The opinion
ACCEPTED
03-14-00771-CV
4924164
THIRD COURT OF APPEALS
AUSTIN, TEXAS
4/16/2015 4:46:10 PM
JEFFREY D. KYLE
CLERK
NO. 03-14-00771-CV
FILED IN
In The 3rd COURT OF APPEALS
AUSTIN, TEXAS
Third Court of Appeals 4/16/2015 4:46:10 PM
JEFFREY D. KYLE
AT AUSTIN, TEXAS Clerk
Sanadco Inc., Mahmoud A. Isba, Broadway Grocery, Inc., Shariz, Inc., Ruby
& Sons Store, Inc., and Rubina Noorani,
APPELLANTS
VS.
The Office of the Comptroller of Public Accounts; Glenn Hegar, in his
official capacity as Comptroller of Public Accounts for the State of Texas;
and Ken Paxton in his official capacity as Attorney General of the State of
Texas,
APPELLEES
__________________________________________________________
Appeal From Cause No D-1-GN-13-4352
The 200th District Court Of Travis County, Texas
The Honorable Charles Ramsay, Presiding
__________________________________________________________
ACCELERATED APPEAL FROM DENIAL OF
TEMPORARY INJUNCTION
___________________________________________________________
SAMUEL T. JACKSON
SBN 10495700
P.O. BOX 670133
ARLINGTON, TX 76003-0133
TEL: (512) 692-6260
FAX: (866) 722-9685
COUNSEL FOR APPELLANTS
ORAL ARGUMENT REQUESTED
ACCELERATED APPEAL, SANADCO, ET AL 1
IDENTITY OF PARTIES AND COUNSEL
APPELLANTS:
Sanadco Inc., Mahmoud A. Isba, Broadway Grocery, Inc., Shariz, Inc., Ruby
& Sons Store, Inc., and Rubina Noorani
COUNSEL FOR APPELLANTS:
LAW OFFICE OF
SAMUEL T. JACKSON
P.O. Box 170633
Arlington, Texas 76003-0633
TEL: (512) 692-6260
FAX: (866) 722-9685
Email: jacksonlaw@hotmail.com
APPELLEES:
The Office of the Comptroller of Public Accounts; Glenn Hager, in his official
capacity as Comptroller of Public Accounts of the State of Texas; and Ken
Paxton, in his official capacity as Attorney General of the State of Texas
COUNSEL FOR APPELLEES:
JACK HOHENGARTEN
Assistant Attorney General
FINANCIAL LITIGATION DIVISION
P.O. Box 12548
Austin, TX 78711-2548
TEL: (512) 475-3503
FAX: (512) 477-2348/480-8327
Email: jack.hohengarten@oag.state.tx.us
ACCELERATED APPEAL, SANADCO, ET AL 2
§ 151.433 (b) (4) and Tex. Tax Code § 155.105. The data provided is commonly
referred to as HB 11 data, but no directives authorizing or implementing its use in
tax audits was included in the legislation. The first reports became available on
January 1, 2008.
AP122 Amendments
The Comptroller then amended AP92 with AP122 effective July 22, 2009,
again directed to “All Audit Personnel” entitled “Guidelines for Convenience Store
Audits.” It revised the audit procedures and determination of mark-up percentages
and incorporated HB11 data, directing that this data must be the starting point for all
convenience store audits whether used as internal control verification or as data used
to estimate the audit.
It instructed the auditors to use HB 11 data, available taxpayer records and
third party records to produce the most accurate audit results. All of these records
were required to be compared to each other for accuracy and consistency in
purchasing patterns. It mandated that the product mix of each convenience store be
considered, and industry averages were to be used in the absence of these records.
For periods prior to January 1, 2008 when HB 11 data was unavailable, estimated
taxable sales were based on the average taxable sales for the periods when records
became available.
ACCELERATED APPEAL, SANADCO, ET AL 15
TABLE OF AUTHORITIES
Cases
Armadillo Bail Bonds v. State,
772 S.W.2d 193, 195 (Tex.App.-Dallas 1989), aff'd, 802 S.W.2d 237 (Tex.Crim.App. 1991)
.................................................................................................................................. 26
Beacon Nat'l Ins. Co. v. Montemayor,
86 S.W.3d 260, 269 (Tex.App.-Austin 2002, no pet.) .................................................... 30
City of Pasadena v. Gennedy,
125 S.W.3d 687, 691 (Tex. App.-Houston [1st Dist.] 2003, pet. denied) ........................ 36
City of San Antonio v. City of Boerne,
111 S.W.3d 22 (Tex. 2003) .......................................................................................... 36
Combs v. Entertainment Publ'ns, Inc,
292 S.W.3d 712, 721-22 (Tex.App.-Austin 2009, no pet) ........................................ 28, 29
Crane v. Richardson Bike Mart, Inc.,
295 S.W.3d 1, 5 (Tex. App.-El Paso 2009, no pet.) ........................................................ 38
Doan v. Christus Health ArkLa-Tex,
329 S.W.3d 907, 910 (Tex.App.-Texarkana 2010, no pet.) ............................................ 36
El Paso Hosp. Dist. v. Texas Health & Human Servs. Comm'n,
247 S.W.3d 709, 713 (Tex. 2008)........................................................................... 33, 39
Fulton v. Finch,
162 Tex. 351, 356, 346 S.W.2d 823, 827 (1961) (orig. proceeding) ................................. 38
Greene v. State,
324 S.W.3d 276, 288 (Tex.App.- Austin 2010, no pet.) ................................................. 36
ACCELERATED APPEAL, SANADCO, ET AL 4
Herrera v. State,
No. 03-01-00101-CV, 2002 WL 185476, at *1 n. 4, 2002 Tex.App..-Austin Feb. 7, 2002,
no pet.) ...................................................................................................................... 37
In re Garza,,
126 S.W.3d 268, 271 (Tex. App.-San Antonio 2003, orig. proceeding) .......................... 38
In re Humphreys,
880 S.W.2d 402, 404 (Tex. 1994)................................................................................. 36
Key Western Life Ins. Co. v. State Bd. of Ins.,
350 S.W.2d 839, 846 (Tex. 1961)................................................................................. 36
Logal v. United States,
195 F.3d 229, (5th Cir. 1999)....................................................................................... 38
Marble Falls v. Scott,
275 S.W.3d 558, 566 (Tex.App. [3rd] 2008) ................................................................. 34
Montemayor v. City of San Antonio Fire Dept.,
985 S.W.2d 549, 551 (Tex.App.-San Antonio 1998, pet. denied) ................................... 39
Picker, Inc. v. Reagan,
632 S.W.2d 674, 677 (Tex.App.-Tyler 1982, writ ref'd n.r.e.) ........................................ 40
Rutherford Oil v. Land Office of Texas,
776 S.W.2d 232, 235 (Tex.App.-Austin 1989 ......................................................... 25, 40
Southern Canal Co. v. State Bd. of Water Engineers,
318 S.W.2d 619; 159 Tex. 227 (Tex. 1958)................................................................... 37
State Bd. of Ins. v. Republic Nat'l Ins. Co.,
384 S.W.2d 369, 372 (Tex.Civ.App. — Austin 1964, writ ref'd n.r.e.)............................ 37
State v. Crawford,
262 S.W.3d 532 (Tex.App.-Austin 2008, no pet.) ......................................................... 38
ACCELERATED APPEAL, SANADCO, ET AL 5
ARGUMENT
A final judgment is the lifeblood of debt collection. “Without a final judgment
nothing happens . . . [t]hus, absent entry of [a final] judgment, no execution can be
had and, therefore, collection of the judgment debt is postponed or denied.”
Armadillo Bail Bonds v. State, 772 S.W.2d 193, 195 (Tex.App.-Dallas 1989), aff'd,
802 S.W.2d 237 (Tex.Crim.App. 1991).
A debt owed to the State must be collected by the same rules governing other
civil actions. Id. Tex. Tax Code Ann. § 111.0081(c) provides that “the amount of a
determination made under this code is due and payable 10 days after it becomes
final”. Consequently, the tax amount does not become "due and payable" until after
the Comptroller's decision in the redetermination hearing becomes final. The
judgment in a redetermination hearing becomes "final" (and thus a party has
exhausted administrative remedies): (1) after the time to seek [judicial] review of
the agency decision expires, if no affected person seeks such review, or (2) after an
affected person who seeks judicial review exhausts the substantial-evidence review
avenues. Subaru of America v. David McDavid Nissan, 84 S.W.3d 212, 224 (Tex.
2002).
I. The trial court abused its discretion by refusing to enjoin the
enforcement of the audits because the auditing procedures were not
ACCELERATED APPEAL, SANADCO, ET AL 25
Other Authorities
Shannon and Ewbank, The Texas Administrative Procedure and Texas Register Act Since 1976 —
Selected Problems, 33 Baylor L.Rev. 393, 424 (1981) ....................................................... 40
Regulations
34 Tex. Admin. Code § 3.328 ................................................................................... 11, 31
Constitutional Provisions
Tex. Const. art. V, § 6 (a)..................................................................................................9
ACCELERATED APPEAL, SANADCO, ET AL 7
at *1 n. 4, 2002 Tex.App..-Austin Feb. 7, 2002, no pet.) (not designated for
publication) (identifying suit under section 111.010 as "de novo action by the State
to collect delinquent tax").
The sine qua non of a de novo trial is the nullification of the judgment of the
first tribunal and a retrial of the issues on which the judgment or order was founded.
When jurisdiction of the second tribunal attaches, the judgment of the first tribunal
is not merely suspended, but nullified. Texas Dept. of Public Safety v. Banks Transp.
Co., 427 S.W.2d 593, (Tex. Sup. 1968); Southern Canal Co. v. State Bd. of Water
Engineers, 318 S.W.2d 619; 159 Tex. 227 (Tex. 1958). Accordingly, “res judicata”
and “final judgment” are inapplicable in de novo proceedings because the original
administrative order that is the subject of appeal is nullified in a de novo proceeding.
State Bd. of Ins. v. Republic Nat'l Ins. Co., 384 S.W.2d 369, 372 (Tex.Civ.App. —
Austin 1964, writ ref'd n.r.e.).
Consequently, the filing of the petition for review nullified the administrative
judgment, leaving nothing for the Comptroller to enforce pending entry of a final
judgment in the petition for review, and such enforcement activity was illegal and
premature. In the absence of a final judgment in the redetermination hearing, no tax
has yet been imposed and no tax is “due and payable” upon which a delinquency
may be predicated.
ACCELERATED APPEAL, SANADCO, ET AL 37
nontaxable items
If a taxpayer is reporting under one of these methods and qualifies for the use of the method, the
audit procedure is to verify returns and computations based on the method being used.
Purchase invoices must be maintained for at least four years to verify a grocer's sales tax returns
regardless of the method chosen for reporting purposes.
The use of an optional special reporting method does not relieve the seller from the obligation
and duty of collecting tax in the specific manner as prescribed in the statute and in accordance
with the bracket system (TEX. TAX CODE ANN. 151.415).
Method B - Purchase Ratio Method
This method may be used by a grocer for reporting purposes only, and eligibility is restricted to:
Any retail grocer
Any vendor who maintains a separate grocery department with separate records which
may be audited by the Comptroller, as applies to the grocery department only
Any vendor whose taxable receipts from the sale of taxable items are less than ten
percent of his total receipts
NOTE: Under the current definition of a retail grocer, most convenience stores
and many grocers do not qualify. However, the Comptroller still allows
them to use this method.
The following steps are used under this method:
Determine the total sum of merchandise purchased for resale during the preceding
calendar or fiscal year
Determine the total sum of taxable merchandise purchased during the preceding calendar
or fiscal year
Divide the total amount of taxable merchandise purchased by the total merchandise
purchased for resale to obtain a percentage relationship
Multiply the percentage obtained times the total sales for the reporting period to obtain
the taxable sales
Items which are purchased tax-free and used by the taxpayer (and which are subject to
sales/use tax) must be included on the return as taxable purchases
An audit of a taxpayer who uses the purchase ratio method to compute taxable sales will
generally be limited to verification of reported amounts based on summary records and
computation procedures. The verification procedures should include:
STATEMENT OF JURISDICTION
The Court of Appeals is authorized to exercise jurisdiction in this cause
pursuant to TEX. CONST. ART. V, § 6 (a); TEX. GOV’T CODE ANN. § 22.220 (a), and
TEX. CIV. PRAC. & REM. CODE ANN. § 51.014 (a) (4).
ISSUES PRESENTED
Issue No. 1. Does the trial court abuse its discretion by refusing to enjoin
the Comptroller from enforcing administrative judgments for sales and
use taxes if the audit is void and unenforceable, because the audit
procedures were not adopted pursuant to the requirements of the
Administrative Procedure Act?
Issue No. 2. Does the trial court abuse its discretion by refusing to enjoin
the Comptroller from enforcing administrative judgments for sales and
use taxes before the judgments become final?
Issue No. 3. Does the trial court abuse its discretion by refusing to enjoin
the Comptroller from enforcing administrative judgments for sales and
use taxes before the petitions for declaratory judgment pursuant to Tex.
Gov’t Code Ann. § 2001.038 are determined?
ACCELERATED APPEAL, SANADCO, ET AL 10
Staff submitted the following exhibits in SOAH Docket No. XXX-XX-XXXX.26:
1. Texas Notification of Personal Liability for Fraudulent Tax Evasion;
2. Audit Exam, including correspondence and e-mail communications from the
Revenue Accounting Division; the Calculated Message, Adjustment, and
Allocation Reports; Tax Summary, Status, Balance, Audit, and Tax Allocation
Basis Inquiries; and Personal Liability Fraudulent Tax Evasion Worksheet;
3. Sales and use tax returns for report periods April 2007, May 2008,
December 2008, February 2008, and January 2009; and
4. State Filings: Statement of Change of Registered Office/Agent, dated
May 5, 2006; and Texas Franchise Tax Public Information Reports signed
May 10, 2006, March 13, 2008, and February 26, 2009.
Staff attached to its Response to Petitioner's Post-Hearing Brief the following exhibits:
6. Copy of Memorandum Opinion issued in Sanadco, Inc. v. Comptroller of Pub.
Accounts, No. 03-11-00462-CV, 2013 Tex. App. LEXIS 12013 (Tex. App.-
Austin September 26, 2013, no pet. h.); and
7. Appellee's Motion for Rehearing and Reconsideration en bane filed in
Sanadco, Inc.
Petitioner SI produced during the hearing its responses to Staff s Second Set of
Interrogatories, Requests for Admissions, and Requests for Production. Petitioner did not
offer any other evidence during the hearing, but did attach to its Post-Hearing Brief the
following exhibits:
1. The Examination performed by the Comptroller's Business Activity Research
Team (BART) for the exam period January 1, 2008, through March 31, 2009,
including, the Accounts Examiner Coversheet; correspondence and e-mail
communications from BART; the Texas Notification of Exam Results; the
Message, Adjustment, and Allocation Reports; Petitioner's Alcohol and Tobacco
Purchases for January 2008 through March 2009; and ITS Work Manager
Comments;
2. Plaintiff's Original Petition, Sanadco, Inc., 2013 Tex. App. LEXIS 12013;
3
verification through this same method. Additional taxes will not be assessed
nor any refunds/credits will be allowed because this method differs from the
amount that would have been paid under any other reporting method; and
Commingled Receipts Method (Method E) (Tax Code § 151.416)
Tax collected is commingled with the receipts from the sales of both
taxable and nontaxable items.
This method is available to grocers who establish an accounting system
in which sales tax collected is commingled with the receipts from the sale of
taxable items. Method E establishes a method of backing out the tax from the
gross sales.
An examination of the records of a taxpayer using this method will
include:
A verification of gross sales;
Verification that tax is included in gross sales;
Confirmation that the taxable or nontaxable sales are accurate through
use of one of the other special reporting methods; and
Confirmation of the mathematical accuracy of computations.
NOTE: Under the current definition of a retail grocer, most convenience stores
and many grocers do not qualify. However, the Comptroller still allows them
to use this method.
