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SOAH DOCKET NO. 304-23-11369
CPA HEARING NO. 117,162
RE: **************
TAXPAYER NO: **************
AUDIT OFFICE: **************
AUDIT PERIOD: February 1, 2015 THROUGH June 30, 2018
Mixed Beverage Sales Tax/RDT
SOAH DOCKET NO. 304-23-11370
CPA HEARING NO. 117,163
RE: **************
TAXPAYER NO: **************
AUDIT OFFICE: **************
AUDIT PERIOD: February 1, 2015 THROUGH June 30, 2018
Mix Bvg Gross Rcpts/RDT
BEFORE THE COMPTROLLER
OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS
GLENN HEGAR
Texas Comptroller of Public Accounts
DANIEL NEUHOFF
Representing Respondent
**************
Representing Petitioner
COMPTROLLER’S DECISION
This decision is considered final on May 22, 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) Keneshia Washington 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 results from this Decision are Attachments 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.
Attachments A reflect liabilities.[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 26th day of April 2023
GLENN HEGAR
Comptroller of Public Accounts
By: Lisa Craven
Deputy Comptroller
Attachments A, Texas Notifications of Hearing Results
Attachment B, ALJ’s letter to the Comptroller
Attachment C, Proposal for Decision as written
ATTACHMENT C
SOAH Docket No. 304-23-11369
TCPA Hearing Nos.: 117,162
**************
TAXPAYER NO: **************
SOAH DOCKET NO. 304-23-11370
TCPA HEARING NO. 117,163
**************
TAXPAYER NO: **************
v.
TEXAS COMPTROLLER OF PUBLIC ACCOUNTS
BEFORE THE STATE OFFICE OF ADMINISTRATIEV HEARINGS
Proposal for Decision
The Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller) audited ************** dba COMPANY A (Petitioner) for compliance with mixed beverage tax laws and made assessments for mixed beverage gross receipts tax (MBGRT) and mixed beverage sales tax (MBST). Petitioner requested redetermination, raising several contentions with the assessments and arguing that waivers of penalty and interest are warranted. At the hearing, Petitioner withdrew its contentions regarding the average drink pour, secondary drinks, and complimentary beverages. Petitioner’s main remaining contention is that vendor-reported purchase data for Petitioner prior to September 2017 should be excluded from the depletion analysis. Staff agreed to a partial interest waiver but argues the evidence in the record is insufficient to support any additional adjustments. In this Proposal for Decision (PFD), the Administrative Law Judge (ALJ) finds the audit assessments should be upheld except as agreed to by Staff.
I. NOTICE, JURISDICTION, AND PROCEDURAL HISTORY
Staff referred the contested cases to the State Office of Administrative Hearings (SOAH) and, on February 16, 2023, ALJ Keneshia Washington issued the order setting the prehearing requirements and combining the cases for purposes of issuing a single PFD. On the same day, Staff issued Notices of Hearing to Petitioner. Daniel Neuhoff represented Staff, and Petitioner was represented by ************** of COMPANY B. The hearing convened via videoconference on March 22, 2023. The record closed on March 23, 2023, after Staff eFiled its exhibits admitted as evidence.
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
Staff presented the testimony of auditor, Marisol Martinez, and offered the following exhibits for each hearing:
1. Hearing Request Receipt;
2. Texas Notification of Audit Results;
3. Penalty & Interest Waiver Worksheet;
4. Audit Report; and
5. Audit Plan.
Petitioner offered the testimony of INDIVIDUAL, Petitioner’s manager, and the following exhibits:
