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SOAH DOCKET NO. 304-22-1731.83
CPA HEARING NO. 116,600
RE: **************
TAXPAYER NO: **************
AUDIT OFFICE: **************
AUDIT PERIOD: September 1, 2012 THROUGH August 31, 2017
Enterprise Zone Refund Claims/RFD
BEFORE THE COMPTROLLER
OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS
GLENN HEGAR
Texas Comptroller of Public Accounts
KIMBERLY LAFLAIR
Representing Respondent
**************
Representing Claimant
COMPTROLLER’S DECISION
This decision is considered final on July 1, 2022, 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 zero amount due.
SIGNED on this 6th day of June 2022
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. 304-22-1731.83TC
PA DOCKET NO. 116,600
**************
Taxpayer No. **************
v.
TEXAS COMPTROLLER OF PUBLIC ACCOUNTS
BEFORE THE STATE OFFICE OF ADMINISTRATIVE HEARINGS
PROPOSAL FOR DECISION
During the period at issue, ************** (Claimant), was a qualified Enterprise Project (EP) under the Texas Enterprise Zone Act. Claimant filed a claim for refunds of program benefits and Texas sales and use tax. The Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller) performed a refund verification audit of the claim and allowed it in part. The auditor denied the remaining amount due to non-qualifying purchases, duplicate refund claims, timely filer discount disallowed, and denied jobs that did not meet the yearly minimum 1,820-hour requirement or the retention period. Claimant requested a refund hearing, contending that neither the program tax code nor rules explicitly outline the exclusion, or even the treatment, of sales and use tax (SUT) assessed transactions resulting from an SUT audit in a timely filed Program Claim. Staff argued Claimant did not provide sufficient documentation to support any additional refund. In this Proposal for Decision, the Administrative Law Judge (ALJ) recommends that Claimant’s contentions be denied, and the partial refund denial upheld.
I. PROCEDURAL HISTORY, NOTICE, AND JURISDICTION
Staff referred the contested case to the State Office of Administrative Hearings (SOAH) and, on February 25, 2022, issued a Notice of Hearing by Written Submission to Claimant. On March 3, 2022, ALJ Matt Jones issued Order No. 1, which set the written submission hearing. The case was transferred to ALJ Kathy Pickup for docket control purposes. Claimant was represented by ************** of COMPANY. Kimberly LaFlair represented Staff. The contested case record closed on April 29, 2022.
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
Claimant attached a list of contested transactions to its pleadings. Staff provided the pleadings the parties exchanged prior to referring the matter to SOAH and submitted the following exhibits:
1. 60-Day Letter;
2. Refund Audit Report;
3. Refund Audit Plan; and
4. Email from Comptroller Employee to Claimant’s Representative.
The parties’ exhibits were admitted into the record without objection.
B. Agreed Adjustments
Staff did not agree to adjust the partial refund denial.
C. Facts Established by the Evidence
************** (Claimant), located in CITY, Texas, is a global provider of telecommunications infrastructure and related services. Claimant’s Enterprise Zone Project designation period began January 24, 2013, 90 business days prior to the approval date, and ended on June 3, 2018. On June 8, 2017, Claimant filed a refund claim for $367,511.37 for the State fiscal period September 1, 2012 through August 31, 2017.
In verifying the refund claim, Staff performed a detailed refund audit. On October 30, 2018, Staff issued a letter to Claimant requesting any additional documentation in support of its Statement of Grounds. Credits were allowed for state sales and use taxes paid or accrued on qualified purchases used in an Enterprise Zone Project. The claimed refund was reduced to $299,115.69 due to non-qualifying purchases, duplicate refund claims, timely filer discount being disallowed, and denied jobs that did not meet the yearly minimum 1,820-hour requirement or the retention period.
On June 29, 2019, Staff issued a letter notifying Claimant of the partial denial and the results of the refund audit. Claimant requested a refund hearing for the denied items contending that neither the Tax Code nor rules explicitly outline the exclusion, or even the treatment, of SUT assessed transactions resulting from an SUT audit in a timely filed program claim. Claimant contests the Comptroller’s decision to deny $50,793.65 in state tax due to transactions overlapping strata in the SUT audit. Staff disagreed and referred the matter to SOAH.
