1. Evidence Presented

1. Sixty-Day Notification Letter;
2. Texas Notification of Audit Results;
3. Penalty and Interest Waiver Worksheet;
4. Audit Package (MBGRT);
5. Audit Documentation Report / Audit Plan (MBGRT);
6. Audit Package (MBST);
7. Audit Documentation Report / Audit Plan (MBST);
8. Retailer Inventory Tracking System (RITS) Data;
9. Petitioner’s Product Mix (PMIX) Report Printed 2017, for November 1, 2015, to December 31, 2015; and
10. Petitioner’s PMIX Report Printed 2019, for November 1, 2015, to December 31, 2015.

1. Monthly Sales Summaries; and
2. Comps and Spills Amounts from Monthly Sales Summaries.

 In examining the tax account of a permittee, the Comptroller may compute and determine the gross receipts tax and sales tax liability based on reports filed with the Comptroller, records or information obtained from the permittee, or records or information obtained from any seller who furnished alcoholic beverages to the permittee, or such other information that may come to the attention of the Comptroller. Id. §§ 3.1001(o)(1), .1002(c)(4). The Comptroller presumes that the disposition of all alcoholic beverages purchased by the permittee is taxable until established otherwise. Id. § 3.1001(o)(1). If the Comptroller finds that the permittee has failed to maintain or make available the records required, he may compute and determine the amount of the gross receipts tax and sales tax liability from any available source or records and estimates of the tax liability may be made by use of any available records for any period for which the permittee has failed to maintain records or file a report with the Comptroller. Id. §§ 3.1001(o)(3), .1002(c)(4).

 Mixed beverage audits are generally completed by “depleting” a taxpayer’s alcoholic beverage purchases by the estimated number of services that a taxpayer had available for sale. See, e.g., Comptroller’s Decision Nos. 115,139, 115,140 (2019). The depletion analysis methodology is recognized and accepted by the Comptroller for auditing mixed beverage taxpayers. See, e.g., Comptroller’s Decision Nos. 106,398 (2012), 103,080 (2011); see also Mixed Beverage Gross Receipts and Sales Tax Manual (April 2017).

 The instant audits were based on two pour tests, vendor-provided purchase data, and Petitioner’s records. The ALJ finds that Staff’s evidence demonstrates, prima facie, that the audit used the best information available. It is therefore Petitioner’s burden to show audit error by a preponderance of the evidence. See 34 Tex. Admin. Code § 1.26(e). Petitioner must produce contemporaneous records and supporting documentation to substantiate its claim that the tax amounts Staff assessed are incorrect. 34 Tex. Admin. Code § 1.26(a), (e).

In this case, Petitioner contends the assessments are incorrect with respect to the general calculation of the audits, secondary liquors, complimentary drinks, and spills, and that the audits are not based upon the best information available. However, Petitioner submitted limited evidence in support of its contentions. 

1. Average Pour

2. Complimentary Drinks

3. General Contentions

4. Penalty Waiver

5. Interest Waiver

1. In the periods at issue, ************** (Petitioner) held a mixed beverage permit and operated a bar in Austin, Texas.

2. In September 2017, the Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller) initiated an audit for mixed beverage gross receipts tax (MBGRT) and mixed beverage sales tax (MBST) for the period October 1, 2014, through September 30, 2017.

3. Petitioner provided the auditor with purchase invoices, product mix (PMIX) reports, and monthly summaries, which included breakdowns of sales, complimentary drinks, spills, and tax collected.

4. Staff conducted two unannounced pour tests at the bar on September 22, 2017, and March 21, 2018.

5. The pour test on September 22, 2017, resulted in distilled spirits serving sizes of 1.15 ounces and 1.18 ounces.

6. The March 21, 2018 pour test resulted in distilled spirits serving sizes of 1.23 ounces and 1.14 ounces.

7. The auditor determined taking the average of the four unannounced pours (1.175 ounces) was the most accurate way to calculate services per container, but he allowed a 1.25-ounce pour.

8. For packaged beer, each bottle or can was considered one serving.

9. The auditor used vendor-reported purchase data and the results from the pour test to determine alcoholic beverage services that were available for sale.

10. Petitioner provided monthly summaries to support its claim for complimentary drinks and spills, although the auditor noted additional information was required.

11. The auditor made an allowance for complimentary drinks supported by the required documentation.

12. The auditor used Petitioner’s PMIX reports to determine average selling prices.

13. Using the number of drinks available for sale and the average prices, the auditor estimated the total gross receipts for the audit period.

14. After performing the various depletion analysis calculations, the auditor allowed 5% for undocumented losses and applied the appropriate tax rates to calculate the additional tax due.

15. Petitioner had 10 late-filed returns during the audit period for both MBGRT and MBST.

16. On May 21, 2018, Staff issued Texas Notifications of Audit Results to Petitioner assessing liabilities for MBGRT and MBST.

17. Both assessments include tax, 10% late penalty, and accrued interest.

18. Petitioner requested redetermination for both assessments.

19. Staff referred the contested cases to the State Office of Administrative Hearings (SOAH).

20. On December 28, 2021, Staff issued Notices of Hearing by Written Submission to Petitioner. The notices contained a statement of the nature of the hearings; a statement of the legal authority and jurisdiction under which the hearings were 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.

21. On January 7, 2022, Administrative Law Judge (ALJ) Matt Jones issued Order No. 1, which set the hearings and combined the cases for purposes of issuing a single Proposal for Decision. The matters were transferred to ALJ Kathy Pickup for docket control purposes.