1. Page 25 of the Comptroller Mixed Beverage Gross Receipts and Sales Tax Manual (April 2017);
2. Pages 25, 35 – 39 of the Comptroller Mixed Beverage Gross Receipts and Sales Tax Manual;
3. Comptroller’s Decision No. 103,080 (2011);
4. Comptroller’s Decision No. 39,813 (2001);
5. Demonstrative Revised Depletion Analysis;
6. Excerpt of Vendor Reported Purchase Data; and
7. Comptroller’s Decision Nos. 116,011 and 116,012 (2020).
Staff’s exhibits were admitted without objection. Staff objected to the admission of Petitioner’s Exhibits 3, 4, and 7 because Comptroller’s Decisions are not factual evidence but are part of Comptroller jurisprudence. The ALJ admitted all of Petitioner’s exhibits to the record over Staff’s objection but took Staff’s objection into consideration when determining the weight and applicability of the Comptroller’s Decision in Petitioner’s Exhibits 3, 4, and 7. The ALJ also notes that Petitioner’s Exhibits 3, 4, and 7 are not evidentiary exhibits but components of jurisprudence of which the ALJ will take judicial notice. Petitioner failed to eFile its admitted exhibits by the end of the first business day after the conclusion of the hearing as instructed in the Order Consolidating Cases and Scheduling Hearing on the Merits issued by the ALJ on February 16, 2023, and per 1 Texas Administrative Code § 155.101(b)(1)(G)(iii); therefore, Petitioner’s exhibits are no longer admitted to the record.
B. Staff Agreed Adjustments
Staff agrees to waive interest from April 1, 2021, through December 31, 2022.
C. Material Facts
In the period at issue, Petitioner held a mixed beverage permit and operated a bar in CITY, Texas. In May 2018, Staff initiated an MBGRT and MBST audit of Petitioner for the period February 1, 2015, through June 30, 2018. At the outset of the audit field work, the auditor sent correspondence to Petitioner asking that it provide records for the audit. In response, Petitioner provided available register tapes and complimentary service checks.
The auditor used vendor-reported purchase data to determine Petitioner’s purchases of alcoholic beverage inventory during the audit period. She adjusted the reports for purchases that were miscategorized by alcohol type or were secondaries. The auditor randomly selected two weeks from October 2017 and March 2018 and used the available register tapes to calculate average selling prices. She gave allowances for complimentary drinks where verifiable by the available complimentary service checks. The auditor compared the mixed beverage gross receipts reported on Petitioner’s MBGRT returns with the mixed beverage gross receipts reported on its MBST returns. There are six periods in which Petitioner under or over-reported taxable sales, and the auditor scheduled those differences as reconciliation adjustments in the MBST assessment. Petitioner did not provide source records for audit periods prior to September 2017.
The auditor conducted a pour test at the bar on June 7, 2018, with the bartender on duty pouring shots, “neat” drinks, and mixed drinks. During the unannounced pour test, the bartender used a free pour instead of specialized equipment. The auditor subsequently conducted an announced pour test during which bartenders used pour-measurement equipment.
The auditor performed the depletion analysis audit relying on the vendor‑reported purchases, the results of the pour tests, Petitioner’s available register tapes, and complimentary service checks. She used the revised vendor-reported purchase data to determine Petitioner’s containers available. She estimated services per container using the average pour sizes and then multiplied containers available by the services per container to estimate total gross services available. The auditor applied the respective average selling prices to the total gross services available to compute Petitioner’s gross sales receipts. She then subtracted the retail value of verified complimentary drinks. From the resulting taxable total gross receipts, the auditor subtracted Petitioner’s reported taxable total gross receipts. The difference for each category was divided by the respective reported receipts, resulting in a reporting error percentage for distilled spirits and beer. The auditor applied the underreporting error percentages to the reported gross receipts from drink sales and allowed 5% for undocumented losses. The net result was scheduled as additional gross receipts from the depletion analysis. The reconciliation adjustments were applied in the MBST assessment. Then the applicable tax rates were applied to those adjusted receipts to calculate the total additional MBGRT and MBST due.
