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ALERT: SB 379 ((88th Leg. Session, 2023) amended Tax Code 151.313 to exempt wound care dressings, adult or children’s diapers, baby wipes, feminine hygiene products, maternity clothing, breast milk pumping products, and baby bottles. Effective 09/01/2023.
SOAH DOCKET NO. 304-23-05122
CPA HEARING NO. 118,989
RE: **************
TAXPAYER NO: **************
AUDIT OFFICE: **************
AUDIT PERIOD: March 1, 2021 THROUGH March 31, 2021
Sales And Use Tax/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 March 27, 2023, 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 changed.[2]
The result from this Decision is Attachment A. The ALJ’s letter to the Comptroller is Attachment B. The PFD as changed is Attachment C. Attachments A, B, and C are incorporated by reference.
Attachment A reflects a zero amount due.
SIGNED on this 28th day of February 2023
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 changed
ATTACHMENT C
SOAH DOCKET NO. 304-23-05122
CPA HEARING NO. 118,989
**************
TAXPAYER NO: **************
v.
TEXAS COMPTROLLER OF PUBLIC ACCOUNTS
BEFORE THE STATE OFFICE OF ADMINISTRATIVE HEARINGS
Proposal for Decision
************** (Claimant) requested a refund of sales and use tax paid in the amount of $1.78 on the purchase of menstrual and feminine hygiene products. The Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller) denied the refund claim. Claimant requested a refund hearing, contending that that the denial of her refund claim failed to consider and properly apply the exemption for wound care dressings. Claimant also contends the refund denial violates the equal and uniform taxation clause, Art. VIII, Section 1(a), and the equal protection clause, Art. I, Section 3a, of the Texas State Constitution. Staff contends that Claimant’s evidence is insufficient to support the exemption claimed for the items at issue. In this Proposal for Decision, the Administrative Law Judge (ALJ) recommends that the denial of the refund claim be affirmed.
I. NOTICE, JURISDICTION, AND PROCEDURAL HISTORY
Staff referred the contested case to the State Office of Administrative Hearings (SOAH) and, on November 16, 2022, issued a Notice of Hearing by Written Submission to Claimant. On the same date, the parties filed a joint motion to expedite the record close date. ALJ Kathy Pickup issued an Order granting motion to expedite the record closing date. The parties confirmed they had submitted all evidence and argument related to Claimant’s contentions and requested that the record be closed. Claimant was represented by **************, of COMPANY, and Kimberly LaFlair represented Staff. The contested case record closed on December 19, 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 Presented
Staff submitted the pleadings exchanged by the parties prior to the referral of the case to SOAH and submitted the following exhibits:
1. Refund Claim; and
2. Refund Denial.
Claimant submitted the following exhibits attached to its pleadings:
1. Request for Redetermination;
2. Refund Claim;
3. Refund Denial;
4. Expert Report of INDIVIDUAL;
5. State Tax Automated Research (STAR) Document No. 200310164L (Oct. 21, 2003);
6. STAR Document No. 201004232L (April 29, 2010);
7. STAR Document No. 200902458L (Feb. 17, 2009);
8. STAR Document No. 200110512L (Oct. 4, 2001);
9. Texas Comptroller Pub. No. 94-155, Sales Tax Exemptions for Over-the-Counter Drugs and Medicines (April 1, 2020);
10. STAR Document No. 20l l07200L (July 22, 2011);
11. STAR Document No No. 201107187L (July 15, 2011); and
12. Comptroller Decision No. 39,457 (2004).
The parties’ exhibits are admitted into the record without objection.
B. Agreed Adjustments
Staff did not agree to a refund.
C. Facts Established by the Evidence
On April 2, 2021, Claimant filed a refund claim for sales and use tax paid in the amount of $1.78 on the purchase of menstrual and feminine hygiene products. On February 22, 2022, Staff denied the refund claim. Claimant timely requested a hearing contending that the denial of her refund claim failed to consider and properly apply the exemption for wound care dressings. Claimant also contends the refund denial violates the equal and uniform taxation clause, Art. VIII, Section 1(a), and the equal protection clause, Art. I, Section 3a, of the Texas State Constitution. Staff referred the matter to SOAH.
D. ALJ’s Analysis and Recommendation
If the Comptroller finds that an amount of tax, penalty, or interest has been unlawfully or erroneously collected, the Comptroller shall credit or refund the amount. Tex. Tax Code § 111.104(a). When a taxpayer requests a refund, it must establish by a preponderance of evidence that taxes were erroneously collected or paid. See 34 Tex. Admin. Code § 1.26(e); see also, e.g., Comptroller’s Decision No. 109,787 (2015). If a claimant relies on an exemption to establish the error, then it must provide clear and convincing evidence. See 34 Tex. Admin. Code § 1.26(c); Comptroller’s Decision No. 100,477 (2012). Statutory exemptions are strictly construed and all doubts concerning exemption claims are resolved in favor of the taxing authority. See North Alamo Water Supply Corp. v. Willacy Cnty. Appraisal Dist., 804 S.W.2d 894, 899 (Tex. 1991); Sharp v. Tyler Pipe Indus. Inc., 919 S.W.2d 157, 161 (Tex. App.—Austin 1996, writ denied); Sharp v. Chevron Chem. Co., 924 S.W.2d 429, 432 (Tex. App.—Austin 1996, writ denied). Texas imposes tax on each sale of a taxable item in this state. Tex. Tax Code § 151.051. The term “taxable item” includes tangible personal property and taxable services. Id. §§ 151.009, .010. Sales or use tax is not due on the sale of wound care dressings. 34 Tex. Admin. Code § 3.284(b)(4). Section 3.284(a)(15) defines a “wound care dressing” as “an item that absorbs wound drainage, protects healing tissue, maintains a moist or dry wound environment (as appropriate), or prevents bacterial contamination.”
