I just feel bad for this guy. It sounds like there were accounting issues, and in my experience they sometimes can be resolved fairly quickly. He was clearly not qualified to explain and resolve them. Checking in with some sort of expert is free and getting support is usually worth the cost.
202503023H
SOAH DOCKET NO. 304-25-07468
CPA HEARING NO. 120,625
RE: **************
TAXPAYER NO: **************
AUDIT OFFICE: **************
AUDIT PERIOD: January 1, 2019 THROUGH April 30, 2022
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 April 21, 2025, 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) Kimberly LaFlair 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 changed.[2]
The result from this Decision is Attachment A. The ALJ’s recommendation letter is Attachment B. The PFD as changed is Attachment C. Attachments A, B, and C are incorporated by reference.
Attachment A reflects a liability.[3]
The total sum of the tax, penalty, and interest is due and payable 20 days after a comptroller’s decision becomes final.[4] If such sum is not timely paid, an additional penalty of 10 percent of the taxes due will accrue.
SIGNED on this 26th day of March 2025
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 changed
ATTACHMENT C
SOAH Docket No. 304-25-07468
Before the State Office of Administrative Hearings
TCPA Hearing No. 120,625
Proposal for Decision
The Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller) audited ************** (Petitioner) for compliance with sales and use tax laws and made an assessment that included tax, 10% penalty, and accrued interest. Petitioner requested redetermination, contending that the Comptroller improperly relied on its QuickBooks information, that sales tax is exclusively the purchasers’ debt, that neither the Comptroller nor SOAH have jurisdiction to assess and collect the tax, and that the transfer of a $1 million credit to the Comptroller renders the assessment moot. Staff contends Petitioner’s contentions should be denied because it failed to show that the audit is incorrect. In this Proposal for Decision, the Administrative Law Judge (ALJ) recommends that the assessment be affirmed.
I. Notice, Jurisdiction, and Procedural History
Staff referred the contested case to the State Office of Administrative Hearings (SOAH) and, on December 5, 2024, issued Petitioner a Notice of Hearing by Written Submission. On December 11, 2024, ALJ Kimberly LaFlair issued Order Setting Written Submission Hearing. Petitioner was represented by its president, **************. Robert Scott represented Staff. The contested case record closed February 18, 2025. [ENDNOTE 5]
Petitioner contends that SOAH lacks jurisdiction because this matter contains a constitutional issue that is outside of an administrative court’s authority to use judicial discretion. In support, Petitioner offered as evidence a Uniform Commercial Code Filing Statement, a Third Amended Petition filed by ************** in the 332nd District Court of Hidalgo County, and letters to the Governor and Attorney General. Considering the contested case record, the ALJ finds the hearing was properly noticed under Texas Government Code ch. 2001 and Texas Tax Code Section 111.009 and SOAH acquired jurisdiction under 1 Texas Administrative Code Section 155. Petitioner’s evidence has no bearing on this proceeding and provides no legal support for a claim of a lack of jurisdiction at SOAH. There are no additional 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
Evidence
Petitioner offered the following exhibits in the written submission hearing:
Error Demonstration;
Balance Sheet and A/R Aging Summary Report;
Uniform Commercial Code Transfer Statement;
Petition and Court Report; and
Letters to Governor and Attorney General.
Staff submitted the pleadings exchanged between the parties prior to referring the matter to SOAH and offered the following exhibits:
Hearing Request Receipt;
Texas Notification of Audit Results;
Penalty and Interest Waiver Worksheet;
Audit Report;
Audit Plan; and
Plaintiff’s Original Petition, **************, 126th District Court, Travis County (April 24, 2024).
The parties’ exhibits were admitted to the record without objection.
B. Agreed Adjustments
There are no agreed adjustments.
C. Material Facts and Issues Presented
Petitioner installs and repairs generators, performs electrical repairs, and miscellaneous related services. Staff initiated a sales and use tax audit of Petitioner in February 2022 for the period of January 1, 2019, through April 30, 2022. Petitioner provided a sales download from QuickBooks, bank statements, financial statements, sales journal, invoices, and federal income tax returns (FITR) for 2019, 2020, and 2021.
