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SOAH DOCKET NO. 304-22-0935.26
CPA HEARING NO. 116,927
RE: **************
TAXPAYER NO: **************
AUDIT OFFICE: **************
AUDIT PERIOD: May 16, 2014 THROUGH October 27, 2014
Sales And Use Tax/RDT
BEFORE THE COMPTROLLER
OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS
GLENN HEGAR
Texas Comptroller of Public Accounts
JANICE CAHALANE
Representing Respondent
**************
Representing Petitioner
COMPTROLLER’S DECISION
This decision is considered final on July 15, 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) Trevor Moore 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 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 20th 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. 304-22-0935.26
TCPA DOCKET NO. 116,927
**************
Taxpayer No. **************
v.
TEXAS COMPTROLLER OF PUBLIC ACCOUNTS
BEFORE THE STATE OFFICE OF ADMINISTRATIVE HEARINGS
PROPOSAL FOR DECISION
The Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller) audited COMPANY for sales and use tax compliance. The ensuing assessment went final in April 2018. Subsequently, Staff assessed ************** (Petitioner) $857.35 in sales tax based on his status as the president and sole officer and director of COMPANY, the forfeiture of COMPANY’s corporate privileges, and the failure of the company to remit the tax found due in the sales and use tax compliance audit. Petitioner requested redetermination. Petitioner does not dispute his role in COMPANY, the forfeiture of COMPANY’s corporate privileges, or the creation of a tax debt during the period of forfeiture. However, he contends the audit of COMPANY was incorrect because COMPANY remitted all of the sales tax due. In this Proposal for Decision, the Administrative Law Judge (ALJ) recommends affirming the assessment against Petitioner.
I. PROCEDURAL HISTORY, NOTICE, AND JURISDICTION
Staff referred the contested case to the State Office of Administrative Hearings (SOAH) and, on December 7, 2021, issued a Notice of Hearing by Written Submission. On December 20, 2021, ALJ Keneshia Washington issued Order No. 1, which set the written submission hearing. On May 5, 2022, the case was transferred to ALJ Trevor Moore for docket control purposes. Petitioner represented himself. Janice Cahalane represented Staff. The record closed on May 13, 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
Petitioner submitted a copy of a Comptroller WebFile summary, attached to its pleadings. Staff submitted the pleadings the parties exchanged prior to referring the matter to SOAH and offered the following exhibits into the record:
1. Texas Notice of Tax/Fee Due;
2. Letter Granting Redetermination;
3. § 171.255 Officer Liability Worksheet;
4. Request for § 171.255 Forfeiture of Corporate Privileges Set Up;
5. Texas Secretary of State Records, re: COMPANY;
6. Articles of Incorporation, re: COMPANY;
7. Tax Application Summary, re: COMPANY;
8. Texas Online Tax Registration Signature Form;
9. Comptroller Customer Information Control System (CICS) XIMAST, re: COMPANY;
10. Texas Notification of Audit Results, re: COMPANY;
11. Audit documentation, re: COMPANY;
12. 2014 Texas Franchise Tax Public Information Report, re: COMPANY;
13. 2014 Annual No Tax Due Information Report Confirmation;
14. CICS XIHIST 2014;
15. CICS XITXPT;
16. CICS Inquiry Results for COMPANY;
17. Declaration of Jeremy Davis with Attachments:
17A. CICS XISUMM;
17B. CICS XIHIST;
17C. CICS XIDATA;
17D. CICS XIPMTS;
17E. Texas Notification of Audit Results, re: COMPANY (duplicate);
18. Petitioner’s Statement of Grounds; and
19. CICS XIPMTS Inquiry Results, re: Second and Third Quarter of 2014.
All exhibits were admitted without objection.
B. Agreements
Staff did not agree to adjust the assessment.
C. Material Facts Established by the Evidence
COMPANY is a landscaping company located in CITY, Texas. During the period at issue, Petitioner was the president and sole officer and director of COMPANY.