On March 7, 2019, Staff issued a Texas Notification of Audit Results to Petitioner assessing a liability for the MBGRT. On the same date Staff also issued a Texas Notification of Audit Results assessing a liability for the MBST. Both assessments included tax, a 10% late penalty, and accrued interest. The overall error rate for MBST was 20.24% and 20.84% for MBGRT. There were 20 delinquent returns or late payments during the 41-month audit period.
Petitioner requested redetermination, contending the audit calculation used an underestimated pour for distilled spirits; relied on incorrect average prices and serving sizes of drinks; understated allowances for secondary liquors, complimentary drinks, and spills; and failed to consider the loss of documentation because of flooding. Petitioner also argued the penalty and interest assessments should be removed. Staff agreed to a partial interest waiver but argues the evidence in the record is insufficient to support any additional adjustments. Staff referred the matters to SOAH.
At the hearing on the merits, Petitioner withdrew its contentions regarding the pour test, secondary drinks, and complimentary beverages. Petitioner’s manager, INDIVIDUAL, testified on Petitioner’s behalf. INDIVIDUAL testified that after Hurricane Harvey hit Texas in August 2017, Petitioner had to close for a month and discard inventory and records because of mold and water contamination. She explained that she was not a manager of Petitioner at the time and did not have a list of discarded inventory or documentation recording the extent of the damage.
D. ALJ’s Analysis and Recommendations
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. In addition, an 8.25% MBST 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.
As a mixed beverage permit holder, Petitioner was required to maintain records that reflected the purchases, sales, and gross receipts from the sale or service of alcoholic beverages. See 34 Tex. Admin. Code §§ 3.1001(j)‑(m), .1002(c)(4). Specifically, a permittee must maintain a daily summary that includes all information required by the Comptroller. Id. § 3.1001(l). Included in the required information is alcoholic beverages that were lost through a disaster, showing the number of containers lost by size, brand, and class. Id. § 3.1001(l)(4).
In examining the tax account of a permittee, the Comptroller may compute and determine the MBGRT and MBST liabilities based on reports filed with the Comptroller, records or information obtained from the permittee, 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. 34 Tex. Admin Code §§ 3.1001(o)(1), .1002(c)(4). Thus, 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 and 115,140 (2019); Mixed Beverage Gross Receipts and Sales Tax Manual (2017). The depletion-analysis methodology is recognized and accepted by the Comptroller for auditing mixed beverage taxpayers. See, e.g., Comptroller’s Decision No. 103,080 (2011). Any audit adjustment resulting from a depletion analysis is considered an estimated audit due to the various components comprising the calculation. See Mixed Beverage Gross Receipts and Sales Tax Manual (2017) at 24.
The instant audit was based on pour tests at Petitioner’s establishment, available register tapes, complimentary service checks, and vendor‑reported purchases. Thus, the ALJ finds that Staff’s evidence demonstrates, prima facie, that the audit was based on the best information available. The audit was performed in accordance with established auditing procedures and is therefore entitled to a presumption of correctness. Comptroller’s Decision No. 110,206 (2018). Hence, Petitioner must produce contemporaneous records and supporting documentation to demonstrate that the tax amounts that Staff assessed are incorrect. 34 Tex. Admin. Code § 1.26(a), (e).
