Texas Comptroller of Public Accounts    STAR System


201409970H



SOAH DOCKET NO. 304-13-5657.26
CPA HEARING NO. 106,632

RE: *************
TAXPAYER NO.: *************
AUDIT OFFICE: *************
AUDIT PERIOD: January 1, 2002 THROUGH June 30, 2010

Sales And Use Tax/RDT

BEFORE THE COMPTROLLER
OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS

SUSAN COMBS
Texas Comptroller of Public Accounts

KEVIN HAYNES
Representing Tax Division

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


SOAH DOCKET NO. 304-13-5655.26
CPA HEARING NO. 108,626


RE: *************
TAXPAYER NO.: *************
AUDIT OFFICE: *************
AUDIT PERIOD: July 1, 2010 THROUGH June 30, 2011

Sales And Use Tax/RFD

BEFORE THE COMPTROLLER
OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS

SUSAN COMBS
Texas Comptroller of Public Accounts

KEVIN HAYNES
Representing Tax Division

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


COMPTROLLERíS DECISION

************* (Petitioner or Claimant) [ENDNOTE: (1)] was examined for sales 
and use tax compliance by the Business Activity Research Team (BART), part of 
the Tax Division (Staff) of the Texas Comptroller of Public Accounts 
(Comptroller), for the period January 1, 2002 through June 30, 2010. BART 
determined that Petitioner had failed to collect tax on its sales in Texas and 
consequently assessed tax, a 10% late penalty, and accrued interest. During the 
course of the examination, Petitioner started reporting tax to Texas for the 
report periods July 1, 2010 through June 30, 2011, and filed refund claims for 
the tax it remitted for these periods. Jeopardy determinations were issued for 
these periods. Petitioner contests the assessments and Staffís denial of the 
refund claims on the grounds that it lacked sufficient physical presence to 
establish the requisite nexus with Texas to be subject to use tax. Petitioner 
has requested waiver of the penalties imposed and the interest accrued. 
Insolvency relief was also requested. Staff agreed to waive penalties but 
declined to abate the interest and recommended that the Comptroller not provide 
insolvency relief. In the Proposal for Decision (PFD), the ALJ finds that 
Petitioner failed to show that it lacked the requisite nexus with Texas and 
failed to show that it was entitled to either interest waiver or insolvency 
relief. The ALJ recommends that the assessments and denial of the refund claims 
be affirmed, subject to the agreed waiver of penalty.

I. PROCEDURAL HISTORY, NOTICE & JURISDICTION

On August 1, 2013, Staff referred these matters to the State Office of 
Administrative Hearings (SOAH) for an oral hearing. The cases were joined 
because they involved the same parties and the same issues of law and fact. The 
ALJ subsequently granted Petitionerís Agreed Motion to Convert to Written 
Submission. Petitioner was represented by ************* of COMPANY A. Staff was 
represented by Assistant General Counsel Jenny Burleson. The record closed on 
February 26, 2014.

There are no contested issues of notice or jurisdiction. Therefore, these 
matters are set out in the Findings of Fact and Conclusions of Law without 
further discussion.

II. REASONS FOR DECISION

A. Evidence Presented

Staff submitted the following exhibits with respect to the redetermination 
hearing (SOAH Docket No. 304-13-5657):

(1) 60-Day Notification letter;
(2) Texas Notification of Exam Results;
(3) Exam (Tax Adjustment Summary, Exam 1 Taxable Sales);
(4) BART Documents (Account Examiner Coversheet; Message, Adjustment, and 
Allocation Reports; Texas Nexus Questionnaire, Petitioner for Redetermination; 
Texas Notification of Tax/Fee Due; Correspondence between Petitioner and BART; 
Schedule of Taxable Sales, and Texas Sales and Use Tax Returns);
(5) Petitionerís. Lease Agreement;
(6) Petitionerís Responses to Interrogatories;
(7) Petitionerís Software Items;
(8) Petitionerís License Agreement; [ENDNOTE: (2)]
(9) Petitionerís License Agreement;
(10) Petitionerís License Agreement;
(11) Comptroller Tax Publication 96-276, Trade Shows and the Texas Sales and 
Use Tax; [ENDNOTE: (3)]
(12) Comptroller Tax Publication 96-211, Fairs, Festivals, Markets, and Shows; 
and
(13) Comptroller Tax Publication 94-108, Engaged in Business.

Staff submitted the following exhibits in the refund hearing (SOAH Docket No. 
304-13-5655.26):

(1) Refund Denial letter;
(2) Refund Verification; and
(3) Insolvency Relief Review.

Petitioner submitted the following exhibits in both hearings:

(1) Texas Notification of Exam Results (Exam period January 1, 2002 through 
June 30, 2010);
(2) Texas Notice of Tax/Fee Due (Liability period: July 1, 2010 through 
September 30, 2010);
(3) Texas Notice of Tax/Fee Due (Liability period: October 1, 2010 through 
December 31, 2010);
(4) Texas Notice of Tax/Fee Due (Liability period: January 1, 2011 through 
March 31, 2011);
(5) Texas Notice of Tax/Fee Due (Liability period: April 1, 2011 through June 
30, 2011);
(6) Tax Publication No. 96-276, Trade Shows and the Texas Sales and Use Tax;
(7) Affidavit of INDIVIDUAL A, Petitionerís Chief Financial Officer (with 
attached Exhibits A-J)

(a) Exhibit A: Screenshots of Petitionerís computer programs;
(b) Exhibit B: License Agreements (License Agreements i-viii);
(c) Exhibit C: Price lists, proportion of Texas sales by software vs. digital 
download, and Sales detail;
(d) Exhibit D: Texas sales and use tax returns for 2002 through 2010;
(e) Exhibit E: Letter from BART concluding Petitioner had nexus in Texas;
(f) Exhibit F: Promotional materials regarding SOFTWARE conference;
(g) Exhibit G: Promotional materials regarding OTHER Conference;
(h) Exhibit H: Petitionerís 2009-2011 U.S. Corporation Income Tax Returns 
(Forms 1120);
(i) Exhibit I: Petitionerís Balance Sheets and Profit and Loss Statements for 
2009-2012; and
(j) Exhibit J: Petitionerís Forms 1099 issued during 2002 through 2010.

(8) Affidavit of INDIVIDUAL B, Petitionerís Chief Operating Officer and Chief 
Marketing Officer (with attached Exhibits A-D):
(a) Exhibit A: Email communications regarding Petitionerís attendance at 
SOFTWARE conference in 2002;
(b) Exhibit B: Chart illustrating customersí use of Petitionerís software;

(9) Affidavit of INDIVIDUAL C, digital artist employed by Petitioner;
(10) Affidavit of INDIVIDUAL D, Petitionerís Product Manager and Marketing 
Manager;
(11) Petitionerís COMPANY B Bank Statements; [ENDNOTE: (4)]
(12) Affidavit of INDIVIDUAL E, employee of COMPANY C, that managed the 
exhibitions at SOFTWARE conferences; and
(13) Supplemental Affidavit of INDIVIDUAL A, with following attached Exhibits K 
and L;
(a) Exhibit K: sales transaction detail reports; and
(b) Exhibit L: Quick Books expense reports, including expenses related to 
attendance at SOFTWARE conferences.