The auditor reviewed the sales tax liability report that was exported from QuickBooks. The report contained all tax amounts collected throughout the audit period. This report was compared to the tax amounts reported during the audit period, but was a partial sales tax reconciliation because Petitioner did not provide the sales tax liability report for the entire audit period. Petitioner subsequently provided a sales tax liability report for 2022, and the auditor completed the sales tax reconciliation. The variances resulting from the reconciliation were scheduled in Exam 1 as tax collected but not remitted (TCNR).
For disallowed deductions, the auditor filtered out the taxed transactions and focused on the non-taxed transactions. A list of non-taxed customers was sent to Petitioner with a request for a response as to why those customers were not taxed. Petitioner responded that some of the transactions on the auditor’s list should have been taxed. The auditor also requested that Petitioner provide additional invoices because certain transactions had a lower taxable amount when compared to the gross sale amount of the invoice. Petitioner provided exemption certificates for some of the nontaxed transactions. All nontaxed transactions without supporting documentation were scheduled in Exam 2 as disallowed deductions.
A review of Petitioner’s 2019-2021 FITRs was performed to review expenses. After totaling expense accounts, the auditor determined that the expense accounts were immaterial; however, Petitioner provided purchase invoices and requested a credit for tax paid on purchases. The auditor reviewed the purchase invoices and agreed to schedule a credit to Petitioner for verified taxable purchases of expenses, which are found in Exam 3.
On March 17, 2023, Staff issued an audit report and Texas Notification of Audit Results to Petitioner, assessing sales and use tax, 10% penalty, and accrued interest. Petitioner requested redetermination of the assessment, contending that the audit is incorrect because the Comptroller improperly relied on QuickBooks information. Petitioner also contends that sales tax is the purchasers’ debt, that the Comptroller and SOAH have no jurisdiction to assess and collect the tax, and that the transfer of a $1 million credit to the Comptroller renders the assessment moot. Staff contends Petitioner failed to show that the audit is incorrect. Staff did not agree to adjust the assessment and referred the matter to SOAH.
D. Analysis and Recommendation
An audit that is based on a taxpayer’s substantially complete books and records and conducted pursuant to established audit methodologies is entitled to a presumption of correctness, and Petitioner bears the burden of proof to demonstrate, by a preponderance of the evidence, that the audit results are incorrect. 34 Tex. Admin. Code § 1.26(e); Comptroller’s Decision No. 117,398 (2022). Bare assertions are insufficient to demonstrate error in the audit. Baker v. Bullock, 529 S.W.2d 279 (Tex. Civ. App.—Austin, writ ref’d n.r.e.). The audit at issue is based on Petitioner’s source records, specifically a sales download from QuickBooks, bank statements, financial statements, sales journal, invoices, and FITR for 2019, 2020, and 2021. Hence, the audit is presumed correct, and Staff met its evidentiary burden to show that assessed transactions are taxable services.
1. Petitioner’s QuickBooks Software
Petitioner contends that the TCNR and disallowed deductions scheduled in Exams 1 and 2, respectively, are incorrect due to calculations made by its QuickBooks software. These issues, Petitioner contends, caused blatant errors with “absurd numbers.” To support its contention, Petitioner provided as its Exhibit 1 an “Error Demonstration,” which it purports shows that QuickBooks automatically forfeits the tax so that the tax is never collected. Also in support of this contention, Petitioner submitted its Exhibit 2, a Balance Sheet and A/R Aging Summary, which it argues demonstrates the incorrect totals found in the QuickBooks ledgers and general reports. Petitioner further contends that it does not use QuickBooks for bookkeeping and therefore was unaware of the errors in the software.
In the written submission hearing Petitioner did not state what method it used for bookkeeping, nor did it submit source documents to corroborate its contention regarding its QuickBooks. Moreover, Staff’s evidence demonstrates that during the entrance conference, Petitioner’s representative informed the auditor that it uses Quickbooks software, and the sales downloads provided during the audit came from Petitioner’s Quickbooks. [ENDNOTE 6] Staff’s evidence also shows Petitioner’s sales tax liability reports are run through QuickBooks, the reports contained the total sales, nontaxable sales, taxable sales, and tax collected, and those amounts were used to complete the sales tax return. [ENDNOTE 7] Additionally, Staff’s Exhibit 5 states that the auditor tested a QuickBooks sales download which confirmed that internal controls were good. [ENDNOTE 8]
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). The difference in tax collected versus the tax reported is tax collected but not remitted. Comptroller’s Decision Nos. 115,667, 115,668, & 115,818 (20202019).
