|
|
SOAH DOCKET NO. 304-23-05438
CPA HEARING NO. 118,232
RE: **************
TAXPAYER NO: **************
AUDIT OFFICE: **************
AUDIT PERIOD: May 16, 2019 THROUGH December 31, 2019
Sales And Use Tax/RDT
BEFORE THE COMPTROLLER
OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS
GLENN HEGAR
Texas Comptroller of Public Accounts
ERIC YOON
Representing Respondent
**************
Representing Petitioner
COMPTROLLER’S DECISION
This decision is considered final on April 11, 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 written.[2]
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.[3]
The total sum of the tax, penalty, and interest is due and payable 20 days after a comptroller’s decision becomes final.[4] If such sum is not timely paid, an additional penalty of 10 percent of the taxes due will accrue.
SIGNED on this 17th day of March 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 written
ATTACHMENT C
SOAH DOCKET NO. 304-23-05438
CPA HEARING NO. 118,232
**************
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) issued a jeopardy determination assessing ************** (Petitioner) personally based on her status as the sole managing member for COMPANY, the forfeiture of the COMPANY’s corporate privileges, and the failure of the company to remit the sales and use tax found due. Petitioner requested redetermination, contending the restaurant closed in March 2019 and the liability was overstated. Petitioner also contends her failure to comply with tax reporting requirements was due to ignorance of the law. Staff rejected Petitioner’s contentions. In this Proposal for Decision, the Administrative Law Judge (ALJ) recommends affirming the assessment against Petitioner.
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. On December 6, 2022, ALJ Kathy Pickup issued an Order Setting Written Submission Hearing, setting the hearing, establishing filing deadlines, and setting the record closing date of February 21, 2023. Petitioner represented herself, and Eric Yoon represented Staff.
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 electricity bills for COMPANY attached to her pleadings. Staff submitted the pleadings the parties exchanged prior to referring the matter to SOAH and offered the following exhibits into the record:
1. COMPANY’s Certificate of Formation Limited Liability Company;
2. COMPANY’s Texas Tax Registration Application Summary;
3. Comptroller’s Customer Information Control System (CICS) Sales and Use Tax Status Inquiry Results for COMPANY;
4. CICS Franchise Tax History Inquiry;
5. Texas Notice of Tax/Fee Due;
6. CICS Sales and Use Tax Penalty & Interest Inquiry;
7. Exam;
8. Declaration of Jeremy Davies;
9. Screenshots of COMPANY’s Facebook Website Page; and
10. Request for Section 171.255 Forfeiture of Corporate Privileges Set Up.
All exhibits were admitted without objection.
B. Agreements
Staff did not agree to adjust the assessment.
C. Material Facts Established by the Evidence
Petitioner was the managing and sole member of COMPANY, a full-service restaurant in CITY, Texas, which was permitted by the Comptroller for Texas sales and use tax effective January 26, 2019. COMPANY had sales tax responsibility from January 26, 2019, through December 31, 2019. COMPANY did not file a sales tax report for the 2nd, 3rd, or 4th quarters of 2019, and the Comptroller issued estimated jeopardy determinations on July 25, 2019, for $1,100.00, October 29, 2019, for $1,152.51, and February 14, 2020, for $1,207.62 respectively. COMPANY did not request redetermination for any of the assessments, and the determinations were final after August 14, 2019, November 18, 2019, and March 5, 2020, respectively.
COMPANY also failed to file its franchise tax report as required on May 15, 2019. Due to COMPANY’s failure to comply with Texas franchise tax reporting requirements, the Comptroller forfeited the company’s right to do business effective September 27, 2019, and issued a jeopardy determination on June 1, 2021, assessing Petitioner personally for COMPANY’s unpaid sales tax debts, which accrued from May 16, 2019, through December 31, 2019. The period of officer liability began on May 16, 2019, which was the day after the due date for the report year 2019 franchise tax return, and includes penalty and interest based on the unpaid tax for each quarterly filing period.
