Requesting an Independent Audit Review Conference (IARC) to Stop an Incorrect Texas Comptroller State Tax Audit from being Billed

Imagine this uncomfortable scenario. Your business is under audit by the Texas Comptroller’s Office. It is the last day of the Field Audit and you are meeting with the auditor at the Exit Conference. The auditor then hands you a tax bill for an amount that you disagree with. What do you do now? What rights do you have? (more…)

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Why am I Being Audited?

You just received notification that your business has been selected for a Texas Comptroller state tax examination. Unless you have been through the audit process before, you probably have lots of questions and concerns. Of course one of the first questions most business owners ask is, “Why my business?” Although it’s common to think you did something wrong, this usually isn’t the case. However, if you have been selected for audit, Texas Tax Group has a team of 15 former Texas Comptroller State Tax Auditors who can help you save time and money. (more…)

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“Estimated” Sales Tax Audit

This client owns a bar that does not serve food. The bar had not been remodeled in years, and the only real tax exposure for the state was in the mixed beverage area. However, there are some overly zealous audit supervisors who insist their auditors spin off sales tax audits “in order to protect the state’s interest.” The client did not initially provide any records related to the sales tax audit, so the auditor “estimated” the sales tax audit. (more…)

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Mixed Beverage Gross Receipts Tax

Mixed Beverage Gross Receipts Tax Rate Lowered; New Mixed Beverage Sales Tax Imposed

House Bill 3572, effective Jan. 1, 2014, lowers the mixed beverage gross receipts tax rate from 14 percent to 6.7 percent. The bill also imposes an 8.25 percent mixed beverage sales tax.

Mixed beverage gross receipts tax is imposed on the mixed beverage permittee and will be administered the same as before but at a lower rate. In addition, a mixed beverage permittee will collect an 8.25 percent tax on each mixed beverage sold, prepared or served. The new sales tax is also due on ice and each nonalcoholic beverage sold, prepared or served to be mixed with an alcoholic beverage and consumed on the permitted premises. (more…)

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Electronic Reporting Information

Wholesalers, distributors, wineries, package stores holding local distributor permits and certain beer manufacturers and brewers are required by law to electronically report their monthly alcoholic beverage sales to retailers in Texas.

After the Texas Alcoholic Beverage Commission notifies the Comptroller that a qualifying permit or license has been issued, the Comptroller sends a letter to the new permit or license holder explaining how to electronically file their monthly alcohol sales report.

A report must be filed even if the permit or license holder does not receive the letter. See Alcohol Reporting for additional information.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1210.html

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Personal Liability for Fraudulent Tax Evasion

An officer, manager or director of a corporation, association or limited liability company who takes an action or participates in a fraudulent scheme or plan to evade taxes can be held personally liable for tax evasion. This also applies to a partner of a partnership and a managing general partner of a limited partnership or limited liability partnership. See Tax Code Section 111.0611.

The liability is for taxes, penalties and interest due from the business entity, including an additional 50 percent penalty for fraud provided in Section 111.061.

Actions that may indicate a fraudulent plan to evade taxes include: (more…)

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Complimentary Champagne

In a recent communication, a restaurant asked how complimentary champagne would be treated for audit purposes. The champagne would be given away one day a week as a marketing tool. The restaurant does not sell champagne, but does sell other types of wine.

The restaurant’s plan was to have the restaurant’s vendor issue a separate purchase invoice for the champagne, and the restaurant would pay sales tax on the purchase of champagne. Champagne would be given away both to customers who purchase a meal and to customers who do not purchase a meal. The restaurant would not advertise in any way that champagne is included with the purchase of a meal.

Rule 3.1001, regarding mixed beverage gross receipts tax, defines a complimentary alcoholic beverage as one served without any consideration paid to the permittee. “Consideration” includes a purchase of a meal, any other item sold with service of the beverage, an entertainment fee or an entry fee. Champagne given indiscriminately to customers who purchase and do not purchase a meal is a complimentary alcoholic beverage. Since the restaurant receives no consideration for the complimentary champagne, it should be excluded from the mixed beverage gross receipts tax base.