Petitioner contends that the audit is erroneous. Specifically, Petitioner asserts that vender purchase data prior to September 2017 should have been reduced to zero, reducing the beverage purchases in Exam 1D of the depletion analysis. Addressing situations where some business records may be missing, the Comptroller Mixed Beverage Gross Receipts and Sales Tax Manual states, “In addition in some cases, the bar may be closed or only have data available for the last two years of a four-year audit period, the auditor could calculate the average selling price component using those available two years and using that error rate to estimate the earlier two years without records. Remember that [Retail Inventory Tracking System] RITS detailed, electronic data is available as of September 2011 for the purchase component of a depletion analysis and would be considered the best information available.” Mixed Beverage Gross Receipts and Sales Tax Manual (2017) at 25. Petitioner contends the Mixed Beverage Gross Receipts and Sales Tax Manual supports its contention. However, Petitioner’s contention is contradicted by the statute, Comptroller rule, Comptroller’s decisions, and the Comptroller audit manual. If records are inadequate to reflect accurately the business operations of the taxpayer, the Comptroller or his designee shall determine the best information available and base his audit report on that information. Tex. Tax Code $ 111.042(d); 34 Tex. Admin. Code § 3.1001(o)(3); § 3.1002(c)(4). A taxpayer cannot defeat an assessment based on the burden of proof by withholding or failing to provide documentation. See, e.g., Comptroller’s Decision Nos. 102,386 (2014), 105,892 (2012). Moreover, the Comptroller has long held that the loss of documents, even when due to circumstances beyond Petitioner’s control, does not afford a taxpayer a basis for relief from an assessment of tax. See, e.g., Comptroller’s Decision Nos. 47,981 (2008) (tax upheld when documents were lost in Hurricane Rita), 43,290 (2004) (tax upheld when documents were lost due to fire). In the absence of source records, Petitioner’s contentions amount to bare assertions that are not sufficient to establish audit error. See Baker v. Bullock, 529 S.W.2d 279 (Tex. Civ. App. Austin 1975, writ ref’d n.r.e.); Comptroller’s Decision No. 114,880 (2019). RITS data regarding Petitioner is the best information available for the purchase component of the depletion analysis. See Mixed Beverage Gross Receipts and Sales Tax Manual (2017) at 25. Based on the foregoing, Petitioner’s request to exclude vendor purchase data regarding Petitioner should be denied. The ALJ finds that Petitioner’s evidence fails to demonstrate audit error in either of the mixed beverage assessments at issue. Therefore, the ALJ recommends affirming the audit assessments.
Petitioner requested waiver of interest and penalty. Delinquent taxes draw interest beginning 60 days after the date due. Tex. Tax Code § 111.060(c). 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. Id. § 111.103; 34 Tex. Admin. Code § 3.5(e). 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). Staff agrees to waive interest from April 1, 2021, through December 31, 2022. Petitioner did not demonstrate any of the factors that may warrant an additional interest waiver. The contention should be denied, and the interest applied should be upheld except as agreed to by Staff.
Late penalties are automatically imposed on delinquent taxes. Tex. Tax Code §§ 111.061, 183.024, 183.043. The Comptroller has the discretionary authority to waive late penalties if a taxpayer has exercised reasonable diligence to comply with tax laws. Id. § 111.103. A taxpayer must establish reasonable diligence by a preponderance of evidence. See Comptroller’s Decision No. 102,695 (2010).
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). Petitioner provided incomplete documentation for the audit but contends that it does not have documents prior to October 2017 because they were lost due to Hurricane Harvey. However, Petitioner did not provide daily summaries for any month during the audit period, including the months after Hurricane Harvey. Moreover, Petitioner has not provided any source documents to establish that it suffered loss or damage due to Hurricane Harvey. Furthermore, the overall error rate for MBST was 20.24% and 20.84% for MBGRT.
There were 20 delinquent returns or late payments during the 41-month audit period. The ALJ finds that Petitioner has not demonstrated reasonable diligence to comply with the tax law and, therefore, penalty waiver is not warranted for either assessment.
III. FINDINGS OF FACT
1. In the period at issue, ************** dba COMPANY A (Petitioner) held a mixed beverage permit and operated a bar in CITY, Texas.
2. In May 2018, The Tax Division (Staff) of the Texas Comptroller of Public Accounts (Comptroller) initiated a mixed beverage gross receipts tax (MBGRT) and mixed beverage sales tax (MBST) audit of Petitioner for the period February 1, 2015, through June 30, 2018.
3. Petitioner provided available register tapes and complimentary service checks.
4. Petitioner did not provide any source records prior to September 2017.
5. Petitioner did not provide purchase invoices, so the auditor used vendor-reported purchase data to determine Petitioner’s purchases. She adjusted the reports for purchases that were miscategorized by alcohol type or were secondaries.