As a Texas corporation, COMPANY had certain franchise tax responsibilities. COMPANY’s 2014 franchise tax report was due on or before May 15, 2014. COMPANY did not file the report by the due date and the Comptroller issued a combined delinquent notice and estimated jeopardy determination on August 8, 2014. Subsequently, COMPANY’s right to transact business was forfeited effective October 17, 2014. COMPANY submitted a franchise tax No Tax Due return for report year 2014 on October 28, 2014, and COMPANY’s corporate privileges were reinstated on that date. Therefore, the period of forfeiture at issue in this case is May 16, 2014, through October 27, 2014.
In 2016, Staff audited COMPANY for sales and use tax compliance for the period October 1, 2013, through June 30, 2016. Subsequently, on February 2, 2018, Staff issued a Texas Notice of Audit Results to COMPANY that included an assessment for tax, penalty, and interest. The deadline to request redetermination of the assessment was April 3, 2018. COMPANY did not request redetermination and, consequently, the determination was final on April 3, 2018, and due and payable on April 13, 2018. COMPANYdid not pay the liability and, on April 23, 2019, Staff assessed Petitioner based on Petitioner’s status as the manager and officer of COMPANY and the unpaid sales tax debt, $857.35, accrued by COMPANY for the period its corporate privileges were forfeited.
Petitioner requested redetermination. Petitioner does not dispute that the corporate privileges of COMPANY were forfeited for the failure to file a report or his role as an officer of COMPANY during the forfeiture period. Instead, Petitioner contends the underlying liability assessed against COMPANY is incorrect because COMPANY paid all the sales tax it owed during the period at issue.
D. ALJ’s Analysis and Recommendation
The Tax Code imposes franchise tax responsibilities on taxable entities such as corporations, certain partnerships, limited liability partnerships, banking corporations, savings and loan associations, limited liability companies, business trusts, professional associations, joint ventures, joint stock companies, holding companies, and certain other legal entities. Tex. Tax Code §§ 171.0002, .001. The franchise tax is associated with the right to transact business in Texas, and a failure to comply with Chapter 171 requirements can result in the forfeiture of corporate privileges. See id. § 171.251. If the corporate privileges of a corporation are forfeited for the failure to file a report or pay a tax or penalty, each director or officer of the corporation is liable for each debt of the corporation that is created or incurred in this state after the date on which the report, tax, or penalty is due and before the corporate privileges are revived. Id. § 171.255(a).
COMPANY failed to file its 2014 franchise tax report and the Comptroller forfeited the corporation’s privileges. Therefore, each of COMPANY’s officers and directors is subject to personal liability for corporate debts created or incurred in the periods in which the corporate privileges were not in place. Here, that period is May 16, 2014, through October 27, 2014.
Staff’s evidence demonstrates the audit assessment for COMPANY is final, that COMPANY has not made full payment on the liability, that Petitioner was an officer of COMPANY during the relevant period, and that the assessment is within the period that COMPANY’s corporate privileges were forfeited. The ALJ concludes that Staff established a prima facie case that the tax assessment against Petitioner are authorized, and the burden shifts to Petitioner to demonstrate by a preponderance of the evidence that Staff’s actions are erroneous or not warranted. See 34 Tex. Admin. Code § 1.26(e).
Petitioner contends that the underlying liability is incorrect, stating COMPANY paid sales tax for each quarterly period of 2014 at issue. Staff does not dispute that COMPANY reported taxable sales and remitted sales tax to the Comptroller during the period of forfeiture at issue. However, the audit of COMPANY found that additional sales tax was due during that period. A person who is assessed personally as the officer or director of a corporation may not challenge the underlying corporate liability that is administratively final. Comptroller’s Decision Nos. 114,779 (2019), 42,791 (2003). To challenge the underlying corporate liability, the officer or director must pay the liability and request a refund, subject to the applicable statute of limitations. Comptroller’s Decision No. 40,801 (2002). The ALJ concludes Petitioner’s contentions regarding the underlying tax assessment must be denied. Petitioner did not establish error in the assessment and, therefore, the assessment should be affirmed.
