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ALERT: Rule 3.286 (b)(2) as cited in this decision was retroactively amended (on 6/3/2015) to delete the “trailing nexus” requirement that an out-of-state seller previously engaged in business continued to be responsible for collection of use tax on sales made into Texas for 12 months following the date he ceased being engaged in business in Texas.
SOAH DOCKET NO. 304-14-2164.26
CPA HEARING NO. 107,751
RE: *************
TAXPAYER NO.: *************
AUDIT OFFICE: *************
AUDIT PERIOD: April 1, 2007 THROUGH December 31, 2010
Sales And Use Tax/RDT
BEFORE THE COMPTROLLER
OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS
SUSAN COMBS
ISREAL MILLER
Representing Tax Division
*************
Representing Petitioner
COMPTROLLER’S DECISION
************* (Petitioner) was audited for sales and use tax compliance by the
Tax Division of the (Staff). Petitioner
requested redetermination of the audit assessment contending it detrimentally
relied on information provided by the Comptroller and on the general practices
of other furniture retailers in Louisiana and Texas. Petitioner also contends
many purchasers have already paid the taxes. [ENDNOTE: (1)] In the Proposal for
Decision, the Administrative Law Judge (ALJ) recommends that the assessment be
affirmed.
I. PROCEDURAL HISTORY, NOTICE, AND JURISDICTION
Staff referred the case to the State Office of Administrative Hearings and
issued a Notice of Hearing by Written Submission. Staff was represented by
Assistant General Counsel Isreal Miller. Petitioner was represented by its
president, *************. ALJ Victor John Simonds closed the record on May 5,
2014. There are no contested 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 submit any evidence. Staff filed the pleadings the parties
exchanged while the matter was pending at the Comptroller’s office and
submitted the following exhibits: the 60-day notification letter, the Texas
Notification of Audit Results, the penalty and interest waiver worksheet, the
audit report, and the audit documentation report. Each of the listed exhibits
is admitted into the record.
B. Staff Agreed Adjustments
Staff did not agree to make any assessment adjustments.
C. Facts Established by the Evidence & Issues Presented
In the audit period April 1, 2007, through December 31, 2010, Petitioner owned
and operated a furniture and appliance store in CITY, Louisiana. Petitioner
does not have any locations in Texas, but it uses company trucks to deliver
furniture items to Texas resident purchasers. Staff conducted an audit to
verify Petitioner’s compliance with Texas sales and use tax laws. When the
audit was completed, Staff issued a Texas Notification of Audit Results that
assessed tax and interest that had accrued to the account (penalty was waived).
The audit adjustments related to taxable sales.
Petitioner timely requested redetermination. Petitioner states that it did not
know that it was required to collect tax on sales made to Texas customers when
it used company trucks to deliver furniture products to Texas residents.
Petitioner contends it detrimentally relied on information it was given by the
Comptroller’s office and on the general practices of other furniture retailers
in Louisiana and Texas. Petitioner also argues that many of its Texas customers
have already paid the tax.
D. ALJ’s Analysis & Recommendation
Retailers located in Texas are required to collect sales tax on each sale of a
taxable item in this state. Tex. Tax Code Ann. SECTION 151.051(a). Out-of-state
retailers who make a sale of a taxable item for storage, use, or consumption in
Texas are required to collect use tax on each sale. Tex. Tax Code Ann. SECTION
151.101(a), .103. However, a state’s authority to impose the duty to collect
use tax on out-of-state retailers is limited by the United States Constitution.
According to the Supreme Court of the United States, Texas can require an
out-of-state retailer to collect Texas use tax if that retailer has physical
presence within Texas. SEE QUILL CORP. V. NORTH DAKOTA, 504 U.S. 298 (1992).
This constitutional physical presence test is generally referred to as nexus.
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 have nexus or ceases to be
engaged in business in Texas. 34 Tex. Admin. Code SECTION 3.286(b)(2).
For purposes of the use tax, a retailer is engaged in business in this state
if, for example, it has a representative, agent, salesperson, 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. Tex. Tax Code Ann. SECTION 151.107(a)(2). Petitioner
established nexus in Texas by using its company trucks to delivery furniture to
Texas purchasers. SEE, E.G., Comptroller’s Decision Nos. 34,536 (1996); 34,952
(1997); and 44,052 (2005). As a retailer engaged in business in this state,
Petitioner was responsible for collecting use tax on items being delivered into
Texas for use, storage, or consumption. Therefore, the audit is afforded the
presumption of correctness, and it is Petitioner’s burden to demonstrate audit
error. SEE 34 Tex. Admin. Code SECTION 1.40(2)(B).
Petitioner contends it was never told that it was supposed to collect Texas
tax. Moreover, Petitioner purportedly made phone calls to the Comptroller’s
office seeking information on its tax responsibilities. Petitioner states that
it was told that it was not required to collect Texas tax. The Comptroller has
a long-standing policy 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 result of its reliance on the earlier Comptroller
action.” Comptroller’s Decision No. 27,506 (1991). The taxpayer must establish
that: (1) erroneous advice was given (both as to the substance thereof and its
direct communication to the taxpayer), meaning that it usually must be in
writing; (2) the taxpayer gave sufficient information to enable the employee to
have to provide correct advice; (3) the taxpayer followed the advice; and (4)
the taxpayer has suffered or will suffer harm unless the Comptroller adheres to
the advice. Id. SEE ALSO Comptroller’s Decision No. 104,832 (2011).
