This one is extremely interested as it appears the taxpayer charged 8% on invoices, intending 6.25% to be sales tax and 1.75% to be a fee, but just used the sales tax line to do it. This qualifies as a horror story as if everything is taken at face value, they are collecting and remitting the appropriate things, but because they didn't get their invoice form right at the beginning, every transaction was wrong afterwords.
I do think diligent defense could have changed the outcome of this, maybe not entirely in their favor, but if they present exactly where that 1.75% was going, maybe there would have been some leniency.
202309039H
SOAH DOCKET NO. 304-23-11455
CPA HEARING NO. 118,760
RE: **************
TAXPAYER NO: **************
AUDIT OFFICE: **************
AUDIT PERIOD: December 1, 2016 THROUGH September 30, 2019
Sales And Use Tax/RDT
BEFORE THE COMPTROLLER
OF PUBLIC ACCOUNTS OF
THE STATE OF TEXAS
GLENN HEGAR
Texas Comptroller of Public Accounts
EDUARDO VASQUEZ
Representing Respondent
**************
Representing Petitioner
COMPTROLLER’S DECISION
This decision is considered final on October 17, 2023, 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) Keneshia Washington 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 recommendation letter is Attachment B. The PFD as written is Attachment C. Attachments A, B, and C are incorporated by reference.
Attachment A reflects a liability.[2]
The total sum of the tax, penalty, and interest is due and payable 20 days after a comptroller’s decision becomes final.[3] If such sum is not timely paid, an additional penalty of 10 percent of the taxes due will accrue.
SIGNED on this 22nd day of September 2023
GLENN HEGAR
Comptroller of Public Accounts
By: Lisa Craven
Deputy Comptroller
Attachment A, Texas Notification of Hearing Results
Attachment B, ALJ’s recommendation letter
Attachment C, Proposal for Decision as written
ATTACHMENT C
SOAH Docket No. 304-23-11455
TCPA Hearing No. 118,760
**************
TAXPAYER NO: **************
v.
TEXAS COMPTROLLER OF PUBLIC ACCOUNTS
BEFORE THE STATE OFFICE OF ADMINISTRATIVE HEARINGS
Proposal for Decision
************** dba COMPANY A (Petitioner) was audited for sales and use tax compliance by the Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller). Petitioner was assessed tax, interest, and a 10% late penalty on Exams 4 and 5 which are largely comprised of tax collected but not remitted. It requested redetermination, contending the audit erroneously calculated tax collected not remitted and assessed tax on exempt sales and purchases. Staff asserts Petitioner failed to prove audit error or that any of the assessed transactions were tax exempt. In this Proposal for Decision, the Administrative Law Judge (ALJ) recommends that the assessment against Petitioner be affirmed.
I. NOTICE, JURISDICTION, AND PROCEDURAL HISTORY
Staff referred the contested case to the State Office of Administrative Hearings (SOAH) and, on February 8, 2023, issued Petitioner a Notice of Hearing by Written Submission. On February 15, 2023, ALJ Keneshia Washington issued an Order Setting Written Submission Requirements, which set the written submission hearing, filing deadlines, and a record close date of May 30, 2023. Petitioner was represented by taxpayer representative **************. Eduardo Vasquez represented Staff.
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.
II. REASONS FOR DECISION
A. EVIDENCE PRESENTED
Petitioner did not provide any evidence for the hearing. Staff provided the pleadings the parties exchanged prior to referring the matter to SOAH and offered the following exhibits:
1. Ninety Day Letter;
2. Texas Notification of Audit Results;
3. Penalty & Interest Waiver Worksheet;
4. Audit Report;
5. Audit Plan;
6. Requests for Records; and
7. Independent Audit Review.
Staff’s exhibits were admitted into the record without objection.
B. AGREED ADJUSTMENTS
Staff did not agree to make any adjustments to the audit.
C. FACTS ESTABLISHED AND ISSUES PRESENTED
During the period at issue, Petitioner was engaged in the business of manufacturing and selling ready-mix concrete outside of the city of CITY, Texas. For the majority of its sales, Petitioner delivered orders to its customers by company-owned or rented trucks. For the remainder, the customers picked up orders from Petitioner’s place of business.
