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Texas: Consider Carefully What You Hear

  • Dec 27, 2012 | Gail Cole

The results of an audit for sales and use tax compliance by the Texas Comptroller of Public Accounts reminds that, as has been long said, it is prudent to "Consider carefully what you hear… . With the measure you use it, it will be measured to you -- and even more." (Mark 4:24). Docket No. 304-10-2729.26 is a cautionary tale. 

The case in question involves a restaurant owner/caterer (Petitioner) who was audited and found to owe sales tax on the rental of facilities where it served catered meals during private parties. The Petitioner collected sales tax on the food that was "prepared and served for immediate human consumption at the banquet halls rented by the private parties, but did not collect sales tax on the banquet hall fees."

Relevant Texas law asserts that a "caterer's charges for the rental of the facility in which the meals are served are taxable as part of the sales price of the food sold for immediate human consumption." (34 TEX. ADMIN. CODE Section 3.293(f)(5) (2000) and Comptroller's Decision No. 47,145 (2006)).

The Petitioner assets that it did not collect tax on the rental of the banquet hall because "its accountant was advised by a local enforcement officer that it was not to charge tax on the banquet hall rental receipts." Based on these circumstances, the Petitioner asserted "a claim of detrimental reliance."

The Texas Comptroller does have "a detrimental reliance relief policy to promote fairness and provide relief to a taxpayer who has relied on erroneous advice given by a Comptroller employee." In order to qualify for a claim of detrimental reliance, the following conditions must be met:

  1. A taxpayer must be given incorrect advice by a Comptroller employee, "when the taxpayer provided sufficient information to have led the employee to give correct advice;"
  2. "[T]he substance of the advice is satisfactorily established;
  3. "[T]he taxpayer followed the advice; and
  4. "[T]he taxpayer will suffer harm unless the Comptroller adheres to the advice."

If the Petitioner could have provided sufficient evidence that "would allow Staff to identify the employee who purportedly imparted the incorrect advice," then the Texas Comptroller might have been able to offer relief to the Petitioner under the policy of detrimental reliance.

Unfortunately, the Petitioner "did not identify the Comptroller employee who it claims advised that the banquet hall rental fees were not taxable…" and "did not provide any evidence supporting its claim that a Comptroller employee provided incorrect advise regarding the taxability of the banquet hall rental fees."

The Texas Comptroller of Public Accounts reminds that "Petitioner bears the burden of proving by a preponderance of the evidence that the auditor erred in scheduling as taxable the banquet hall rental fees." As a result, the Petitioner owes the back taxes on the rentals of the facilities, along with interest.

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Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.