202005024H
ALERT – Sections 151.054 and 151.154 were amended to change the 60 day timeframe for presenting resale/exemption certificates to the auditor. Senate Bill 296, 87th Leg. Session (2021) requires that certificates be presented to the auditor within 90 days or a date agreed to by the comptroller and the seller effective 06/07/2021.
SOAH DOCKET NO. 304-20-2225.26
CPA HEARING NO. 116,469
RE: **************
TAXPAYER NO: **************
AUDIT OFFICE: **************
AUDIT PERIOD: August 1, 2014 THROUGH December 31, 2017
Sales And Use Tax/RDT
BEFORE THE COMPTROLLER
OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS
GLENN HEGAR
Texas Comptroller of Public Accounts
ROBERT SCOTT
Representing Respondent
**************
Representing Petitioner
COMPTROLLER’S DECISION
This decision is considered final on June 8, 2020, unless a motion for rehearing is timely filed; this date of finality is calculated based on the Administrative Procedure Act (APA).[1] The failure to timely file a motion for rehearing may result in adverse legal consequences.
Administrative Law Judge (ALJ) Kathy Pickup of the State Office of Administrative Hearings (SOAH) issued a Proposal for Decision (PFD) that includes Findings of Fact and Conclusions of Law. SOAH served the PFD on each party and each party was given an opportunity to file exceptions and replies with SOAH in accordance with SOAH’s rules of procedure. The ALJ recommended that the Comptroller adopt the PFD as written.
After review and consideration, IT IS ORDERED that the PFD is adopted as written.
The result from this Decision is Attachment A. The ALJ’s letter to the Comptroller is Attachment B. The PFD as written is Attachment C. Attachments A, B, and C are incorporated by reference.
Attachment A reflects a liability.
The total sum of the tax, penalty, and interest is due and payable 20 days after a comptroller’s decision becomes final.[2] If such sum is not timely paid, an additional penalty of 10 percent of the taxes due will accrue.
SIGNED on this 14th day of May 2020
GLENN HEGAR
Comptroller of Public Accounts
By: Lisa Craven
Deputy Comptroller
Attachment A, Texas Notification of Hearing Results
Attachment B, ALJ’s letter to the Comptroller
Attachment C, Proposal for Decision as written
ATTACHMENT C
SOAH DOCKET NO. 304-20-2225.26
TCPA DOCKET NO. 116,469
**************
Taxpayer No. **************
v.
TEXAS COMPTROLLER OF PUBLIC ACCOUNTS
BEFORE THE STATE OFFICE OF ADMINISTRATIVE HEARINGS
PROPOSAL FOR DECISION
The Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller) audited ************** (Petitioner) for compliance with Texas sales and use tax laws and made an assessment that included tax, partial penalty, and interest. Staff waived penalty for periods originally filed on time. Petitioner requested redetermination contending that: (1) it detrimentally relied on advice received from the Comptroller’s office in September 2014, regarding its local tax collection responsibilities, and (2) it will provide additional exemption certificates. In this Proposal for Decision, the Administrative Law Judge (ALJ) finds that the audit assessment should be affirmed.
I. PROCEDURAL HISTORY, NOTICE, AND JURISDICTION
Staff referred the case to the State Office of Administrative Hearings (SOAH) and, on January 29, 2020, issued a Notice of Hearing by Written Submission. The same day, ALJ Kathy Pickup issued Order No. 1, which set the written submission hearing. Petitioner was represented by **************, CPA, of COMPANY, and Staff was represented by Robert Scott. The record closed March 30, 2020. There are no issues of notice or jurisdiction; therefore, those matters are set out in the Findings of Fact and Conclusions of Law without further discussion here.
II. REASONS FOR DECISION
A. Evidence Presented
Staff submitted the pleadings the parties exchanged before the case was referred to SOAH and attached to Petitioner’s Statement of Grounds was a Sales Tax Rate Locator. Staff offered the following exhibits for admission into evidence:
1. 60-Day Letter;
2. Texas Notification of Audit Results;
3. Penalty and Interest Waiver Worksheet;
4. Audit Report; and
5. Audit Plan.
The parties’ exhibits are admitted into the record without objection.
B. Agreements
Staff did not agree to make any adjustments to the audit assessment.
C. Material Facts and Contested Issues
During the period at issue, Petitioner sold and delivered ready mix concrete to local businesses in the CITY, Texas area. In November 2017, Staff initiated a sales and use tax compliance audit of Petitioner for the period August 1, 2014, through December 31, 2017. Petitioner provided resale and exemption certificates, sales and purchase invoices, tax work papers, chart of accounts, federal income tax returns, bank statements, sales journals, depreciation schedules, and accounts payable journals.
The auditor completed detailed examinations of Petitioner’s purchases and made adjustments for taxable purchases of assets and expenses on which no tax was paid or accrued. Due to the high volume of sales transactions, the auditor completed three sample and projection examinations. The auditor made adjustments for local taxes; tax collected, but not remitted; and disallowed deductions. Credits were allowed for tax paid to vendors in error and additional city taxes.