22. On May 13, 2022, the contested case record closed.

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 hearings 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 hearings. See Tex. Gov’t Code ch. 2001; Tex. Tax Code § 111.009.

4. A 6.7% tax is imposed on the gross receipts from the sale, preparation, or service of mixed beverages or from the sale, preparation, or service of ice or nonalcoholic beverages that are sold, prepared, or served for the purpose of being mixed with an alcoholic beverage and consumed on the premises of the permittee. Tex. Tax Code § 183.021; 34 Tex. Admin. Code § 3.1001.

5. In addition, an 8.25% sales tax is assessed on each mixed beverage sold, prepared, or served in this state and on ice and each nonalcoholic beverage sold, prepared, or served by a permittee in this state for the purpose of being mixed with an alcoholic beverage and consumed on the premises of the permittee. Tex. Tax Code § 183.041; 34 Tex. Admin. Code § 3.1002.

6. As a mixed beverage permit holder, Petitioner was required to maintain records that reflected the gross receipts from the sale or service of alcoholic beverages and to report and pay a tax on the gross receipts it received from the sale, preparation, or service of mixed beverages. See 34 Tex. Admin. Code §§ 3.1001(j)‑(m), .1002(c)(4).

7. In examining the tax account of a permittee, the Comptroller may compute and determine the gross receipts tax and sales tax liability based on reports filed with the Comptroller, records or information obtained from the permittee, or records or information obtained from any seller who furnished alcoholic beverages to the permittee, or such other information that may come to the attention of the Comptroller. 34 Tex. Admin. Code §§ 3.1001(o)(1), .1002(c)(4).

8. The Comptroller presumes that the disposition of all alcoholic beverages purchased by the permittee is taxable until established otherwise. 34 Tex. Admin. Code §§ 3.1001(o)(1), .1002(c)(4).

9. If the Comptroller finds that the permittee has failed to maintain or make available the records required, he may compute and determine the amount of the gross receipts tax and sales tax liability from any available source or records and estimates of the tax liability may be made by use of any available records for any period for which the permittee has failed to maintain records or file a report. 34 Tex. Admin. Code §§ 3.1001(o)(3), .1002(c)(4).

10. Mixed beverage audits are generally completed by “depleting” a taxpayer’s alcoholic beverage purchases by the estimated number of services that a taxpayer had available for sale. See, e.g., Comptroller’s Decision Nos. 115,139, 115,140 (2019).

11. The depletion analysis methodology is recognized and accepted by the Comptroller for auditing mixed beverage taxpayers. See, e.g., Comptroller’s Decision Nos. 106,398 (2012), 103,080 (2011); see also Mixed Beverage Gross Receipts and Sales Tax Manual (April 2017).

12. Staff established, prima facie, that the audit was based on the best information available. It is therefore Petitioner’s burden to show audit error, by a preponderance of the evidence. See 34 Tex. Admin. Code § 1.26(e).

13. Petitioner must produce contemporaneous records and supporting documentation to substantiate its claim that the tax amounts Staff assessed are incorrect. 34 Tex. Admin. Code § 1.26(a), (e).

14. Petitioner’s evidence is insufficient to demonstrate error in the average pour rate applied for distilled spirits.

15. Mixed beverage permittees are required to prepare a service check for each individual or party served complimentary alcoholic beverages, as if it was a normal sale, but clearly marked as being complimentary. 34 Tex. Admin. Code § 3.1001(k)(1)(E).

16. The service checks should be grouped daily and filed with a daily summary. 34 Tex. Admin. Code § 3.1001(k)(1)(E).

17. Petitioner is required to maintain a daily summary, including complimentary alcoholic beverages dispensed, showing the number of services, type of service, kind of drink, and normal selling price. 34 Tex. Admin. Code § 3.1001 (l), (2). 

18. Petitioner failed to establish the audits at issue were erroneous.

19. Late penalties are automatically imposed on delinquent taxes. Tex. Tax Code §§ 111.061, 183.024, 183.043.

20. The Comptroller has the discretionary authority to waive late penalties if a taxpayer has exercised reasonable diligence to comply with tax laws. Tex. Tax Code § 111.103.

21. A taxpayer must establish reasonable diligence by a preponderance of evidence. See Comptroller’s Decision No. 102,695 (2010).

22. In making the reasonable diligence determination, the Comptroller considers the following factors: 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).

23. To prevail, Petitioner must demonstrate, by a preponderance of the evidence, that penalty waiver is warranted. 34 Tex. Admin. Code § 1.26(e); see also Comptroller’s Decision No. 102,268 (2014).

24. Petitioner did not demonstrate reasonable diligence to comply with the tax laws during the audit period.

25. Delinquent taxes draw interest beginning 60 days after the date due. Tex. Tax Code § 111.060(c).

26. The Comptroller has discretionary authority to waive interest assessments and may exercise his discretion if interest was imposed as a result of undue delay caused by Comptroller personnel, reliance on advice provided by the Comptroller’s office, or natural disaster. Tex. Tax Code § 111.103; 34 Tex. Admin. Code § 3.5(e).

27. To prevail, Petitioner must demonstrate, by a preponderance of the evidence, that interest waiver is warranted. See 34 Tex. Admin. Code § 1.26(e); see also Comptroller’s Decision Nos. 102,268 and 109,069 (2014).

28. Interest waiver is not warranted.

29. The audit assessments should be affirmed.