III. FINDINGS OF FACT
1.COMPANY operates a landscaping company in CITY, Texas.
2. During the periods at issue, ************** (Petitioner) was the president and sole officer and director of COMPANY.
3. As a Texas corporation, COMPANY had certain franchise tax responsibilities.
4. COMPANY’s 2016 franchise tax report was due on or before May 15, 2014.
5. COMPANY did not file the report by the due date and the Comptroller issued a combined delinquent notice and estimated jeopardy determination on August 8, 2014.
6. COMPANY’s right to transact business was forfeited effective October 17, 2014.
7. COMPANY submitted a franchise tax No Tax Due return for report year 2014 on October 28, 2014, and COMPANY’s corporate privileges were reinstated on that date.
8. The period of the forfeiture of COMPANY’s corporate privileges is May 16, 2014, through October 27, 2014.
9. In 2016, the Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller) audited COMPANY for sales and use tax compliance for the period October 1, 2013, through June 30, 2016.
10. On February 2, 2018, Staff issued COMPANY a Texas Notice of Audit Results that included an assessment for tax, penalty, and interest.
11. The deadline to request redetermination of the assessment was April 3, 2018.
12. COMPANY did not request redetermination and, consequently, the determination was final on April 3, 2018, and due and payable on April 13, 2018.
13. COMPANY did not pay the liability, and, on April 23, 2019, Staff assessed Petitioner based on Petitioner’s status as the manager and officer of COMPANY and the unpaid sales tax debt, $857.35, accrued by COMPANY for the period its corporate privileges were forfeited.
14. Petitioner requested redetermination.
15. Staff referred the cases to the State Office of Administrative Hearings (SOAH).
16. On December 7, 2021, Staff issued a Notice of Hearing by Written Submission to Petitioner. 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.
17. On December 20, 2021, Administrative Law Judge (ALJ) Keneshia Washington issued Order No. 1, which set the written submission hearing.
18. On May 5, 2022, the hearing was subsequently transferred to ALJ Trevor Moore for docket control purposes.
19. The contested case record closed on May 13, 2022.
IV. CONCLUSIONS OF LAW
1. The Comptroller has jurisdiction over this matter. See Tex. 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. See Tex. Gov’t Code ch. 2003.
3. Staff provided proper and timely notice of the hearing. See Tex. Gov’t Code ch. 2001; Tex. Tax Code § 111.009.
4. The Tax Code imposes franchise tax responsibilities on taxable entities such as corporations, certain partnerships, limited liability partnerships, banking corporations, savings and loan associations, limited liability companies, business trusts, professional associations, joint ventures, joint stock companies, holding companies, and certain other legal entities. Tex. Tax Code §§ 171.0002, .001.
5. The franchise tax is associated with the right to transact business in Texas, and a failure to comply with Chapter 171 requirements can result in the forfeiture of corporate privileges. See Tex. Tax Code § 171.251.
6. If the corporate privileges of a corporation are forfeited for the failure to file a report or pay a tax or penalty, each director or officer of the corporation is liable for each debt of the corporation that is created or incurred in this state after the date on which the report, tax, or penalty is due and before the corporate privileges are revived. Tex. Tax Code § 171.255(a).
7. A person who is assessed personally as the officer or director of a corporation may not challenge the underlying corporate liability that is administratively final. Comptroller’s Decision Nos. 114,779 (2019), 42,791 (2003).
8. To challenge the underlying corporate liability, the officer of director must pay the liability and request a refund, subject to the applicable statute of limitations. Comptroller’s Decision No. 40,801 (2002).
9. Petitioner is liable for COMPANY’s tax debts in the assessment period.
10. The assessment against Petitioner should be upheld.
SIGNED May 24, 2022.
TREVOR MOORE
ADMINISTRATIVE LAW JUDGE
STATE OFFICE OF ADMINISTRATIVE HEARINGS
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.