Petitioner did not provide any evidence to establish the elements of its
detrimental reliance claim. Petitioner asserts that none of its competitors are
collecting the tax, and that many Texas customers suspect that Petitioner is
lying or trying to cheat them. Those things are both possible, but the law
recognizes that there is no duty to inform others of the law because all
persons are presumed to know the law. SEE GREATER HOUSTON TRANSP. CO. V.
PHILLIPS, 801 S.W.2d 523, 525 (Texas 1990). Ignorance of the law does not
provide a basis for granting tax relief. SEE Comptroller’s Decision No. 49,567
(2008). Therefore, Petitioner’s contention should be denied.
Petitioner also contends that many of its customers have already paid the tax
and therefore argues that Texas is collecting tax twice. However, Petitioner
provided no evidence to support its contention. Therefore, though the facts of
the instant matter present a sympathetic situation, the audit assessment should
be affirmed.
III. FINDINGS OF FACT
1. In the audit period April 1, 2007, through December 31, 2010, *************
(Petitioner) owned and operated a furniture and appliance store in CITY,
Louisiana.
2. Petitioner does not have any locations in Texas, but it uses company trucks
to deliver furniture items to Texas-resident purchasers.
3. The Tax Division of the (Staff)
conducted an audit to verify Petitioner’s compliance with Texas sales and use
tax laws.
4. When the audit was completed, Staff issued a Texas Notification of Audit
Results that assessed tax and interest that had accrued to the account (penalty
was waived). The audit adjustments related to taxable sales.
5. Petitioner timely requested redetermination.
6. Staff referred the case to the State Office of Administrative Hearings
(SOAH) and issued a Notice of Hearing by Written Submission that 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 matters asserted.
7. The record closed on May 5, 2014.
8. Petitioner did not submit any evidence.
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 proper and timely notice of the hearing. SEE Tex. Gov’t Code
ch. 2001.
4. Retailers located in Texas are required to collect sales tax on each sale of
a taxable item in this state. Tex. Tax Code Ann. SECTION 151.051(a).
5. Out-of-state retailers who make a sale of a taxable item for storage, use,
or consumption in Texas are required to collect use tax on each sale. Tex. Tax
Code Ann. SECTION 151.101(a), .103.
6. Texas can require an out-of-state retailer to collect Texas use tax if that
retailer has physical presence within Texas. SEE QUILL CORP. V. NORTH DAKOTA,
504 U.S. 298 (1992).
7. 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. SEE, E.G., Comptroller’s Decision Nos.
34,536 (1996); 34,952 (1997); and 44,052 (2005).
8. 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 have nexus or ceases to be engaged in business in Texas.
34 Tex. Admin. Code SECTION 3.286(b)(2).
9. For purposes of the use tax, a retailer is engaged in business in this state
if, for example, it has a representative, agent, salesperson, 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. Tex. Tax Code Ann. SECTION 151.107(a)(2).
10. Petitioner established nexus in Texas by using its company trucks to
delivery furniture to Texas purchasers. SEE, E.G., Comptroller’s Decision Nos.
34,536 (1996); 34,952 (1997); and 44,052 (2005)
11. As a retailer engaged in business in this state, Petitioner was responsible
for collecting use tax on items being delivered into Texas for use, storage, or
consumption.
12. Therefore, the audit is afforded the presumption of correctness, and it is
Petitioner’s burden to demonstrate audit error. SEE 34 Tex. Admin. Code SECTION
1.40(2)(B).
13. Petitioner failed to demonstrate audit error.
14. The Comptroller has a long-standing policy 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 result of its reliance on the earlier Comptroller
action.” Comptroller’s Decision No. 27,506 (1991).
15. The taxpayer must establish that: (1) erroneous advice was given (both as
to the substance thereof and its direct communication to the taxpayer), meaning
that it usually must be in writing; (2) the taxpayer gave sufficient
information to enable the employee to have to provide correct advice; (3) the
taxpayer followed the advice; and (4) the taxpayer has suffered or will suffer
harm unless the Comptroller adheres to the advice. SEE, E.G., Comptroller’s
Decision No. 104,832 (2011).
16. Petitioner failed to establish that relief based on the Comptroller’s
detrimental reliance policies was warranted.
17. The law recognizes that there is no duty to inform others of the law
because all persons are presumed to know the law. GREATER HOUSTON TRANSP. CO.
V. PHILLIPS, 801 S.W.2d 523, 525 (Texas 1990).
18. Ignorance of the law does not provide a basis for granting tax relief. SEE
Comptroller’s Decision No. 49,567 (2008).
19. The audit assessment should be affirmed.
Hearing No. 107,751
ORDER OF THE COMPTROLLER
On May 8, 2014, the State Office of Administrative Hearings’ (SOAH)
Administrative Law Judge (ALJ), Victor John Simonds, issued a Proposal for
Decision in the above referenced matter. The parties were given fifteen days
from the date of the Decision to file exceptions with SOAH. No exceptions were
filed, and the Comptroller has determined that the ALJ’s Proposal for Decision,
except for minor changes to correct typographical or clerical errors, should be
adopted as written.
The above Decision resulting in a zero amount due for Petitioner as set out in
Attachment A, which is incorporated by reference, is approved and adopted in
all respects. This Decision becomes final twenty days after the date Petitioner
receives notice of this Decision. 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 23rd day of July 2014.
SUSAN COMBS
by: Martin A. Hubert
Deputy Comptroller
ENDNOTE(S)
(1) The Notice of Hearing states that Petitioner also argued that paying the
assessment in a single lump-sum payment would render Petitioner insolvent.
However, a review of Petitioner’s pleadings demonstrates that it did not claim
insolvency. In fact, Petitioner specifically states that it does not wish to
claim insolvency. Therefore, the issue is not addressed by the Proposal for
Decision.