(Comptroller Audit Manual, Grocery Stores Ch. 4, Rev. Sept. 2004.)1
If a taxpayer is reporting under one of these methods and qualifies for the use
of the method, the audit procedure was to verify returns and computations based on
1
The 2004 version is no longer available on the Comptroller’s website. A copy of the 2004 Manual
is attached as Exhibit A. The comptroller revised this manual in February 2013, and again in
September 2014, found at http://www.window.state.tx.us/taxinfo/audit/grocery/grocery.pdf. A
manual specifically for convenience store audits was added in September 2014 found at
http://www.window.state.tx.us/taxinfo/audit/convenience/convenience.pdf
ACCELERATED APPEAL, SANADCO, ET AL 12
the method being used. See Id. These statutory references and administrative
regulations are currently in effect.
Amended Auditing Procedures
AP92 Amendments
On August 17, 2004, the Comptroller responded to “concern about the lack of
uniformity in estimated convenience store audits” by issuing a memorandum
directed to “All Audit Personnel”, implementing new comprehensive policies and
procedures for convenience store audits entitled Audit Policy 92 (AP92). The
subject of the memo was “Alternative Audit Methods, Mark-up Percentages &
Product Mix Percentages for Convenience Store Audits.” Mark-up and product-mix
percentages were developed utilizing data from the Texas Petroleum Marketers and
Convenience Store Association (TPCA), Robert Morris & Associates Annual
Financial Statements (RMA), and National Association of Convenience Stores
(NACS). These mark-up percentages and product mix percentages were used when
necessitated by lack of reliable records.
The Comptroller instituted two methods by which to perform an audit in cases
where records were determined to be unavailable, inadequate or unreliable:
1. Mark-up method:
Purchase information is obtained from the taxpayer and/or vendors. A
mark-up is established by performing a shelf test. The resulting mark-up is
ACCELERATED APPEAL, SANADCO, ET AL 13
applied to the purchase information received from the taxpayer and/or third
party vendors.
2. Average taxable sales method:
This method was only to be used when purchase invoices for all
categories of purchases could not be obtained from the vendor. For example,
beer invoices are obtainable; no other purchase invoices are available; taxable
sales should be estimated using the appropriate percentage(s) from the
attachment. (Note: The auditor should always request and utilize actual
taxpayer purchase invoices to determine specific product categories if the
taxpayer records are reliable).”
The memo directed all auditors, inter alia, to conduct shelf tests during
convenience store audits if the taxpayer were still in business, and use the
percentages designated in the memo as the mark-up for beer and tobacco products if
store records were unavailable, inadequate, or unreliable, and if the actual mark-up
percentage could not be ascertained by other means. The auditors were instructed
that if they did not use the mark-up method, to document why this method was not
used.
Effective September 1, 2007, the Texas Legislature enacted legislation
directing each wholesaler or distributor of beer, wine, malt liquor or tobacco
products to file a report with the Comptroller detailing the monthly net sales made
to the retailer by the wholesaler or distributor, including the quantity and units of
beer, wine, malt liquor and tobacco products sold to the retailer. See (Tex. Tax Code
ACCELERATED APPEAL, SANADCO, ET AL 14
§ 151.433 (b) (4) and Tex. Tax Code § 155.105. The data provided is commonly
referred to as HB 11 data, but no directives authorizing or implementing its use in
tax audits was included in the legislation. The first reports became available on
January 1, 2008.
AP122 Amendments
The Comptroller then amended AP92 with AP122 effective July 22, 2009,
again directed to “All Audit Personnel” entitled “Guidelines for Convenience Store
Audits.” It revised the audit procedures and determination of mark-up percentages
and incorporated HB11 data, directing that this data must be the starting point for all
convenience store audits whether used as internal control verification or as data used
to estimate the audit.
It instructed the auditors to use HB 11 data, available taxpayer records and
third party records to produce the most accurate audit results. All of these records
were required to be compared to each other for accuracy and consistency in
purchasing patterns. It mandated that the product mix of each convenience store be
considered, and industry averages were to be used in the absence of these records.
For periods prior to January 1, 2008 when HB 11 data was unavailable, estimated
taxable sales were based on the average taxable sales for the periods when records
became available.
ACCELERATED APPEAL, SANADCO, ET AL 15
EXHIBIT C
SANADCO ORDER DENYING MTN FOR REHEARING
II. REASONS FOR DECISION
A. Evidence
In addition to the pleadings filed by the parties while the case was pending before the
Comptroller, Staff presented the following exhibits:
1. 60-Day Notification Letter;
2. Texas Notification of Audit Results;
3. Penalty and interest waiver worksheet;
4. Audit Report; and
5. Audit Plan (including the Referral for Additional Penalty).
Petitioner submitted the following exhibits:
1. Order for Continuance and Abating Case, D-1-GV-13-000433 (126th District Court,
Travis County);
2. Order addressing Plea to the Jurisdiction, D-1-GV-13-000754 (200th District Court,
Travis County); and
3. State Officials' Motion for Protection and to Stay All Discovery, D-1-GN-13-004352
(200th District Court, Travis County).
The exhibits were admitted into the record without objection.
B. Staff Agreed Adjustments
Staff did not agree to make any adjustments to the audit.
C. Facts Established by the Evidence
Petitioner owns and operates a convenience store in San Antonio, Texas. The store
sells beer, tobacco products, and other items commonly found in convenience stores.
Mr. Shafeeq Khimani is Petitioner's president. Staff conducted an audit to verify
Petitioner's compliance with Texas sales and use tax laws in the audit period May 1, 2008
through December 31, 2011.
2
Plaintiff, BROADWAY GROCERY INC., is engaged in a contested case
proceeding before SOAH regarding an alleged sales and use tax deficiency in Docket
Number XXX-XX-XXXX.26, TCPA HRG No. 109,293, and timely filed a Request for
Redetermination on July 30, 2012. SOAH held a hearing on August 1, 2014, and the
Comptroller rendered her decision on October 31, 2014 (Exhibit D). The timely
motion for rehearing was denied on December 2, 2014 (Exhibit E), thus exhausting
the administrative remedies. Plaintiff had previously joined in the request for judicial
review and declaratory judgment on March 13, 2014 in Cause No. D-1-GN-13-
004352 (CR, p. 266), thereby filing its timely request for judicial review. Id.
Plaintiff, SHARIZ, INC. is engaged in a contested case proceeding before SOAH
regarding an alleged sales and use tax deficiency in TCPA HRG No. 108,636 but,
on motion by the Tax Division (Exhibit F), the Comptroller dismissed Plaintiff’s
cause without a hearing for lack of prosecution on September 5, 2014. (Exhibit G).
Plaintiff’s timely motion for rehearing was filed on September 25, 2014 and denied
by the Comptroller on October 9, 2014 (Exhibit H), thereby exhausting its
administrative remedies. Plaintiff had previously joined in the request for judicial
review and declaratory judgment on March 13, 2014 in Cause No. D-1-GN-13-
004352 (CR, p. 266), thereby filing its timely request for judicial review. Id.
ACCELERATED APPEAL, SANADCO, ET AL 18
11. Using the vendor data for purchases of beer, tobacco, and soda, and Petitioner's invoices
for purchases of candy and general merchandise, the auditor calculated a product-mix
ratio for beer and tobacco sales to all taxable sales (74.4490%).
12. Taxable sales were estimated by dividing estimated beer and tobacco sales by the
calculated product mix.
13. Petitioner was allowed 5% for spillage and undocumented losses, and allowances were
also applied for food stamp sales in the months where records were available (August
2010 through the end of the audit period). Credit for reported taxable sales was then
applied in computing the additional taxable sales for the audit period.
14. On July 17, 2012, Staff issued Petitioner a Texas Notification of Audit Results assessing
tax, a 10% late penalty, an additional 50% penalty, and interest accrued to the account.
15. The overall audit error rate was 34.99%.
16. Petitioner requested redetermination.
17. The vendor reported data utilized within the audit is frequently referred to as "HB 11
data." The reference relates to the fact that statutes that require vendors to report the data
to the Comptroller were enacted as part of Tex. House Bill 11, 80th Leg., R. S., 2007.
18. Prior to the passage of HB 11, Staff issued a memorandum titled Audit Policy 92 (AP
92), which provided guidance to auditors in performing convenience store audits.
19. After HB 11 was enacted Staff issued another memo to update the procedures. It was
entitled Audit Policy 122 (AP 122). The new memo requires auditors to use HB 11data
information.
20. AP 92 and AP 122 were recently reviewed by the Austin Third Court of Appeals. See
Sanadco, Inc. v. Office of the Comptroller of Public Accounts, 03-11-00462-CV, 2013
Tex. App. LEXIS 12013 (Tex. App.-Austin Sept. 26, 2013, no pet. h.).
21. In Sanadco, the taxpayer asserted (among other things) that AP 92 and AP 122 were
administrative rules that were not promulgated in compliance with the requirements of
the Administrative Procedures Act. The Comptroller argued that the memos are simply
statements regarding the internal management of the agency and that they do not impose
any duties or requirements on convenience-store owners. The court held that "the
directives in AP 92 and AP 122 are in fact rules," and for that reason "we must also
conclude that the district court had jurisdiction" over the claim.
22. On October 3, 2013, the Comptroller filed a Motion for Rehearing and Reconsideration
in Sanadco.
8
The Comptroller’s Decision was not issued until August 8, 2014, and would not
become final until September 2, 2014. Payment would therefore become due on
September 22, 2014 unless a motion for rehearing was filed, but the Comptroller
initiated enforcement proceedings against Mahmoud Isba on June 17, 2014 when
they demanded a bond in the amount of $9,000.00 for his failure to post a previously
unrequested bond. (Exhibit M).
Isba’s timely motion for rehearing, filed on September 1, 2014 was denied on
September 16, 2014 (Exhibit L), and payment became due on October 4, 2014. Isba,
however, filed a timely petition for judicial review and declaratory judgment by
joining Cause No. D-1-GN-13-004352 on October 17, 2014. (Exhibit N).
Having paid the prior tax assessment in full (Exhibit O), and perfected his appeal
to district court, Isba refused to post the bond. As a result, his sales tax permit was
cancelled on December 3, 2014 after a hearing in which the Comptroller was advised
that he had already paid off the prior assessment and that the most recent assessment
was currently on appeal in district court. (Exhibit P).
On December 5, 2014, the Comptroller seized $56.00 in cash and Isba’s credit
card machine and valued it at $0.00. He was also notified that his property and
inventory would be seized and that he owed a total of $78,025.36 in delinquent taxes,
ACCELERATED APPEAL, SANADCO, ET AL 20
Bank of America account, and that $10,011.40 was paid to the Comptroller on that
date. (Exhibit T). The Comptroller never notified Plaintiff of these transactions.
Shariz, Inc.
On or about January 28, 2015, the Comptroller left a “Notice of Official
Visit” demanding that Shariz, Inc. contact them no later than January 30, 2015.
(Exhibit U).
The Comptroller conducted each of these collection attempts while the
plaintiffs’ petitions for judicial review and declaratory judgments remained pending
and no final judgments had been entered.
On August 6, 2014, Plaintiffs filed their application for temporary injunctions
to enjoin the Comptroller from continuing these premature collection efforts, and the
trial court denied the application on November 13, 2014, from which this accelerated
appeal ensued.
ACCELERATED APPEAL, SANADCO, ET AL 22
SUMMARY OF ARGUMENTS
Plaintiffs are convenience store owners engaged in administrative
proceedings following sales and use tax audits conducted by the Comptroller of
Public Accounts and the timely filing of requests for redetermination hearings before
SOAH. They timely filed petitions for judicial review of the Comptroller’s adverse
decisions, and declaratory judgment actions pursuant to Tex. Gov’t Code Ann. §
2001.038 to determine the validity of the audits. Despite the pendency of these
petitions, the Comptroller has engaged in enforcement activities to coerce payment
of the alleged sales and use tax deficiencies, including suspension of their sales and
use tax permits, freezing and levying on financial accounts, confiscation of business
assets and inventory, and forced closure of the businesses. Plaintiffs assert that these
collection efforts are premature because they are not supported by final judgments.
They first contend that the audits supporting the judgments are invalid and
unenforceable because the comptroller failed to adopt the auditing procedures in
accordance with the Administrative Procedure Act (APA). A rule is invalid and
unenforceable unless it is promulgated and adopted in accordance with the
requirements of the APA. Tex. Gov’t. Code Ann. §§ 2001.035, 2001.004 and
2001.005. The comptroller failed to comply with the adoption procedures as
ACCELERATED APPEAL, SANADCO, ET AL 23
29. Plaintiffs seek to void the underlying audit, alleging that the auditor acted
fraudulently by his unauthorized use of AP 92 and AP 122 as well as HB 11 despite
the recent Third Court of Appeals opinion that these documents were “invalid
rules” and therefore void and unenforceable because they were not formally
adopted pursuant to the mandatory provisions of the Administrative Procedures
Act. See, Sanadco, Inc. v. Comptroller of Public Accounts, 03-11-00462 (Tex. App. –
Austin 2013); LEXIS 12013 at *13 (Tex. App.—Austin Sept 26, 2013).
30. Plaintiffs also seek to void the underlying audit, alleging that the
Comptroller engaged in ultra vires conduct by failing to perform the purely
ministerial act of promulgating AP 92 and AP 122 as administrative rules, and
subsequently acting without legal authority by implementing the illegal and
unauthorized memos as agency policy and procedure.
31. Plaintiffs further seek to void all instances in which the Comptroller
imposed the additional 50% fraud penalty upon the mere finding of
“underreporting” instead of the statutorily required finding of fraud or willful
intent to evade the tax. In doing so, the Comptroller has engaged in conduct in
excess of her statutory authority by substantially reducing her burden of proof and
shifting that burden to the taxpayer by requiring him to prove that his conduct was
not willful or intentional. Plaintiffs allege that this is ultra vires conduct and is
outside the Comptroller’s statutory authority.
32. SOAH has acknowledged that the foregoing issues are beyond the
jurisdictional authority of the Administrative Law Judge and have therefore
refused to address them within the parameters of a contested case proceeding. See,
Comptroller’s Decision No. 106,516 (2013) (The ALJ does not have jurisdiction to
consider whether Audit Policy Memorandums 92 and 122 constitute rules as
defined by the Administrative Procedure Act.); Comptroller’s Decision No. 106,516
(2013) (Petitioner also contends the 50% additional penalty should be deleted
because the statute authorizing the additional penalties is unconstitutional and
because there was no intent to evade the tax. However, it is well settled that
neither the Comptroller nor the ALJ has jurisdiction to consider the validity or
constitutionality of a statute.); See also, Comptroller’s Decision Nos. 103,683,
103,961(2011), 104,445, 105,726 (2012).
Page 7 of 26
sales journals or Z-tapes. See SOAH Docket No. XXX-XX-XXXX.26; Hearing No.
104,037.
68. A court will find a rule unconstitutionally vague, in violation of due process,
if it does not give fair notice of what conduct may be punished, and invites
arbitrary and discriminatory enforcement by its lack of guidance for those charged
with its enforcement. U.S.C.A. Const. Amend. 14. Vista Healthcare V. Texas, 03-09-
00178-CV (Tex.App.-Austin 8-26-2010). This statute fails to establish guidelines
for its application and does not give fair notice to the taxpayer of the prohibited
conduct, lending itself to discriminatory enforcement. It is therefore
unconstitutionally vague and must be stricken.
69. Plaintiffs seek a declaratory judgment against the Office of the Comptroller
of Public Accounts, Susan Combs, in her official capacity as Comptroller of Public
Accounts for the State of Texas and Gregg Abbott, in his official capacity as the
Attorney General for the State of Texas, pursuant to the Uniform Declaratory
Judgments Act, Tex. Civ. Prac. & Rem. Code ANN. § 37.004 et seq., construing Tex.