A taxpayer is generally required to support its contentions with source records, and assertions in pleadings are insufficient to meet the burden of proof. See, e.g., Comptroller’s Decision No. 105,892 (2012). In addition, 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).
As discussed above, the auditor used Petitioner’s records to compare the total tax Petitioner collected to the total tax Petitioner reported and remitted to the State and found that Petitioner collected tax it did not remit to the State. The evidence submitted by Petitioner does not contradict Staff’s evidence or support its contention that software errors are responsible for the TCNR. Similarly, with the scheduled disallowed deductions, Petitioner did not submit sufficient evidence to show that those transactions were scheduled due to issues with its software. Accordingly, the ALJ finds that Petitioner’s evidence is not sufficient to demonstrate error in the audit, and the contention should be denied.
2. Sales Tax Liability
A seller who makes a sale subject to the sales tax imposed by Texas Tax Code, Chapter 151, shall add the amount of the tax to the sales price, and when the amount of the tax is added, (1) it becomes a part of the sales price; (2) it is a debt of the purchaser to the seller until paid; and (3) if unpaid, it is recoverable at law in the same manner as the original sales price. Tex. Tax Code § 151.052(a). Unpaid sales or use tax is recoverable by the seller in the same manner as the original sales price of the taxable item itself, if unpaid, would be recoverable. 34 Tex. Admin. Code § 3.286(d)(2)(A). The Comptroller may proceed against either the seller or purchaser, or against both, until all applicable tax, penalty, and interest due has been paid. Id. The contention should be denied.
3. Credit Offset
Petitioner contends that on October 3, 2024, it transferred “the state’s interest in any tax claims against ************** to **************, and he even credited the Texas Comptroller $1 million to prevent future retaliation.” Therefore, Petitioner indicates, its audit liability has been paid in full and the instant matter moot. The ALJ reviewed Petitioner’s exhibits and is unable to ascertain any connection between those exhibits and the assessment at issue in this hearing.
This hearing is the result of a redetermination request by Petitioner to contest the assessment for the audit period. Texas Tax Code Section 111.001 directs the Comptroller to “collect the taxes imposed by this title [the Texas Tax Code] except as otherwise provided by the title.” As discussed above, the auditor utilized the documentation provided by Petitioner to perform the audit, and the ALJ determined that Staff met its burden to show that the audit is presumed correct. Additionally, as noted above, the hearing was properly noticed under Texas Government Code ch. 2001 and Texas Tax Code Section 111.009 and SOAH acquired jurisdiction under 1 Texas Administrative Code Section 155.51. The ALJ finds that this contention has no legal or factual basis and recommends that it be denied.
III. Findings of Fact
************** (Petitioner) installs and repairs generators, performs electrical repairs, and miscellaneous related services.
The Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller) initiated a sales and use tax audit of Petitioner in February 2022 for the period of January 1, 2019, through April 30, 2022.
Petitioner provided a sales download from QuickBooks, bank statements, financial statements, sales journal, invoices, and federal income tax returns (FITR) for 2019, 2020, and 2021.
The auditor reviewed the sales tax liability report that was exported from QuickBooks. The report contained all tax amounts collected throughout the audit period. This report was compared to the tax amounts reported during the audit period, but was a partial sales tax reconciliation because Petitioner did not provide the sales tax liability report for the entire audit period. Petitioner subsequently provided a sales tax liability report for 2022, and the auditor completed the sales tax reconciliation.
The variances resulting from the reconciliation were scheduled in Exam 1 as tax collected but not remitted (TCNR).
For disallowed deductions, the auditor filtered out the taxed transactions and focused on the non-taxed transactions. A list of non-taxed customers was sent to Petitioner requesting a response as to why those customers were not taxed. Petitioner responded that some of the transactions on the auditor’s list should have been taxed. The auditor also requested that Petitioner provide additional invoices because certain transactions had a lower taxable amount when compared to the gross sale amount of the invoice. Petitioner provided exemption certificates for some of the nontaxed transactions.