Staff also submitted the pleadings and attached exhibits that were exchanged by 
the parties.

Staff raised a number of objections to the admissibility of the Affidavits of 
INDIVIDUAL A (Petitionerís Exhibit 7) and INDIVIDUAL B (Petitionerís Exhibit 8 
based on their relevance and reliability. The objections are overruled. All of 
the submitted exhibits are admitted into the record.

B. Agreed Adjustments

Staff agreed to waive all penalties imposed on the assessments of tax.

C. Background and Issues Presented

During the periods at issue, Petitioner, a Utah corporation, was headquartered 
in CITY A, Utah. [ENDNOTE: (5)] It sells computer programs and digital content 
primarily through the Internet. [ENDNOTE: (6)] BART conducted an examination of 
Petitionerís activities to determine whether it had nexus with Texas and should 
have collected and reported sales and use tax on sales to its Texas customers. 
BART concluded that the sale or licensing of software in Texas through 
downloads from the Internet established nexus for Texas sales and use tax 
purposes. [ENDNOTE: (7)] On March 11, 2011, BART issued to Petitioner a Texas 
Notification of Exam Results for the exam period January 1, 2002 through June 
30, 2010. The assessment totaled $*************, consisting of tax in the 
amount of $*************, penalty in the amount of $*************, and interest 
accrued in the amount of $*************. On April 7, 2011, Petitioner submitted 
a Petition for Redetermination and Statement of Grounds requesting 
redetermination.

Starting with the third quarter of 2010, Petitioner began collecting sales tax 
from its customers and remitting the tax collected to the Comptroller. 
[ENDNOTE: (8)] Petitioner subsequently filed refund claims requesting a refund 
of the taxes collected during the July 1, 2010 through June 30, 2011 refund 
period. Jeopardy determinations were issued for four liability periods from 
July 1, 2010 through June 30, 2011, beginning with an estimated liability for 
the period July 1, 2010 to September 30, 2010. [ENDNOTE: (9)] On June 15, 2012, 
Staffís Sales Tax Refunds Verification Section issued a letter denying the 
refund claims because it had concluded that Petitioner had nexus with Texas. 
[ENDNOTE: (10)] Petitioner filed a request for a refund hearing contesting the 
determinations and denial.

Petitioner has raised the following contentions contesting Petitionerís tax 
deficiencies and the denial of the refund claims:

(1) The Comptroller erroneously assessed tax and interest against Petitioner 
for the periods from January 1, 2002 through June 30, 2011.
(2) Petitioner did not establish substantial nexus with Texas that would have 
required it to collect or remit sales and use tax from its customers during the 
periods at issue.
(3) Petitionerís sales of computer programs and digital content to Texas 
customers, which were delivered via the Internet, and such common carriers as 
the U. S. Postal Service (USPS), United Parcel Service (UPS), and Federal 
Express, did not establish a physical presence in Texas.
(4) Petitioner had no other significant contacts with Texas during 2002 through 
2011 which would have caused it to establish substantial nexus with Texas.
(5) It will render an undue hardship on Petitioner if it is required to pay the 
alleged sales and use tax liabilities calculated on the Notice of Exam Results 
and Notices of Tax/Fee Due.
(6) Petitioner requests that the Comptroller waive interest assessed because 
Petitioner exercised reasonable diligence in complying with the tax laws and 
the Comptrollerís requests.
(7) Petitioner requests that the Comptroller remove all tax assessed against 
Petitioner and refund any tax Petitioner paid to the Comptroller from July 1, 
2010 through June 30, 2011.

During the exam period, Petitioner sold computer programs and digital content 
primarily over the Internet, but it also delivered products via USPS, UPS, and 
Federal Express. [ENDNOTE: (11)] According to INDIVIDUAL A, Petitionerís Chief 
Operating Officer, computer programs and digital content are rarely purchased, 
despite the common use of such terminology. Instead programs and content are 
usually licensed to the customer, allowing the customer the limited right to 
use the program or content on a limited number of computers and perhaps to make 
limited backup copies in the event there is a problem with the original.  
[ENDNOTE: (12)] These licenses usually run for an indefinite period without 
requiring renewal.

INDIVIDUAL A further testified that Petitioner provides some of its computer 
programs and digital content without charge and sells other programs and 
content for a one-time fee. [ENDNOTE: (13)] Petitioner did not charge any 
ongoing maintenance or recurring licensing fees for any of its computer 
programs or digital images. [ENDNOTE: (14)] Petitioner also did not charge 
customers for updates, but did charge customers for upgrades from an older 
version of a program to a newer version. [ENDNOTE: (15)] Petitioner collected 
more than $************* in licensing fees for software and digital images 
licensed to Texas users during the January 1, 2002 through June 30, 2010 
period. [ENDNTOE: (16)]

The purchase and use of Petitionerís products are governed by license 
agreements. Each license agreement submitted by the parties grants the customer 
(referred to as user throughout the different licenses) a license that entitled 
them to use Petitionerís products. [ENDNOTE: (17)] For example, the user is 
granted ďa personal non-exclusive, non-transferable License to use the 3-D 
Models, together with all accompanying written materials, images, and other 
data files.Ē [ENDNOTE: (18)] In the other versions of the license agreement, 
the user is, in more succinct terms, granted a license to use the product in 
accordance with the terms of the license. [ENDNOTE: (19)] The license 
agreements set no fixed period for the customerís use of the license. [ENDNOTE: 
(20)] In some versions, the license agreements expressly provide that the 
license remains in effect only for so long as the user is in compliance with 
the terms and conditions of the agreement. [ENDNOTE: (21)]

The products licensed under the license agreements are for the userís exclusive 
use. [ENDNOTE: (22)] In other versions, it is expressly provided that the user 
is granted the license to use the products in accordance with the terms of the 
license. [ENDNOTE: (23)] The license agreements contain provisions specifically 
restricting the use of the products by third parties other than the users:

The [product(s)] may be copied in whole or part for Userís exclusive use. 
Unauthorized copying of the [product(s)] is expressly forbidden. Ö User does 
not have the right to provide the [product(s)] to others in any form or on any 
media. Ö Specifically, [the User] may copy the [product(s)] onto the storage 
device of an unlimited number of computers; provided that all such computers 
are physically located at [the Userís] business, or [at the Userís] residence 
... . [The User] may not in any case: (a) separately publish, market, 
distribute, transfer, sell or sublicense any [product(s)] or any part thereof ; 
or (b) publish, market, distribute, transfer, sell or sublicense renderings, 
animations, software applications, data or any other product from which any 
original 3-D Model(s), or any part thereof, or any substantially similar 
version of the original 3-D Model(s) can be separately exported, extracted, or 
de-compiled into any re-distributable form or format. [ENDNOTE: (24)]

Other versions of the license agreements provide:

The User May Not:

(1) use the Product to make copies of it except as permitted in this License;
(2) translate, reverse engineer, decompile, or disassemble the Product except 
to the extent the foregoing restriction is expressly prohibited by the 
applicable;
(3) rent, lease, assign, or transfer the Product;
(4) modify the Product or merge all or any part of the Product with any other 
program;
(5) separate the component parts of the Product for use on more than one 
computer; and
(6) reproduce, publish, distribute. Share, or otherwise make available any 
portion of the Product on the worldwide internet. [ENDNOTE: (25)]

Most of the license agreements explicitly provide that Petitioner retained all 
rights in, title to, and ownership of the licensed products. [ENDNOTE: (26)] 
Some versions of the license agreement provide that the copyright and all other 
rights to the product remain with Petitioner or its licensors, and that, if the 
user fails to comply with the terms of the agreement or otherwise breaches the 
agreement, the user is violating copyright and other intellectual property law. 
[ENDNOTE: (27)] All of the license agreements provide that the licensed 
products are the property of and proprietary to Petitioner. [ENDNOTE: (28)] In 
most of the license agreements, the rights retained are described as 
copyrighted or proprietary information protected by the laws of the United 
States. [ENDNOTE: (29)] Other versions similarly provide that: ďThe copyright 
and all other rights to the product shall remain with Petitioner or its 
licensors.Ē [ENDNOTE: (30)]

Each license agreement contains provisions intended to protect Petitionerís 
copyrighted and other property rights: [ENDNOTE: (31)]

User expressly agrees to include [Petitionerís] (and third parties, if any) 
copyright notice(s) and proprietary interest(s) on all copies of the 3-D models 
, in whole or part, in any form, including data form, made by user in 
accordance with this Agreement. [ENDNOTE: (32)]

User shall; not give, sell, rent, lease, sublicense, or otherwise transfer or 
dispose of the 3-D Model(s) on a temporary or permanent basis without the prior 
written consent of [Petitioner]. [Petitionerís] 3-D Model(s) and/or contracts 
are non-transferable and shall only be used by the Licensed User. User may not 
reverse engineer, de-compile, disassemble, or create derivative works from the 
3-D Model(s). [ENDNOTE: (33)]

User agrees not to disclose, publish, release, transfer, or otherwise make 
available the 3-D Model(s), or any portion thereof, in any form, to any person, 
other than Userís employees, without prior written consent from [Petitioner]. 
User agrees that the 3-D Model(s) is the property of and proprietary to 
[Petitioner], and further agrees to protect the 3-D Model(s) and all parts 
thereof from unauthorized disclosure and use by its agents, employees, or 
customers. [ENDNOTE: (34)]

User agrees not to disclose, publish, release, transfer, or otherwise make 
available the Product, or any portion thereof, in any form, to any person, 
without prior written consent from [Petitioner] Ö and further agrees that the 
Product is the property of an proprietary to [Petitioner] and further agrees to 
protect the Product and all parts thereof from unauthorized disclosure and use 
by its agents, employees, or customers. [ENDNOTE: (35)]

In July 2002, three of Petitionerís employees attended SOFTWARE, an annual 
week-long education conference that attracts members of the international 
computer graphics community. [ENDNOTE: (36)] The conference is held in a 
different location each year, including international locations. [ENDNOTE: 
(37)] In 2002, the conference was held in CITY C, Texas. It is a widely 
recognized forum for the publication of computer graphics research and is 
primarily attended by professionals employed in fields within the 3D industry. 
[ENDNOTE: (38)]

COMPANY C was hired to manage all aspects of the exhibitions at the July 2002 
CITY C, Texas SOFTWARE conference. [ENDNOTE: (39)] It was the ordinary business 
practice of COMPANY C, to maintain records of conference attendees who 
participated as exhibitors at SOFTWARE conferences. [ENDNOTE: (40)] COMPANY Cís 
records confirm the affidavit testimony of INDIVIDUAL B and INDIVIDUAL A that 
Petitioner did not participate as an exhibitor at the 2002 SOFTWARE. [ENDNOTE: 
(41)] Petitionerís employees attended the July 2002 SOFTWARE conference to 
learn about developments in the computer graphics industry and not to solicit 
orders or ďdrum upĒ sales in Texas. [ENDNOTE: (42)] In his affidavit testimony, 
INDIVIDUAL C, one of the three employees who attended the SOFTWARE conference, 
stated that Petitioner did not participate as an exhibitor at the conference 
and that he did not sell or take orders for Petitionerís products at the 
conference. [ENDNOTE: (43)] INDIVIDUAL C further testified that the other 
employees did not attend the 2002 SOFTWARE conference for the purpose of 
soliciting orders or otherwise ďdrumming upĒ sales in Texas. [ENDNOTE: (44)]

In September 2009, Petitioner sent one employee, INDIVIDUAL D, its product 
manager, to the OTHERís Conference in CITY D, Texas. [ENDNOTE: (45)] Petitioner 
did not set up an exhibit booth at this conference. [ENDNOTE: (46)] According 
to INDIVIDUAL Dís affidavit testimony, his participation at the conference was 
limited to educational activities. He testified that he attended the conference 
to: [ENDNOTE: (47)]

1. Connect with game engine providers and OTHER to determine what content 
specifications their game engines and development systems required;

2. Learn about advances in game engines, hardware and software, and other 
performance trends; and

3. Observe Petitionerís competitors and learn more about how these competitors 
presented their products to prospective customers.

INDIVIDUAL D expressly denied having engaged in any activities related to 
developing or promoting Petitionerís sales. [ENDNOTE: (48)] For example, he 
denied participating as an exhibitor and did not set up an exhibit booth, 
kiosk, or other place where business could be conducted at the conference. 
[ENDNOTE: (49)] He also denied selling, delivering, or taking orders for 
Petitionerís products during his attendance at the conference. [ENDNOTE: (50)] 
He testified that he did not visit any of Petitionerís customers or vendors, 
offer technical support, or hold any ďoutside meetingsĒ related to Petitionerís 
business. [ENDNOTE: (51)] INDIVIDUAL D confirmed that he was the only employee 
who attended the conference. [ENDNOTE: (52)]

D. ALJís Analysis

An out-of-state retailer who is engaged in business in Texas and who makes a 
sale of a taxable item for storage, use, or consumption in Texas is required to 
collect use tax from the purchaser. Tex. Tax Code Ann. SECTION 151.103. A 
retailer is engaged in business in Texas and subject to tax if the retailer:

(1) maintains, occupies, or uses in this state permanently, temporarily, 
directly, or indirectly or through a subsidiary or agent by whatever name, an 
office, distribution center, sales or sample room or place, warehouse, storage 
place, or any other physical location where business is conducted;

(2) has a representative, agent, salesman, canvasser, or solicitor operating in 
this state under the authority of the retailer or its subsidiary for the 
purpose of selling or delivering or the taking of orders for a taxable item;

(3) derives receipts from the sale, lease, or rental of tangible personal 
property situated in this state;

(5) solicits orders for taxable items by mail or through other media and under 
federal law is subject to or permitted to be made subject to the jurisdiction 
of this state for purposes of collecting the taxes imposed by this chapter; or

(9) otherwise does business in this state.

Tex. Tax Code Ann. SECTION 151.107.