Tax Code § 111.0042, declaring that this statute is unconstitutional on its face and
as applied to Plaintiffs because it is, by its nature, a denial of substantive and
procedural due process and is constitutionally vague because it permits the audit
to be made merely on undefined subjective criteria, and without providing any
guidelines for the administration thereof.
COMPLAINT VII
Tex. Tax Code §111.022, authorizing a Jeopardy Determination without guidelines,
is Unconstitutional on its face and as applied.
70. Plaintiffs incorporate the preceding paragraphs by reference as if the same
were set forth fully and verbatim herein.
71. Tex. Tax Code § 111.022 authorizes the Comptroller to impose an
additional 10% jeopardy determination penalty against a deficiency
determination, which comes due immediately, if she “believes” that the collection
of a tax required to be paid to the state or the amount due for a tax period is
jeopardized by delay.
72. The statute is purely discretionary because it establishes no parameters by
which the Comptroller is to make this determination except for her undefined
Page 15 of 26
adopted in accordance with the Administrative Procedure Act and
were invalid and unenforceable.
The Comptroller’s memos implementing Audit Policy Memoranda 92 and 122
(AP 92 and AP 122) effective August 17, 2004, and July 22, 2009 respectively, are
agency rules as defined by Gov’t Code § 2001.003 (6). See, Sanadco, Inc. v. Office
of Comptroller of Public Accounts of Texas, No. 03-10-00462-CV, 2013 Tex. App.
LEXIS 12013 at * 13 (Tex. App.—Austin Sept. 26, 2013)3. The use of these rules
or their threatened application interfere with or impair, or threaten to interfere with
or impair, a legal right or privilege of the Plaintiffs in that they subject them to
potential loss of his business, his license, illegal tax assessments and subjecting his
property to liens and potentially to forcible sale.
AP 92, AP 122 and HB 11 constitute agency rules as defined by the
Administrative Procedures Act (APA). They are statements of general applicability
relating to all convenience store audits; that implemented agency policy to add
uniformity to the audits; and described the procedure or practice requirements of the
3
In Sanadco, this court held that AP92, AP122 and HB11 were rules under the Administrative
Procedure Act, and remanded the case to the trial court for further proceedings. On Rehearing, the
court withdrew its opinion on other grounds, finding that the trial court was without jurisdiction
over Sanadco’s claims because it had not exhausted its administrative remedies. The court,
however, did not revisit its holding regarding the validity of the rule. The case is now pending
filing of a Further Motion for Rehearing by the Appellants, Sanadco, Inc.
ACCELERATED APPEAL, SANADCO, ET AL 26
agency by implementing the use of HB 11 and the percentages for mark-ups and
product mixes incorporated in AP 92 and AP 122.
ACCELERATED APPEAL, SANADCO, ET AL 27
A. The Memoranda are Rules as Defined by the APA.
To establish entitlement to a declaratory judgment pursuant to Gov’t Code §
2001.038, the challenged procedure or document must be a rule as defined by the
Administrative Procedure Act (APA). Gov’t Code § 2001.003(6). The jurisdictional
inquiry concerns whether the Comptroller's memos constitute rules under the
APA and, if so, whether that rule or its threatened application interferes with or
impairs Plaintiffs’ legal rights or privileges. Combs v. Entertainment Publ'ns, Inc.,
292 S.W.3d at 720. It is undisputed that neither AP92 or AP122 were promulgated
pursuant to APA requirements, and Appellants assert that AP92, AP122 and HB 11
are each rules meeting the requirements of Gov’t Code § 2001.003 (6), but are
invalid because they were not promulgated in accordance with the requirements of
Gov’t Code §§ 2001.023-.037. The dispositive issue is therefore whether these
memoranda are rules as defined by the APA.
Section 2001.003 (6) of the APA defines a rule as:
(A) a state agency statement of general applicability that:
(i) implements, interprets, or prescribes law or policy; or
(ii) describes the procedure or practice requirements of a state agency;
(B) includes the amendment or repeal of a prior rule; and
(C) does not include a statement regarding only the internal
management or organization of a state agency and not affecting private rights
or procedures.
Gov’t Code § 2001.003(6)
ACCELERATED APPEAL, SANADCO, ET AL 28
General Applicability
These mandatory procedures are clearly intended to apply, and are applied to
all convenience stores across the state, and therefore unquestionably meet the criteria
of “general applicability.” See Texas Alcoholic Beverage Comm'n v. Amusement &
Music Operators of Tex., Inc., 997 S.W.2d 651, 660 (Tex.App.-Austin 1999, pet.
dism'd w.o.j.) (holding that statements contained in agency memoranda were rules
because they imposed binding instructions affecting private rights of all similarly
situated persons). Although the directives bind agency auditors to apply these
procedures, it is not directed only" to "the internal management or organization of a
state agency." Id.; See APA § 2001.003(6)(c). Rather, it imposes the Comptroller's
prospective, blanket application of these procedures, affecting the private rights of
convenience store owners throughout the state. Id; Combs v. Entertainment
Publ'ns, Inc, 292 S.W.3d 712, 721-22 (Tex.App.-Austin 2009, no pet) (construing
agency letters as "rules" because they were not directed "only" to "the internal
management or organization of a state agency," but expressed an intent to apply this
interpretation to all brochure-fundraising firms). Compare with Beacon Nat'l Ins.
Co. v. Montemayor, 86 S.W.3d 260, 269 (Tex.App.-Austin 2002, no pet.) (declining
to view agency correspondence as stating rule when policy was directed only at
plaintiff and did not implicate rights of any party other than plaintiff).
ACCELERATED APPEAL, SANADCO, ET AL 29
Implement and Describe Agency Procedures
The memoranda also satisfy the literal requirements of the APA definition. They
are clearly an agency statement. They implement and describe the Comptroller’s
auditing procedures or practice requirements in great detail requiring specific
methodology for each phase of the audit. It provides alternative procedures in the
event of insufficient record keeping by the taxpayer and supplies a previously non-
existent source for calculating mark-up percentages and product mixes, mandating
their use. Further, it supplies a new source of information to document the purchase
of beer and cigarettes from the wholesalers pursuant to HB 11, insisting that this
information be the starting point for each audit. Moreover, they do not constitute
statements regarding only the internal management or organization of the
Commission because they adversely affect each convenience store owners’ private
rights to equitable audits.
There are no requirements about which there can be any bona fide disagreement.
AP122 specifically clarifies that “it only updates our procedures,”; the language is
mandatory--(“the following guidelines must be used”; “a shelf test must be
conducted”; “HB 11 data must be the starting point for convenience store audits”),
and the “AP” designation in the memos refer to “Audit Policy” memos which clearly
prescribe procedure requirements for the agency for statewide application. To argue
ACCELERATED APPEAL, SANADCO, ET AL 30
that these memos are not a statement of the agency’s policy, of general applicability,
which describe its procedures and practice requirements, and constitute an
amendment to a prior rule for the conduct of convenience store audits, is at best
fallacious.
Amended or Repealed Rule 3.328
Prior to AP92 there were no policies or procedures directed specifically at the
conduct of convenience store audits. At best, auditors could refer to the provisions
of 34 Tex. Admin. Code § 3.328 entitled “Optional Reporting Methods for Grocers
and Other Vendors” which provided several alternatives by which grocery and
convenience stores could determine tax liability, but provided little or no guidance
in performing audits of these enterprises. Following the implementation of AP92,
this administrative rule was completely abandoned although the statutory and
regulatory provisions remain unchanged. Thus, AP92 and AP122 are, at minimum,
amendments to that rule, and AP122 amends AP92 and therefore meet the
requirements as an amendment or repeal of a prior rule as set forth in Gov’t Code §
2001.003 (6) (B).
AP92 may either be considered the implementation of new auditing procedures
specifically directed at convenience stores, or as an amendment to Rule 3.328. Either
way, it concisely fits the parameters of the statute. AP122 is unquestionably an
ACCELERATED APPEAL, SANADCO, ET AL 31
amendment to AP92 because the Comptroller designates it as such (“This does not
replace AP92; it only updates our procedures to fully utilize data available to us”).
B. The Audits are Invalid and the Court May Render
Judgment
A rule is invalid and unenforceable unless it is promulgated and adopted in
accordance with the requirements of the APA. Tex. Gov’t. Code Ann. §§ 2001.035,4
2001.0045 and 2001.0056. The comptroller never adopted AP 92 nor AP 122 as
mandated by the APA and are therefore invalid and unenforceable when applied to
4
§ 2001.035. Substantial Compliance Requirement; Time Limit on Procedural Challenge
(a) A rule is voidable unless a state agency adopts it in substantial compliance with Sections
2001.0225 through 2001.034.
5
§ 2001.004 Requirement to Adopt Rules of Practice and Index Rules, Orders, and Decisions
In addition to other requirements under law, a state agency shall:
(1) adopt rules of practice stating the nature and requirements of all available formal and informal
procedures;
(2) index, cross-index to statute, and make available for public inspection all rules and other written
statements of policy or interpretations that are prepared, adopted, or used by the agency in
discharging its functions; and
(3) index, cross-index to statute, and make available for public inspection all final orders,
decisions, and opinions.
6
§ 2001.005 Rule, Order, or Decision Not Effective Until Indexed
(a) A state agency rule, order, or decision made or issued on or after January 1, 1976, is not valid
or effective against a person or party, and may not be invoked by an agency, until the agency has
indexed the rule, order, or decision and made it available for public inspection as required by this
chapter.
(b) This section does not apply in favor of a person or party that has actual knowledge of the
rule, order, or decision.
ACCELERATED APPEAL, SANADCO, ET AL 32
convenience store audits. In the absence of enforceable audits, there is nothing upon
which to base the enforcement activities.
It is uncontroverted that the procedures mandated by the memoranda were
applied in all of the audits performed on the convenience stores or that they were
implemented without compliance with the appropriate APA procedures.
Accordingly, the Court may enter an order reversing the trial court’s order denying
the temporary injunction, and render judgment prohibiting the Comptroller from
further enforcement activities or use of these procedures in future audits until they
have complied with the APA requirements. See El Paso Hosp. Dist. v. Texas Health
& Human Servs. Comm'n, 247 S.W.3d 709, 715 (Tex. 2008). The court should
further render judgment that all audits performed pursuant to the procedures
mandated by AP92 and AP122, including the use of HB 11 data, are invalid pursuant
to Gov't Code § 2001.035, Gov’t Code § 2001.004 and Gov’t Code § 2001.005,
and prohibit enforcement of the resulting tax liabilities, including all taxes,
penalties and interest.
II. The trial court abused its discretion by refusing to enjoin the
enforcement of the administrative judgments because the petitions
for judicial review nullified the judgments.
ACCELERATED APPEAL, SANADCO, ET AL 33
The Comptroller sought illegal enforcement of the taxpayers’ alleged sales tax
liabilities while the administrative redetermination was pending judicial review.
Relators assert that the Comptroller’s decisions could not become final until those
proceedings had run their course, and the Comptroller exceeded his statutory
authority by his attempts to enforce the orders before they became final.
A. The Petitions for Review were Timely Filed
The Administrative Procedure Act (APA) authorizes a person who has
exhausted his administrative remedies to request judicial review if he is aggrieved
by a final decision in a contested case. Tex. Gov’t Code Ann. § 2001.171. The
petition seeking judicial review, filed before Relators had exhausted their
administrative remedies, became timely after the administrative remedies were
finally exhausted. These prematurely filed appeals ripened upon exhaustion of the
administrative remedies. See, e.g., Subaru of Am., Inc. v. David McDavid Nissan,
Inc., 84 S.W.3d 212, 227-28 (Tex. 2002) (op. on reh'g) (where judicial review is
requested prematurely for claims over which the trial court could exercise partial
jurisdiction, the court may abate proceedings and await exhaustion of the
administrative claims.). Marble Falls v. Scott, 275 S.W.3d 558, 566 (Tex.App. [3rd]
2008).
ACCELERATED APPEAL, SANADCO, ET AL 34
Where, as here, the appealing parties bring claims over which a trial court has
jurisdiction, in addition to seeking judicial review of an administrative decision, the
court may abate the claims to allow an opportunity to cure. See, e.g., Subaru of Am.,
Inc. v. David McDavid Nissan, Inc., 84 S.W.3d 212, 227-28 (Tex. 2002) (op.on
reh'g). Consequently, upon the filing of the petition for declaratory judgment
pursuant to Tex. Gov’t Code Ann. § 2001.038, the trial court assumed jurisdiction
of the statutory claims alleged in the petition. Moreover, it has the authority to
exercise jurisdiction over those claims, and the proceedings must be abated pending
exhaustion of remedies. When exhaustion occurred, the prematurely filed petitions
for judicial review became ripe.
B. The Comptroller’s Decision Has Been Nullified
The Administrative Procedure Act (APA) provides that when "the manner of
review authorized by law for the decision in a contested case … is by trial de novo,
the reviewing court shall try each issue of fact and law … as though there had not
been an intervening agency action or decision." Tex. Gov't Code Ann. § 2001.173
(a) (West 2000). A de novo hearing has been defined as "a new and independent
action in which the whole case is gone into as if no trial whatever had been had in
the court below." Trial de novo is not an "appeal", but is a new and independent
ACCELERATED APPEAL, SANADCO, ET AL 35
action. Key Western Life Ins. Co. v. State Bd. of Ins., 350 S.W.2d 839, 846 (Tex.
1961).
Appellants’ petition for judicial review pursuant to Tex. Gov’t Code Ann. §
2001.173 and Tex. Gov’t Code § 2001.174 is for a de novo hearing to determine the
validity of the deficiency assessments sought to be collected by the Comptroller in
the contested proceeding. More importantly, because the only question before the
District Court concerns a matter of statutory construction, the review of the court's
construction of the relevant statutes is de novo. See City of San Antonio v. City of
Boerne, 111 S.W.3d 22, 25 (Tex. 2003). When the only issue under review involves
a pure question of law, the standard of review is de novo. In re Humphreys, 880
S.W.2d 402, 404 (Tex. 1994); City of Pasadena v. Gennedy, 125 S.W.3d 687, 691
(Tex. App.-Houston [1st Dist.] 2003, pet. denied); Doan v. Christus Health ArkLa-
Tex, 329 S.W.3d 907, 910 (Tex.App.-Texarkana 2010, no pet.).
Further, in suits filed pursuant to Tex. Tax Code Ann. §111.010, officers and
directors are entitled to a full and complete hearing on their tax liability in district
court. See Tex. Tax Code Ann. § 111.010 (West 2008) (authorizing attorney general
to file suit to recover taxes). The case is tried de novo. Greene v. State, 324 S.W.3d
276, 288 (Tex.App.- Austin 2010, no pet.) (111.010 allows for a de novo review of
the party's tax liability), Herrera v. State, No. 03-01-00101-CV, 2002 WL 185476,
ACCELERATED APPEAL, SANADCO, ET AL 36
at *1 n. 4, 2002 Tex.App..-Austin Feb. 7, 2002, no pet.) (not designated for
publication) (identifying suit under section 111.010 as "de novo action by the State
to collect delinquent tax").
The sine qua non of a de novo trial is the nullification of the judgment of the
first tribunal and a retrial of the issues on which the judgment or order was founded.
When jurisdiction of the second tribunal attaches, the judgment of the first tribunal
is not merely suspended, but nullified. Texas Dept. of Public Safety v. Banks Transp.
Co., 427 S.W.2d 593, (Tex. Sup. 1968); Southern Canal Co. v. State Bd. of Water
Engineers, 318 S.W.2d 619; 159 Tex. 227 (Tex. 1958). Accordingly, “res judicata”
and “final judgment” are inapplicable in de novo proceedings because the original
administrative order that is the subject of appeal is nullified in a de novo proceeding.
State Bd. of Ins. v. Republic Nat'l Ins. Co., 384 S.W.2d 369, 372 (Tex.Civ.App. —
Austin 1964, writ ref'd n.r.e.).
Consequently, the filing of the petition for review nullified the administrative
judgment, leaving nothing for the Comptroller to enforce pending entry of a final
judgment in the petition for review, and such enforcement activity was illegal and
premature. In the absence of a final judgment in the redetermination hearing, no tax
has yet been imposed and no tax is “due and payable” upon which a delinquency
may be predicated.