All nontaxed transactions without supporting documentation were scheduled in Exam 2 as disallowed deductions.
A review of Petitioner’s 2019-2021 FITRs was performed to review expenses. After totaling expense accounts, the auditor determined that the expense accounts were immaterial; however, Petitioner provided purchase invoices and requested a credit for tax paid on purchases.
The auditor reviewed the purchase invoices and agreed to schedule a credit to Petitioner for verified taxable purchases of expenses, which are found in Exam 3.
On March 17, 2023, Staff issued an audit report and Texas Notification of Audit Results to Petitioner, assessing sales and use tax, 10% penalty, and accrued interest.
Petitioner requested redetermination of the assessment.
Staff did not agree to adjust the assessment and referred the matter to the State Office of Administrative Hearings (SOAH).
On December 5, 2024, Staff 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.
On December 11, 2024, Administrative Law Judge (ALJ) Kimberly LaFlair issued an order setting the written submission hearing.
The contested case record closed on February 18, 2025.
IV. Conclusions of Law
The Comptroller has jurisdiction over this matter. See Tex. Tax Code ch. 111.
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.
Staff provided proper and timely notice of the hearing. See Tex. Gov’t Code ch. 2001; Tex. Tax Code § 111.009.
An audit that is based on a taxpayer’s substantially complete books and records and conducted pursuant to established audit methodologies is entitled to a presumption of correctness, and Petitioner bears the burden of proof to demonstrate, by a preponderance of the evidence, that the audit results are incorrect. 34 Tex. Admin. Code § 1.26(e); Comptroller’s Decision No. 117,398 (2022).
Bare assertions are insufficient to demonstrate error in the audit. Baker v. Bullock, 529 S.W.2d 279 (Tex. Civ. App.—Austin, writ ref’d n.r.e.).
The ALJ finds that Staff met its evidentiary burden to show that assessed transactions are taxable services and the audit is presumed correct.
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).
The difference in tax collected versus the tax reported is tax collected but not remitted. Comptroller’s Decision Nos. 115,667, 115,668, & 115,818 (20202019).
A taxpayer is generally required to support its contentions with source records, and assertions in pleadings are insufficient to meet the burden of proof. See, e.g., Comptroller’s Decision No. 105,892 (2012).
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).
The ALJ finds that Petitioner’s evidence is not sufficient to demonstrate error in the audit, and the contention should be denied.
A seller who makes a sale subject to the sales tax imposed by Texas Tax Code, Chapter 151, shall add the amount of the tax to the sales price, and when the amount of the tax is added, (1) it becomes a part of the sales price; (2) it is a debt of the purchaser to the seller until paid; and (3) if unpaid, it is recoverable at law in the same manner as the original sales price. Tex. Tax Code § 151.052(a).
Unpaid sales or use tax is recoverable by the seller in the same manner as the original sales price of the taxable item itself, if unpaid, would be recoverable. 34 Tex. Admin. Code § 3.286(d)(2)(A).
The comptroller may proceed against either the seller or purchaser, or against both, until all applicable tax, penalty, and interest due has been paid. 34 Tex. Admin. Code § 3.286(d)(2)(A).
Texas Tax Code Section 111.001 directs the Comptroller to “collect the taxes imposed by this title [the Texas Tax Code] except as otherwise provided by the title.”
The ALJ finds that Petitioner failed to provide a legal or factual basis to support its contention that the Comptroller and SOAH lack standing and jurisdiction in the matter and the contention should be denied.
The Administrative Law Judge (ALJ) recommends that the assessment be affirmed in its entirety.
Signed March 3, 2025.
Kimberly LaFlair
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] See Tex. Gov’t Code § 2003.101(e) and (f).
[3] 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.
[4] See Tex. Tax Code § 111.0081(c).
[5] The Order Setting Written Submission Hearing issued on December 11, 2024, set the record closing date for Monday, February 17, 2025. As that date was a federal holiday, the actual record closing date is the following day, February 18, 2025.
[6] Staff’s Ex. 5.
[7] Id.
[8] Id.
ACCESSION NUMBER: 202503023H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 2025-03-26
TAX TYPE: SALES