Petitioner contends that it lacks the substantial nexus with Texas required by 
the U.S. Commerce Clause and Supreme Court precedents, such as QUILL CORP. V. 
NORTH DAKOTA, 504 U.S. 298 (1992), NATIONAL BELLAS HESS, INC. V. ILLINOIS REV. 
DEPT., 386 U.S. 753 (1967), and SCRIPTO, INC. V. CARSON, 362 U.S. 207 (1960). 
The Comptroller recognizes the applicability of federal case law in determining 
whether Petitioner has sufficient constitutional nexus to subject it to the 
payment of use tax. SEE Comptrollerís Decision 46,628 (2006). Nexus is defined 
in 34 Texas Administrative Code SECTION 3.286(a)(5) as ďsufficient contact with 
or activity within this state, as determined by state and federal law, to 
require a person to collect and remit sales and use tax.Ē Texas Tax Code Ann. 
SECTION 101.002(b) provides that ďTexasí authority to tax shall extend to the 
limits of the then current interpretations of the Texas Constitution and United 
States Constitution and laws.Ē Once nexus is established with Texas, an 
out-of-state retailer must collect use tax on all taxable sales made into Texas 
during the time period that it engages in business in this state. Moreover, an 
out-of-state retailer who is engaged in business in Texas must continue to 
collect Texas use tax on sales made into Texas for 12 months after the seller 
ceases to be engaged in business in Texas. SEE 34 Tex. Admin. Code SECTION 
3.286(b)(2).

Generally, the burden of proof rests on Staff to make a PRIMA FACIE showing 
that the requisite nexus exists for the imposition of the tax. SEE 
Comptrollerís Decision Nos. 107,789 and 107,790 (2013); and 100,984 (2010). 
Once Staff makes this showing, the burden rests on Petitioner to prove by a 
preponderance of the evidence that lacked the requisite nexus with Texas. Id. 
and 34 Tex. Admin. Code SECTION 1.40(2)(B).

1. Attendance at the SOFTWARE Conference and OTHERí Conference

If Petitioner had participated in the conference as an exhibitor, with three 
employees in attendance to generate sales, that presence would have sufficed to 
establish constitutional nexus under SCRIPTO, 362 U.S. at 211, which held that 
the solicitation of orders within Florida by independent brokers formed 
sufficient nexus to subject the out-of-state retailers to the collection of use 
tax. SEE ALSO 34 Tex. Admin. Code SECTION 3.286(a)(2)(B), which provides that a 
person has nexus with the state if he ďhas any representative, agent, 
salesperson, canvasser, or solicitor who operates in this state under the 
authority of the seller to conduct business, including selling, delivering, or 
taking orders for taxable items.Ē But Petitioner did not participate in the 
SOFTWARE conference as an exhibitor.

The activities of an in-state representative may still create constitutional 
nexus even if those activities do not directly involve the selling, delivering, 
or taking of orders. In TYLER PIPE INDUSTRIES V. DEPíT REVENUE, 483 U.S. 232 
(1986), the Court affirmed the principle of ďsignificant association,Ē which 
makes it clear that the representational nexus is not confined to solicitation. 
An out-of-state retailer can have sufficient constitutional nexus with a state 
if the sellerís activities, whether conducted by an employee or agent, or by an 
independent contractor, are significantly associated with the sellerís ability 
to establish and maintain a market in the state. TYLER PIPE INDUS., 483 U.S. at 
250. The representatives maintained and improved the name recognition, market 
share, goodwill, and individual customer relations of the out-of-state 
retailer. TYLER PIPE INDUS., 483 U.S. at 249.

Petitionerís employees were not present at the conference for any purpose other 
than learning about developments in the computer graphics industry. The 
employees did not solicit orders or otherwise ďdrum upĒ sales in Texas. Their 
presence in the state for such a professional educational experience cannot be 
considered to be significantly associated with Petitionerís ability to 
establish and maintain a market in Texas. And, therefore, their presence in 
Texas in 2002 was not sufficient to establish the constitutional nexus required 
to subject Petitioner to use tax in Texas.

The same conclusion applies with respect to the presence of Petitionerís 
employee, INDIVIDUAL D, its product manager, at the OTHERís Conference in CITY 
D, Texas. There is no evidence in the record that suggests that INDIVIDUAL D 
was engaged in any activity that was connected to the selling, delivery, 
taking, or any other form of solicitation of orders while he attended the 
conference. INDIVIDUAL Dís activities at the conference were restricted to 
educational activities, and thus did not establish constitutional nexus.

2. The sale of Petitionerís licensed software and digital images to Texas 
customers

The presence of the employees at the two conferences was insufficient to 
establish the required constitutional nexus to subject Petitioner to use tax. 
However, their presence in Texas is not the only potential basis for 
establishing nexus with Texas. Petitioner earned more than $************* in 
the sale of licensed software and digital downloads to Texas users. Staff 
contends that Petitioner has substantial nexus with Texas because it is 
licensing software in Texas and retaining title to tangible personal property 
that was physically present and generating revenue in Texas.Ē [ENDNOTE: (53)]

Under the four-part test set out by the U.S. Supreme Court in COMPLETE AUTO 
TRANSIT V. BRADY, 430 U.S. 274, 279 (1977), a state tax will be sustained 
against a U.S. Commerce Clause challenge so long as the tax ďis applied to an 
activity with a substantial nexus with the taxing state, is fairly apportioned, 
does not discriminate against interstate commerce, and is fairly related to the 
services provided by the State.Ē It is well settled that the Texas use tax is 
fairly apportioned, does not discriminate against interstate commerce, and is 
fairly related to the services provided by the state. SEE Comptrollerís 
Decision No. 36,237 (1998). The issue in dispute in this case is whether the 
presence of licensed software and digital images downloaded electronically by 
Petitionerís users in Texas constitutes substantial nexus. IN QUILL CORP. V. 
NORTH DAKOTA, 504 U.S. 298, 311-312 (1992), the Supreme Court held that a 
physical presence in the state is required in order to establish substantial 
nexus with the state. QUILL involved an out-of-state mail-order house that had 
no offices or warehouses in the state and no employees who worked or resided in 
the state, but was engaged in continuous and widespread solicitation of 
business within the state. QUILL CORP., 504 U.S. at 302. The mail-order houseís 
only connection with its customers located in the state was by common carrier 
or the USPS. The Supreme Court found that Quill lacked the substantial nexus 
with the taxing state required by the U.S. Commerce Clause because it lacked a 
physical presence in the taxing state. QUILL CORP., 504 U.S. at 314-315. The 
part of the holding that is especially relevant to the case at hand appears in 
a discussion in Footnote 8 in which the Court dismissed as insufficient to 
satisfy the substantial nexus requirement the mail-order houseís ownership of 
computer floppy diskettes located in the state that contained software it had 
licensed to its customers. Footnote 8 stated:

In addition to its common-carrier contacts with the State, Quill also licensed 
software to some of its North Dakota clients. SEE n.1, SUPRA. The State 
Ďconcedes that the existence in North Dakota of a few floppy diskettes to which 
Quill holds title seems a slender thread upon which to base nexus.í Brief for 
Respondent 46. We agree. Although title to Ďa few floppy diskettesí present in 
a State might constitute some minimal nexus, in NATIONAL GEOGRAPHIC SOCIETY V. 
CALIFORNIA BD. OF EQUALIZATION, 430 U.S. 551, 556, 97 S. Ct. 1386, 51 L. Ed. 
2nd 631 (1977), we expressly rejected a ď Ďslightest presenceí standard of 
constitutional nexus.Ē We therefore conclude that Quillís licensing of software 
in this case does not meet the Ďsubstantial nexusí requirement of the COMMERCE 
CLAUSE.