ACCELERATED APPEAL, SANADCO, ET AL 37
A void order has no force or effect and confers no right; it is a nullity. See
In re Garza,, 126 S.W.3d 268, 271 (Tex. App.-San Antonio 2003, orig.
proceeding). Where the trial court (in this case the administrative judge) did
not have jurisdiction to render a judgment, the proper practice is for the
reviewing court to set the judgment aside and dismiss the cause. Fulton v.
Finch, 162 Tex. 351, 356, 346 S.W.2d 823, 827 (1961) (orig. proceeding) (If the
trial court lacks jurisdiction, the appellate court only has jurisdiction to set
the judgment aside and dismiss the cause.); Crane v. Richardson Bike Mart,
Inc., 295 S.W.3d 1, 5 (Tex. App.-El Paso 2009, no pet.).
Accordingly, the collection activity is void and the comptroller should
dismiss the underlying administrative judgment and reimburse Appellants for the
illegally collected funds, and the results of said activity should be nullified. State v.
Crawford, 262 S.W.3d 532, 546 (Tex.App.-Austin 2008, no pet.).
ACCELERATED APPEAL, SANADCO, ET AL 38
III. The trial court abused its discretion by refusing to enjoin the
comptroller’s enforcement activity because the petition for
declaratory judgment entitled Appellants to a final declaration of
a rule's validity before the rule is applied.
Appellants filed a declaratory judgment action pursuant to Tex. Gov’t Code §
2001.038, alleging the invalidity of agency rules. Gov’t Code § 2001.038 represents
an express legislative grant of subject-matter jurisdiction, so that valid claims raised
pursuant to that provision are not barred by sovereign immunity. See Id; El Paso
Hosp. Dist. v. Texas Health & Human Servs. Comm'n, 247 S.W.3d 709, 713 (Tex.
2008); Tex. Dep't of Protective and Regulatory Servs. v. Mega Child Care, Inc., 145
S.W.3d 170, 191-192 (Tex 2004).
Declaratory-judgment actions are intended to determine the rights of parties
when a controversy has arisen, before any wrong has actually been committed, and
are preventative in nature. Montemayor v. City of San Antonio Fire Dept., 985
S.W.2d 549, 551 (Tex.App.-San Antonio 1998, pet. denied). A person seeking a
declaratory judgment need not have incurred actual injury. City of Waco V. Texas
Natural Resource Conservation Commission, 83 S.W.3d 169, 175 (Tex.App.-Austin
2002); Texas Dept. of Banking v. Mount Olivet Cemetery Ass'n, 27 S.W.3d 276, 282
(Tex.App.-Austin 2000, pet. denied). Courts have also issued declaratory judgments
construing a statute before the statute is violated. See The Pea Picker, Inc. v. Reagan,
ACCELERATED APPEAL, SANADCO, ET AL 39
632 S.W.2d 674, 677 (Tex.App.-Tyler 1982, writ ref'd n.r.e.) (trial court had power
to construe Open Meetings Act and determine whether notice must be given and
when meeting is required to be open).
A rule may be challenged, "If it is alleged that the rule, or its threatened
application, interferes with or impairs, or threatens to interfere with or impair, the
legal rights or privileges of the plaintiff." This language makes it clear that the
purpose of this statute is to obtain a final declaration of a rule's validity before the
rule is applied. See Shannon and Ewbank, The Texas Administrative Procedure and
Texas Register Act Since 1976 — Selected Problems, 33 Baylor L.Rev. 393, 424
(1981).
Appellants pleaded that the rules in question impair or threaten to impair its
legal rights. Having complied with the statute's condition, Appellants were entitled
to a declaratory judgment regarding the rules' validity before the rule’s application.
Rutherford Oil v. Land Office of Texas, 776 S.W.2d 232, 235 (Tex.App.-Austin
1989). Accordingly, the trial court abused its discretion by refusing to enjoin the
comptroller from engaging in enforcement activities before an adjudication of the
validity of the rule.
ACCELERATED APPEAL, SANADCO, ET AL 40
PRAYER FOR RELIEF
WHEREFORE PREMISES CONSIDERED, Appellants pray that this
Court will reverse the trial court’s order denying the temporary restraining order
and render judgment that the audits were invalid, and unenforceable, and order the
comptroller to cease its enforcement efforts and reimburse all funds and property
collected from the Appellants. In the alternative, Appellants pray the court to
reverse the judgment of the trial court and remand it for further
proceedings. Appellants pray for such other and further relief in law and in
equity to which they may show themselves entitled.
Respectfully submitted,
Law Office of
Samuel T. Jackson
PO Box 170633
Arlington, TX 76003-0633
Tel: (512) 692-6260
Fax. 866-722-9685
ATTORNEY FOR
APPELLANTS
By: /s/ Samuel T. Jackson
Samuel T. Jackson
Texas Bar No. 10495700
ACCELERATED APPEAL, SANADCO, ET AL 41
CERTIFICATE OF COMPLIANCE
This document complies with the typeface requirements of Tex. R. App. P.
9.4(e) because it has been prepared in a conventional typeface no smaller than 14-
point for text and 12-point for footnotes. This document also complies with the
word-count limitations of Tex. R. App. P. 9.4(i), because it contains 6,063 words,
excluding any parts exempted by Tex. R. App. P. 9.4(i)(1), as counted by the
computer program used to prepare this document.
CERTIFICATE OF SERVICE
I hereby certify by my signature above that a true and correct copy of the
above and foregoing instrument was served on the parties or their attorneys via
facsimile, certified mail, return receipt requested, and/or hand delivery on April
16, 2015 in accordance with the Texas Rules of Appellate Procedure, to the
following:
JACK HOHENGARTEN
Assistant Attorney General
FINANCIAL LITIGATION
DIVISION
P.O. Box 12548
Austin, TX 78711-2548
TEL: (512) 475-3503
FAX: (512) 477-2348/480-8327
Email: jack.hohengarten@oag.state.tx.us
ATTORNEY FOR DEFENDANTS
ACCELERATED APPEAL, SANADCO, ET AL 42
VERIFICATION
STATE OF TEXAS §
§
COUNTY OF TARRANT §
BEFORE ME, the undersigned authority, personally appeared
Samuel T. Jackson, who, being by me duly sworn, on his oath
deposed and stated the following:
I, SAMUEL T. JACKSON, am over 18, of sound mind and
otherwise capable of making this affidavit. I am the attorney
representing Sanadco Inc. and Mahmaud A. lsba, Et Al, Appellants
in this accelerated appeal and Defendants in the court below. I have
prepared Appellants' brief and the appendix and hereby certify that
all of the documents in the attached appendix are true and correct
copies of the documents filed with the Office of the Comptroller
of Public Accounts in the underlying administrative proceedings
as those documents exist in my files or were transferred to us by
opposing counsel. I swear under oath and upon personal
knowledge that the factual
ATTORNEY FOR APPELLANTS
SUBSCRIBED AND SWORN TO BEFORE ME on the 13th day of April 2015,
to certify which witness my hand and official seal.
APPENDIX
Appendix
Exhibit
ACCELERATED APPEAL, SANADCO, ET AL 43
1. Order Denying Plaintiffs’ Declaratory Judgment and Application for
Temporary Injunction
A. Grocery Store Manual-2004
B. Sanadco’s Comptroller Decision
C. Sanadco Order Denying Motion for Rehearing
D. Broadway Comptroller Decision
E. Broadway Order Denying Motion for Rehearing
F. Tax Division’s Motion to Dismiss Shariz, Inc.
G. Comptroller’s Decision, Shariz, Inc.
H. Order Denying Motion for Rehearing, Shariz, Inc.
I. Request for Redetermination Hearing, Ruby & Sons
J. Request for Redetermination Hearing, Isba
K. Comptroller’s Decision, Isba
L. Denial of Motion for Rehearing, Isba
M. Request for Bond, Isba
N. Petition for Judicial Review, Isba
O. Payment, Isba
P. Cancellation of Permit, Isba
Q. Enforcement Activity, Isba
R. Collection Letter, Broadway
S. IBC Notice of Freeze, Broadway
T. Bank of America Alert, Broadway
U. Notice of Visit, Shariz, Inc.
ACCELERATED APPEAL, SANADCO, ET AL 44
ACCELERATED APPEAL, SANADCO, ET AL 45
EXHIBIT 1
ORDER DENYING TEMPORARY INJUNCTION
EXHIBIT A
GROCERY STORE MANUAL-2004
Páginas en español | Contact Us
Site Search
default_collection default_frontend default_frontend xml_no_dtd GO
Skip to content
Grocery Stores Manual
Grocery Stores
Revised 09/2004
Chapter IV — Special Reporting Methods
Method B - Purchase Ratio Method
Method C - 15% of Gross Sales
Audit Procedure - 15% Method
Method E - Commingled Receipts
Three special reporting methods are available to retail grocers as outlined in the sales tax statute
(TEX. TAX CODE ANN. 151.412, 151.413 and 151.416) and State Sales and Use Tax Rule
3.328 (Optional Reporting Methods for Grocers and Other Vendors).
The special reporting methods are commonly referred to as the:
Purchase Ratio Method (Method B)
- A percentage ratio of taxable items purchased to total items purchased is applied to
gross sales to determine taxable sales
15% Method (Method C)
- A retail grocer whose gross receipts do not exceed $100,000 per calendar year may
report and pay tax based on 15% of gross receipts
Commingled Receipts Method (Method E)
- Tax collected is commingled with the receipts from the sales of both taxable and
nontaxable items
If a taxpayer is reporting under one of these methods and qualifies for the use of the method, the
audit procedure is to verify returns and computations based on the method being used.
Purchase invoices must be maintained for at least four years to verify a grocer's sales tax returns
regardless of the method chosen for reporting purposes.
The use of an optional special reporting method does not relieve the seller from the obligation
and duty of collecting tax in the specific manner as prescribed in the statute and in accordance
with the bracket system (TEX. TAX CODE ANN. 151.415).
Method B - Purchase Ratio Method
This method may be used by a grocer for reporting purposes only, and eligibility is restricted to:
Any retail grocer
Any vendor who maintains a separate grocery department with separate records which
may be audited by the Comptroller, as applies to the grocery department only
Any vendor whose taxable receipts from the sale of taxable items are less than ten
percent of his total receipts
NOTE: Under the current definition of a retail grocer, most convenience stores
and many grocers do not qualify. However, the Comptroller still allows
them to use this method.
The following steps are used under this method:
Determine the total sum of merchandise purchased for resale during the preceding
calendar or fiscal year
Determine the total sum of taxable merchandise purchased during the preceding calendar
or fiscal year
Divide the total amount of taxable merchandise purchased by the total merchandise
purchased for resale to obtain a percentage relationship
Multiply the percentage obtained times the total sales for the reporting period to obtain
the taxable sales
Items which are purchased tax-free and used by the taxpayer (and which are subject to
sales/use tax) must be included on the return as taxable purchases
An audit of a taxpayer who uses the purchase ratio method to compute taxable sales will
generally be limited to verification of reported amounts based on summary records and
computation procedures. The verification procedures should include:
An examination of the taxpayer's worksheets which were prepared to compute total
purchases and segregate taxable and nontaxable item purchases - worksheet amounts for
total purchases should be traced to summary records (purchases journal, cost of goods
sold section of the Federal Income Tax Return, etc.)
Tracing purchase invoices for sample periods to verify proper inclusion and segregation -
sample periods should include entire purchase cycles (weeks, months, etc.)
Comparing the purchasing patterns with the purchase invoices for the sample period -
vendors may need to be contacted to verify purchases
Verifying any adjustments to taxable and gross purchases which would include:
o Operating supplies
o Wrapping and packaging items
o Trading stamps
o Finance, insurance, and other charges
o Inventory variances
Method of inventory - actual physical inventory, gross profit method
Valuation of inventory - retail value, cost
Segregation by product line or department
o Base stock inventories for new stores or departments
o Interstore transfers
o Personal purchase/use items (employee gifts, etc.)
o Unusual losses due to theft, spoilage, fire, or other reasons which can be
supported by police/fire reports, insurance claims, inventory studies, etc.
o Significant purchase discounts and allowances which could include cash
discounts, volume rebates, quantity discounts, promotional allowances, etc. -
since these discounts can apply to taxable/nontaxable grocery items as well as
non-grocery items, a segregation test of the discounts may have to be done
Cash discount - reduction from invoice price allowed for prompt payment
Volume rebate or quantity discount - an allowance or reduction of the
price for volume purchases based on the number of units sold or purchased
during a promotional period. The allowance is directly related to units sold
or purchased although the grocer may incur some additional promotional
expense. The retail price of the product may or may not be lowered during
the promotional period. This term does not include display or other
merchandising plan allowances or payments which are based on
agreements not related to volume of purchases, or cooperative advertising
allowances, which are based on national line rate advertising and are also
not related to volume or purchases and sales. Cooperative advertising
allowances are intended to reimburse a grocer for a portion of his
advertising costs for a particular product or products.
NOTE: Some of the discounts listed above may not be reflected on the purchase
invoice but rather may be listed as a separate credit memo.
Verification of gross receipts which may have to include adjustments for the following;
o Sales tax included in reported gross sales
EXAMPLE: Gross sales including tax = $104,950
Tax collected is unknown as taxpayer's cash register only accounts
for total sales amount which may include any tax collected
The percentage relationship of taxable purchases to total purchases
is determined by the auditor to be 60%
Taxable percentage .60
Applicable tax rate X.0825
------
Subtotal .0495
+1.000
------
Total 1.0495
Gross Sales including sales tax$ 104,950
Divided by percentage 1.0495
Gross sales excluding sales tax $100,000
Multiplied by taxable percentage .60
Audited taxable sales $ 60,000
Audited taxable sales of $60,000 x .0825 - $4,800 sales tax
collected
o Delivery charges
o Vending machine sales
o Sales of food for immediate consumption
o Meat processing revenue
o Commission receipts which may result from:
Money orders
Gasoline sales
Leased departments
Amusement machines
Vending machines
Movie rentals on a commission basis
o Any departments where records are separately maintained
o Video rentals
o Rentals of equipment, such as steam-cleaning machines
o Deposits on returnable items
o Coupon handling fees
o Verification of any deductions for bad debts
o Any adjustments for other items noted
NOTE: The receipts for the above-listed items must be deducted from Gross
Sales/Total Receipts before applying the applicable taxable percentage.
If the preliminary tests indicate that the taxpayer's worksheet amounts (total purchases and
nontaxable purchases) are correct, only the proper application and mathematical accuracy of
reported amounts needs to be verified.
If the preliminary tests indicate that the taxpayer's worksheet amounts are not correct, then the
tests should be expanded to determine if the potential audit adjustment warrants the additional
time to perform the fieldwork.
NOTE: For audit purposes only, the Comptroller permits a 5% theft and
spoilage allowance on gross taxable sales. This should be taken into
consideration when determining a potential audit adjustment. The
application of the 5% allowance will be discussed later.
Exams and schedules prepared by auditors utilizing the purchase ratio method of auditing
grocery stores/convenience stores will be discussed later in this manual.
Method C - 15% of Gross Sales
Under this method, a grocer may report and pay tax based on taxable sales equaling 15% of the
gross sales. However, eligibility for the use of this method is restricted to:
Retail grocers, as previously defined, and whose gross receipts do not exceed $100,000
per calendar year
A retail grocer with one or more outlets, if all outlets under the same ownership qualify
and if the combined gross sales of all the outlets do not exceed $100,000 per calendar
year
NOTE: If more than 5% of the receipts consist of sales of tangible personal
property (beer & wine, cigarettes, gasoline, etc.), the grocer is not
eligible for Method C.
The grocer's eligibility will be determined on a calendar year-by-calendar year basis.