6. The auditor randomly selected two weeks from October 2017 and March 2018 and used the available register tapes to calculate average selling prices. She gave allowances for complimentary drinks where verifiable by the available complimentary service checks.
7. The auditor compared the mixed beverage gross receipts reported on Petitioner’s MBGRT returns with the mixed beverage gross receipts reported on its MBST returns. There are six periods in which Petitioner under or over- reported taxable sales, and the auditor scheduled those differences as reconciliation adjustments in the MBST assessment.
8. The auditor conducted a pour test at the bar on June 7, 2018, with the bartender on duty pouring shots, “neat” drinks, and mixed drinks. During the unannounced pour test, the bartender used a free pour instead of specialized equipment. The auditor subsequently conducted an announced pour test during which bartenders used pour-measurement equipment.
9. The auditor performed a depletion analysis audit, relying on the vendor‑reported purchases, the results of the pour tests, Petitioner’s available register tapes, and complimentary service checks. She used the revised vendor-reported purchase data to determine Petitioner’s containers available.
10. The auditor estimated services per container using the average pour sizes and then multiplied containers available by the services per container to estimate total gross services available.
11. The auditor applied the respective average selling prices to the total gross services available to compute Petitioner’s gross sales receipts. She then subtracted the retail value of verified complimentary drinks. From the resulting taxable total gross receipts, the auditor subtracted Petitioner’s reported taxable total gross receipts. The difference for each category was divided by the respective reported receipts, resulting in a reporting error percentage for distilled spirits and beer.
12. The auditor applied the underreporting error percentages to the reported gross receipts from drink sales and allowed 5% for undocumented losses. The net result was scheduled as additional gross receipts from the depletion analysis.
13. The reconciliation adjustments were applied in the MBST assessment. Then the applicable tax rates were applied to those adjusted receipts to calculate the total additional MBGRT and MBST due.
14. The overall error rate for MBST was 20.24% and 20.84% for MBGRT.
15. There were 20 delinquent returns or late payments during the 41-month audit period.
16. On March 7, 2019, Staff issued a Texas Notification of Audit Results to Petitioner assessing a liability for the MBGRT. On the same date Staff also issued a Texas Notification of Audit Results assessing a liability for the MBST. Both assessments included tax, a 10% late penalty, and accrued interest.
17. Petitioner timely requested redetermination.
18. Staff did not agree to make any adjustments to the audit.
19. Staff agrees to waive interest from April 1, 2021, through December 31, 2022.
20. Staff referred the above-referenced cases to the State Office of Administrative Hearings (SOAH) and on February 16, 2023, issued Petitioner Notices of Hearing. The notices contained a statement of the nature of the hearing; the date, time and location 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.
21. On February 16, 2023, Administrative Law Judge Keneshia Washington issued the Order Consolidating Cases and Setting Prehearing Requirements, which included the pre-hearing requirements and instructions regarding access to the videoconference.
22. The hearing convened via videoconference on March 23, 2023.
23. The record closed on March 23, 2023, after Staff eFiled its exhibits admitted as evidence.
IV. CONCLUSIONS OF LAW
1. The Comptroller has jurisdiction over these matters. See Tex. Tax Code ch. 111.
2. SOAH has jurisdiction over matters related to the 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 a proper and timely notice of hearing. 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% MBST 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 purchases, sales, and gross receipts from the sale or service of alcoholic beverages. See 34 Tex. Admin. Code §§ 3.1001(j)‑(m), .1002(c)(4).
7. A permittee must maintain a daily summary that includes all information required by the Comptroller. 34 Tex. Admin. Code § 3.1001(l).
8. Included in the required information is alcoholic beverages that were lost through a disaster, showing the number of containers lost by size, brand, and class. 34 Tex. Admin. Code § 3.1001(l)(4).