QUILL CORP., 504 U.S. at 315.

Staff insists that the licensed software and digital images Petitioner sold to 
its Texas users were considered tangible personal property for sales and use 
tax purposes under Texas Tax Code SECTION 151.009. However, nexus is not 
automatically conferred by the statutory characterization of a computer program 
as taxable tangible personal property. The substantial physical presence 
requirement is determined by the character of the rights and interest 
Petitioner retained in the software and digital images downloaded by users 
located in Texas. Staff at times has asserted that Petitioner leased the 
software and digital images to its users. Staff errs in treating the licensing 
of the products as a lease. In order to be a lease for tax purposes, a party 
must have exclusive possession and control, but not title to, the property. 34 
Tex. Admin. Code SECTION 3.294 and SEE ALSO Comptrollerís Decision No. 35,258 
(1996). Petitionerís customers, however, have been granted non-exclusive 
licenses to use the property, which are subject to significant restrictions 
limiting their freedom to use the products. Therefore, the characterization of 
the transactions as leases is incorrect, as they lack the exclusive possession 
and control of the property. In addition, Staff, cites as directly on point and 
controlling Comptrollerís Decision No. 36,237 (1998), in which the Comptroller 
found that the presence in Texas of software programs an out-of-state computer 
software company had licensed to Texas customers constituted substantial nexus. 
The ALJ finds that the Decision is not determinative as it is distinguishable 
from the case at hand. The Comptroller treated the licenses as equivalent to 
leases and relied significantly on the fact that the out-of-state retailer 
received recurring rental payments from its Texas customers. In contrast, in 
the instant case, the licenses are not the equivalent of leases and there are 
no recurring payments as Petitioner charges a one-time fee.

There is no question that Petitioner retained rights and interests in the 
products it licensed to its Texas users. All of the license agreements in the 
record provide that the licensed products are the property of and proprietary 
to Petitioner. [ENDNOTE: (54)] In most of the license agreements, the rights 
retained are described as copyrighted or proprietary information protected by 
the laws of the United States. [ENDNOTE: (55)] Other versions of the license 
agreements similarly acknowledge the copyrighted nature of the rights retained 
by Petitioner. [ENDNOTE: (56)] It is also readily evident from the License 
Agreements that the provisions restricting the customersí use of the licenses 
were intended to protect Petitionerís intellectual property rights, which are 
intangible property rights. However, all the license agreements also expressly 
provide that Petitioner retained all other property rights to its products, and 
it is this reservation of all property rights that ultimately militates against 
Petitionerís claim that it lacks the requisite physical presence in Texas.

As noted above, although the statutory characterization of software as tangible 
personal property is not in and of itself determinative that there is the 
requisite physical presence in Texas, what is ultimately determinative is that 
Petitioner has not challenged this characterization. Thus, in light of 
Petitionerís apparent concession that Petitionerís products are tangible 
personal property, the software and digital downloads must necessarily be 
treated as tangible personal property for the purposes of applying the Supreme 
Courtís bright-line test requiring substantial physical presence. This is true 
even though the record is not clear the nature or extent of the rights 
Petitioner retained in this tangible personal property. If the software and 
digital images resided on compact computer disks or floppy computer disks, as 
in QUILL CORP., the nature of the rights retained would be palpably clear. 
However, in the instant case, the record does not establish what comparable 
rights Petitioner could exercise over the software and digital downloads once 
they were downloaded into an electronic form. Nevertheless, the record 
establishes that Petitioner had retained all property rights in tangible 
personal property that was present in Texas throughout the periods in question.

As the software and digital images downloaded in electronic form in Texas 
constitute Petitionerís sole physical presence in Texas, the remaining question 
is whether their presence established substantial nexus with Texas. The Supreme 
Courtís discussion in Footnote 8 in QUILL CORP. does not provide any explicit 
guidance in determining whether the physical presence is substantial. It is 
evident from the evidence that Petitionerís exceeded the minimal nexus rejected 
by the Supreme Court. The licensing of its software and digital images during 
the exam period generated fees that exceeded $*************. Although the sales 
were made over a period of more than eight years, the total amount averages out 
to approximately $************* a year. In addition, the sales were recurring 
throughout the periods in question. This activity cannot be dismissed as not 
establishing a substantial physical presence in Texas; especially in light of 
the Supreme Courtís explanation in Footnote 8 in Quill Corp. that it was 
expressly rejecting a ďslightest presenceĒ standard of constitutional nexus.

The ALJ concludes that Staff met its burden of showing that Petitioner had a 
physical presence in Texas during the exam and refund periods and that this 
physical presence established the requisite substantial nexus with Texas. 
Therefore, Petitioner had an obligation to charge and collect use tax from its 
customers. The ALJ recommends that that the assessments be affirmed and the 
refund claims should be denied.

3. Interest Waiver

Petitioner requests that the accrued interest be waived because it exercised 
reasonable diligence. Petitioner argues that it reasonably believed that it had 
no nexus with Texas for purposes of imposing an obligation to collect and remit 
the use tax on its sales in Texas. Petitioner also emphasizes that it 
cooperated with the BART review.

The Comptroller has discretionary authority to waive an interest assessment any 
time a taxpayer exercised reasonable diligence in complying with Tax Code 
requirements. Tex. Tax Code Ann. SECTION 111.103. The Comptroller may waive an 
interest assessment when it was imposed as a result of undue delay caused by 
Comptroller personnel, reliance on advice provided by the Comptrollerís office, 
or natural disaster. 34 Tex. Admin. Code SECTION 3.5(d). To prevail, Petitioner 
must demonstrate, by a preponderance of the evidence, that interest waiver is 
warranted. 34 Tex. Admin. Code SECTION 1.40(2)(B.)

Petitioner has not provided any evidence that would support granting interest 
waiver on the three grounds identified under 34 Texas Administrative Code 
SECTION 3.5(d). Thus, there is no basis for recommending that the Comptroller 
exercise her discretion to waive interest.

4. Insolvency relief

Petitionerís final request is that it be granted insolvency relief under Texas 
Tax Code SECTION 111.102. Petitioner claims that it is insolvent or will be 
rendered insolvent if required to pay the assessment. The BART assessment was 
calculated based on sales and use tax liabilities it recorded on returns filed 
with BART. Petitioner, however, stresses that it did not have the opportunity 
to collect the tax from its customers when the sales were made because it did 
not know and had no reason to know that the Comptroller would conclude that it 
was responsible for charging, collecting, and remitting use tax from its Texas 
customers.

