. Staff also 
submitted the administrative record consisting of the pleadings filed while 
this matter was pending before the Comptroller. Petitioner did not submit any 
evidence. All the documents submitted are admitted into the record without 
objection.

C. Agreed Adjustments

Staff has not agreed to any adjustments to the audit.

D. ALJ’s Analysis and Recommendation

Petitioner agrees that under a standard audit, the refund or credit should 
first be netted against the tax liability amount due and then the interest 
should be calculated based on the final amount due for the audit period; 
however, Petitioner disagrees with this procedure for a managed audit. 
Petitioner entered into an agreement with the Comptroller under which 
Petitioner conducted a managed audit pursuant to TEX TAX CODE ANN Section 
151.0231(c). The agreement provided for waiver of penalty and interest pursuant 
to TEX TAX CODE Section 151.0231(g).

Petitioner contends under TEX. TAX CODE Section 111.064(a) credit interest 
should have been computed based on the gross credit or refund that resulted 
from the managed audit of each relevant reporting period, and without regard to 
any liability incurred for the same period.  Petitioner argues that TEX TAX 
CODE Section 111.064 does not limit the accrual of interest to “net” credits or 
refunds. Moreover, Petitioner asserts that TEX TAX CODE Section 151.0231(h) and 
34 TEX. ADMIN. CODE Section 3.282(f)(7) provide that the taxpayer is entitled 
to a refund of any tax overpayment disclosed by a managed audit and that those 
provisions do not limit the amount of interest that may accrue on such 
overpayments. Petitioner also relies on TEX TAX CODE Section 151.508, which it 
argues requires that any interest accrued on the overpayment must be included 
in the offset of the overpayment against an underpayment. Petitioner points out 
that TEX TAX CODE Section 151.508 does not limit the accrual of the interest to 
the “net” overpayment. Petitioner concludes that the credit interest should be 
recalculated and refunded based on the gross amount found to have been paid 
erroneously for each period, without regard to the amount of any liability 
found to have been due for the same periods. Petitioner in essence argues that 
interest on overpayments is determined on a transaction-by-transaction basis.

Petitioner’s contention was considered and rejected in COMPTROLLER’S DECISIONS 
NOS. 49,371 (2009) and 100,933 (2009). The Comptroller in both Decisions 
concluded that tax overpayments are determined by period and not on a 
transaction–by-transaction basis. The Comptroller further held that, “Tax Code 
Sections 111.064 and 111.104(a) clearly provide that interest on refunds is 
computed on a period-by-period basis on the net amount that is due after tax 
that is erroneously paid is credited against any other amounts due and payable 
for the same period.” Comptroller’s Decision No. 100,933. The Comptroller found 
there was no authority for applying a different rule with regard to taxes paid 
in error that are used as offsets in an audit. TEX TAX CODE Section 151.508 
contains nothing to the contrary, and does not itself create any specific 
rights to interest amounts, as is clear from the fact that no credit interest 
at all was allowed before January 1, 2000, even though TEX. TAX CODE Section 
151.508 was in effect before that date. The Comptroller further held that there 
were no features of managed audits in general that require or justify different 
interest computations. The Managed Audit Agreement states that it shall not be 
construed so that it conflicts with the laws or rules or regulations adopted by 
the Comptroller.

Petitioner has not advanced any arguments that were not previously considered 
by the Comptroller in Decision Nos. 100,933 and 49,371. Therefore, the ALJ 
finds there is no basis for distinguishing those Decisions and concludes that 
they are controlling. The ALJ recommends that Petitioner’s contention be denied 
and that the audit be affirmed without change.

III. FINDINGS OF FACT

1. ************* (Petitioner) was audited pursuant to a managed audit agreement 
for compliance with respect to its sales and use tax compliance for the period 
October 1, 2004, through June 30, 2007. The Comptroller of Public Accounts 
(Comptroller) on April 26, 2010, issued to Petitioner a Texas Notification of 
Amended Audit Results for a net credit of $*************, including credit 
interest in the approximate amount of $*************. Petitioner timely 
requested a redetermination hearing.

2. On May 17, 2011, the case was referred to the State Office of Administrative 
Hearings for written submission hearing. Comptroller Staff provided a Notice of 
Hearing by Written Submission to Petitioner that 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.

3. Credits for tax overpayments were applied against underpayments during the 
same report period.

4. Credit interest was calculated in the audit in accordance with agency policy 
and consistent with the Texas Tax Code.

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 ch. 2001.

4. Petitioner has the burden to show by a preponderance of the evidence that 
the audit was erroneous. 34 TEX. ADMIN. CODE Section 1.40(2)(B).

5. Credit interest accrues for a specific report period only if a net 
overpayment remains after tax that is erroneously paid is credited against any 
amount of tax, penalty, or interest due and payable for that same report 
period. TEX. TAX CODE Section 151.508, 111.104, and 111.064 and COMPTROLLER’S 
DECISIONS NOS. 49,371 (2009) and 100,933 (2009).

6. Based on the foregoing Findings of Fact and Conclusion of Law No. 5, credit 
interest charges were properly calculated in accordance with Comptroller policy 
and consistent with the provisions of the Tax Code.

Hearing No. 104,636

ORDER OF THE COMPTROLLER

On June 30, 2011, the State Office of Administrative Hearings’ (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 ALJ’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. 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 8th day of August 2011.


SUSAN COMBS
Texas Comptroller of Public Accounts

by:  Martin A. Hubert
Deputy Comptroller




ACCESSION NUMBER: 201108258H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 08/22/2011
TAX TYPE: SALES