On September 13, 2018, Staff issued Petitioner a Texas Notification of Audit Results, assessing tax, partial penalty and interest. Staff waived penalty for periods originally filed on time. Petitioner requested redetermination. Petitioner contends it detrimentally relied on oral advice it received from a Comptroller employee in September 2014, when it went to the local Comptroller’s office in person to file its August 2014 monthly sales report. Petitioner states that it was told by the clerk in the Comptroller’s office that Petitioner was required to collect only Texas state sales tax of 6.25%. Staff contends that the alleged verbal communication is not supported by any written evidence from a Comptroller employee to Petitioner, and there is no evidence to show what information Petitioner provided to the Comptroller’s employee that may have affected the advice provided.
Petitioner also contends that it needs more time to provide additional exemption certificates. On October 18, 2018, the Comptroller issued written notice to Petitioner to present its resale and exemption certificates within 60 days. Petitioner did not provide additional certificates to the auditor during audit redetermination.
D. Analysis and ALJ Recommendations
1. Detrimental Reliance
Petitioner argued that it relied on Comptroller advice to its detriment with regard to the collection of local tax. The Comptroller has long held that if the Comptroller’s office “by certain communications or conduct directed to a given taxpayer has induced that taxpayer to act in a particular manner, the Comptroller should not later adopt a contrary position or course of conduct that will cause the taxpayer loss, harm, or detriment as a result of its reliance on the earlier Comptroller action.” See, e.g., Comptroller’s Decision No. 27,506 (1991). Pursuant to the Comptroller’s administrative rule, he will consider giving relief to a taxpayer who was harmed by following erroneous advice given by an agency employee, if the taxpayer provided complete and accurate information to the employee. 34 Tex. Admin. Code § 3.10(c). The taxpayer’s evidence must demonstrate: (1) the substance of the information or advice and that it was communicated directly to the taxpayer in a private letter ruling; (2) that the taxpayer followed the information or advice; (3) that the taxpayer gave sufficient information to have resulted in correct advice and did not misrepresent information, or withhold or conceal information that would affect the advice; and (4) the taxpayer has suffered, or will suffer, harm based on the erroneous advice unless the Comptroller provides the requested relief. Id. § 3.10(c)(1).
Petitioner’s expectation that advice received from a Comptroller employee could be relied upon is reasonable. However, oral communication alone is insufficient to support tax relief based on a claim of detrimental reliance. Id. The ALJ concludes that the substance of the advice was not communicated in a private letter ruling and there is no evidence of the information provided by Petitioner to the Comptroller. Therefore, the ALJ finds Petitioner did not prove, by a preponderance of the evidence, that the audit was erroneous, and did not establish a basis for detrimental reliance relief. The contention should be denied.
2. Exemption Certificates
Texas imposes a tax on each sale of a taxable item in this state. Tex. Tax Code § 151.051. The term “taxable item” includes tangible personal property and taxable services. Id. § 151.010. All gross receipts of a seller are presumed to have been subject to the sales tax unless a properly completed resale or exemption certificate is accepted by the seller. Id. § 151.054(a).
When a seller is audited by the Comptroller, it is required to provide a resale or exemption certificate to support tax-free sales. See Comptroller’s Decision Nos. 114,343 (2018), 113,393 (2018). If the certificates are not in the seller’s possession during the audit, they must be delivered to the Comptroller within 60 days of the Comptroller’s written notice for the certificates. See Tex. Tax Code §151.054(e); 34 Tex. Admin. Code §§ 3.285(b)(4), .287(d)(4). Certificates delivered after the 60-day period will not be accepted, the exemption will not be granted, and any deductions that require certificates will be disallowed. See Id. When a 60-day letter has been received, a resale or exemption certificate is the only acceptable proof that a taxable item was purchased for resale or qualifies for exemption. 34 Tex. Admin. Code § 3.282(k)(3). Generally, the burden rests on Petitioner to show audit error by a preponderance of the evidence, but when it seeks to demonstrate an exemption applies, it must provide clear and convincing evidence. See Id. § 1.26(c), (e).
Staff provided Petitioner with a 60‑day letter notifying it of the deadline to provide additional resale or exemptions certificates, and Petitioner did not provide additional certificates within the time allowed. The ALJ finds Petitioner failed to demonstrate by clear and convincing evidence that an exemption applies, and the audit assessment should be affirmed in its entirety.
III. FINDINGS OF FACT
1. During the period at issue, ************** (Petitioner) sold and delivered ready mix concrete to local businesses in the CITY, Texas area.
2. In November 2017, the Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller) initiated a sales and use tax compliance audit of Petitioner for the period August 1, 2014, through December 31, 2017.
3. Petitioner provided resale and exemption certificates, sales and purchase invoices, tax work papers, chart of accounts, federal income tax returns, bank statements, sales journals, depreciation schedules, and accounts payable journals.
4. The auditor completed detailed examinations of Petitioner’s purchases and made adjustments for taxable purchases of assets and expenses on which no tax was paid or accrued.
5. Due to the high volume of sales transactions, the auditor completed three sample and projection examinations, and made adjustments for local taxes; tax collected, but not remitted; and disallowed deductions.