The Comptroller may settle tax, penalty, or interest if collection of the 
liability would render the taxpayer insolvent, or if the taxpayer is insolvent, 
in liquidation, or has ceased to do business. 34 Tex. Admin. Code SECTION 
1.40(2)(B). The authority to grant insolvency relief is a discretionary 
authority that is entrusted to the Comptroller. SEE Comptrollerís Decision Nos. 
102,012 (2009) and 45,710 (2006). Petitioner must sustain his burden of proof 
to show that it meets the requirements of Texas Tax Code SECTION 111.102 for 
the Comptroller to grant insolvency relief. The Comptroller can exercise 
discretion in settling a case only if Petitioner first sustains his burden of 
proof. SEE Comptrollerís Decision No. 27,499 (1992) and 34 Tex. Admin. Code 
SECTION 1.40(2)(B).

Staff concluded that its review of Petitionerís documentation shows that 
insolvency relief should be denied. Staff found that Petitionerís revenues were 
stable and, while its net taxable income reflected losses for each year from 
2009-2011, a substantial amount of the operating loss was attributable to 
depreciation expenses which do not necessarily represent actual cash outflow. 
If the depreciation is excluded, Staff found that Petitionerís net income 
exceeded the full liability. Petitionerís multiple bank accounts consistently 
have positive balances. Petitioner has not responded to any of these 
objections. The ALJ finds that Petitioner has not met its burden of 
establishing that it is entitled to insolvency relief. In fact, Petitioner has 
not shown that it is insolvent or that payment of the adjusted liabilities 
would render it insolvent. Thus, the ALJ finds no basis for recommending 
insolvency relief. SEE Comptrollerís Decision Nos. 106,117 and 106,118 (2013).

E. Recommendations

The ALJ concludes that Petitioner established that it had a physical presence 
in Texas during the exam and refund periods and that this physical presence 
constituted the requisite substantial nexus with Texas. Therefore, the ALJ 
recommends that the assessments be affirmed and the refund claims be denied. 
Petitioner failed to show that it was entitled to either insolvency relief or 
interest waiver. No change to the assessments is warranted, except for the 
penalty waiver agreed to by Staff.

III. FINDINGS OF FACT

1. During the periods in question, ************* (Petitioner), a Utah 
corporation, was headquartered in CITY A, Utah.

2. Petitioner also sold computer programs and digital content primarily over 
the Internet and via such common carriers as the U.S. Postal Service (USPS), 
the United Parcel Service (UPS), and Federal Express.

3. The Business Activity Research Team (BART), part of the Tax Division (Staff) 
of the Texas Comptroller of Public Accounts (Comptroller), conducted an 
examination of Petitionerís activities to determine whether it had nexus with 
Texas and should have collected and reported sales and use tax on sales to its 
Texas customers.

4. Staff concluded that the sale or licensing of software in Texas through 
downloads from the Internet established nexus for Texas sales and use tax 
purposes.

5. On March 11, 2011, Staff issued to Petitioner a Texas Notification of Exam 
Results for the exam period January 1, 2002 through June 30, 2010, and assessed 
a total of $*************, consisting of tax in the amount of $*************, 
penalty in the amount of $*************, and interest accrued in the amount of 
$*************.

6. Petitioner requested redetermination.

7. Starting with the third quarter of 2010, Petitioner began collecting sales 
tax from its customers and remitting the tax collected to the Comptroller.

8. Petitioner subsequently filed refund claims seeking to recover the taxes 
collected from July 1, 2010 through June 30, 2011. Jeopardy determinations were 
issued for four liability periods from July 1, 2010 through June 30, 2011.

9. On June 15, 2012, Staffís Sales Tax Refunds Verification Section issued a 
letter denying the refund claims because it concluded that Petitioner had nexus 
with Texas.

10. Petitioner filed a request for a refund hearing contesting the 
determinations and denial.

11. On August 1, 2013, Staff referred the cases to the State Office of 
Administrative Hearings (SOAH) for oral hearings and issued Notices of Hearing 
that contained a statement of the date, time and place of the hearings, 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.

12. The Administrative Law Judge (ALJ) joined the cases because they involved 
the same parties and the same issues of law and fact.

13. The ALJ closed the record on February 26, 2014.

14. Staff agreed to waive the imposition of penalties on the tax assessments.

15. During the audit period Petitioner sold computer programs and digital 
content primarily through the Internet, but also through the USPS, UPS, and 
Federal Express.

16. Petitioner does not charge any ongoing maintenance or recurring licensing 
fees for any of its computer programs or digital images.

17. Petitioner does not charge customers for updates to computer programs they 
have already purchased, but does charge customers for upgrades from an older 
version of a program to a newer version.

18. Petitioner earned licensing fees exceeding $************* during the period 
from January 1, 2002 through June 30, 2010 from the software and digital images 
it licensed to Texas users.

19. The purchase and use of Petitionerís products is governed by license 
agreements.

20. All the license agreements granted the customer (or user) a license that 
entitled them to use Petitionerís products.

21. The user was either granted a personal non-exclusive, non-transferable 
license to use the 3-D Models, together with all accompanying written 
materials, images, and other data files or a license to use the product in 
accordance with the terms of the license.

22. The license agreements set no fixed period for the customerís use of the 
license.

23. In some versions, the license agreements expressly provide that the license 
remains in effect only for so long as the user is in compliance with the terms 
and conditions of this agreement.

24. The products licensed under these License Agreements are provided for the 
userís exclusive use.

25. The license agreements contain provisions specifically restricting the use 
of the products by third parties other than the user.

26. The provisions restricting the use of the products are intended, at least 
in part, to protect Petitionerís intellectual rights and copyrights to 
Petitionerís products.

27. The License Agreements explicitly provide that Petitioner retained all 
rights in, title to, and ownership of the licensed products.

28. In July 2002, three of Petitionerís employees attended SOFTWARE, a 
conference held in CITY C, Texas.

29. SOFTWARE is an annual week-long education conference that attracts members 
of the international computer graphics community.

30. SOFTWARE is a widely recognized forum for publication of computer graphics 
research and is primarily attended by professionals employed in fields within 
the 3D industry.

31. Petitioner did not participate as an exhibitor at the 2002 SOFTWARE 
conference.

32. Petitionerís employees attended the July 2002 SOFTWARE conference to learn 
about developments in the computer graphics industry and not to solicit orders 
or ďdrum upĒ sales in Texas.

33. In September 2009, Petitioner sent one employee, INDIVIDUAL D, its product 
manager, to the OTHERís Conference in CITY D, Texas.

34. The employee was sent to the OTHERís Conference to learn from OTHER what 
content specifications their development systems required and to observe its 
competitors.

35. No exhibit booth was set up or maintained at the OTHERís Conference.

36. INDIVIDUAL Dís participation at the OTHERís Conference was limited to 
educational activities.

37. INDIVIDUAL D did not engage in any activities related to developing or 
promoting Petitionerís sales He did not sell, deliver or take orders for 
Petitionerís products during his attendance at the conference. He did not visit 
any of Petitionerís customers or vendors, offer technical support, or hold any 
outside meetings related to Petitionerís business.

