Hearing No. 34,965 – Successor Liability (Purchaser Liable for Sellers Audit Liability)

“On April 24, 1995, the Comptroller sent Petitioner a Texas Notice of Tax Due in the amount of $***********. The notice was based on successor liability due to the alleged acquisition of a business, *********** “DISTRIBUTING”), with outstanding sales tax liabilities. Petitioner requested a redetermination of the assessment which has resulted in this proceeding.”

HEARING NO. 34,965

IN RE: ***********
TAXPAYER NO.: ***********
AUDIT PERIOD: 04/01/94 THROUGH 12/31/94

SALES TAX/RDT SUCCESSOR LIABILITY

BEFORE THE COMPTROLLER
OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS

PETER BROOKS
Administrative Law Judge

COLIN “C.J.” CARL
Representing Tax Division

PRO SE
Representing Petitioner
COMPTROLLER’S DECISION

PRELIMINARY COMMENTS

At Petitioner’s request the Comptroller’s Decision in this matter is
based on a review and consideration of the written submissions of the parties.

Section references are to Title 2 of the Texas Tax Code, and Rule
references are to Title 34, Texas Administrative Code. Notice has been taken
of all Comptroller’s records pertinent to this case.

PETITIONER’S CONTENTION

Petitioner was improperly assessed successor liability under Section 111.020.

FINDINGS OF FACT

1. Petitioner is engaged in the business of selling truck campers.

2. On April 24, 1995, the Comptroller sent Petitioner a Texas
Notice of Tax Due in the amount of $***********. The notice was based on
successor liability due to the alleged acquisition of a business, ***********
(“DISTRIBUTING”), with outstanding sales tax liabilities. Petitioner requested
a redetermination of the assessment which has resulted in this proceeding.

3. The only evidence offered by the Tax Division to support its
assertion that Petitioner acquired the business of DISTRIBUTING is an affidavit
executed by Alice DeLeon (“ADL”), an enforcement officer employed by the
Comptroller. ADL states in the affidavit that she spoke with Petitioner’s
mother. According to ADL, Petitioner’s mother stated that at the beginning of
1995 her husband, HUSBAND, has transferred to their son, Petitioner, the assets
and operation of DISTRIBUTING’s business of selling campers.

3. No evidence was submitted as to what is the amount of the tax
liability of the predecessor business. No evidence was submitted that the
predecessor’s business was assessed the tax liability. No evidence was
submitted that Petitioner paid any consideration for the transfer of the
predecessor’s assets. No evidence, other than the affidavit of ADL, was
submitted that Petitioner received all or a substantial part of the
predecessor’s assets, or that DISTRIBUTING was no longer in business.

4. The Tax Division did not plead or introduce evidence
establishing that the failure to provide the evidence cited in Finding of Fact
No. 3 was due to Petitioner’s failure to provide records.

5. The Tax Division did not plead that Petitioner was
uncooperative or refused to provide records. There is an undated Comptroller
form titled “Request for Successor Liability/Forfeiture of Corporate Privileges
Set Up”, bearing a date received stamp of March 23. The form signed by John
Smith (“JS”), as Manager, and ADL, as enforcement officer, bears the following
comments:

“SON now has assets … HUSBAND trying to get out of paying taxes. This is a
family transaction. 1st taxable sales date for SON is 01-15-93. SON, unwilling
to provide records.”

There is no indication as to who wrote these comments. There is no indication
whether the writer had personal knowledge of these facts or on what basis these
comments were made.

CONCLUSIONS OF LAW AND DISCUSSION

Petitioner’s contention should be sustained.

Section 111.020 provides in pertinent part as follows:

(a) If a person who is liable for the payment of an amount under this title
sells the business or the stock of goods of the business or quits the business,
the successor to the seller or the seller’s assignee shall withhold an amount
of the purchase price sufficient to pay the amount due until the seller
provides a receipt from the comptroller showing that the amount has been paid
or a certificate stating that no amount is due.

(b) The purchaser of a business or stock of goods who fails to withhold an
amount of the purchase price as required by this section is liable for the
amount required to be withheld to the extent of the value of the purchase
price. (emphasis added).

Texas case law is quite clear that the Comptroller bears the initial
burden of establishing, prima facie, the basis for the imposition of a tax and
that any doubts are to be resolved against the taxing entity and in favor of
the taxpayer. See: Bullock v. Ramada Texas, Inc., 586 S. W. 2d 651, 653 (Tex.
Civ. App.-Austin, 1979). As reaffirmed recently in Comptroller’s Decision No.
33,774 (1994), in construing Section 111.020, “… the Tax Division must show,
prima facie, that some amount of consideration has passed from the alleged
successor to the alleged predecessor.” See also Comptroller’s Decision No.
32,120 (1994). Because of this failure to show the payment of any valuable
consideration, I must conclude that the Tax Division failed to sustain its
burden of establishing a prima facie case of successor liability under Section
111.020. Petitioner’s contention should be sustained and the assessment against
him should be dismissed.

In addition, no evidence was submitted as to what the tax liability of
DISTRIBUTING is (if any), what portion of the inventory and assets of
DISTRIBUTING that Petitioner acquired, or whether DISTRIBUTING is even out of
business. See also Comptroller’s Decision No. 34,769 (1996). However, my
review of the Comptroller’s records disclosed that DISTRIBUTING went out of
business as of December 31, 1994. DISTRIBUTING’s last report was filed in April
of 1994. The same records indicated a sales tax collection balance for
DISTRIBUTING of $***********.

The Tax Division, during exceptions, is invited to plead and show that
Petitioner’s refusal to provide records denied the Tax Division the information
that would have allowed the Tax Division to meet its burden of making a prima
facie case for successor liability.

RECOMMENDATIONS

Petitioner’s contention should be sustained and the assessment against
Petitioner based on successor liability should be dismissed.

Signed this 5th day of June, 1996.
PETER BROOKS
Administrative Law Judge
HEARING NO. 34,965

ORDER OF THE COMPTROLLER

The above decision of the Administrative Law Judge, is approved and
adopted in all respects. This decision becomes final twenty (20) days from the
date of this Order.

If a rehearing is desired, a Motion for Rehearing must be filed with
the clerk of the Administrative Law Judges twenty (20) days from the date of
the Order, and must state the grounds upon which the motion is based.

RENDERED and ISSUED this 5th day of June, 1996.
JOHN SHARP
Comptroller of Public Accounts
of the State of Texas
NOTE: Previous Accession Number 9606347H
ACCESSION NUMBER: 9606H1416E13
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 06/05/1996
TAX TYPE: SALES

http://aixtcp.cpa.state.tx.us/opendocs/open13/1416e13h.html