Petitioner requested redetermination contending that her restaurant closed in March 2019 and that the subject tax amount is overstated. She also contends she is entitled to relief because her failure to comply with the tax reporting requirements was due to ignorance of the law. Staff disagreed and referred the matter to SOAH.
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 2019 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, 2019, through December 31, 2019.
Staff, as the party seeking to impose tax on Petitioner, must establish a prima facie case that the tax assessments are authorized under Texas Tax Code § 171.255. 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 is 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 overstated. However, 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.
Petitioner’s second contention, that she is entitled to relief because her failure to comply with tax reporting requirements was due to ignorance of the law, must also be denied. Petitioner is conducting business in the state and is required to be knowledgeable of Texas laws. Comptroller’s Decisions Nos. 119,214 (2022), 38,315 (2000), 29,794 (1996), 27,415 (1991). Ignorance of the law is not an excuse for failing to comply with laws of this state. Id. Hence, ignorance of the law does not merit forgiveness of the tax. Comptroller’s Decisions Nos. 115,310 and 115, 360 (2018), 113,163 (2018).
III. FINDINGS OF FACT
1. COMPANY was a full-service restaurant in CITY, Texas.
2. During the period at issue, ************** (Petitioner) was the managing and sole member of COMPANY.
3. COMPANY was permitted by the Texas Comptroller of Public Accounts (Comptroller) for Texas sales and use tax effective January 26, 2019.
4. COMPANY had sales tax responsibility from Jan. 26, 2019, through Dec. 31, 2019.
5. COMPANY did not file a sales tax report for the 2nd, 3rd, or 4th quarters of 2019, and the Tax Division (Staff) of the Comptroller issued estimated jeopardy determinations on July 25, 2019, for $1,100.00; October 29, 2019, for $1,152.51; and February 14, 2020, for $1,207.62 respectively.
6. COMPANY did not request redetermination for any of the assessments, and the determinations were final after August 14, 2019, November 18, 2019, and March 5, 2020, respectively.
7. As a Texas corporation, COMPANY had certain franchise tax responsibilities.
8. COMPANY’s 2019 franchise tax report was due on or before May 15, 2019.
9. COMPANY did not file the report and its right to transact business was forfeited effective September 27, 2019.
10. The period of the forfeiture of COMPANY’s corporate privileges is May 16, 2019, through December 31, 2019.
11. Staff assessed Petitioner based on her status as the managing and sole member of COMPANY, and the unpaid sales tax debt accrued by COMPANY for the period its corporate privileges were forfeited.
12. Petitioner requested redetermination.
13. Staff referred the cases to the State Office of Administrative Hearings (SOAH).
14. On November 16, 2022, 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.
15. On December 6, 2022, Administrative Law Judge (ALJ) Kathy Pickup issued an Order Setting Written Submission Hearing, setting the hearing and establishing filing deadlines.
16. The contested case record closed on February 21, 2023.
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. Staff, as the party seeking to impose tax on Petitioner, must establish a prima facie case that the tax assessments are authorized under Texas Tax Code § 171.255.
8. Staff established a prima facie case that the tax assessment against Petitioner is 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).
9. 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).
10. 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).
11. Petitioner is conducting business in the state and is required to be knowledgeable of Texas laws. Comptroller’s Decisions Nos. 119,214 (2022), 38,315 (2000), 29,794 (1996), 27,415 (1991).
12. Ignorance of the law is not an excuse for failing to comply with laws of this state. Comptroller’s Decisions Nos. 119,214 (2022), 38,315 (2000), 29,794 (1996), 27,415 (1991).
13. Ignorance of the law does not merit forgiveness of the tax. Comptroller’s Decisions Nos. 115,310 and 115, 360 (2018), 113,163 (2018).
14. Petitioner is liable for COMPANY’s tax debts in the assessment period.
15. Petitioner did not establish error in the assessment.
16. The assessment against Petitioner should be upheld.
Signed February 22, 2023.
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] 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.