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202207015H [Tax Type: Sales] [Document Type: Hearing]

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Texas Comptroller of Public Accounts STAR System

202207015H

SOAH DOCKET NO. 304-22-0548.26

CPA HEARING NO. 115,436

RE: **************

TAXPAYER NO: **************

AUDIT OFFICE: **************

AUDIT PERIOD: January 1, 2012 THROUGH July 31, 2015

Sales And Use Tax/RDT

BEFORE THE COMPTROLLER OF PUBLIC ACCOUNTS

OF THE STATE OF TEXAS

GLENN HEGAR

Texas Comptroller of Public Accounts

SARAH BERRY

Representing Respondent

**************

Representing Petitioner

COMPTROLLER’S DECISION

This decision is considered final on August 1, 2022, unless a motion for rehearing is timely filed; this date of finality is calculated based on the Administrative Procedure Act (APA).[ENDNOTE 1] The failure to timely file a motion for rehearing may result in adverse legal consequences.

Administrative Law Judge (ALJ) Matt Jones 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. [ENDNOTE 2]

The total sum of the tax, penalty, and interest is due and payable 20 days after a comptroller’s decision becomes final. [ENDNOTE 3] If such sum is not timely paid, an additional penalty of 10 percent of the taxes due will accrue.

SIGNED on this 7th day of July 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. 304-22-0548.26

TCPA HEARING NO. 115,436

**************

Taxpayer No. **************

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 ************** (Petitioner) for compliance with sales and use tax laws. Staff made an assessment, and during redetermination the parties resolved Petitioner’s contentions except for purchases Petitioner asserts were exempt packaging supplies shipped outside the U.S. Staff agreed to waive penalties and some interest, but argues the evidence is insufficient to support an export exemption claim. In this Proposal for Decision, the Administrative Law Judge (ALJ) recommends affirming the assessment, except as agreed by Staff.

I. PROCEDURAL HISTORY, NOTICE, AND JURISDICTION

Staff referred this case to the State Office of Administrative Hearings (SOAH) and, on November 19, 2021, issued a Notice of Hearing by Written Submission. On November 23, 2021, ALJ Matt Jones issued Order No. 1, which set the written submission hearing. The record closed February 21, 2022. Sarah Berry represented Staff, and ************** represented Petitioner.

There are no issues of notice or jurisdiction in this proceeding; 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 identified the transactions at issue and provided bills of lading. Staff provided the pleadings the parties exchanged prior to referring the matter to SOAH and submitted the following exhibits:

60-Day Letter;
Texas Notification of Audit Results;
Penalty and Interest Waiver Worksheet;
Audit Report;
Audit Plan;
Contested Items Spreadsheet; and
Printouts of Petitioner’s Website.

The parties’ exhibits were admitted without objection.

B. Agreed Adjustments

Staff agreed to the adjustments listed in its Exhibit 6. Staff also agreed to waive interest from April 15, 2019, through October 15, 2019; December 1, 2019, through February 28, 2020; June 1, 2020, through August 31, 2020; and November 1, 2020, through October 1, 2021.

C. Background and Issues Presented

During the audit period, Petitioner provided logistics and supply chain management. Its services included packaging, warehousing, container handling, and rail services. Among its activities, Petitioner exported products outside the United States on behalf of its customers and shipped other products intrastate via rail cars. To ship its clients’ products, Petitioner purchased various packing supplies. In July 2015, Staff initiated a sales and use tax compliance audit for the period January 1, 2012, through July 31, 2015. The auditor conducted detailed and sample examinations of Petitioner’s purchases and sales. Among the assessed purchases were packing supplies.

On April 13, 2017, the parties resolved their disagreements except for Petitioner’s purchases of packaging supplies. Petitioner contends the packaging supplies purchases were exempt because the products were exported from the United States. Staff argues Petitioner’s evidence is insufficient to support the exemption. According to Staff, many bills of lading Petitioner provided failed to identify the buyer, seller, consignor, consignee, or delivery location. Additionally, the auditor was unable to match the contested purchases to exports. Finally, Staff asserts Petitioner failed to demonstrate the packaging supplies were used only to export property outside the United States. Staff agreed to a partial interest waiver and referred the matter to SOAH.

D. ALJ’s 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, such as the packaging supplies at issue. Id. § 151.010.

Petitioner asserts the packaging supplies used to ship its customers products are exempt because the products were exported out of the United States. Where Petitioner seeks to demonstrate an exemption applies, it must provide clear and convincing proof. 34 Tex. Admin. Code § 1.26(c).

Tax is due on the purchases of packaging supplies to persons who repack tangible personal property prior to sale for use in delivering, expediting, or furthering in any way the performance of a taxable or nontaxable service, the rental of tangible personal property, or the sale of tangible personal property. 34 Tex. Admin. Code § 3.314(c). However, a purchase of “tangible personal property imported into or exported from Texas is exempt from taxation by the Tax Code, Section 151.307 and Section 151.330, so long as the property retains its character as an import or export.” See Tex. Tax Code § 151.307; 34 Tex. Admin. Code § 3.323(b).