38. Petitioner did not challenge Staffís characterization of the Petitionerís 
software and digital images as constituting tangible personal property for 
sales and use tax purposes.

39. Petitioner did not establish that it was insolvent or that payment of the 
assessments would render it insolvent.

40. Petitioner did not provide evidence establishing that there was undue delay 
caused by Comptroller personnel, reliance on advice provided by the 
Comptrollerís office, or natural disaster.

IV. CONCLUSIONS OF LAW

1. The Comptroller has jurisdiction over this matter pursuant to Texas Tax Code 
ch. 111.

2. SOAH 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 Texas Government Code ch. 2003.

3. Staff provided proper and timely notice of the hearing pursuant to Texas 
Government Code ch. 2001.

4. Generally, the burden of proof rests on Staff to make a PRIMA FACIE showing 
that the requisite nexus exists for the imposition of the tax. SEE 
Comptrollerís Decision Nos. 107,789 and 107,790 (2013); and 100,984 (2010).

5. If Staff meets its burden, the burden rests on Petitioner to prove by a 
preponderance of the evidence that it lacked the requisite nexus with Texas. 
Id. and 34 Tex. Admin. Code SECTION 1.40(2)(B).

6. An out-of-state retailer who is engaged in business in Texas and who makes a 
sale of a taxable item for storage, use, or consumption in Texas is required to 
collect use tax from the purchaser. Tex. Tax Code Ann. SECTION 151.107.

7. Texas Tax Code SECTION 151.107 provides, in relevant part, that a retailer 
is engaged in business in Texas and subject to tax if the retailer:

a.) maintains, occupies, or uses in this state permanently, temporarily, 
directly, or indirectly or through a subsidiary or agent by whatever name, an 
office, distribution center, sales or sample room or place, warehouse, storage 
place, or any other physical location where business is conducted;

b.) has a representative, agent, salesman, canvasser, or solicitor operating in 
this state under the authority of the retailer or its subsidiary for the 
purpose of selling or delivering or the taking of orders for a taxable item;

c.) derives receipts from the sale, lease, or rental of tangible personal 
property situated in this state;

d.) solicits orders for taxable items by mail or through other media and under 
federal law is subject to or permitted to be made subject to the jurisdiction 
of this state for purposes of collecting the taxes imposed by this chapter; or

e.) otherwise does business in this state.

8. The Comptroller recognizes the applicability of federal case law in 
determining whether Petitioner has sufficient constitutional nexus to subject 
it to the payment of use tax. SEE Comptrollerís Decision No. 46,628 (2006).

9. Nexus is defined in 34 Texas Administrative Code SECTION 3.286(a)(5) as 
meaning ďsufficient contact with or activity within this state, as determined 
by state and federal law, to require a person to collect and remit sales and 
use tax.Ē

10. Texas Tax Code SECTION 101.002(b) provides that ďTexasí authority to tax 
shall extend to the limits of the then current interpretations of the Texas 
Constitution and United States Constitution and laws.Ē

11. Once nexus is established with Texas, an out-of-state retailer must collect 
use tax on all taxable sales made into Texas during the time period that it 
engages in business in this state. Tex. Tax Code Ann. SECTION 151.103.

12. Computer programs are considered tangible personal property for sales tax 
purposes under Texas Tax Code SECTION 151.009.

13. Under the four-part test set out by the U.S. Supreme Court in COMPLETE AUTO 
TRANSIT V. BRADY, 430 U.S. 274, 279 (1977) a state tax will be sustained 
against a U.S. Commerce Clause challenge so long as the tax: ďis applied to an 
activity with a substantial nexus with the taxing state, is fairly apportioned, 
does not discriminate against interstate commerce, and is fairly related to the 
services provided by the State.Ē

14. It is well settled that the Texas use tax is fairly apportioned, does not 
discriminate against interstate commerce, and is fairly related to the services 
provided by the state. SEE Comptrollerís Decision No. 36,237 (1998).

15. The Supreme Court in SCRIPTO, INC. V. CARSON, 362 U.S. 207 (1960) held that 
the solicitation of orders within Florida by independent brokers formed 
sufficient nexus to subject the out-of-state retailers to the collection of use 
tax.

16. SEE ALSO 34 Tex. Admin. Code SECTION 3.286(a)(2)(B), which provides that a 
person has nexus with the state if he ďhas any representative, agent, 
salesperson, canvasser, or solicitor who operates in this state under the 
authority of the seller to conduct business, including selling, delivering, or 
taking orders for taxable items.Ē

17. The activities of an in-state representative may still create 
constitutional nexus even if those activities do not directly involve the 
selling, delivering, or taking of orders. SEE TYLER PIPE INDUS. V. DEPíT OF 
REVENUE, 483 U.S. 232 (1986), in which the Court affirmed the principle of 
ďsignificant associationĒ which makes it clear that the representational nexus 
is not confined to solicitation.

18. An out-of-state retailer can have sufficient constitutional nexus with a 
state if the sellerís activities, whether conducted by an employee or agent, or 
by an independent contractor, are significantly associated with the sellerís 
ability to establish and maintain a market in the state. SEE TYLER PIPE INDUS, 
483 U.S. at 249-250.

19. Petitionerís participation in the 2002 SOFTWARE conference held in CITY C, 
Texas in 2002 did not establish the substantial nexus required to subject 
Petitioner to use tax.

20. The attendance of an employee at the OTHERí Conference held in CITY D, 
Texas in 2009 did not establish the substantial nexus required to subject 
Petitioner to use tax.

21. In QUILL CORP. V. NORTH DAKOTA, 504 U.S. 298, 311-312 (1992), the Supreme 
Court held that a physical presence in the state is required in order to 
establish substantial nexus with the state.

22. The Court in QUILL CORP., 504 U.S. at 315 dismissed as insufficient to 
satisfy the substantial nexus requirement the mail-order houseís ownership of 
computer floppy diskettes located in the state that contained software it had 
licensed to its customers.

23. Petitionerís property rights to the software and digital images that were 
licensed to its users in Texas and had downloaded in electronic form were 
sufficient to establish the requisite physical presence in Texas to constitute 
the substantial nexus necessary to subject Petitioner to the obligation to 
charge and collect use tax during the periods in question.

24. The Comptroller has discretionary authority to waive an interest assessment 
any time a taxpayer exercised reasonable diligence in complying with Tax Code 
requirements. Tex. Tax Code Ann. SECTION 111.103.

25. The Comptroller may waive an interest assessment when it was imposed as a 
result of undue delay caused by Comptroller personnel, reliance on advice 
provided by the Comptrollerís office, or natural disaster. 34 Tex. Admin. Code 
SECTION 3.5(d).

26. To prevail, Petitioner must demonstrate, by a preponderance of the 
evidence, that interest waiver is warranted. 34 Tex. Admin. Code SECTION 
1.40(2)(B).

27. Petitioner failed to show by a preponderance of the evidence that it was 
entitled to interest waiver.

28. The Comptroller may settle tax, penalty, or interest if collection of the 
liability would render the taxpayer insolvent, or if the taxpayer is insolvent, 
in liquidation, or has ceased to do business. Tex. Tax Code Ann. SECTION 
111.102.

