The common story of a liquor store self representing, providing insufficient evidence and getting an adverse result. Staff agreed to waive interest for a couple years, which is interesting.
202503032H
INDEXED BY TAX TYPE ONLY
SOAH DOCKET NO. 304-25-03203
CPA HEARING NO. 117,390
RE: **************
TAXPAYER NO: **************
AUDIT OFFICE: **************
AUDIT PERIOD: January 1, 2015 THROUGH August 31, 2018
Sales And Use Tax/RDT
BEFORE THE COMPTROLLER OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS
GLENN HEGAR
Texas Comptroller of Public Accounts
CATHERINE BARON
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 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 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 written
ATTACHMENT C
SOAH Docket No. 304-25-03203
Before the State Office of Administrative Hearings
TCPA Hearing No. 117,390
Proposal for Decision
The Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller) audited ************** (Petitioner) liquor store business for compliance with sales and use tax laws and made an assessment that included tax, 10% penalty, and accrued interest. Petitioner asked for redetermination, contending that additional taxable sales are inaccurate, adjustments include periods outside of the statute of limitations, the extensions for the statute of limitations were improperly obtained, documents are missing or no longer legible, and that the auditor did not account for inventory on hand. Petitioner also requested penalty waiver. Staff contends Petitioner did not meet his burden to show error in the audit and that Petitioner’s contentions should be denied. In this Proposal for Decision, the Administrative Law Judge (ALJ) recommends that the assessment be affirmed, except as agreed by Staff.
I. Notice, Jurisdiction, and Procedural History
Staff referred the contested case to the State Office of Administrative Hearings (SOAH) and, on October 23, 2024, issued Petitioner a Notice of Hearing by Written Submission. On October 30, 2024, ALJ Kimberly LaFlair issued Order Setting Written Submission Hearing. Petitioner represented himself. Catherine Baron represented Staff. The contested case record closed December 17, 2024.
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
Petitioner did not submit an exhibit list, evidentiary exhibits, or argument for the written submission hearing. 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;
Audit Report; and
Audit Plan.
Staff’s exhibits were admitted to the record without objection.
B. Agreed Adjustments
Staff agreed to waive interest for the period of July 1, 2022, through January 31, 2024, and from May 1, 2024, through August 31, 2024, but did not agree to adjust the assessment.
C. Material Facts and Issues Presented
During the period at issue, Petitioner operated a liquor store in CITY, Texas, and sold liquor, beer, wine, and tobacco. In September 2018, Staff initiated an audit to verify Petitioner’s compliance with Texas sales and use tax laws during the audit period January 1, 2015, through August 31, 2018.
The examiner reviewed available records, which included inventory purchase invoices, bank statements, return workpapers, and federal income tax returns. Based on that information, the auditor observed that Petitioner’s inventory purchases exceeded his reported taxable sales. Because of the inconsistencies in purchases and reported sales, the auditor performed an estimate for additional taxable sales using the Retail Inventory Tracking System (RITS) [ENDNOTE 4] and prices determined from a shelf test.
The shelf test was performed in November 2018 to determine the markup percentages for beer (27%), wine (61%), liquor (38%), and tobacco (17%). Those markup percentages were multiplied by the respective purchases to arrive at estimated taxable sales. The examiner applied a 5% allowance for undocumented spoilage and theft to arrive at net estimated taxable sales. Reported taxable sales were subtracted from net estimated taxable sales to arrive at additional taxable sales, which were scheduled in Exam 100.
Agreements to extend the statute of limitations period were signed on January 3, 2019, by Petitioner and on February 2, 2019, by INDIVIDUAL as the authorized agent for Petitioner. On August 14, 2019, Staff issued an audit report and Texas Notification of Audit Results to Petitioner, assessing sales and use tax, the 10% late filing penalty, and accrued interest. Petitioner had six delinquent returns or late payments during the audit period. Petitioner timely requested redetermination.
Other than the interest waiver discussed above, Staff did not agree to any additional adjustments to the assessment and referred the matter to SOAH. Petitioner did not provide evidence for the written submission hearing.
D. ALJ Analysis and Recommendation
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. 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). If a taxpayer fails to keep accurate records of gross receipts, gross purchases, deductions, and exclusions, the Comptroller may take actions that include estimating the person’s tax liability based on any available information, including records of suppliers. Tex. Tax Code §§ 111.0042(d), .008(a).
Staff’s evidence is sufficient to establish, prima facie, that the estimated audit was authorized by statute and that the best information available was utilized. Therefore, it is Petitioner’s burden to show audit error by a preponderance of the evidence. 34 Tex. Admin. Code § 1.26(e).
Here, Petitioner is contending that additional taxable sales are inaccurate, adjustments include periods outside of statute of limitations, the extensions for the statute of limitations were improperly obtained, documents are missing or no longer legible, and that the auditor did not account for inventory on hand. In the Notice of Hearing, Staff states that although Petitioner provided photographs of piles of documents and even a photograph of a thumb drive, he did not provide the actual documents. Petitioner also failed to provide any evidence for the contested case hearing and therefore did not establish audit error. The ALJ recommends that the assessment be affirmed, except as agreed to by Staff.