In March 2020, Staff initiated a sales and use tax compliance audit of Petitioner’s business for the period of December 1, 2016, through September 30, 2019. Petitioner provided the auditor with sales journals, accounts payable journals, resale and exemption certificates, purchase invoices, depreciation schedules, a chart of accounts, general ledgers, federal income tax returns, financial statements, and bank statements. Based on its sales invoices, Petitioner charged its customers a flat 8% sales tax rate for taxable sales. It remitted 6.25% tax to the Comptroller. For nontaxable sales, Petitioner did not charge tax or fees.
For two sales invoices, Petitioner did not charge tax on the sale of its concrete mix and did not provide a corresponding exemption certificate. The auditor scheduled disallowed deductions in Exam 1. Based on its depreciation schedule, Petitioner purchased a bin using Craigslist and did not provide a receipt or purchase invoice showing that it paid tax to the seller. The auditor scheduled the taxable asset purchase in Exam 3.
Petitioner’s business is not located within the city limits of CITY, Texas. Hence, when customers pickup orders at Petitioner’s place of business, only 6.25% state tax is due. Petitioner charges a flat 8% tax rate on its sales and only remits 6.25%. The auditor determined tax collected but not remitted to the Comptroller based on Petitioner’s sales and use tax returns, sales journals, and invoices. The auditor scheduled the 1.75% difference between tax collected and tax remitted for orders picked up by the customer at Petitioner’s business location in Exam 4. When Petitioner delivers the order to the customer’s location, state tax is due along with local tax depending on the delivery location. The auditor scheduled tax collected but not remitted and any additional local tax due in Exam 5.
On February 2, 2021, Staff issued a Texas Notification of Audit Results to Petitioner. The assessment included tax, interest, and a 10% late penalty on Exams 4 and 5. Petitioner timely requested redetermination and an Independent Audit Review Conference, asserting the additional 1.75% charged to its customers was an Environmental Protection Agency (EPA) fee collected to cover required permitting, special washout pits, air quality and water testing, onsite maintenance to perform other requirements, dust collection, etc. Staff did not agree to any adjustments to the audit and referred the matter to SOAH.
D. ALJ’S ANALYSIS AND RECOMMENDATION
The law requires retailers to keep records that reflect the total gross receipts from sales and the total purchases of taxable items. Tex. Tax Code § 151.025; 34 Tex. Admin. Code § 3.281(b). For example, a taxpayer is required to keep records to substantiate each claimed deduction or exclusion authorized by law. Tex. Tax Code § 151.025(a)(3). In a contested case hearing, the taxpayer must produce contemporaneous records and supporting documentation appropriate to the tax or fee for the transactions in question to substantiate and enable verification of the taxpayer’s claim related to the amount of tax, penalty, or interest to be assessed, collected, or refunded. 34 Tex. Admin. Code § 1.26(a). A taxpayer cannot defeat an assessment based on the burden of proof by not providing the necessary documents. See, e.g., Comptroller’s Decision No. 107,078 (2015).
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. When tax is imposed on tangible personal property the taxing entity’s prima facie burden of proof is easily met because, unless an exemption applies, all sales of tangible personal property in this state are taxable. Comptroller’s Decision No. 116,506 (2020). Petitioner bears the burden of showing that an exemption applies by clear and convincing evidence. 34 Tex. Admin. Code § 1.26(c). In this case, tax is assessed on sales and a purchase of tangible personal property in Exams 3 and 4. Petitioner has not provided any documentation to show that any of the transactions are exempt from tax; therefore, they should remain assessed.
A ready mix concrete contractor must collect and remit the tax due on the concrete produced and consumed. The tax rate in effect at the job site location is applied to the greater of the actual invoice price of the component materials or the fair market value of the concrete incorporated into the project. Id. § 3.291(b)(3)(E).
