Texas Tax Roundup | August 2022

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TL Fahring focuses on helping individuals and businesses with a wide variety of matters involving state, federal, and international taxation. He has represented clients in all stages of federal and state tax disputes, including audits, administrative appeals, litigation, and collection matters. Mr. Fahring also has used his tax knowledge to assist clients in planning complex domestic and international transactions, including advising as to potential reporting and withholding requirements.

Mr. Fahring received his J.D. from the University of Texas School of Law, where he graduated with high honors and was inducted into the Order of the Coif and Chancellors honors societies. After clerking for a year at the Texas Eleventh Court of Appeals, he attended New York University School of Law, where he received an LL.M. (Master of Laws) in Taxation and served as a student editor on the Tax Law Review.

Texas Tax Roundup | August 2022

Howdy folks, and welcome back to another action-packed edition of the Texas Tax Roundup! Let’s see what shocking developments in the realm of Texas tax that the month of August had in store!

Court Cases

Franchise Tax


Conagra Brands, Inc. v. Hegar, No. 03-21-00111-CV (Tex. App.—Austin Aug 24, 2022, no pet. h.)—The Third Court of Appeals held that a taxpayer could not include gross receipts from certain securities in its apportionment-factor denominator for purposes of calculating its Texas franchise tax.[1]

Sales Tax

Assignments of Refund

Piazza v. Hegar, No. 03-19-00246-CV (Tex. App.—Austin August 30, 2022, no pet. h.)—In the latest of a series of cases and administrative decisions stretching back over a decade, the Third Court of Appeals held that customers couldn’t obtain refunds of sales tax that they had paid to Best Buy. During the periods in question, Best Buy had a rebate program where Best Buy would partially refund the retail price of certain goods but not the sales tax that the customers had paid on the full retail price. Best Buy had remitted these taxes to the Comptroller. Certain customers brought a tax refund suit against the Comptroller. The Comptroller filed a plea to the jurisdiction, which the District Court granted. The Court of Appeals agreed with the Comptroller that the assignment of right to refund that the customers received from Best Buy in 2017 was invalid because this right had already been assigned in 2008 (even though the Court later determined that this 2008 assignment, which assigned the right to refund to a class rather than specific individual taxpayers, was insufficient to prosecute a refund claim).[2]

Notable Additions to the State Tax Automated Research (“STAR”) System

Miscellaneous Gross Receipts Tax

Guidance on HB 1520

STAR Accession No. 202207013L (July 22, 2022)—In this private letter ruling, the Comptroller ruled the following:

International Fuels Tax Agreement

Books and Records

Comptroller’s Decision No. 117,328 (2022)—The administrative law judge found that when a taxpayer that owned approximately 16 trucks and was a licensee under the International Fuels Tax Agreement (“ITFA”) failed to maintain required trip sheets or monthly summaries, didn’t keep fuel receipts, and reported miles traveled that were inconsistent with those recorded in its own books, the Comptroller didn’t have to rely on these records and could make an assessment of the motor fuels taxes due based on the best information available.

Mixed Beverage Taxes

Depletion Analysis

Comptroller’s Decision Nos. 116,118 and 116,119 (2022)—The administrative law judge found that statements made by a taxpayer operating a bar regarding the size of an average pour wasn’t the best evidence to determine the average pour for mixed beverage tax purposes when the auditor used an upward-adjusted average of four unannounced pours tests.[3] The ALJ also ruled that the taxpayer’s monthly sales summaries were insufficient proof that it was entitled to an additional allowance for complimentary drinks. The ALJ further rejected the taxpayer’s arguments that it was entitled to penalty waiver (the taxpayer had 10 late returns, and thus didn’t show reasonable diligence to comply with the tax laws during the audit period) or interest waiver.[4]

Comptroller’s Decision Nos. 117,275 and 117,276 (2022)—The administrative law judge determined that a taxpayer that operated a bar failed to provide evidence showing that the auditor’s average pour for distilled spirits was inaccurate because it did not account for multi-pour specialty drinks or that the prices for distilled spirits and beer were overstated.

Comptroller’s Decision Nos. 117,220 and 117,221 (2022)—The administrative law judge determined that a taxpayer that operated a bar had not shown that the average price for beer used in the auditor’s depletion analysis was inaccurate. The ALJ also found that the imposition of the 50% fraud penalty against the taxpayer wasn’t in error when the taxpayer had an error rate of 60% and had purchased almost $100,000 in beer inventory that wasn’t reported to the Comptroller.[5]

Sales and Use Tax


Comptroller’s Decision No. 115,436 (2022)—The administrative law judge found that an export packer failed to prove by clear and convincing evidence that its purchases of packaging supplies used to ship products to customers were exempt as tangible personal property exported from the United States.[6] Specifically, the administrative law judge determined that the taxpayer’s bills of lading did not identify the buyer, seller, consignor, consignee, or delivery location, and there was no documentation that identified which packaging supplies were used by taxpayer in warehousing and intrastate shipping services.