An export packer is a person who packages property to be exported outside the territorial limits of the United States. 34 Tex. Admin. Code § 3.314(i)(1). When purchased by an export packer to export personal property, crating and packaging supplies, are exempt under Section 151.307, whether used to package the export packer’s property, that of vendors shipping such property to their foreign customers, or that of purchasers who contract and pay for such services. Id. § 3.314(i)(2).

Export packers must maintain records showing which materials were used for the exempt purpose of exporting tangible personal property. Id. § 3.314(i)(3). Proof of export may be shown only by specific documentation, including a bill of lading showing the seller as consignor, the buyer as consignee, and a delivery point outside the territorial limits of the United States; or a bill of lading and a forwarder’s receipt if a freight forwarder takes possession of the property. Tex. Tax Code § 151.307(b).

In this case, Petitioner’s bills of lading are incomplete. For example, they do not identify the buyer, seller, consignor, consignee, or delivery location. Additionally, Petitioner engaged in warehousing and intrastate shipping services via rail cars. There is nothing in the record that identifies which packaging supplies were used for exporting products, warehousing, or intrastate shipping services via rail cars.

The ALJ finds that Petitioner failed to clearly and convincingly show its purchases were exempt. Therefore, the transactions at issue should remain in the audit.

III. FINDINGS OF FACT

During the audit period, ************** (Petitioner) provided logistics and supply chain management. Its services included packaging, warehousing, container handling, and rail services.

Among Petitioner’s activities, it exported products outside the United States on behalf of its customers and shipped other products intrastate via rail cars.

To ship its clients’ products, Petitioner purchased various packing supplies.

In July 2015, the Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller) initiated a sales and use tax compliance audit for the period January 1, 2012, through July 31, 2015.

The auditor conducted detailed and sample examinations of Petitioner’s purchases and sales. Among the assessed purchases were packing supplies.

On April 13, 2017, Staff issued a Texas Notification of Audit Results to Petitioner, assessing tax and accrued interest. Penalty was waived.

Petitioner timely requested redetermination and the parties resolved most of their disagreements.

Many bills of lading Petitioner provided failed to identify the buyer, seller, consignor, consignee, or delivery location.

The auditor was unable to match the contested purchases to exports.

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

On November 19, 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.

On November 23, 2021, the Administrative Law Judge issued Order No. 1, which set the written submission hearing.

The contested case record closed February 21, 2022.

Staff agreed to the adjustments listed in its Exhibit 6. Staff also agreed to waive interest from April 15, 2019, through October 15, 2019; December 1, 2019, through February 28, 2020; June 1, 2020, through August 31, 2020; and November 1, 2020, through October 1, 2021.

IV. CONCLUSIONS OF LAW

The Comptroller has jurisdiction over this matter. See Tex. Tax Code ch. 111.

SOAH has jurisdiction over matters related to this 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.

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, such as the packaging supplies at issue. Tex. Tax Code § 151.010.

Where Petitioner seeks to demonstrate an exemption applies, it must provide clear and convincing proof. 34 Tex. Admin. Code § 1.26(c).

Tax is due on the purchases of packaging supplies to persons who repack tangible personal property prior to sale for use in delivering, expediting, or furthering in any way the performance of a taxable or nontaxable service, the rental of tangible personal property, or the sale of tangible personal property. 34 Tex. Admin. Code § 3.314(c).

A purchase of “tangible personal property imported into or exported from Texas is exempt from taxation by the Tax Code, Section 151.307 and Section 151.330, so long as the property retains its character as an import or export.” See Tex. Tax Code § 151.307; 34 Tex. Admin. Code § 3.323(b).

An export packer is a person who packages property to be exported outside the territorial limits of the United States. 34 Tex. Admin. Code § 3.314(i)(1).

When purchased by an export packer to export personal property, crating and packaging supplies, are exempt under Section 151.307, whether used to package the export packer’s property, that of vendors shipping such property to their foreign customers, or that of purchasers who contract and pay for such services. 34 Tex. Admin. Code § 3.314(i)(2).

Export packers must maintain records showing which materials were used for the exempt purpose of exporting tangible personal property. 34 Tex. Admin. Code § 3.314(i)(3).

Proof of export may be shown only by specific documentation, including a bill of lading showing the seller as consignor, the buyer as consignee, and a delivery point outside the territorial limits of the United States; or a bill of lading and a forwarder’s receipt if a freight forwarder takes possession of the property. Tex. Tax Code § 151.307(b).

Petitioner’s evidence fails to clearly and convincingly show its purchases were exempt.

The transactions at issue should remain in the audit.

The audit assessment should be affirmed, except as agreed by Staff.

SIGNED March 16, 2022.

Matt Jones

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.

[3] See Tex. Tax Code § 111.0081(c).

ACCESSION NUMBER: 202207015H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 2022-07-07
TAX TYPE: SALES