D. Issues Presented, Analysis, and ALJ Recommendations
The Texas Enterprise Zone Act’s purpose is to provide incentives to encourage private businesses to locate and invest in severely distressed areas of the state designated as “enterprise zones.” See Tex. Gov’t Code §§ 2303.001, .002; see also, Tex. Att’y Gen. Op. No. JC‑0567 (2002). The Texas Economic Development Bank (Bank) may designate a “qualified business” as an EP. See Tex. Gov’t Code §§ 2303.003(1), (3-a), (5), .404, .405, .406.
When a “qualified business” is designated as an EP, it becomes eligible for state benefits as prescribed under the Texas Government Code and the Texas Tax Code, including a refund of taxes paid on taxable items purchased for use at the qualified business site related to the project or activity. Id. § 2303.504(a); Tex. Tax Code § 151.429(a). An EP must make a claim to the Comptroller for the refund no later than 18 months after the date on which the term of the EP designation expires. Tex. Gov’t Code § 2303.4072. In addition, not later than the 60th day after the last day of each fiscal year, the Comptroller issues a report to the Bank that includes the total tax refunds made to an EP during that fiscal year. Id. § 2303.504(c). When a state tax refund is received, three percent of the refund is transferred to the Bank to defray the cost of administering the Enterprise Zone Program. Id. § 2303.504(b).
To receive a tax refund, an EP must apply to the Comptroller. Id. § 2303.4072; Tex. Tax Code § 151.429(d). A qualified business must maintain records supporting the refund request which can be verified by audit. 34 Tex. Admin. Code § 3.329(b)(7), (c)(8).
When applying for a refund, an EP must submit a written refund claim to the Comptroller requesting a refund of the state sales and use taxes on eligible purchases and must include copies of invoices showing the item purchased, the date of purchase, amount of purchase, the amount of tax paid, and the identity of the seller. See id. § 3.329(b)(4), (c)(6)(B); see also Audit Procedures for Enterprise Zones & Qualified Hotel Projects (Comptroller Publication, March 2017). Refund claims are assigned to an audit field office for verification where the transactions claimed, and source documents are examined and verified. See Audit Procedures for Enterprise Zones & Qualified Hotel Projects. One refund claim can be submitted for all years, or the project can submit multiple claims during the allowed timeframe. Id. The total refund amount that may be applied for is limited by statute. Tex. Tax Code § 151.429(c).
Claimant is contesting the denial of items from projected exams of a prior SUT refund claim. Claimant contends that there is no authority or procedure that outlines an exclusion of SUT transactions resulting from an SUT audit in an EP claim. However, Claimant provided no evidence in support of its contention, and factual assertions made in pleadings are not evidence. See, e.g., Comptroller’s Decision Nos. 113,490 (2020), 111,587 (2015).
In Staff’s Exhibit 4, Claimant was informed that any outstanding refunds would be denied because Claimant failed to file a name change/assignment for the project at issue in this hearing. The email explained that the project designation was for Nokia Siemens Networks US L.L.C., but the related federal employer identification number designates a different entity, **************. The municipality that nominated Claimant for the Enterprise Project Zone designation did not approve the name change, which is what was needed in order to approve the name change for the taxpayer’s designation. As the name change was not filed, and the job certification deadline passed, Comptroller staff advised Claimant that any outstanding refunds would be denied and any previously paid refunds would be recaptured. The partial refund denial should be upheld.
III. FINDINGS OF FACT
1. ************** (Claimant), located in CITY, Texas, is a global provider of telecommunications infrastructure and related services.
2. Claimant’s Enterprise Zone Project designation period began January 24, 2013, 90 business days prior to the approval date, and ended on June 3, 2018.
3. On June 8, 2017, Claimant filed a refund claim for the period September 1, 2012 through August 31, 2017.
4. In verifying the refund claim, the Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller) performed a detailed refund audit.
5. On October 30, 2018, Staff issued a letter to Claimant requesting any additional documentation in support of its Statement of Grounds.
6. Credits were allowed for state sales and use taxes paid or accrued on qualified purchases used in an Enterprise Zone Project.
