Texas Comptroller of Public Accounts STAR System
SOAH DOCKET NO. 304-11-5590.26
CPA HEARING NO. 104,636
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
Texas Comptroller of Public Accounts
Representing Tax Division
************* (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
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
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
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
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
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
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.
Texas Comptroller of Public Accounts
by: Martin A. Hubert
ACCESSION NUMBER: 201108258H
DOCUMENT TYPE: H
TAX TYPE: SALES