29. The authority to grant insolvency relief is a discretionary authority that 
is entrusted to the Comptroller. SEE Comptrollerís Decision Nos. 102,012 (2009) 
and 45,710 (2006).

30. Petitioner must sustain his burden of proof to show that it meets the 
requirements of Texas Tax Code SECTION 111.102 for the Comptroller to grant 
insolvency relief. The Comptroller can exercise discretion in settling a case 
only if Petitioner first sustains his burden of proof. SEE Comptrollerís 
Decision No. 27,499 (1992) and 34 Tex. Admin. Code SECTION 1.40(2)(B).

31. The denial of insolvency relief should be affirmed.

32. The assessments should be affirmed subject to the waiver for penalty agreed 
to by Staff.

33. The denial of the refund claims should be affirmed.

Hearing Nos. 106,632; 108626


ORDER OF THE COMPTROLLER

On April 25, 2014, the State Office of Administrative Hearingsí Administrative 
Law Judge (ALJ), Peter Brooks, issued a Proposal for Decision in the 
above-referenced matter to which Petitioner filed exceptions on May 8, 2014. 
The Comptroller has considered the exceptions and the ALJís recommendation 
letter and determined that the ALJís Proposal for Decision, in addition to 
minor changes to correct typographical or clerical errors, should be adopted 
with minor changes and this Decision represents the ruling thereon. Findings of 
Fact Nos. 8 and 10, Conclusion of Law No. 32, and the discussion section are 
modified to reflect the assessments at issue. For example, ďassessmentĒ is 
changed to ďassessmentsĒ in Conclusion of Law No. 32.

The above Decision resulting in Petitioner's liabilities as set out in 
Attachments A, which are 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 19th day of September 2014.


SUSAN COMBS
Texas Comptroller of Public Accounts


by: Martin A. Hubert
Deputy Comptroller

ENDNOTE(S)

(1) ************* is referred generally for most purposes in this Proposal for 
Decision (PFD) as Petitioner. 

(2) Exhibits 7 and 8 represent different license agreements.

(3) The ALJ could not find Tax Publication 96-276 on the Comptrollerís website 
reserved for Tax Publications, window.state.tx.us/taxinfor/taxpubs/index.html.  
Although references were made to the publication in the following STAR 
Documents: Accession Nos. 200204980L, 20006394L, 200608848H, and 200108433L, 
the publication could not be found published on the STAR database.  Therefore, 
it is not clear to what extent Publication 96,276 represents current, valid 
Comptroller policy.  However, the ALJ did not find it was necessary to refer to 
this publication.

(4) Exhibits 1 through 10 were submitted jointly on October 15, 2013. The bank 
statements referenced in Exhibit 11 were attached to Petitionerís Reply, 
Amended Statement of Grounds, and Claim for Refund included in the 
administrative record submitted by Staff as part of Docket No. 304-13-5655.26

(5) Petitioner moved its headquarters from CITY B, Utah to CITY A, Utah, in 
2013.

(6) Petitionerís Exhibit 7, Affidavit of INDIVIDUAL A.

(7) Staffís Exhibit 4 (Docket No. 304-13-5657.26), letter from David Elizondo 
dated September 13, 2010.

(8) Petitionerís letter dated October 28, 2010, addressed to Ruben Valdes, 
Staffís Audit Processing Division, (Docket No. 304-13-5657 administrative 
record) 

(9) According to the Jeopardy Determinations issued by Staff for these periods, 
Petitioner self-reported and remitted more than $************* in taxes.  
Petitionerís Exhibits 2-5. 

(10) Staffís Exhibit 1 (Docket No. 304-13-5655.26).

(11) Petitionerís Exhibit 7, Affidavit of INDIVIDUAL A, and Exhibit 13, 
Supplemental Affidavit of INDIVIDUAL A.  INDIVIDUAL Aís affidavit testimony is 
corroborated by the affidavit testimony of INDIVIDUAL B, who was Petitionerís 
Chief Operating Officer and Chief Marketing Officer during the audit and refund 
periods.  Petitionerís Exhibit 8. 

(12) Id.

(13) Id.

(14) Id.

(15) Id.

(16) Petitionerís Exhibit 7, INDIVIDUAL Aís Affidavit, Exhibit C.

(17) The three License Agreements submitted by Staff as Exhibits 5, 8, 9, and 
10 are included among the license agreements found in Exhibit B of Petitionerís 
Exhibit 7, Affidavit of INDIVIDUAL A.

(18) Petitionerís Exhibit 7, attachments i, ii, v, vi, and viii.

(19) Petitionerís Exhibit 7, attachments iii, iv, and vii.

(20) In the case of certain academic versions, the license remains in effect 
only for so long as the user is a registered full- time student or a faculty 
member at an accredited higher education institution.  Petitionerís Exhibit 7, 
attachment iii (reference to academic version).

(21) Petitionerís Exhibit 7, attachments iii, iv, and vii.

(22) Petitionerís Exhibit 7, attachments i, ii, v, vi, and viii.

(23) Petitionerís Exhibit 7, attachments iii, iv, and vii.

(24) Petitionerís Exhibit 7, attachments i, ii, v, vi, and viii.

(25) Petitionerís Exhibit 7, attachments iii, iv, and vii.

(26) Petitionerís Exhibit 7, attachments i, ii, v, vi, and viii.

(27) Petitionerís Exhibit 7, attachments iii, iv, and vii.

(28) Petitionerís Exhibit 7, attachments i-viii.

(29) Petitionerís Exhibit 7, attachment i, ii, v, vi, and viii.

(30) Petitionerís Exhibit 7, attachment iii, iv, and vii.

(31) Petitionerís Exhibit 7, attachments i-viii.

(32) Petitionerís Exhibit 7, attachments i, ii, v, vi, and viii.

(33) Id.

(34) Id.

(35) Petitionerís Exhibit 7, attachments: iii, iv, and vii.

(36) Petitionerís Exhibit 12, Affidavit of INDIVIDUAL E, employee of COMPANY C, 
the company that managed the exhibitors at SOFTWARE conferences.

(37) Id.

(38) Id.

(39) Id.

(40) Id.

(41) Petitionerís Exhibits 12, 8, and 13, respectively, Affidavits of 
INDIVIDUAL E, INDIVIDUAL B, and INDIVIDUAL A.

(42) Petitionerís Exhibits 8 and 13, Affidavits of INDIVIDUAL B and INDIVIDUAL 
A.

(43) Petitionerís Exhibit 9, Affidavit of INDIVIDUAL C.

(44) Id.

(45) Petitionerís Exhibit 8, Affidavit of INDIVIDUAL B.

(46) Id.

(47) Id.

(48) Id.

(49) Id.

(50) Id.

(51) Id.

(52) Id.

(53) Staffís Final Response dated November 13, 2013.

(54) Petitionerís Exhibit 7, attachments i-viii.

(55) Petitionerís Exhibit 7, Attachment i, ii, v, vi, and viii.

(56) Petitionerís Exhibit 7, attachment iii, iv, and vii.




ACCESSION NUMBER: 201409970H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 09/19/2014
TAX TYPE: SALES