9. In examining the tax account of a permittee, the Comptroller may compute and determine the MBGRT and MBST liabilities based on reports filed with the Comptroller, records or information obtained from the permittee, 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).
10. The Comptroller Mixed Beverage Gross Receipts and Sales Tax Manual states, “In addition in some cases, the bar may be closed or only have data available for the last two years of a four-year audit period, the auditor could calculate the average selling price component using those available two years and using that error rate to estimate the earlier two years without records. Remember that [Retail Inventory Tracking System] RITS detailed, electronic data is available as of September 2011 for the purchase component of a depletion analysis and would be considered the best information available.” Mixed Beverage Gross Receipts and Sales Tax Manual (2017) at 25.
11. 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).
12. 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 and 115,140 (2019); Mixed Beverage Gross Receipts and Sales Tax Manual (2017).
13. The depletion-analysis methodology is recognized and accepted by the Comptroller for auditing mixed beverage taxpayers. See, e.g., Comptroller’s Decision No. 103,080 (2011).
14. Any audit adjustment resulting from a depletion analysis is considered an estimated audit due to the various components comprising the calculation. See Mixed Beverage Gross Receipts and Sales Tax Manual (2017) at 24.
15. Staff’s evidence demonstrates, prima facie, that the audit was based on the best information available.
16. The audit was performed in accordance with established auditing procedures and is therefore entitled to a presumption of correctness. Comptroller’s Decision No. 110,206 (2018).
17. Petitioner must produce contemporaneous records and supporting documentation to demonstrate that the tax amounts that Staff assessed are incorrect. 34 Tex. Admin. Code § 1.26(a), (e).
18. If records are inadequate to reflect accurately the business operations of the taxpayer, the Comptroller or his designee shall determine the best information available and base his audit report on that information. Tex. Tax Code $ 111.042(d); 34 Tex. Admin. Code § 3.1001(o)(3); § 3.1002(c)(4).
19. A taxpayer cannot defeat an assessment based on the burden of proof by withholding or failing to provide documentation. See, e.g., Comptroller’s Decision Nos. 102,386 (2014), 105,892 (2012).
20. The Comptroller has long held that the loss of documents, even when due to circumstances beyond Petitioner’s control, does not afford a taxpayer a basis for relief from an assessment of tax. See, e.g., Comptroller’s Decision Nos. 47,981 (2008) (tax upheld when documents were lost in Hurricane Rita), 43,290 (2004) (tax upheld when documents were lost due to fire).
21. In the absence of source records, Petitioner’s contentions amount to bare assertions that are not sufficient to establish audit error. See Baker v. Bullock, 529 S.W.2d 279 (Tex. Civ. App. Austin 1975, writ ref’d n.r.e.); Comptroller’s Decision No. 114,880 (2019).
22. RITS detailed, electronic data regarding Petitioner is the best information available for the purchase component of the depletion analysis. See Mixed Beverage Gross Receipts and Sales Tax Manual (2017) at 25.
23. Petitioner’s request to exclude vendor purchase data regarding Petitioner should be denied.
24. Petitioner’s evidence fails to demonstrate audit error in either of the mixed beverage assessments at issue, and the audit assessments should be upheld.
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. Petitioner did not demonstrate any of the factors that may warrant an additional interest waiver.
29. The interest applied should be upheld except as agreed to by Staff.
30. Late penalties are automatically imposed on delinquent taxes. Tex. Tax Code §§ 111.061, 183.024, 183.043.
31. 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.
32. A taxpayer must establish reasonable diligence by a preponderance of evidence. See Comptroller’s Decision No. 102,695 (2010).
33. 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).
34. Petitioner has not demonstrated reasonable diligence to comply with the tax law and, therefore, penalty waiver is not warranted for either assessment.
SIGNED March 31, 2023
KENESHIA WASHINGTON
PRESIDING ADMINISTRATIVE LAW JUDGE
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.