The State Sales and Use Tax Statute Sec. 151.413 and State Sales and Use Tax Rule 3.328
provide the following procedures and requirements to be followed by a taxpayer who elects to
use this method:
Gross sales per report period are multiplied by 15% to obtain the taxable sales
A grocer who elects to report under this method must continue to do so for three years
unless the gross sales for a calendar year exceeds $100,000
When the receipts of a grocer who elects to use this method exceeds $100,000 for a
calendar year, the grocer is ineligible to continue reporting under this method on the first
day of the calendar month after the month in which the limitation is exceeded
o EXAMPLE: Grocers using this method will be quarterly filers. If a grocer
exceeds the $100,000 limit in October, the fourth quarter report is not eligible for
the 15% method. In addition, the grocer is liable for assessment of all back tax,
penalty, and interest under actual percentage for the other quarterly period of the
calendar year.
If a retail grocer is eligible for filing under this method and actually files using the 15% method,
any audits performed will be limited to verification through this same method. Additional taxes
will not be assessed nor any refunds/credits will be allowed because this method differs from the
amount that would have been paid under any other reporting method. This holds true if
comparing taxes collected to taxes reported as in the example below. However, computational,
transposition, and carry-forward errors may be adjusted for, such as using an incorrect or
incomplete sales figure or multiplying by a wrong percentage.
o EXAMPLE: Taxpayer's gross sales for a report period equals $20,000. Utilizing the 15%
method, the taxpayer reported $3,000 as taxable sales and paid tax of $247.50 (@8 1/4%).
Taxpayer's sales journal states that $200 sales tax was collected. The taxpayer is not due a
refund.
This method cannot be substituted for another method previously elected, and it is prospective.
Audit Procedure - 15% Method
An audit of a retail grocer electing to report taxable receipts using this method will be limited to
determining whether or not the grocer is eligible to use this method and the accuracy of the tax
reports.
The following criteria must be considered for audit purposes:
The taxpayer must meet the definition of a "retail grocer" as covered above in the
manual's introduction.
o Sales of items other than food (not for immediate consumption), household
supplies, and nondurable household goods must not exceed five percent of gross
sales - such items include:
Beer and wine
Gasoline (not on commission)
Hardware
Automotive parts
Fishing/hunting supplies
Souvenirs/curios
Cigarettes, cigars, tobacco products
Gross sales must not exceed $100,000 per calendar year, even though the taxpayer may
not have been in business for the full year
The method must be continuously used for three years unless the taxpayer becomes
ineligible
Audit assessments will be based on the actual percentage of taxable sales for any calendar
year(s) in which the taxpayer is not eligible. If an audit of a taxpayer who has not elected to use
the 15% method discloses that the taxpayer could have used the method for any or all years in
the audit period, the taxpayer will not be allowed to amend prior reports nor will the audit be
performed using the method for any years in the audit period.
Method E - Commingled Receipts
A third method is provided by the statute and in Rule 3.328 for grocers who establish an
accounting system in which sales tax collected is commingled with the receipts from the sale of
taxable items. Method E establishes a method of backing out the tax from the gross sales.
The formula to be used to determine taxable sales using this method is:
Gross sales including tax
<Nontaxable/exempt sales>
----------------------------
Taxable sales including tax
The taxable sales amount including tax is then divided by 1.00 plus the applicable tax rate
decimal factor to derive taxable sales excluding tax.
Taxable sales = Taxable sales
-------------
1 + Tax Rate excluding tax
An examination of the records of a taxpayer using this method will include:
A verification of gross sales
Verification that tax is included in gross sales
Confirmation that the taxable or nontaxable sales are accurate through use of one of the
other special reporting methods
Confirmation of the mathematical accuracy of computations
[ Previous | Next | Table of Contents - Manual | Table of Contents - Ch. 4 ]
Maintained by the Audit Division
Texas.gov
Statewide Search from the Texas State Library
State Link Policy
Texas Homeland Security
Texas Transparency
Report Fraud
Susan Combs, Texas Comptroller • Window on State Government • Contact Us
Privacy and Security Policy
Accessibility Policy
Link Policy
Public Information Act
Compact with Texans
EXHIBIT B
SANADCO COMPTROLLER DECISION
S U S A N
TE X A S C 0 M PT R 0 L L E R O j P U B L IC A C C 0 LI N T S
C 0M B S P.O. Box 13528 .AUSTIN, TX 7871 1-.3528
June 16, 2014
Mr. Samuel T. Jackson
Law Office of Samuel T. Jackson
P.O. Box 170633
Arlington, TX 76003-0633
Re: Sanadco, Inc. Mahmoud Ahmed Isba
Hearing No. 106,815 Hearing No. 107,006
Taxpayer No. xxxxxxxxxxx Taxpayer No. xxxxxxxxxxx
The Comptroller's Decision (Decision) for the above-referenced hearings, which resulted
in tax liabilities, is enclosed. The Decision includes the Comptroller's ruling on all
timely filed exceptions to the Proposal for Decision issued on December 12, 2013.
Except for minor changes to correct typographical or clerical errors, the Decision is
identical to the Proposal for Decision.
Unless a motion for rehearing is filed by July 9, 2014, the Decision will become final.
Your total liabilities resulting from the hearings are shown in Attachments A to the
Decision; please note, however, that additional daily interest will continue to accrue until
you have paid the total liabilities and any additional accrued interest. Your total
liabilities, plus any additional accrued interest is due twenty days after the Decision
becomes final. If you fail to timely file a motion for rehearing or pay the total liabilities,
as well as any additional accrued interest, within twenty days after the date the Decision
becomes final, an additional 10% penalty will be assessed on the tax due and interest will
continue to accrue.
A motion for rehearing can only be filed with the Special Counsel for Tax Hearings at
P.O. Box 13528, Austin, Texas 78711-3528 or by facsimile at 512-936-6190. However, a
copy must be filed with the Assistant General Counsel in the Administrative Hearings
Section. If you have any questions about the procedures for filing a motion for rehearing
or a waiver of the right to file a motion for rehearing, you may contact the Assistant
General Counsel, Isreal Miller, by calling toll-free 800-531-5441, extension 3-4612. The
regular number is 512-463-4612.
Chris Kadas
Special Counsel for Tax Hearings
cc: Isreal Miller, Representing Tax Division EXHIBIT B
Sanadco, Inc.
Mahmoud Ahmed Isba
WWW.WINDOW.STATE.TX.US 51 2·463·4000 • TOLL FREE: I·800- 531·544 I • FAX: 5 1 2·463·4965
SOAH DOCKET NO. XXX-XX-XXXX.26
CPA HEARING NO. 106,815
RE: SANADCO, INC. § BEFORE THE COMPTROLLER
§ OF PUBLIC ACCOUNTS
§ OF THE STATE OF TEXAS
§
TAXPAYER NO: xxxxxxxxxxx § SUSAN COMBS
§ Texas Comptroller of Public Accounts
AUDIT OFFICE: Fort Worth 2I40 §
§ ISREAL MILLER
AUDIT PERIOD: February 1, 2007 § Representing Tax Division
THROUGH June 30, 2009 §
§ SAMUEL T. JACKSON
Sales And Use Tax/RDT § Representing Petitioner
SOAH DOCKET NO. XXX-XX-XXXX.26
CPA HEARING NO. 107,006
RE: MAHMOUD AHMED !ISBA § BEFORE THE COMPTROLLER
§ OF PUBLIC ACCOUNTS
§ OF THE STATE OF TEXAS
§
TAXPAYER NO: xxxxxxxxxxx § SUSAN COMBS
§ Texas Comptroller of Public Accounts
AUDIT OFFICE: Advanced Processes 2S52 §
§ ISREAL MILLER
AUDIT PERIOD: May 1, 2007 § Representing Tax Division
THROUGH June 30, 2009 §
§ SAMUEL T. JACKSON
Sales And Use Tax/RDT § Representing Petitioner
COMPTROLLER'S DECISION
Sanadco, Inc. (Petitioner SI) was audited for sales and use tax compliance by the Tax
Division of the Texas Comptroller of Public Accounts (Staff) and assessed tax, a 10% penalty,
an additional 50% penalty, and accrued interest. Staff also assessed personal liability against
Mahmoud Ahmed Isba (Petitioner Isba) under Tax Code § 111.0611 as the president of
Petitioner SI. Petitioners contest their audit assessments on the same grounds, including the
contentions that the audit assessment is void and unenforceable because the estimate was based
on audit procedures that constituted invalid rules, and that the present audit overlaps a previous
final audit assessment. Staff rejects the Petitioners' contentions. In the Proposal for Decision,
the Administrative Law Judge (AU) recommends that the corporate assessment against
Petitioner SI should be affirmed, except that the markup percentage used in calculating the
estimated tobacco sales should be adjusted and that the additional fraud penalty should be
applied only to the report periods February 1, 2007, through April 30, 2008. The ALl also
recommends that the personal liability assessment against Petitioner Isba should be limited to the
report periods May 1, 2007, through April 30, 2008.
I. PROCEDURAL HISTORY, NOTICE AND JURISDICTION
On May 10, 2013, Staff referred the cases to the State Office of Administrative Hearings
(SOAH) for oral hearings. AU Peter Brooks ordered the cases joined because the cases involve
related parties, and common facts and issues of law. Staff was represented by Assistant General
Counsel Isreal Miller, and Petitioners were represented by Attorney Samuel T. Jackson. The
case convened on September 9, 2013. The AU closed the record on November 12, 2013. There
are no contested issues of notice or jurisdiction. Therefore, these matters are set out in the
Findings of Fact and Conclusions of Law.
II. REASONS FOR DECISION
A. Evidence Presented
Staff submitted the following exhibits in SOAH Docket No. XXX-XX-XXXX.26:
1. 60-Day Letter;
2. Texas Notification of Audit Results;
3. Penalty and Interest Waiver Worksheet;
4. Audit Report; and
5. Audit Plan, which includes Audit Referral Report for Additional Penalty.
2
Staff submitted the following exhibits in SOAH Docket No. XXX-XX-XXXX.26:
1. Texas Notification of Personal Liability for Fraudulent Tax Evasion;
2. Audit Exam, including correspondence and e-mail communications from the
Revenue Accounting Division; the Calculated Message, Adjustment, and
Allocation Reports; Tax Summary, Status, Balance, Audit, and Tax Allocation
Basis Inquiries; and Personal Liability Fraudulent Tax Evasion Worksheet;
3. Sales and use tax returns for report periods April 2007, May 2008,
December 2008, February 2008, and January 2009; and
4. State Filings: Statement of Change of Registered Office/Agent, dated
May 5, 2006; and Texas Franchise Tax Public Information Reports signed
May 10, 2006, March 13, 2008, and February 26, 2009.
Staff attached to its Response to Petitioner's Post-Hearing Brief the following exhibits:
6. Copy of Memorandum Opinion issued in Sanadco, Inc. v. Comptroller of Pub.
Accounts, No. 03-11-00462-CV, 2013 Tex. App. LEXIS 12013 (Tex. App.-
Austin September 26, 2013, no pet. h.); and
7. Appellee's Motion for Rehearing and Reconsideration en bane filed in
Sanadco, Inc.
Petitioner SI produced during the hearing its responses to Staff s Second Set of
Interrogatories, Requests for Admissions, and Requests for Production. Petitioner did not
offer any other evidence during the hearing, but did attach to its Post-Hearing Brief the
following exhibits:
1. The Examination performed by the Comptroller's Business Activity Research
Team (BART) for the exam period January 1, 2008, through March 31, 2009,
including, the Accounts Examiner Coversheet; correspondence and e-mail
communications from BART; the Texas Notification of Exam Results; the
Message, Adjustment, and Allocation Reports; Petitioner's Alcohol and Tobacco
Purchases for January 2008 through March 2009; and ITS Work Manager
Comments;
2. Plaintiff's Original Petition, Sanadco, Inc., 2013 Tex. App. LEXIS 12013;
3
3. Defendant's First Amended Answer and Counterclaim, Sanadco, Inc., 2013 Tex.
App. LEXIS 12013; and
4. Counter-Defendant's Original Answer and Jurisdictional Plea, Sanadco, Inc.,
2013 Tex. App. LEXIS 12013.
There were no evidentiary objections, and each of the listed documents is admitted as
part of the contested case record.
The only witness testimony presented during the contested case hearing was that of
Dennis Eastman, the audit supervisor who supervised the Comptroller auditor who performed
Petitioner Si's audit. Staff presented the testimony of Mr. Eastman.
B. Adjustments
Staff has not agreed to adjust any of the contested audit assessments.
C. Facts Established and Issues Presented
Petitioner SI operated a convenience store in Fort Worth, Texas, during the audit period
February 1, 2007, through June 30, 2009. Petitioner SI no longer owns the convenience store.
Petitioner SI was subjected to a desk audit performed by BART for the exam period of
January 1, 2008, through March 31, 2009. It was assessed a tax liability of $23,593.60,
consisting of tax, the 10% standard penalty, the additional 50% penalty, and accrued interest.
The exam was prompted 1 by a comparison of Petitioner Si's alcohol and tobacco purchases for
the exam period reported by Petitioner SI's tobacco and alcohol vendors pursuant HB 11.2 The
HB 11 tobacco and alcohol purchases for the exam period exceeded the reported taxable sales for
the same period by $268,056 to $76,976. BART relied on the HB 11 data and the Comptroller's
Audit Division Policy Memo 122 (AP 122) in estimating the assessment. Petitioner SI did not
1
Petitioner's Exhibit 1, letter dated July 2, 2009, from BART advising Petitioner SI of assessment.
2
Wholesalers and distributors of beer, wine, malt liquor, cigarettes, cigars, and tobacco products are required to
submit electronic reports, on a monthly basis, to the Comptroller. These electronic reports are required by Tex. Tax
Code Ann. §§ 151.462, 154.212, and 155.105, which were enacted as part of Tex. H.B. 11, 80th Leg., RS. (2007).
The vendor records are commonly referred to as HB 11 records.
4
file a request for redetermination contesting the assessment, consequently, the assessment
became final. The sales and use tax delinquency was certified to the Attorney General.3 The
Attorney General filed a lawsuit seeking to collect the delinquency from Petitioners SI and Isba.4
Petitioners filed various counterclaims against the Comptroller. However, the trial court
dismissed Petitioners' counterclaims for lack of jurisdiction. Petitioners appealed the dismissal.
The appeals court sustained Petitioners' claim that the Comptroller's directives in AP 92 and AP
122 were in fact rules and also concluded that the trial court had jurisdiction over Sanadco's
claim that AP 92 and AP 122 were invalid rules and that, therefore, the trial court erred in
dismissing this counterclaim. See Sanadco, Inc., 2013 Tex. App. LEXIS 12013, at *21-22.
Staff subsequently conducted an audit of Petitioner SI's sales and use tax compliance for
the audit period February 1, 2007, through June 30, 2009. Petitioner SI did not respond to the
auditor's requests for records.5 The auditor issued a Notification of Estimation Procedures for
State Tax Audit (Notification of Estimation) dated January 27, 2011, advising Petitioner SI that
the audit would be estimated using HB 11 data, and that the AP 122 procedures would be
followed.6 When the auditor initiated the audit fieldwork Petitioner SI no longer operated the
convenience store. Therefore, the auditor could not perform a shelf test and instead used the
industry average markup percentages of 118.44% and 124.07% respectively for tobacco and
alcohol purchases set out in AP 122.7 The auditor totaled the tobacco and alcohol purchases
made by Petitioner SI using the HB 11 data for the report periods January 1, 2008, through
June 30, 2009. The total alcohol and tobacco purchases were multiplied by their respective
markup percentages. 8 No product-mix percentage was calculated, because no purchase invoices
were available. Therefore, the standard AP 122 product-mix percentage of 54% for tobacco and
alcohol products was applied to arrive at estimated taxable sales. The auditor afforded a 5%
allowance for spoilage and theft, and credit was given for reported taxable sales. The adjusted
taxable sales were then reduced by the amounts assessed in the BART exam for the report
periods January 1, 2008, through March 31, 2009, and the resulting additional taxable sales were
3
Petitioner's Exhibit 2, Texas Certificate to Attorney General of Sales and Use Tax Delinquency.