See y’all next time!



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[1] A taxable entity’s franchise tax is calculated by multiplying the entity’s taxable margin by the applicable franchise tax rate. Tex. Tax Code §§ 171.001 (Tax Imposed), 171.002 (Rates; Computation of Tax). Taxable margin is determined by multiplying the entity’s total margin by an apportionment factor designed to limit the franchise tax to revenue attributable to business conducted in Texas. Tex. Tax Code § 171.101 (Determination of Taxable Margin). Margin is the lesser of an amount equal to 1) 70% of total revenue, 2) total revenue minus $1 million, 3) total revenue minus cost of goods sold, or 4) total revenue minus compensation. Id. The apportionment-factor numerator consists of receipts from business conducted in Texas, and its denominator consists of receipts from business conducted anywhere. Tex. Tax Code § 171.106(a) (Apportionment of Margin to this State).

The apportionment-factor denominator includes the entity’s receipts from each sale of tangible personal property, each service, rental or royalty, and other business. Tex. Tax Code § 171.105 (Determination of Gross Receipts from Entire Business for Margin). However, receipts that are excluded by statute from the taxable entity’s total revenue are not included in the taxpayer’s gross receipts for purposes of calculating its apportionment factor. Tex. Tax Code § 171.1055(a) (Exclusion of Certain Receipts from Margin Apportionment). For example, the tax basis of securities and loans sold are excluded from total revenue. Tex. Tax Code § 171.1011(g-2) (Determination of Total Revenue from Entire Business). Thus, only the net proceeds from the sale of securities are generally included in an entity’s total revenue and apportionment factor. However, if a security is treated as inventory of the seller for federal income tax purposes, the gross proceeds from the sale of the security are included in gross proceeds for purposes of franchise tax apportionment. Tex. Tax Code § 171.106(f).


[2] See Tex. Tax Code § 111.104(b) (Refunds) (“A tax refund claim may be filed with the comptroller only by the person who directly paid the tax to this state or by the person’s attorney, assignee, or other successor.”); 34 Tex. Admin. Code § 3.325(a) (Refunds and Payments Under Protest) (“A person who does not have a sales and use tax permit and who has paid tax in error to a permitted seller may request a refund only from the permitted seller to whom the tax was paid. The permitted seller who refunds tax to a purchaser may claim a refund . . . . A permitted seller may assign its right to refund to the purchaser, who may then request a refund directly from the comptroller . . . .”).


[3] The Comptroller generally uses a depletion analysis in mixed beverage tax audits. In a nutshell, under a depletion analysis the auditor takes information that it has received from certain alcohol manufacturers, wholesalers, and distributors about a particular mixed beverage permittee’s alcohol purchases during the audit period (which information is required to be reported on a monthly basis under Tex. Tax Code § 151.462 (Reports by Brewers, Brewpubs, Wholesalers, and Distributors)). The auditor also looks at the licensee’s opening inventory and closing inventory for the audit period. The auditor then determines the number of services per container used by figuring out the permittee’s average pour size per alcohol type. It’s presumed that all alcohol purchased by the permittee during the audit period was sold unless the permittee can show that it remains in inventory, was used for a complimentary drink, spilled, or subject to theft. See 34 Tex. Admin. Code §§ 3.1001(o) (Mixed Beverage Gross Receipts Tax), 3.1002(c)(4) (Mixed Beverage Sales Tax); see also Mixed Beverage Gross Receipts Tax Audit Manual (April 2017).


[4] See Tex. Tax Code § 111.103 (Settlement of Penalty and Interest Only) (giving the Comptroller discretionary authority to settle a claim for a tax penalty or interest); 34 Tex. Admin. Code § 3.5 (Waiver of Penalty or Interest).


[5] For the fraud penalty, see Tex. Tax Code § 111.061(b) (Penalty on Delinquent Tax or Tax Reports).


[6] See Tex. Tax Code § 151.307 (Exemptions Required by Prevailing Law); 34 Tex. Admin. Code §§ 1.26(c) (Burden and Standard of Proof in Contested Cases), 3.314(i)(2) (Wrapping, Packing, Packaging Supplies, Containers, Labels, Tags, Export Packers, and Stevedoring Materials and Supplies).