Claimant contends that feminine hygiene products are exempt from tax as wound care dressings because the products absorb blood like bandages and gauze and maintain a moist or dry environment for women. Staff contends that the exemption does not include feminine hygiene products because they are not dressings for wounds and cites the Merriam-Webster dictionary definition of a “wound” as being “an injury to the body (as from violence, accident, or surgery) that typically involves laceration or breaking of a membrane (such as the skin) and usually damage to underlying tissues.”[3] Staff further contends that because a wound requires some sort of injury to the body, feminine hygiene products cannot be considered wound care dressings. The ALJ agrees. Claimant did not prove by clear and convincing evidence that the exemption for wound care dressings applies to feminine hygiene products, and the refund denial should be upheld.
To the extent Claimant is contending that the rules or the Tax Code provisions at issue are unconstitutional, the assertions fall outside of the jurisdiction of SOAH. In administering tax laws, an agency may not determine the constitutionality of a statute or rule. See Central Power & Light v. Sharp, 960 S.W.2d 617 (Tex. 1997); Texas State Bd. of Pharmacy v. Walgreens Tex. Co., 520 S.W.2d 845 (Tex. Civ. App.—Austin 1975, writ ref’d n.r.e.); see also Comptroller’s Decision Nos. 109,672 (2015), 109,290 (2015) (superseded on other grounds), 103,059 (2011). In addition, to the extent Claimant contends that Texas Administrative Code § 3.284(b)(4) is invalid due to the constitutional issues raised, the ALJ does not have the authority to make a determination as to the validity of a rule. See Comptroller’s Decision Nos. 110,905, 111,342, 111,343, and 111,344 (2016). Claimant’s constitutional claims must be denied.
III.FINDINGS OF FACT
1. On April 2, 2021, ************** (Claimant) requested a refund of sales and use tax paid in the amount of $1.78 on the purchase of menstrual and feminine hygiene products.
2. The Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller) denied the refund claim.
3. Claimant timely requested a refund hearing.
4. The Merriam-Webster dictionary defines a “wound” as “an injury to the body (as from violence, accident, or surgery) that typically involves laceration or breaking of a membrane (such as the skin) and usually damage to underlying tissues.”
5. Staff referred the contested case to the State Office of Administrative Hearings (SOAH).
6. On November 16, 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.
7. On the same date, the parties filed a joint motion to expedite the record close date, which was granted. The parties confirmed they had submitted all evidence and argument related to Claimant’s contentions and requested that the record be closed.
8. The contested case record closed on December 19, 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 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.
3. Staff provided proper and timely notice of the hearing. See Tex. Gov’t Code ch. 2001; Tex. Tax Code § 111.105.
4. The Comptroller shall refund a tax, penalty, or interest that has been unlawfully or erroneously collected. Tex. Tax Code § 111.104(a).
5. When a taxpayer requests a refund, it must establish by a preponderance of evidence that taxes were erroneously collected or paid. Comptroller’s Decision No. 109,787 (2015); 34 Tex. Admin. Code § 1.26(e).
6. If a claimant relies on an exemption to establish the error, it must provide clear and convincing evidence. 34 Tex. Admin. Code § 1.26(c); Comptroller’s Decision No. 100,477 (2012).
7. Statutory exemptions are strictly construed and all doubts concerning exemption claims are resolved in favor of the taxing authority. See North Alamo Water Supply Corp. v. Willacy Cnty. Appraisal Dist., 804 S.W.2d 894, 899 (Tex. 1991); Sharp v. Tyler Pipe Indus. Inc., 919 S.W.2d 157, 161 (Tex. App.—Austin 1996, writ denied); Sharp v. Chevron Chem. Co., 924 S.W.2d 429, 432 (Tex. App.—Austin 1996, writ denied).
8. Texas imposes tax on each sale of a taxable item in this state. Tex. Tax Code § 151.051.
9. The term “taxable item” includes tangible personal property and taxable services. Tex. Tax Code §§ 151.009, .010.
10. Sales or use tax is not due on the sale of wound care dressings. 34 Tex. Admin. Code § 3.284(b)(4).
11. A “wound care dressing” is defined as “an item that absorbs wound drainage, protects healing tissue, maintains a moist or dry wound environment (as appropriate), or prevents bacterial contamination.” 34 Tex. Admin. Code § 3.284(a)(15).
12. Claimant did not prove by clear and convincing evidence that the exemption for wound care dressings applies to feminine hygiene products.
13. To the extent Claimant is contending that the rules or the Tax Code provisions at issue are unconstitutional, the assertions fall outside of the jurisdiction of SOAH.
14. In administering tax laws, an agency may not determine the constitutionality of a statute or rule. See Central Power & Light v. Sharp, 960 S.W.2d 617 (Tex. 1997); Texas State Bd. of Pharmacy v. Walgreens Tex. Co. , 520 S.W.2d 845 (Tex. Civ. App.—Austin 1975, writ ref’d n.r.e.); see also Comptroller’s Decision Nos. 109,672 (2015), 109,290 (2015) (superseded on other grounds), 103,059 (2011).
15. To the extent Claimant contends that Texas Administrative Code § 3.284(b)(4) is invalid due to the constitutional issues raised, the ALJ does not have the authority to make a determination as to the validity of a rule. See Comptroller’s Decision Nos. 110,905, 111,342, 111,343, 111,344 (2016).
16. Claimant’s constitutional claims must be denied.
17. The refund denial should be upheld.
Signed December 20, 2022.
KATHY PICKUP
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] See Tex. Gov’t Code § 2003.101(e) and (f).
[3] Merriam-Webster.com/dictionary/wound.