Texas Tax Roundup – April 2022 | law of the free man


Hey folks, and welcome to another gripping episode of the Texas Tax Roundup. So, let’s drop the chatter and get started!

Court cases

Sales tax

Hegar c. RTU, Inc., No. 22-0098 (April 29, 2022)—The Texas Supreme Court denied the Monitor’s request for review in relation to the decision of the seventh court of appeal mentioned in January. To recap, the Seventh Court of Appeals ruled that a company was “manufacturing” for Texas sales and use tax purposes when it printed third-party advertisements on the back of the cash register tapes it produced. for grocery stores. [Per my dilapidated copy of the Texas Rules of Form (or maybe it’s not my copy, it’s got someone else’s handwriting in it), the denial of a petition for review indicates that the Supreme Court thinks the lower court kinda-sorta got it right but doesn’t have time to get into why right now.]

Cheddar’s Casual Café, Inc. v. HegarNo. 03-21-00035-CV (Tex. App.—Austin April 7, 2022, no animal histories.)– The Texas Third Court of Appeals upheld the trial court’s decision that the taxpayer (a casual dining restaurant chain) was not entitled to a sales or use tax refund under the sale-for-resale exemption in connection with taxes paid on the purchase of dishes, glasses, and utensils (the “small articles”) that it provided to diners for use in its restaurants and then washed and reused with other diners. The Court determined that: 1) the taxpayer did not transfer possession of the small items to the customers because the customers were not permitted to take the small items with them after eating and did not obtain lawful possession top of small items; and 2) the supply of the small items was not a “sale” under the Texas tax code. definition of that term as including “the provision, preparation or service of food, meal or drink”, as neither the law nor the ordinary meaning of the word “meal” supported the argument that the “meal” included something other than food. The Court also rejected the taxpayer’s argument that Rule 3.293(h)(5) (Food; Food Products; Meals; Food Services)which limits restaurants’ sale-for-resale exemption in this context to items transferred to the customer that are not reusable by restaurants, was apparently invalid.

Personal responsibility

Elesawi v. StateNo. 07-20-00182-CV (Tex. App.—Amarillo April 20, 2022, no animal histories.)— The Seventh Texas Court of Appeals upheld a district court’s decision that a taxpayer was a “responsible individual” to a corporation that operated a convenience store and owed the monitor a substantial portion of sales and use tax. Or at least the Court found that the evidence presented in the district court was sufficient in law and in fact to support the district court’s decision. Among these pieces of evidence, (1) the taxpayer had participated in the creation of the company, (2) the taxpayer managed the store, (3) the taxpayer participated in the day-to-day operations of the store, (4) the taxpayer had access to and was the sole authority to issue checks to the company’s bank account, (5) the taxpayer has signed and filed the income and usage statements and the franchise income statements with the comptroller, (6) the taxpayer was the point of contact during the company’s auditor’s previous audits, (7) the taxpayer was the point of contact during the auditor’s audit involved in the case; and (8) the taxpayer held himself out as the store manager. The Court also upheld the district court’s ruling that the taxpayer had “deliberately failed” to pay the company’s sales and use tax and had engaged in a fraudulent scheme to evade payment of such taxes. .

Final rules

Sales tax

Rule 3.589 (Margin: Remuneration)—The controller adopts the changes to the rule, previously discussed here, in the calculation of the offsetting deduction for Texas franchise tax. No comments were received regarding the proposed version of the amendments.

Rule 3.276 (Survey Services)—In this newly adopted rule (previously proposed to 46 Texas Reg. 6377), the controller implements HB 3319, 80e Leg., RS (2007)which excludes in relevant part certain surveying services from the definition of taxable real estate services in Texas Tax Code § 151.0048. The rule also consolidates guidance for surveying services and provisions currently found in Rule 3.356 (Real Estate Services).

Notable additions to the automated state search system

Insurance tax

Controller Decisions No. 117 378, 117 379 (2022)—The ALJ found that a taxpayer’s revenue from travel assistance services was subject to the insurance premium tax. The ALJ ignored the argument that Tex. Ins. Code § 3504.0004 (enacted by HB 2587, 86th RS (2019)) should modify this result, as this article did not exist during the audited periods and did not apply retroactively.

Franchise tax

Breakdown/Cost of Goods Sold

Controller Decisions No. 116,254, 116,255, 116,879 (2022)—The ALJ determined that a taxpayer who entered into commodity contracts to mitigate certain business risks did not hold those contracts as inventory and therefore the gross proceeds from the sale of those contracts could not be used for distribution purposes. See also 34 Text. Admin. Code § 3.591(e)(17).

STAR accession number 202204004L (April 21, 2022)—In this memo, Policy advised Audit regarding a 2014 change in the Comptroller’s policy on taxing printers’ franchises. Under the 2014 policy, printers are considered to own and produce goods for the purposes of cost of goods sold (“COGS”) when they custom manufacture and sell tangible personal property to customers. The note also provides information on the distribution of certain costs by printers.

Tax on the sale, use and rental of motor vehicles

Taxable sales

Controller Decision No. 117,051 (2022)—The ALJ found that a car dealership owed motor vehicle sales tax on vehicles it sold even when those vehicles were later repossessed.

Interstate Motor Vehicles

Controller’s Decision No. 117,067 (2022)– The ALJ found that an oil well service provider who purchased a trailer with Texas plates did not provide sufficient evidence that the trailer was eligible for the sales tax exemption and the use of motor vehicles as an interstate motor vehicle. The documents the taxpayer submitted showed that it was an interstate carrier, but did not address the trailer in question or show that the trailer was used with a truck registered as a dispatched vehicle.

Sales and use tax

Resale Exemption

Controller Decision No. 116 111 (2022)—The ALJ determined that a professional baseball team could not claim the resale exemption in connection with promotional items it purchased to transfer to customers, finding that sales of tangible personal property to people who donate it are taxable. The ALJ also found that the team could not claim the resale exemption for security services, audiovisual equipment, cleaning services, and motor vehicle parking services when it provided no proof that these services have been transferred to clients.

Sale price

Controller’s Decision No. 117,750 (2022)—The ALJ found that a taxpayer who was a lessor of amusement buy-back machines who entered into both equipment rental agreements and management consulting agreements with its customers was liable to collect the tax sale on its receipts under management consultancy contracts. The ALJ noted that the sale price of a taxable item includes services that are part of the sale, citing Texas Tax Code § 151.007(b). The ALJ determined that the taxpayer failed to demonstrate that his clients who entered into an equipment rental agreement with him were not also obligated to enter into a management consulting agreement with him.

Enterprise Zone Act

Controller’s Decision No. 117 164 (2022)—The ALJ confirmed the adjustment of a taxpayer’s refund claim under the Texas Enterprise Zone Law. The ALJ found that the taxpayer failed to establish that its project was a triple jumbo business project under Texas Tax Code § 151.429(b)(6), because the auditor could only verify the creation of 470 jobs instead of the 500 jobs required for such a designation. The fact that the Governor’s office had previously approved the project as a triple jumbo corporate project was not sufficient to entitle the taxpayer to the rebate associated with this designation in the absence of evidence that the requirements of the designations were completed in a given year.

cigarette tax

Controller Decision No. 118 542, 118 543 (2022)—The ALJ found there was no evidence that a tobacco retail store whose employees illegally sold tobacco products to minors was itself criminally negligent in failing to provide supervision and training that would have prevented these illegal sales from occurring. Therefore, the taxpayer failed to demonstrate that the store was not subject to fines under Texas tax code 154.1142 (which item was repealed in 2021).

See you in a few weeks!

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