6. Credits were allowed for tax paid to vendors in error and additional city taxes.
7. On September 13, 2018, Staff issued Petitioner a Texas Notification of Audit Results, assessing tax, partial penalty and interest. Staff waived penalty for periods originally filed on time.
8. Petitioner requested redetermination, contending it detrimentally relied on oral advice it received from a Comptroller employee in September 2014 that Petitioner was required to collect only Texas state sales tax of 6.25%, and it required more time to provide additional exemption certificates.
9. On October 18, 2018, the Comptroller issued written notice to Petitioner to present its resale and exemption certificates within 60 days.
10. Staff referred the case to the State Office of Administrative Hearings (SOAH), and on January 29, 2020, issued a Notice of Hearing by Written Submission. The notice 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 factual matters asserted or an attachment that incorporated by reference the factual matters asserted in the complaint or petition filed with the state agency.
11. On January 29, 2020, the Administrative Law Judge issued Order No. 1, which set the written submission hearing.
12. The record closed on March 30, 2020.
IV. CONCLUSIONS OF LAW
1. The Comptroller has jurisdiction over this matter. See Tex. 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. See Tex. Gov’t Code ch. 2003.
3. Staff provided proper and timely notice of the hearing. See Tex. Gov’t Code ch. 2001; Tex. Tax Code § 111.009.
4. If the Comptroller’s office “by certain communications or conduct directed to a given taxpayer has induced that taxpayer to act in a particular manner, the Comptroller should not later adopt a contrary position or course of conduct that will cause the taxpayer loss, harm, or detriment as a result of its reliance on the earlier Comptroller action.” See, e.g., Comptroller’s Decision No. 27,506 (1991).
5. The Comptroller will consider giving relief to a taxpayer who was harmed by following erroneous advice given by an agency employee, if the taxpayer provided complete and accurate information to the employee. 34 Tex. Admin. Code § 3.10(c).
6. The taxpayer’s evidence must demonstrate the substance of the information or advice and that it was communicated directly to the taxpayer in a private letter ruling; that the taxpayer followed the information or advice; that the taxpayer gave sufficient information to have resulted in correct advice and did not misrepresent information, or withhold or conceal information that would affect the advice; and the taxpayer has suffered, or will suffer, harm based on the erroneous advice unless the Comptroller provides the requested relief. 34 Tex. Admin. Code § 3.10(c)(1).
7. Petitioner’s expectation that advice received from a Comptroller employee could be relied upon is reasonable.
8. Oral communication alone is insufficient to support tax relief based on a claim of detrimental reliance. 34 Tex. Admin. Code § 3.10(c)(1).
9. The substance of the advice was not communicated to Petitioner in a private letter ruling, and there is no evidence of the information provided by Petitioner to the Comptroller.
10. Petitioner did not establish a basis for detrimental reliance relief.
11. All gross receipts of a seller are presumed to have been subject to the sales tax unless a properly completed resale or exemption certificate is accepted by the seller. Tex. Tax Code § 151.054(a).
12. Texas imposes a tax on each sale of a taxable item in this state. Tex. Tax Code § 151.051.
13. The term “taxable item” includes tangible personal property and taxable services. Tex. Tax Code § 151.010.
14. When a seller is audited by the Comptroller, it is required to provide a resale or exemption certificate to support tax-free sales. See Comptroller’s Decision Nos. 114,343 (2018), 113,393 (2018).
15. If the certificates are not in the seller’s possession during the audit, they must be delivered to the Comptroller within 60 days of the Comptroller’s written notice for the certificates. Tex. Tax Code § 151.054(e); 34 Tex. Admin. Code §§ 3.285(b)(4), .287(d)(4).
16. Certificates delivered after the 60-day period will not be accepted, the exemption will not be granted, and any deductions that require certificates will be disallowed. Tax Code §151.054(e); 34 Tex. Admin. Code §§ 3.285(b)(4), .287(d)(4).
17. When a 60-day letter has been received, a resale or exemption certificate is the only acceptable proof that a taxable item was purchased for resale or qualifies for exemption. 34 Tex. Admin. Code § 3.282(k)(3).
18. The burden rests on Petitioner to show audit error by a preponderance of the evidence, but when it seeks to demonstrate an exemption applies, it must provide clear and convincing evidence. 34 Tex. Admin. Code § 1.26(c), (e).
19. Petitioner did not demonstrate by a preponderance of the evidence that the audit was incorrect or by clear and convincing evidence that any of its sales were exempt.
20. The audit assessment should be affirmed.
SIGNED March 31, 2020.
KATHY PICKUP
ADMINISTRATIVE LAW JUDGE
STATE OFFICE OF ADMINISTRATIVE HEARINGS
ENDNOTES:
[1] The date calculated is 25 days after this decision is signed. See APA, Tex. Gov’t Code § 2001.146(a); S.B. 1095, Acts 2017, 85th Leg. For additional guidance, refer to the Frequently Asked Questions Related to Motions for Rehearing, found here: http://comptroller.texas.gov/taxes/publications/96-1789.pdf
[2] See Tex. Tax Code § 111.0081(c).
ACCESSION NUMBER: 202005024H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 2020-05-14
TAX TYPE: SALES