4
Petitioner's Exhibit 2, Plaintiff's Original Petition.
5
Staff s Exhibit 4 (Petitioner SI), Audit Report.
6
Id.
7
Id., and Staff's Exhibit 4 (Petitioner SI), Exam 20B.
8
Id.
5
then multiplied by the applicable tax rates to arrive at the tax due for the period January 1, 2008,
through June 30, 2009.9
As there was no HB 11data available for the periods preceding January 1, 2008, the
auditor estimated the additional taxable sales for the report periods January 1, 2008, through
June 30, 2009 by first determining the average monthly net estimated taxable sales. The post-
December 31, 2007, total net estimated taxable sales of $728,443.17 were divided by the
18 report periods to arrive at a monthly average of $40,469.06. 10 The additional taxable sales for
the pre-January 1, 2008, report periods were calculated by giving credit for the taxable sales
reported to the Comptroller and applying the 5% allowance for spoilage and theft. The resulting
additional taxable sales were then multiplied by the applicable tax rate to determine the tax due
for this part of the audit period. 11
Since no contact was made during the audit with an officer, owner, or representative of
Petitioner SI, the auditor did not record in the Audit Plan or in the Audit Referral Report for
Additional Penalty any information regarding the role played by an officer, director, owner, or
employee of Petitioner SI in the operation of the store or in the preparation and filing of the sales
and use tax returns and the remittance of sales and use tax payments. The only substantive
information regarding Petitioner Isba's activities is found in Petitioner Si's responses to Staff s
Second Set of Interrogatories, Requests for Admissions and Requests for Production.
Petitioner SI admitted that Petitioner Isba signed checks for remitting sales and use tax payments
during the audit period. 12 Petitioner Isba is identified as the person responsible for depositing the
store's sales proceeds, ordering the store's inventory, and paying for the store's inventory
13
purchases. Petitioner Isba was also identified as the person who received the monthly bank
statements. 14 However, according to Petitioner Si's answers to the interrogatories,
Petitioner Isba's responsibility for these tasks ended when, on May 1, 2008, he entered into an
agreement to sell Sanadco, Inc. to his employees, Yassien Siam and Sandra Salazar. Mr. Siam
9
Staff s Exhibit 3 (Petitioner SI), Audit Report, Exam 20.
10
Staff's Exhibit 4 (Petitioner SI), Audit Report, Exam 20B.
11
Staff's Exhibit 3 (Petitioner SI), Audit Report, Exam 20.
12
Petitioner Si's Admission No. 2.
13
Petitioner Si's Answers to Interrogatories Nos. 4, 5, and 6.
14
Petitioner Si's Answer to Interrogatory No. 7.
6
thereafter assumed responsibility for these tasks from May 1, 2008, until the end of the audit
period.
Petitioner SI, in the responses to Staff s Interrogatory No. 1,stated that Petitioner Isba
was the sole owner, officer, or manager through May 1, 2008. Petitioner Isba signed
Petitioner Si's 2006 Texas Franchise Tax Public Information Report (PIR) as president of
Sanadco. 15 The PIR is dated May 10, 2006. Although Petitioner Si's 2008 PIR identified
Petitioner Isba as the corporate president, the form is signed by a Mike Isba.16 The PIR is dated
March 13, 2008. The 2009 PIR identifies Petitioner Isba as the president, but it bears the
signature Isba, without a given name. 17 The PIR is dated February 26, 2009.
On April 1, 2011, Staff issued to Petitioner SI a Texas Notification of Audit Results
assessing tax, the standard 10% penalty, the additional 50% fraud penalty, and accrued interest,
totaling $112,381.02, with $64,336.87 attributable to tax. The overall error rate for Petitioner SI
was 66.45%, which was calculated by dividing the tax assessed by the sum of the tax reported
and assessed. 18 Petitioner SI timely requested redetermination.
Staff also issued a jeopardy determination on March 30, 2011, against Petitioner Isba,
pursuant to Tax Code § 111.0611, assessing personal liability for the tax liability of Petitioner SI
for the period May 1, 2007, through June 30, 2009. 19 The personal liability assessment consisted
of tax, the standard 10% penalty, the additional 50% penalty, and accrued interest through the
date of notification. The personal liability assessed against Petitioner Isba totaled $95,620.96,
with $55,168.87 attributable to tax. Petitioner Isba timely requested redetermination.
Both Petitioners SI and Isba contested their assessments on the same grounds:
1. The imposition of additional fraud penalties should be deleted because Petitioner
provided substantial records, and the underpayment was not the result of fraud or
a knowing or willful intent to evade taxes;
15
Staff s Exhibit 4 (Petitioner Isba).
16 Id.
17 Id.
18
Petitioner Si's Penalty and Interest Waiver Worksheet.
19
Staff s Exhibit 1 (Petitioner Isba). Texas Notification of Personal Liability.
7
2. The auditor was not authorized to engage in estimating procedures because
Petitioner maintained the required records, and the available records were not
inadequate;
3. The auditor's exclusive use of HB 11 information and estimated markups to
determine the tax liability for beer and cigarettes, when Petitioner had
documentation regarding the actual purchases and markups, was improper;
4. The auditor's calculations regarding markups were well beyond national averages
and those contemplated under AP 122;
5. The imposition of additional penalties for the jeopardy determination was flawed,
because the statute authorizing such penalties is unconstitutionally vague for its
failure to establish guidelines for its imposition;
6. The audit should be revised to exclude previously audited inventory;
7. The audit is void as unenforceable because it was based on audit procedures that
constitute invalid rules; and
8. The subject audit overlaps a previous final audit, consisting of a BART exam for
the period January 1, 2008, through March 31, 2009.
D. Analysis and Recommendation
1. SOAH Docket No. XXX-XX-XXXX.2626 (Petitioner SI)
When records are inadequate to reflect the taxpayer's business operations, the
Comptroller is authorized to estimate a taxpayer's liability based on the best information
available. Tex. Tax Code Ann. § l 1l.0042(d). An estimated audit was appropriate in this case
because Petitioner SI did not have complete records. The Comptroller has held that estimated
audits based on HB 11 vendor records and AP 122 procedures meet the best information
available requirement when taxpayer records are incomplete or unreliable. See Comptroller's
Decision No. 103,892 (2011). The evidence that Staff submitted establishes that the audit was
based on the best information available and that established audit procedures were followed.
Consequently, the audit is entitled to a presumption of correctness. Petitioners, therefore, bear
the burden of proof to show by a preponderance of the evidence that the audit results are
incorrect. 34 Tex. Admin. Code § l.40(2)(B).
8
Several of the contentions are based on Petitioners' claim that there were sufficient
records available for the auditor to perform an audit without relying on HB 11 data and the
AP 122 estimating procedures. The audit work papers do not support Petitioners' assertion that
records were provided to the auditor. The auditor issued letters (dated October 22, 2009, and
July 28, 2010) requesting the records required to conduct the audit, including purchase invoices
and sales records, but there was no response. 20 The failure to produce records is also referenced
in the Notification of Estimation and 60-day letter issued by the auditor.21 Moreover, Petitioner
during the SOAH contested case hearing did not offer any of the records it claimed it had
available.
Petitioners also asserted that the markup percentages used by the auditor exceeded the
national averages and those contemplated by AP 122. The auditor used the markup percentage
of 124.07% designated in AP 122 for alcohol purchases. 22 AP 122 expressly provides that the
average convenience store markup percentage of 124.07% assigned to 2007 is to be used for
subsequent years until new markup percentages are available. The same provision applies for
tobacco products. The markup percentage of 118.02% assigned to 2007 is to be used for
subsequent years until new markup percentages are available. The auditor, instead, used the
markup percentage of 118.44% that is reserved for 2006.23 No explanation was found in the
audit work papers or in Staff s pleadings for deviating from this directive. Consequently, the
AU finds that the auditor erred and recommends that the correct markup percentage of 118.02%
should be used in marking up the tobacco purchases to calculate estimated tobacco sales. The
application of the correct markup percentage will have only a minor effect on the calculation of
the estimated tobacco sales. The adjusted estimated tobacco sales total $100,550.67 versus the
$100,908.51 resulting from the markup of 118.44%. The AU calculated that the application of
the correct markup percentage for tobacco products would reduce the assessment of tax from
$64,336.90 to approximately $64,305.00.
20
Staff's Exhibit 4 (Petitioner SI), Audit Report, Exhibits II and III.
21
Staff's Exhibit 1 (Petitioner SI), Sixty-Day Letter and Staff's Exhibit 4 (Petitioner SI), Audit Report, Exhibit I.
22
Staff s Exhibit 4 (Petitioner SI), Exam 20B.
23 Id.
9
Next Petitioners assert that the audit assessment should be disregarded because it is based
on invalid estimating procedures. Petitioners rely on the appellate court's recent decision in
Sanadco, Inc., 2013 Tex. App. LEXIS 12013. However, any precedential value placed on the
decision is premature, as the decision has not become final. Appellee has filed motions for
en bane reconsideration and for rehearing. The court has yet to rule on the motions. The
appellate court's decision becomes final when the court's plenary power expires. See Oscar
Renda Contracting, Inc. v. H&S Supply Co., 195 S.W. 3d 772 (Tex. App.-Waco 2006, pet.
denied). And the court will lose plenary power 30 days after the court overrules the motion for
rehearing and en bane reconsideration. Tex. R. App. P. 19.l(b).
Petitioners also contend that the subject audit should be restricted to the report periods
that fall outside of the BART exam period of January 1, 2008, through March 31, 2009. Thus,
according to Petitioners, the audit assessment should be restricted to the report periods
February 1, 2007, through December 31, 2007, and April 1, 2009, through June 30, 2009.
Petitioners, in effect, are arguing that Staff is estopped from rearguing the liability due during the
period previously examined by BART. However, a party seeking to assert the bar of collateral
estoppel must establish that: "(1) the facts sought to be litigated in the second action were fully
and fairly litigated in the first action; (2) those facts were essential to the judgment in the first
action; and (3) the parties were cast as adversaries in the first action." Sysco Food Servs. v.
Trapnell, 890 S.W.2d 796, 801 (Tex. 1994), citations omitted; and Also see Comptroller's
Decision No. 100,190 (2012).
The BART exam of Petitioner Si's convenience store differs in several significant ways
from the subsequent sales and use tax audit of the same convenience store. As the BART exam
focused exclusively on Petitioner Si's alcohol and tobacco sales and purchases, no product-mix
percentage was applied. However, a product-mix percentage was needed when Petitioner SI was
subsequently audited for sales of other products such as candy, soft drinks, food and general
merchandise. In addition Petitioner SI was afforded a 5% allowance for spoilage and theft in the
sales and use tax audit. The same facts were not essential to the judgment in each contested tax
case. Thus, the Comptroller was not estopped by the results of the BART exam from
subsequently performing a sales and use tax audit of the same taxpayer, especially since the
10
taxable sales determined in the BART exam were deleted from the calculation of additional
taxable sales in the sales and use tax audit See Comptroller's Decision Nos. 107,579 (2013) and
104,445 and 105,726 (2012).
The Comptroller is authorized to assess an additional 50% penalty under Tex. Tax Code
Ann. § 111.061(b) if she determines that a taxpayer committed fraud or had the intent to evade
tax. Staff has the burden of establishing by clear and convincing evidence that the fraud penalty
applies. See 34 Tex. Admin. Code § l.40(l)(B). Clear and convincing evidence is proof that will
produce a firm belief or conviction as to the truth of the allegations sought to be established, but
which need not be unequivocal or undisputed. See Comptroller's Decision No. 37,946 (2000);
State v. Addington, 588 S.W.2d 569, 570 (Tex. 1979) (per curiam), on remand , 441 U.S. 418.
As noted above, the overall error rate for the audit period is 66.45%. The revised overall
error rate decreased, almost unperceptively, to 66.44% once the error rate is recalculated using
the assessed tax amount of $64,305.24 In prior Comptroller decisions gross underreporting of
taxable sales, defined as an error of 25% or greater, has been found sufficiently indicative of
intent to evade the tax to warrant assessment of the fraud penalty, particularly when there were
other factors or no plausible explanation. See, e.g., Comptroller's Decision No. 43,248 (2004).
Also see Tex. Tax Code Ann. § 1l1.205(b).
Such gross underreporting, however, is not in and of itself sufficient to justify imposition
of the fraud penalty on corporate taxpayers. In the case of corporate taxpayers, the Comptroller
recognizes that a corporation is a separate legal entity that is controlled by its officers and
directors and that the requisite intent of a corporation is determined from the actions of the
officers or directors. When an officer is proven to have been directly involved in the fraudulent
activities, the additional penalty against a corporation has been upheld, because a corporate
officer's fraudulent actions can be attributed to the corporation. See Comptroller's Decision
Nos. 105,148 & 104,471 (2011), 44,891 (2005) and 44,528 (2005). The question is to what
degree Petitioner Isba, the company's president, was aware or should have been aware of the
underreporting of tax. See e. g., Comptroller's Decision No. 103,204 and 104,238 (2012).
24
The recalculated formula is assessed tax ($64,305) ..;. sum of the assessed tax and reported tax ($96,790.61).
11
The only substantive evidence in the record directly establishing the extent of
Petitioner lsba's involvement in the operation and management of the convenience store, in the
preparation and filing of the sales and use tax returns, and remittance of the tax payments during
the audit period is found in the answers propounded to Staff s discovery. There also are the five
checks remitting payment signed by Petitioner Isba that were proffered by Staff.25 The AU,
based solely on the statements made in response to Staff s discovery, finds that Petitioner Isba
purchased and paid for the taxable inventory, made the daily deposits, and received the bank
statements, signed the sales tax returns, and paid the sales and use taxes. The AU, therefore,
concludes that Petitioner Isba was involved in, aware of, or should have been aware of the
underreporting of sales tax. However, the same information that supports this conclusion
expressly limits Petitioner Isba's involvement to the period preceding May 1, 2008, when he
entered into an agreement to sell the business and one of the buyers assumed responsibility for
performing these tasks. Staff has not addressed or refuted any part of Petitioner SI's responses to
its discovery requests, including the statements limiting Petitioner Isba's involvement to the
report periods preceding May 1, 2008.
The AU concludes that the record is sufficient to establish, by clear and convincing
evidence, fraudulent actions on the part of Petitioner lsba that are attributable to the company,
but only for the period February 1, 2007, through April 30, 2008. The AU therefore
recommends that the additional 50% fraud penalty should be dismissed for the period
May 1, 2008, through the end of the audit period.
Petitioners also argue that the imposition of additional penalties for jeopardy
determination are unconstitutional vague. The ALJ lacks the jurisdiction to consider Petitioner's
contention regarding the constitutionality of the jeopardy determination statute. The courts have
ruled that the Comptroller lacks jurisdiction to rule on the constitutionality of a statute that she
administers. See Tex. State Bd. of Pharmacy v. Walgreen Tex. Co., 520 S.W.2d 845 (Tex. Civ.
App.--Austin 1975, writ ref d n.r.e.). Also see Comptroller's Decision No. 105,821 (2013).
25
Staff s Exhibit 4 (Petitioner lsba).
12
2. SOAH Docket No. XXX-XX-XXXX.26 (Petitioner Isba)
Tax Code § 111.0611 imposes personal liability on an officer, manager, or director of a
corporation who "as an officer, manager, director, or partner, took an action or participated in a
fraudulent scheme or fraudulent plan to evade the payment of taxes." The personal liability is
for taxes, penalties, including an additional 50% penalty, and interest that are due from the
corporation. Actions that indicate a fraudulent scheme or fraudulent plan to evade the payment
of taxes include filing, or causing to be filed, a fraudulent tax return or report with the
Comptroller on behalf of the business entity, or filing, or causing to be filed, a tax return or
report with the Comptroller on behalf of the business entity that contains an intentionally false
statement that results in the amount of the tax due exceeding the amount of tax reported by
25% or more. Tex. Tax Code Ann. § 111.0611(b)(l), (3).