7. The claimed refund was reduced to $299,115.69 due to non-qualifying purchases, duplicate refund claims, timely filer discount being disallowed, and denied jobs that did not meet the yearly minimum 1,820-hour requirement or the retention period.
8. Claimant failed to file a name change/assignment for the project at issue in this hearing.
9. On June 29, 2019, Staff issued a letter notifying Claimant of the partial denial and the results of the refund audit.
10. Claimant requested a refund hearing.
11. Staff referred the contested case to the State Office of Administrative Hearings (SOAH).
12. On February 25, 2022, Staff issued a Notice of Hearing by Written Submission to Claimant. 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.
13. On March 3, 2022, Administrative Law Judge Matt Jones issued Order No. 1, which set the written submission hearing.
14. The case was transferred to ALJ Kathy Pickup for docket control purposes.
15. The contested case record closed on April 29, 2022.
IV. CONCLUSIONS OF LAW
1. The Comptroller has jurisdiction over this matter pursuant to Texas 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 pursuant to Texas Government Code ch. 2003.
3. Staff provided proper and timely notice of the hearing pursuant to Texas Government Code ch. 2001 and Texas Tax Code § 111.105.
4. The Texas Enterprise Zone Act’s purpose is to provide incentives to encourage private businesses to locate and invest in severely distressed areas of the state designated as “enterprise zones.” See Tex. Gov’t Code §§ 2303.001, .002; see also, Tex. Att’y Gen. Op. No. JC-0567 (2002).
5. The Texas Economic Development Bank (Bank) may designate a “qualified business” as an enterprise project. See Tex. Gov’t Code §§ 2303.003(1), (3-a), (5), .404, .405, .406.
6. When a “qualified business” is designated as an enterprise project, it becomes eligible for state benefits as prescribed under the Texas Government Code and the Texas Tax Code, including a refund of taxes paid on taxable items purchased for use at the qualified business site related to the project or activity. Tex. Gov’t Code § 2303.504(a); Tex. Tax Code § 151.429(a).
7. An enterprise project must make a claim to the Comptroller for the refund not later than 18 months after the date on which the term of the enterprise project designation expires. Tex. Gov’t Code § 2303.4072.
8. Not later than the 60th day after the last day of each fiscal year, the Comptroller issues a report to the Bank that includes the total tax refunds made to an enterprise project during that fiscal year. Tex. Gov’t Code § 2303.504(c).
9. When a state tax refund is received, three percent of the refund is transferred to the Bank to defray the cost of administering the Enterprise Zone program. Tex. Gov’t Code § 2303.504(b).
10. To receive a tax refund, an enterprise project must apply to the Comptroller. Tex. Gov’t Code § 2303.4072; Tex. Tax Code § 151.429(d).
11. A qualified business must maintain records supporting the refund request which can be verified by audit. 34 Tex. Admin. Code § 3.329(b)(7), (c)(8).
12. When applying for a refund, an enterprise project must submit a written refund claim to the Comptroller requesting a refund of the state sales and use taxes on eligible purchases and must include copies of invoices showing the item purchased, the date of purchase, amount of purchase, the amount of tax paid, and the identity of the seller. See 34 Tex. Admin. Code § 3.329(b)(4), (c)(6)(B); see also Audit Procedures for Enterprise Zones & Qualified Hotel Projects (Comptroller Publication, March 2017).
13. Refund claims are assigned to an audit field office for verification where the transactions claimed, and source documents are examined and verified. Audit Procedures for Enterprise Zones & Qualified Hotel Projects.
14. One refund claim can be submitted for all years, or the project can submit multiple claims during the allowed timeframe. Audit Procedures for Enterprise Zones & Qualified Hotel Projects.
15. The total refund amount that may be applied for is limited by statute. Tex. Tax Code § 151.429(c).
16. Factual assertions made in pleadings are not evidence. See, e.g., Comptroller’s Decision Nos. 113,490 (2020), 111,587 (2015).
17. Claimant failed to prove it is entitled to additional refunds.
18. The partial refund denial should be upheld.
SIGNED May 2, 2022.
KATHY PICKUP
ADMINISTRATIVE LAW JUDGE
STATE OFFICE OF ADMINISTRATIVE HEARINGS
ENDNOTE:
[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