Texas Tax Rate Locator Erroneously Calculated Sales Tax Rate
- Jan 3, 2013 | Gail Cole
Many businesses use state department of revenue websites to determine the rate of sales tax owed. A recent case before the Texas Comptroller of Public Accounts reveals that even department of revenue websites can be wrong.
The Texas Comptroller operates an online Tax Rate Locator designed to help businesses determine the tax responsibility of a particular address. At the bottom of the page is this disclaimer:
"This is not an attempt to identify your tax responsibility under local sales and use tax laws, or to determine the correct rate that should be collected on a transaction."
Users are referred to "Guidelines for Collecting Local Sales and Use Tax" in order to find "detailed instructions on how to determine the sales tax rate that should be collected on a transaction." The guideline lists the following types of local taxing entities:
- Special Purpose Districts (SPD); and
- Transit Authorities (MTA, CTD, CTA, or ATD).
The guideline explains that "different types of taxing entities may cross or share boundaries, and boundaries for transit authorities and special purpose districts may encompass several cities and/or counties." It continues:
"Boundaries often cross ZIP codes and streets. For example, in some situations, a business located on one side of a street will be within the boundaries of different taxing jurisdictions than a business located on the other side of the street. Two businesses located next door to each other may actually be in different jurisdictions. There are situations where businesses are bisected by two local taxing authorities. A portion of the business is physically located within one jurisdiction, while another portion is located outside of the jurisdiction."
Armed with this information, the business owner (taxpayer) referenced in Hearing No. 107,153 used the Texas Comptroller's Tax Rate Locator to determine the tax rate for its business. The locator system identified the state sales tax rate of 6.25% and the county sales tax rate of 0.5%, and the taxpayer collected and remitted sales tax at the rate of 6.75%. The taxpayer was later notified by the Comptroller that it failed to assess the Special Purpose District rate of 0.5% that was also due for that location; the Comptroller then assessed the taxpayer for underpaid returns for the assessment period.
The taxpayer argued that it "relied on the Comptroller's Tax Rate Locator and WebFile systems, which did not place the business within the special purpose district's jurisdiction." In a move that would vindicate Kafka's Joseph K., the Texas Comptroller of Public Accounts agreed.
The taxpayer was able to establish the following:
- "that erroneous advice was given…;
- that the taxpayer gave sufficient information to enable the employee [of the Texas Comptroller] to provide correct advice;
- that the taxpayer followed the advice; and
- that the taxpayer has suffered or will suffer harm unless the Comptroller adheres to the advice."
Not only was it established that the Tax Rate Locator was incorrect when the taxpayer relied on it, but "the evidence demonstrates that the Tax Rate Locator error persisted long after the assessments against Petitioner were issued." As a result, the Administrative Law Judge determined the following:
- "[I]t is undisputed that the Tax Rate Locator failed to capture the fact that Petitioner's sole place of business was within the [Special Purpose District}… ."
- "[T]he evidence suggests Petitioner would have collected and remitted the correct amount of tax."
- "[T]he Comptroller should dismiss the underpaid-return assessments against Petitioner."
This is good news for the taxpayer. However, this headache could have been avoided had the correct rate of Texas sales tax been assessed in the first place. Learn more here.