The same facts that the ALJ relied on in recommending imposition of the additional
50% penalty support upholding the assessment of personal liability. First, there was an overall
gross underreporting of the tax, which resulted, even after taking into account the adjustment
recommended by the ALJ, in an error rate of 66.45%. Moreover, the record establishes that
Petitioner lsba was involved in the operation and management of the store and in the signing of
the sales and use tax returns and remittance of the tax payments. He ordered and paid for the
taxable inventory, deposited the store's receipts, received the bank statements, and signed both
the sales tax returns and the checks remitting payments to the Comptroller. However, the
evidence establishes this involvement by clear and convincing evidence only for the period
February 1, 2007 through, April 30, 2008. This record is sufficient to affirm the personal
liability assessment for the period May 1, 2007, through April 30, 2008, and the ALJ
recommends that the personal liability assessment should be dismissed for the period May 1,
2008, through June 30, 2009.
3. Recommendations
The ALJ recommends that the audit assessment against Petitioner SI should be affirmed,
but subject to the recommended adjustments correcting the calculation of estimated tobacco sales
13
and limiting the additional penalty to the period February 1, 2007, through April 30, 2008. In the
case of the personal liability assessment against Petitioner Isba, the AU recommends that the
assessment should be affirmed subject to the recommended adjustment in the underlying corporate
assessment and recommended dismissal of the personal liability assessment for the
period May 1, 2008, through June 30, 2009.
III. FINDINGS OF FACT
1. Sanadco, Inc. (Petitioner SI) operated a convenience store in Fort Worth, Texas, during
the audit period February 1, 2007, through June 30, 2009.
2. Petitioner SI was subjected to a desk audit performed by the Business Activity Research
Team (BART) of the Texas Comptroller of Public Accounts (Comptroller) for the exam
period of January 1, 2008, through March 31, 2009, and assessed a tax liability of
$23,593.60, consisting of tax, the 10% standard penalty, the additional 50% penalty, and
accrued interest.
3. The BART exam was prompted by a comparison of Petitioner Si's alcohol and tobacco
purchases for the exam period reported by Petitioner SI's tobacco and alcohol vendors
under HB 11.
4. Wholesalers and distributors of beer, wine, malt liquor, cigarettes, cigars, and tobacco
products are required to submit electronic reports, on a monthly basis, to the Comptroller.
These electronic reports are required by Tex. Tax Code Ann. §§ 151.462, 154.212, and
155.105, which were enacted as part of Tex. H.B. 11, 80th Leg., R.S. (2007). The vendor
records are commonly referred to as HB 11 records.
5. The HB 11 tobacco and alcohol purchases for the exam period exceeded the reported
taxable sales for the same period by $268,056 to $76,976. BART relied on the HB 11
data and the Comptroller's Audit Division Policy Memo (AP) 122 in estimating the
assessment.
6. Petitioner SI did not file a request for redetermination contesting the assessment,
consequently, the assessment became final and the sales and use tax delinquency was
certified to the Attorney General. The Attorney General filed a lawsuit seeking to collect
the delinquency from Petitioner SI and Mahmoud Ahmed Isba (Petitioner Isba). See
Sanadco, Inc. v. Comptroller of Pub. Accounts, No. 03-11-00462-CV, 2013 Tex. App.
LEXIS 12013 (Tex. App. - Austin September 26, 2013, no pet. h.).
7. Petitioners filed various counterclaims against the State. However, the trial court
dismissed Petitioners' counterclaims for lack of jurisdiction, which decision Petitioners
appealed. The appeals court sustained Petitioners' claim that the Comptroller's directives
14
in AP 92 and AP 122 were in fact rules and also concluded that the trial court had
jurisdiction over Sanadco's claim that AP 92 and AP 122 were invalid rules and that,
therefore, the trial court erred in dismissing this counterclaim. See Sanadco, Inc.,
2013 Tex. App. LEXIS 12013, at *21-22.
8. Petitioner SI was audited by the Comptroller' Tax Division (Staff) for sales and use tax
compliance for the audit period, and the auditor estimated the audit due to incomplete
records.
9. Petitioner SI did not respond to the auditor's requests for records. The auditor issued a
Notification of Estimation Procedures for State Tax Audit dated January 27, 2011,
advising Petitioner SI that the audit would be estimated using HB 11 data, and that the
AP 122 procedures would be followed.
10. When the auditor initiated the audit fieldwork, Petitioner SI no longer operated the
convenience store. Therefore, the auditor could not perform a shelf test and instead used
the industry average markup percentages of 118.44% and 124.07% respectively for
tobacco and alcohol purchases set out in AP 122.
11. The auditor totaled the tobacco and alcohol purchases made by Petitioner SI using the
HB 11 data for the report periods January 1, 2008, through June 30, 2009. The total
alcohol and tobacco purchases were marked up by their respective markup percentages.
12. The standard AP 122 product-mix percentage of 54% for tobacco and alcohol products
was applied to arrive at estimated taxable sales, because no purchase records were
available.
13. The auditor afforded a 5% allowance for spoilage and theft to determine net estimated
taxable sales. Credit was given for reported taxable sales.
14. The resulting adjusted taxable sales were then reduced by the amounts assessed in the
BART exam for the report periods January 1, 2008, through March 31, 2009 to arrive at
the additional taxable sales.
15. The additional taxable sales were multiplied by the applicable tax rates to determine the
tax due for the report periods from January 1, 2008, through June 30 2009.
16. As there was no HB 11 data available for the periods preceding January 1, 2008, the
auditor estimated the additional taxable sales for this period by first determining the
average monthly net estimated taxable sales for the report periods January 1, 2008,
through June 30, 2009. The post-December 31, 2007, total net estimated taxable sales of
$728,443.17 were divided by the 18 report periods to arrive at a monthly average of
$40,469.06.
15
17. The additional taxable sales for the pre-January 1, 2008, report periods were calculated
by reducing the average monthly net estimated taxable sales by the taxable sales reported
to the Comptroller.
18. A 5% allowance for spoilage and theft was applied to determine the additional taxable
sales.
19. The resulting additional taxable sales were then multiplied by the applicable tax rate to
determine the tax due for pre-January 1, 2008, part of the audit period.
20. Petitioner Isba was the president of Petitioner SL
21. Petitioner Isba signed checks for remitting sales and use tax payments during the audit
period.
22. Petitioner Isba was responsible for depositing the store's sales proceeds from
February 27, 2007, through April 30, 2008.
23. Petitioner Isba was responsible for depositing the store's sales proceeds from
February 27, 2007, through April 30, 2008.
24. Petitioner Isba was responsible for ordering the store's inventory from February 27, 2007,
through April 30, 2008.
25. Petitioner Isba was responsible for payment of the store's inventory purchases from
February 27, 2007, through April 30, 2008.
26. Petitioner Isba was the person who received the monthly bank statements from
February 27, 2007, through April 30, 2008.
27. Petitioner lsba's responsibility for these tasks ended on May 1, 2008, when he entered
into an agreement to sell the company to his employees Yassien Siam and
Sandra Salazar.
28. Mr. Siam assumed responsibility for these tasks from May 1, 2008, until the end of the
audit period.
29. On April 1, 2011, the Staff issued to Petitioner SI a Texas Notification of Audit Results
assessing tax, the standard 10% penalty, the additional 50% fraud penalty, and accrued
interest, totaling $112,381.02, with $64,336.87 attributable to tax.
30. Petitioner SI timely requested redetermination.
31. Staff also issued a jeopardy determination on March 30, 2011, against Petitioner Isba,
pursuant to Tax Code § 111.0611, assessing personal liability for the tax liability of
Petitioner SI for the period May 1, 2007, through June 30, 2009.
16
32. The personal liability assessment consisted of tax, the standard 10% penalty, the
additional 50% penalty, and accrued interest through the date of notification. The
personal liability assessed against Petitioner Isba totaled $95,620.96, with $55,168.87
attributable to tax.
33. Staff referred the cases to the State Office of Administrative Hearings for oral hearings.
Staff issued Notices of Hearing that contained a statement of the date, time, and place of
the hearings, a statement of the nature of the hearings; a statement of the legal authority
and jurisdiction under which the hearings were to be held; a reference to the particular
sections of the statutes and rules involved; and a short, plain statement of the matters
asserted.
34. The Administrative Law Judge (AU) ordered the cases joined.
35. The AU convened the hearing on August 12, 2013
36. The AU ordered the record closed on November 12, 2013.
37. The correct markup percentage that the auditor should have applied to the tobacco
purchases was 118.02%, which AP 122 directs should be used for years following 2007.
38. Applying the corrected markup percentage to the tobacco purchases produced estimated
tobacco sales of $100,550.67 (versus the $100,908.51 resulting from a markup of
118.44%).
39. The application of the corrected markup percentage to tobacco purchases reduced the
assessment of tax from $64,336.90 to approximately $64,305.
40. The original overall error rate for Petitioner Si's audit was 66.45%.
41. The AU has recalculated the error rate using the reduced principal amount of tax due.
The recalculated audit error rate is 66.44%, which was calculated by dividing the tax
assessed ($64,305) by the sum of the assessed tax and reported tax ($96,790.61).
IV. CONCLUSIONS OF LAW
1. The Comptroller has jurisdiction over this matter pursuant to Texas Tax Code ch. 111.
2. The State Office of Administrative Hearings has jurisdiction over matters related to the
hearing in this matter, including the authority to issue a proposal for decision with
findings of fact and conclusions of law pursuant to Texas Government Code ch. 2003.
3. Staff provided proper and timely notice of the hearing pursuant to Texas Government
Code ch. 2001.
17
4. The Comptroller is authorized to use the best information available to estimate a
taxpayer's liability when records are incomplete or unreliable. Tex. Tax Code Ann.
§ ll l.0042(d) and 34 Tex. Admin Code § 3.281(c).
5. Petitioner SI must show by a preponderance of the evidence that the audit was in error.
34 Tex. Admin. Code § l.40(2)(B).
6. The audit of Petitioner SI was performed based on the best information available.
7. The auditor erred in not using the correct percentage of 118.02% in marking up the
tobacco purchases in order to estimate tobacco sales. See AP 122.
8. The calculation of additional taxable sales should be adjusted by using the correct
markup percentage of 118.02% in marking up tobacco purchases.
9. The Comptroller is authorized to impose an additional 50% penalty if the failure to pay
tax or file a report when due was a result of fraud or an intent to evade the tax. Tex. Tax
Code Ann. § 111.061(b).
10. Staff bears the burden of proof to show by clear and convincing evidence that
Petitioner SI acted with intent to evade tax. 34 Tex. Admin. Code § l.40(1)(B).
11. Petitioner SI had the intent to evade tax required by Tex. Tax Code Ann. § ll l.061(b)(l),
but only for the report periods February 1, 2007, through April 30, 2008.
12. The record establishes by clear and convincing evidence that the gross underreporting of
tax was due to the intent to evade tax and that the imposition of the additional 50%
penalty was warranted, but only for the report periods February 1, 2007, through April
30, 2008. Tex. Tax Code Ann. § ll l.061(b)(l).
13. The additional 50% penalty should be deleted for the report periods May 1, 2008, through
June 30, 2009.
14. The assessment against Petitioner SI should be affirmed except for the adjustments
recommended in Conclusions of Law Nos. 8 and 13.
15. Texas Tax Code § 111.0611 imposes personal liability on an officer, manager, or director
of a corporation who "as an officer, manager, director, or partner, took an action or
participated in a fraudulent scheme or fraudulent plan to evade the payment of taxes."
The personal liability is for taxes, penalties, including an additional 50% penalty and
interest that are due from the corporation. Tex. Tax Code Ann. §111.0611(a).
16. Actions that indicate a fraudulent scheme or fraudulent plan to evade the payment of
taxes include filing, or causing to be filed, a fraudulent tax return or report with the
Comptroller on behalf of the business entity, or filing, or causing to be filed, a tax return
18
or report with the Comptroller on behalf of the business entity that contains an
intentionally false statement that results in the amount of the tax due exceeding the
amount of tax reported by 25% or more. Tex. Tax Code Ann. § ll l.06ll(b)(l), (3).
17. Staff established that Petitioner lsba was personally liable under Texas Tax Code
§ 111.0611 for the assessment made against Petitioner SI, but only for the report periods
May 1, 2007, through April 30, 2008.
18. The personal liability assessment against Petitioner Isba for report periods May 1, 2008,
through June 30, 2009, should be deleted.
19. The assessment against Petitioner Isba should be upheld, subject to the deletion
recommended in Conclusion of Law No. 18 and to the adjustment to the underling
corporate tax assessment against Petitioner SI recommended in Conclusion of Law No. 8.
19
Hearing Nos. 106,815 and 107,006
ORDER OF THE COMPTROLLER
On December 12, 2013, the State Office of Administrative Hearings' Administrative Law
Judge (AU), Peter Brooks, issued a Proposal for Decision in the above-referenced matters to
which Tax Division filed Exceptions on December 17, 2013. The Comptroller has considered
the Exceptions and the AU' s recommendation letter. The Comptroller has determined that the
AU' s Proposal for Decision, except for minor changes to correct typographical or clerical errors,
should be adopted without change and this Decision represents the ruling thereon.
The above Decision resulting in Petitioners' liabilities as set out in Attachments A, which
are incorporated by reference, is approved and adopted in all respects. The Decision becomes
final twenty days after the date Petitioners receive notice of this Decision, and the total sum of
the tax, penalty, and interest amounts is due and payable within twenty days thereafter. If such
sum is not paid within such time, an additional penalty of ten percent of the taxes due will
accrue, and interest will continue to accrue. If either party desires a rehearing, that party must
file a motion for rehearing, which must state the grounds for rehearing, no later than twenty days
after the date Petitioners receive notice of this Decision. Notice of this Decision is presumed to
occur on the third day after the date of this Decision.
Signed on this id'day of June 2014.
SUSAN COMBS
Texas Comptroller of Public Accounts
20
00-739
(Rev 9 -96/9)
TEXAS NOTIFICATION OF HEARINGS RESULTS - Attachment A STATEMENT DATE
June 17, 2014
Taxpayer Number Audit Period Hearing Number
xxxxxxxxxxx 2/1/07 THRU 6/30/09 106815
Type of Tax
Limited Sales, Excise, and Use
FIGURES WERE AMENDED
STATE LOCAL TOTAL
TAX $48,676.69 $15,576.62 $64,253.31
PENALTY 18,768.89 6,006.07 24,774.96
INTEREST THRU STATEMENT DATE 13.787.27 4 411.94 18,199.21
TOTAL DUE AS OF STATEMENT DATE $81,232.85 $25,994.63 $107,227.48
Additional 50% Penalty is waived per the Proposal for Decision. Interest will continue to accrue at $ 7.48 per day
after 6/17/14 through the date of payment.
A 10% penalty will be assessed on tax still due 43 days after the Order of the Comptroller (TEX. TAX CODE ANN.
SEC. 111.0081 (c).
For payment information call 1-800-531-5441, ext. 3-3900 toll free nationwide, or call 512/463-3900.
Make your check payable to STATE COMPTROLLER and mail to Comptroller of Public Accounts, 111 E. 1ylh
Street, Austin, Texas 78774-0100.
* Per annum interest rates are subject to change on January 151 of each year. For more interest rate
information, refer to Publication 98-304, call 1-877-447-2834, or refer to
http://www.window.state.tx.us/taxinfo/int rate.html
(Cut And Return Bottom Portion With Payment)
00-240
TEXAS NOTIFICATION OF HEARING RESULTS Hearing Number
- Attachment A 106815
STATEMENT DATE
June 17, 2014
Type of Tax
Limited Sales, Excise, and Use
Taxpayer Name & Mailing Address
SANADCO, INC.
xxxxxxxxxxxxxxxxxx
xxxxxxxxxx TX xxxxxxxxxx Amount of Your Payment
*Tcode *Taxpayer Number *Period *Audit *Type *State Amount *Type *Local Amount
26040 xxxxxxxxxxx 0906 001 02 81232.85 04 25994.63
Sanadco, Inc.