Written or verbal advertisements and promotions that suggest in any way champagne is included with the purchase of a meal, such as champagne brunch, champagne buffet or dinners receive complimentary champagne, is viewed as selling champagne and not as complimentary.

The restaurant must keep all purchase invoices showing sales tax paid on the complimentary champagne, as required by Tax Code Section 111.0041 and Rule 3.1001. A service check must record each individual service of complimentary champagne with the total number of complimentary services of champagne included in the restaurant’s daily summary.

*Originally published in the July edition of Tax Policy News a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1207.html

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Successor Liable for Seller’s Tax Liability Incurred after Business was Sold

In Hearing No. 48,186, the Texas Comptroller of Public Accounts, through successor liability, assessed mixed beverage tax owed by a business on the purchaser of that business. The liability arose when the Comptroller audited the company after it sold its business to the petitioner.

Texas tax law, in Tax Code Section 111.020, provides that if a person who is liable for tax sells the business or the stock of goods or quits the business, the successor shall withhold an amount of the purchase price sufficient to pay the tax liability. A purchaser who fails to do so is liable for the amount due up to the value of the purchase price.

To avoid successor liability, the purchaser may request from the Comptroller a certificate that no tax is due.

At the hearing, Comptroller staff presented as evidence of successor liability the sales contract between the previous club and the petitioner. The contract provided the petitioner receive all rights, title and ownership of the previous club’s physical assets. The assets included cash registers, televisions, tables and bar stools, DJ sound equipment, a microwave oven, office furniture and equipment, glassware and other items used to mix and serve drinks and cleaning equipment (mops, brooms, mop bucket and supplies). In addition, the assets included alcoholic beverages listed on the ending inventory for the Texas Alcoholic Beverage Commission (TABC).

The petitioner contended that it cannot be held liable as a successor unless it used the business name of the original club. The petitioner’s president testified that the petitioner had no intent to open and operate a new club as the original club. He stated that the petitioner did intend to buy everything identified in the contract, but after the contract was signed, he discovered the original club did not own all the assets and had rented the tables, bar stools and furniture.

He also testified that the inventory list was prepared for TABC‘s benefit and the petitioner never received the alcoholic beverages on the list. The TABC prohibited the sale because the petitioner did not have a liquor permit at that time. When the petitioner obtained a permit and moved onto the premises, according to the president, the only alcoholic beverages left were a couple of bottles of beer.

While there was no request for a Certificate of No Tax Due, the president claimed he called the Comptroller’s office and was told that the original club had no outstanding liabilities.

When determining whether a business has been sold, Rule 3.7(d), relating to successor liability, provides that the Comptroller examines the transaction to determine what the parties intended to buy and sell. The answer in each situation will depend on the type of business involved, and a sale can occur even if a few assets are transferred.

The Comptroller may assess the successor of a business within four years from either the date the seller sells the business or the date the Comptroller’s assessment is made against the seller, whichever occurs later. See Tax Code Sections 111.020(e) and 111.201. Based on this period of limitation, Comptroller’s Hearing No. 27,579 had previously held that a successor can be held liable for a predecessor’s audit liability even though the predecessor was audited after the business was sold.

The administrative law judge ruled that the contract and the testimony of the petitioner’s president established “without a doubt that petitioner intended to purchase the entire business…” The judge continued, “Despite not receiving all assets that were included in the contract, petitioner did in fact acquire every item that [predecessor] actually owned at the club location… The continuation of a similar business at the same location using the entire assets, even if they are few, purchased from the predecessor, even under a different name, is sufficient for petitioner to be the successor under Tax Code Section 111.020.”

The administrative law judge recommended that the successor liability imposed against the night club be upheld but the amount assessed be reduced to the purchase price of the business. The Comptroller concurred.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2009/tpn906.html

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