Any person who receives or collects a tax or any money represented to be a tax from another person holds the amount so collected in trust for the benefit of the state and is liable to the state for the full amount collected plus any accrued penalties and interest on the amount collected. Tex. Tax Code § 111.016(a). If amounts are collected as tax in transactions on which tax is not due, the comptroller will require, under the doctrine of unjust enrichment, that these amounts be remitted to the state or be refunded to the customers from whom they were collected. 34 Tex. Admin. Code § 3.2(c)(1).
Based on the source records available, Petitioner charged a flat 8% tax rate on all taxable sales but remitted only 6.25% tax to the Comptroller. When the customer picked up the order at Petitioner’s place of business, no local tax was due because the location is outside of the city limits of CITY, Texas. Even though only 6.25% tax is due in that scenario, the 1.75% difference is assessed in Exams 4 and 5 as tax collected but not remitted because Petitioner had the responsibility to either remit the tax collected in error to the Comptroller or refund it to its customers. There is no evidence of customer refunds.
Petitioner contends the 1.75% charged to customers represented an EPA fee that was bundled with the sales and use tax charged. However, because the total 8% was represented to the customers as tax collected, the entire 8% is due to the Comptroller to avoid unjust enrichment. Therefore, tax collected but not remitted should remain assessed.
Because Petitioner charged a flat tax rate, it failed to collect local tax due when it was more than 1.75% based on the delivery location. Additional local tax due is assessed in Exam 5. Petitioner has not provided documentation to show that the deliveries occurred in different locations or that different local tax rates apply; hence, additional local tax should remain assessed. Because Petitioner has not met its evidentiary burden to show audit error, the assessment should be upheld.
III. FINDINGS OF FACT
1. During the period at issue, ************** dba COMPANY A (Petitioner) was engaged in the business of manufacturing and selling ready- mix concrete outside of the city of CITY, Texas.
2. For the majority of its sales, Petitioner delivered its orders to its customers by company-owned or company-rented trucks. For the remainder, the customers picked up orders from Petitioner’s place of business.
3. In March 2020, the Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller) initiated a sales and use tax compliance audit of Petitioner’s business for the period of December 1, 2016, through September 30, 2019.
4. Petitioner provided the auditor with sales journals, accounts payable journals, resale and exemption certificates, purchase invoices, depreciation schedules, a chart of accounts, general ledgers, federal income tax returns, financial statements, and bank statements.
5. Based on its sales invoices, Petitioner charged its customers 8% sales and use tax on taxable sales. It remitted 6.25% sales and use tax to the Comptroller. For nontaxable sales, Petitioner did not charge tax or fees.
6. For two sales invoices, Petitioner did not charge tax on the sale of its concrete mix and did not provide a corresponding exemption certificate. The auditor scheduled disallowed deductions in Exam 1.
7. Based on its depreciation schedule, Petitioner purchased a bin using Craig’s List and did not provide a receipt or purchase invoice showing that it paid tax to the seller. The auditor scheduled the taxable asset purchase in Exam 3.
8. Petitioner’s business is not located within the city limits of CITY, Texas. When customers pickup orders at Petitioner’s place of business, only 6.25% state tax is due.
9. The auditor determined tax collected but not remitted to the Comptroller based on Petitioner’s sales and use tax returns, sales journals, and invoices.
10. The auditor scheduled the 1.75% difference between tax collected and tax remitted for orders picked up by the customer at Petitioner’s business location in Exam 4.
11. The auditor scheduled tax collected but not remitted and any additional local tax due for orders delivered to the customer in Exam 5.
12. On February 2, 2021, Staff issued a Texas Notification of Audit Results to Petitioner. The assessment included tax, interest, and a 10% late penalty on Exams 4 and 5 which are largely comprised of tax collected but not remitted.
13. Petitioner timely requested redetermination and an Independent Audit Review.
14. Staff did not agree to any adjustments to the assessment.
15. Staff referred the above-referenced case to the State Office of Administrative Hearings (SOAH) and on February 8, 2023, issued Petitioner 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.