Arlington, TX
Taxpayer Number xxxxxxxxxxx
AMENDED AUDIT REPORT
The audit was amended in accordance with Hearing No. 106,815 and Proposal for
Decision dated December 12, 2013.
Tatiana Romanova
Auditor
Sanadco, Inc.
Arlington, TX
Taxpayer Number xxxxxxxxxxx
AMENDED INDEX TO WORKING PAPERS
DESCRIPTION PAGES
Adjustment Report 1
Tax Adjustment Summary 1
EXAM 20 ADDITIONAL TAXABLE SALES (0702 THRU 0804)-
AMENDED
Exam Summary - Detail 1
Detail Report 1
Exam 20A -Additional Taxable Sales Calculation - Amended 1
Exam 20B - Estimated Taxable Sales Calculation - Amended 1
EXAM 21 ADDITIONAL TAXABLE SALES (0805 THRU 0906) -
AMENDED
Exam Summary - Detail 1
Detail Report 1
Exam 21A - Additional Taxable Sales Calculation - Amended 1
DATE: 05/15/2014 STATE OF TEXAS PAGE 1
PGM : T73725 COMPTROLLER OF PUBLIC ACCOUNTS TYPE: 1
USER: ADRI455 ADJUSTMENT REPORT WI 5009996522172
TAX TYPE: SALES AND USE TAX
TAXPAYER NAME: SANADCO, INC. TAXPAYER NUMBER: 3-20141-4515-8
ADDRESS: xxxxxxxxxxxxxxxxx CALCULATION DATE: 05-15-2014
xxxxxxxxxx, TX PERIODS: 0702 THRU 0906
xxxxxxxxxx
CR. ADJUST:
FILING APPLIED/ ADJUSTED ADJUSTED ADJUSTED BALANCE
PERIOD TAX PENALTY INT/CR. INT TRANSFERRED TAX PENALTY INT/CR.INT DUE
0702 3'091.04 309.10 1,135.92 .00 3,091.04 309.10 1,135.92 4,536.06
0703 3,048.64 304.86 1,097.93 .00 3,048.64 304.86 1,097.93 4,451.43
0704 3,019.67 301.97 1,063.77 .00 3,019.67 301.97 1,063.77 4,385.41
0705 3,001.45 300 .14 1,033.78 .00 3,001.45 300.14 1,033.78 4,335.37
0706 3,014.72 301.47 1,016.19 .00 3,014.72 301.47 1,016.19 4,332.38
0707 3,009.04 300.90 990.64 .00 3,009.04 300.90 990.64 4,300.58
0708 3,025.21 302.52 972.20 .00 3,025.21 302.52 972.20 4,299.93
0709 3,036.76 303.68 951.28 .00 3,036.76 303.68 951.28 4,291.72
0710 3,053.75 305.37 933.72 .00 3,053.75 305.37 933.72 4,292.84
0711 3,073.06 307.31 920.23 .00 3,073.06 307.31 920.23 4,300.60
0712 3,103.42 310.34 905.54 .00 3,103.42 310.34 905.54 4,319.30
0801 489.51 48.95 139.74 .00 489.51 48.95 139.74 678.20
0802 671.04 67.10 187.33 .00 671.04 67.10 187.33 925.47
0803 1,001.98 100.20 272.49 .00 1,001.98 100.20 272.49 1,374.67
0804 1,060.02 106.00 280.86 .00 1,060.02 106.00 280.86 1,446.88
0805 1,687.79 168.78 436.17 .00 1,687.79 168.78 436.17 2,292.74
0806 1,571.03 157.10 395.01 .00 1,571.03 157.10 395.01 2,123.14
0807 1,904.37 190.44 465.52 .00 1,904.37 190.44 465.52 2,560.33
0808 1,684.29 168.43 399.58 .00 1,684.29 168.43 399.58 2,252.30
0809 1,658.84 165.88 383.07 .00 1,658.84 165.88 383.07 2,207.79
0810 1,359.23 135.92 307.04 .00 1,359.23 135.92 307.04 1,802.19
0811 1,289.17 128.92 286.56 .00 1,289.17 128.92 286.56 1,704.65
0812 1,794.21 179.42 392.34 .00 1,794.21 179.42 392.34 2,365.97
0901 1,108.03 110.80 238.55 .00 1,108.03 110.80 238.55 1,457.38
0902 1,419.06 141.91 300.89 .00 1,419.06 141.91 300.89 1,861.86
0903 1,776.94 177.69 370.36 .00 1,776.94 177.69 370.36 2,324.99
0904 3,803.69 380.37 779.06 .00 3,803.69 380.37 779.06 4,963.12
0905 3,426.40 342.64 689.02 .00 3,426.40 342.64 689.02 4,458.06
0906 3,070.95 307.09 607.53 .00 3.070.95 301.09 607.53 3,985.57
TOTAL 64,253.31 6,425.30 17,952.32 .00 64,253.31 6,425.30 17,952.32 88,630.93
ADDITIONAL PENALTY WAS ASSESSED ON 05-15-2014 18,349.66 18,349.66
YOUR NEW BALANCE: $ 64,253.31 24,774.96 17,952.32 106,980.59
ADDITIONAL INTEREST OF 7.481655 PER DAY ACCRUES ON A TAX BALANCE OF $ 64,253 .31 FROM 05-16-2014 THRU PAYMENT DATE
AMOUNT ACCRUING INTEREST AT VARIABLE RATE IS 64,253.31.*
* PER ANNUM INTEREST RATES ARE SUBJECT TO CHANGE ON JANUARY lST OF EACH YEAR. FOR INTEREST INFORMATION, REFER TO
PUBLICATION 98-304, OR CALL 1-877-447-2834, OR GO TO HTTP://WWW.WINDOW.STATE.TX.US/TAXINFO/INT_RATE.HTML
----------------------------------------------"' '" "' ' Tatiana Romanova - 04/08/2014
SANADCO, INC.
TP#: xxxxxxxxxxx
FORT WORTH, TX
TAX ADJUSTMENT SUMMARY
Page 1of 1
Total
State City Transit County SPD Combined
Exam Exam Name Exam Category
4,448.38 2,224.24 0.00 2,224.24 0.00 36,699.31
20 ADDITIONAL TAXABLE SALES (0702 Sales 27,802.45
THAU 0804) - AMENDED
3,339.88 1,669.94 0.00 1,669.94 0.00 27,554.00
21 ADDITIONAL TAXABLE SALES (0805 Sales 20,874.24
THAU 0906) - AMENDED
$ 7,788.26 $ 3,894.18 $ 0.00 $ 3,894.18 $ 0.00 $ 64,253.31
Total Tax Adjustment: $ 48,676.69
- -
Tax on Sales: 64,253.31
Total Tax Adjustment: $ 64,253.31
SANADCO, INC. Tatiana Romanova - 04/08/2014
TP#: xxxxxxxxxxx
FORT WORTH, TX
EXAM SUMMARY - DETAIL Page 1of 1
EXAM: 20 ADDITIONAL TAXABLE SALES (0702 THAU 0804) - AMENDED
Taxable Tax Rate Tax Adjustment (2)
Amount (1
STATE 27,802.45
0.06250
0.0625000 444,839.14
$ 27,802.45
TOTAL AUTHORITY: STATE
CITY
0.01000 4,448.38
0.0100000 444,839.14
$ 4,448.38
TOTAL AUTHORI TY: CITY
TRANSIT
0.00500 2,224.24
0.0050000 444,839.14
$ 2,224.24
TOTAL AUTHORITY: TRANSIT
SPD
0.00500 2,224.24
0.0050000 444,839.14
$ 2,224.24
TOTAL AUTHORITY: SPD
TOTAL TAX ON EXAM 20 $ 36,699.31
Total Tax Adjustment for each Authority forwarded to
Tax Adjustment Summary.
(1) Taxable Amounts for each tax rate are totaled and forwarded from the Detail Report.
(2) Tax Adjustment equals Taxable Amount times Tax Rate. Tax Adjustment amounts are reflected on a summary
level and may vary due to rounding. Actual Tax Adjustments are calculated and applied on a report period basis.
SANADCO, INC. Tatiana Romanova - 04/08/2014
FORT WORTH, TX TP#: xxxxxxxxxxx
DETAIL REPORT - EXAM 20 ADDITIONAL TAXABLE SALES (0702 THRU 0804) - AMENDED Page 1 of 1
ID Name Location Reference Description Comment Taxable Amt Tax Date S City County Transit SPD Comb FN
4059T- 1 UNKNOWN FORT WORTH EXAM 20A ADDITIONAL AP 122/HB11 37.467.09 3,091.03 02101/2007 Y FORTWO NONE SCCFOR MTAFOR NONE
TAXABLE SALES ESTIMATE
4059T- 2 UNKNOWN FORT WORTH E*M 20A ADDITIONAL AP 122/HB11 36,953.09 3,048.63 03101/2007 Y FORTWO NONE SCCFOR MTAFOA NONE
TAXABLE SALES ESTIMATE
4059T- 3 UNKNOWN FORT WORTH EXAM 20A ADDITIONAL AP 122/HB11 36,602.09 3,019.67 04/01/2007 Y FORTWO NONE SCCFOR MTAFOR NONE
TAXABLE SALES ESTIMATE
4059T- 4 UNKNOWN FORT WORTH EXAM 20A ADDITIONAL AP 122/HB11 36,381.09 3,001.44 05/01/2007 Y FORTWO NONE SCCFOR MTAFOR NONE
TAXABLE SALES ESTIMATE
4059T- 5 UNKNOWN FORT WORTH EXAM 20A ADDITIONAL AP 1221HB11 36,542.09 3,014.72 06/01/2007 Y FORTWO NONE SCCFOR MTAFOR NONE
TAXABLE SALES ESTIMATE
4059T- 6 UNKNOWN FORT WORTH EXAM 20A ADDITIONAL AP 122/HB11 36.473.09 3,009.03 07/01/2007 Y FORTWO NONE SCCFOR MTAFOR NONE
TAXABLE SALES ESTIMATE
4059T- 7 UNKNOWN FORT WORTH EXAM 20A ADDITIONAL AP 122/HB11 36,669.09 3,025.20 08/01/2007 Y FORTWO NONE SCCFOR MTAFOR NONE
TAXABLE SALES ESTIMATE
4059T- 8 UNKNOWN FORT WORTH EXAM 20A ADDITIONAL AP 1221HB11 36,809.09 3,036.75 09/01/2007 Y FORTWO NONE SCCFOR MTAFOR NONE
TAXABLE SALES ESTIMATE
4059T- 9 UNKNOWN FORT WORTH EXAM 20A ADDITIONAL AP 122/HB11 37,015.09 3,053.74 10/01/2007 Y FORTWO NONE SCCFOR MTAFOR NONE
TAXABLE SALES ESTIMATE
4059T- 10 UNKNOWN FORT WORTH EXAM 20A ADDITIONAL AP 122/HB11 37,249.09 3,073.05 11/01/2007 Y FORTWO NONE SCCFOR MTAFOR NONE
TAXABLE SALES ESTIMATE
4059T- 11 UNKNOWN FORT WORTH EXAM 20A ADDITIONAL AP 1221HB11 37,617.09 3,103.41 12101/2007 Y FORTWO NONE SCCFOR MTAFOR NONE
TAXABLE SALES ESTIMATE
4059T- 12 UNKNOWN FORT WORTH EXAM 20A ADDITIONAL AP 1221HB11 5,933.49 489.51 01/01/2008 Y FORTWO NONE SCCFOR MTAFOR NONE
TAXABLE SALES ESTIMATE
4059T- 13 UNKNOWN FORT WORTH EXAM 20A ADDITIONAL AP 122/HB11 8,133.68 671.03 02101/2008 Y FORTWO NONE SCCFOR MTAFOR NONE
TAXABLE SALES ESTIMATE
4059T- 14 UNKNOWN FORT WORTH EXAM 20A ADDITIONAL AP 122/HB11 12,145.15 1,001.97 03101/2008 Y FORTWO NONE SCCFOR MTAFOR NONE
TAXABLE SALES ESTIMATE
4059T- 15 UNKNOWN FORT WORTH EXAM 20A ADDITIONAL AP 122/HB11 12,848.83 1,060.03 04/01/2008 Y FORTWO NONE SCCFOR MTAFOR NONE
TAXABLE SALES ESTIMATE
Estimate Exam Summary Total $444,839.14 $36,699.21 Taxable Amount Forwarded to Exam Summary - Detail
Exam Comment:
THIS EXAM CONTAINS ADDITIONAL TAXABLE SALES FOR THE PERIODS FOR WHICH ASSESSMENT OF ADDITIONAL PENALTY WAS UPHELD IN ALJ'S DECISION. IT IS
SEPARATED FROM THE PERIODS FOR WHICH THE ADDITIONAL PENALTY WAS WAIVED.
Sanadco, Inc. Exa m 20A TNR
Fort Worth, TX TP # xxxxxxxxxxx
Additional Taxable Sales Calculation - AM ENDED Page 1of 1
A B c D E F
Average Estimated Estimated
Estimated Taxa ble Taxable Sales after Total Estimated Reported Taxable After BART Additional
Period Sales Allowa nce Taxable Sales Taxa ble Sales Reported Assessment Taxa ble Sales
From Exa m 20B Exam 20B A+B History C-D BART E-F
0702 40,434.09 40,434.09 2,967.00 37,467.09 37,467.09
0703 40,434.09 40,434.09 3,481.00 36,953.09 36,953.09
0704 40,434.09 40,434.09 3,832.00 36,602.09 36,602.09
0705 40,434.09 40,434.09 4,053.00 36,381.09 36,381.09
0706 40,434.09 40,434.09 3,892.00 36,542.09 36,542.09
0707 40,434.09 40,434.09 3,961.00 36,473.09 36,473.09
0708 40,434.09 40,434.09 3,765.00 36,669.09 36,669.09
0709 40,434.09 40,434.09 3,625.00 36,809.09 36,809.09
0710 40,434.09 40,434.09 3,419.00 37,015.09 37,015.09
0711 40,434.09 40,434.09 3,185.00 37,249.09 37,249.09
0712 40,434.09 40,434.09 2,817.00 37,617.09 37,617.09
0801 13,846.76 13,846.76 2,571.00 11,275.76 5,342.27 5,933.49
0802 18,958.98 18,958.98 2,431.00 16,527.98 8,394.30 8,133.68
0803 28,258.26 28,258.26 2,561.00 25,697.26 13,552.11 12,145.15
0804 29,942.78 29,942.78 3,589.00 26,353.78 13,504.95 12,848.83
Totals 444,774.99 91,006.78 535,781.77 50,149.00 485,632.77 40,793.63 444,839.14
Note: periods 0702 though 0804 are subject to the additiona l pena lty per AU's decision and th us are separated from the periods
on which additional penalty will be waived.
Sanadco, I nc. Exa m 20B TNR
Fort Worth, TX TP # xxxxxxxxxxx
Estimated Taxa ble Sales Ca lcu lation - AM EN DE D Page 1of 1
A B c D E F G H I J
Estimated Estimated
Alcohol Alochol Estimated Tobacco Tobacco Estimated Alcohol and Estimated Taxable Sales
Period Pu rchases Ma rkup Alcohol Sales Pu rchases Ma rku p Tobacco Sales Tobacco Sales Product Mix Taxa ble Sales after Allowance
AP 122 A8 ii AP 122 AP 122
From HB 11Reports Ma rkup AxB Reports Markup Dx E C+F Prod uct Mix G/ H I x .95
0801 5,092.00 124.07% 6,317.64 1,316.00 118.02% 1,553.14 7,870.79 54.00% 14,575.53 13,846.76
0802 6,247.00 124.07% 7,750.65 2,564.00 118.02% 3,026.03 10,776.69 54.00% 19,956.83 18,958.98
0803 7,648.00 124.07% 9,488.87 5,570.00 118.02% 6,573.71 16,062.59 54.00%
This text is long and has been trimmed here. Open the source document for the complete record.