Petitioner requested penalty waiver. Late penalties are automatically imposed on delinquent taxes. Tex. Tax Code § 111.061. The Comptroller has discretionary authority to waive late penalties if a taxpayer has exercised reasonable diligence to comply with tax laws. Tex. Tax Code § 111.103. A taxpayer must establish reasonable diligence by a preponderance of the evidence. Comptroller’s Decision No. 117,926 (2022). In making the reasonable diligence determination, the Comptroller considers the taxpayer’s audit history, the tax issues involved, whether a change in Comptroller policy occurred during the audit period, whether changes in the law took effect during the audit period, the size and sophistication of the taxpayer, whether tax was collected but not remitted, whether returns were timely filed, the completeness of the taxpayer’s records, the taxpayer’s efforts to comply with the recordkeeping requirements of this state, delinquencies in other taxes, reliance on advice provided by the Comptroller’s office, and the error rate in the current audit. 34 Tex. Admin. Code §§ 3.5(b)(3), (d). To prevail, Petitioner must demonstrate, by a preponderance of the evidence, that penalty waiver is warranted. See id. § 1.26(e); see also Comptroller’s Decision No. 102,268 (2014).
Petitioner had six late returns, his purchases exceeded taxable sales, and he did not comply with the recordkeeping requirements. Petitioner failed to show reasonable diligence, and no penalty waiver is warranted.
III. Findings of Fact
************** (Petitioner) operated a liquor store in CITY, Texas, and sold liquor, beer, wine, and tobacco.
In September 2018, the Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller) initiated an audit to verify Petitioner’s compliance with Texas sales and use tax laws during the audit period January 1, 2015, through August 31, 2018.
The examiner reviewed available records, which included inventory purchase invoices, bank statements, return workpapers, and federal income tax returns.
The auditor observed that Petitioner’s inventory purchases exceeded his reported taxable sales.
Because of the inconsistencies in purchases and reported sales, the auditor performed an estimate for additional taxable sales using the Retail Inventory Tracking System (RITS) and prices determined from a shelf test.
The shelf test was performed in November 2018 to determine the markup percentages for beer, wine, liquor, and tobacco. The markup percentages of beer, wine, liquor, and tobacco were multiplied by the respective purchases to arrive at estimated taxable sales.
The markups were as follows: Liquor – 38%, Beer – 27%, Wine – 61%, and Tobacco – 17%.
The examiner applied a 5% allowance for undocumented spoilage and theft to arrive at net estimated taxable sales.
Reported taxable sales were subtracted from net estimated taxable sales to arrive at additional taxable sales, which were scheduled in Exam 100.
Agreements to extend the statute of limitations period were signed on January 3, 2019, by Petitioner and on February 2, 2019, by INDIVIDUAL as the authorized agent for Petitioner.
On August 14, 2019, Staff issued an audit report and Texas Notification of Audit Results to Petitioner, assessing sales and use tax, the 10% late filing penalty, and accrued interest.
Petitioner had six delinquent returns or late payments during the audit period. Petitioner timely requested redetermination.
Staff agreed to waive interest for the period of July 1, 2022, through January 31, 2024, and from May 1, 2024, through August 31, 2024.
Staff did not agree to any additional adjustments and referred the matter to State Office of Administrative Hearings (SOAH).
On October 23, 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 October 30, 2024, Administrative Law Judge (ALJ) Kimberly LaFlair issued an order setting the written submission hearing.
Petitioner did not submit an exhibit list, evidentiary exhibits, or argument for the written submission hearing.
The contested case record closed on December 17, 2024.
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.
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. Tex. Tax Code § 151.010.
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).
If a taxpayer fails to keep accurate records of gross receipts, gross purchases, deductions, and exclusions, the Comptroller may take actions that include estimating the person’s tax liability based on any available information, including records of suppliers. Tex. Tax Code §§ 111.0042(d), .008(a).
Staff’s evidence is sufficient to establish, prima facie, that the estimated audit was authorized by statute and that the best information available was utilized.
It is Petitioner’s burden to show audit error by a preponderance of the evidence. 34 Tex. Admin. Code § 1.26(e).
Petitioner failed to provide any evidence for the contested case hearing and therefore did not establish audit error.
The ALJ recommends that Petitioner’s contentions be denied.
Petitioner requested penalty waiver. Late penalties are automatically imposed on delinquent taxes. Tex. Tax Code § 111.061.
The Comptroller has discretionary authority to waive late penalties if a taxpayer has exercised reasonable diligence to comply with tax laws. Tex. Tax Code § 111.103.
A taxpayer must establish reasonable diligence by a preponderance of the evidence. Comptroller’s Decision No. 117,926 (2022).
In making the reasonable diligence determination, the Comptroller considers the taxpayer’s audit history, the tax issues involved, whether a change in Comptroller policy occurred during the audit period, whether changes in the law took effect during the audit period, the size and sophistication of the taxpayer, whether tax was collected but not remitted, whether returns were timely filed, the completeness of the taxpayer’s records, the taxpayer’s efforts to comply with the recordkeeping requirements of this state, delinquencies in other taxes, reliance on advice provided by the Comptroller’s office, and the error rate in the current audit. 34 Tex. Admin. Code §§ 3.5(b)(3), (d).
To prevail, Petitioner must demonstrate, by a preponderance of the evidence, that penalty waiver is warranted. See 34 Tex. Admin. Code § 1.26(e); see also Comptroller’s Decision No. 102,268 (2014).
Petitioner failed to show reasonable diligence, and no penalty waiver is warranted.
Signed December 18, 2024.
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] 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).
[4] Wholesalers and distributors of beer, wine, malt liquor, cigarettes, cigars, and tobacco products are required to submit electronic reports, on a monthly basis, to the Comptroller. The vendor records are commonly referred to as Retail Inventory Tracking System (“RITS”) data.
ACCESSION NUMBER: 202503032H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 2025-03-26
TAX TYPE: SALES