16. On February 15, 2023, the Administrative Law Judge (ALJ) issued an Order Setting Written Submission Requirements, which set the written submission hearing, filing deadlines, and a record close date.
17. The record closed on May 30, 2023.
IV. CONCLUSIONS OF LAW
1. The Comptroller has jurisdiction over these matters. See Tex. Tax Code ch. 111.
2. SOAH has jurisdiction over matters related to the hearing, 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 a proper and timely notice of hearing. See Tex. Gov’t Code ch. 2001; Tex. Tax Code § 111.009.
4. The law requires retailers to keep records that reflect the total gross receipts from sales and the total purchases of taxable items. Tex. Tax Code § 151.025; 34 Tex. Admin. Code § 3.281(b).
5. A taxpayer is required to keep records to substantiate each claimed deduction or exclusion authorized by law. Tex. Tax Code § 151.025(a)(3).
6. In a contested case hearing, the taxpayer must produce contemporaneous records and supporting documentation appropriate to the tax or fee for the transactions in question to substantiate and enable verification of the taxpayer’s claim related to the amount of tax, penalty, or interest to be assessed, collected, or refunded. 34 Tex. Admin. Code § 1.26(a).
7. A taxpayer cannot defeat an assessment based on the burden of proof by not providing the necessary documents. See, e.g., Comptroller’s Decision No. 107,078 (2015).
8. Texas imposes a tax on each sale of a taxable item in this state. Tex. Tax Code § 151.051.
9. The term “taxable item” includes tangible personal property and taxable services. Tex. Tax Code § 151.010.
10. When tax is imposed on tangible personal property the taxing entity’s prima facie burden of proof is easily met because, unless an exemption applies, all sales of tangible personal property in this state are taxable. Comptroller’s Decision No. 116,506 (2020).
11. Petitioner bears the burden of showing that an exemption applies by clear and convincing evidence. 34 Tex. Admin. Code § 1.26(c).
12. Petitioner failed to show that any of the transactions in Exams 1 and 3 are exempt from tax; therefore, they should remain assessed.
13. A ready mix concrete contractor must collect and remit the tax due on the concrete produced and consumed. The tax rate in effect at the job site location is applied to the greater of the actual invoice price of the component materials or the fair market value of the concrete incorporated into the project. 34 Tex. Admin. Code § 3.291(b)(3)(E).
14. Any person who receives or collects a tax or any money represented to be a tax from another person holds the amount so collected in trust for the benefit of the state and is liable to the state for the full amount collected plus any accrued penalties and interest on the amount collected. Tex. Tax Code § 111.016(a).
15. If amounts are collected as tax in transactions on which tax is not due, the Comptroller will require, under the doctrine of unjust enrichment, that these amounts be remitted to the state or be refunded to the customers from whom they were collected. 34 Tex. Admin. Code § 3.2(c)(1).
16. Tax collected but not remitted should remain assessed.
17. Additional local tax should remain assessed.
18. Because Petitioner has not met its evidentiary burden to show audit error, the assessment should be upheld.
SIGNED July 20, 2023
KENESHIA WASHINGTON
PRESIDING ADMINISTRATIVE LAW JUDGE
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] At present, insufficient information is available to determine which items and amounts are disputed or undisputed for purposes of Tex. Tax Code, Ch. 112. In the absence of this information, the Comptroller will assume the entire amount of the assessment, as it appears in Comptroller’s Decision Attachment A, the Notification of Hearing Results, remains in dispute. If Petitioner intends to sue the comptroller to dispute an amount of tax, penalty, or interest assessed in a deficiency redetermination or jeopardy determination under Tex. Tax Code, Ch. 111, Petitioner is required to file a motion for rehearing that “states the specific grounds of error and the disputed amounts associated with the grounds of error.” Tex. Tax Code § 112.201(a)(3). Petitioner should refer to Tex. Tax Code, Ch. 112, for further guidance regarding a suit after redetermination.
[3] See Tex. Tax Code § 111.0081(c).
ACCESSION NUMBER: 202309039H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 2023-09-22
TAX TYPE: SALES
