Part 1.
COMPTROLLER OF PUBLIC ACCOUNTS
Chapter 3.
TAX ADMINISTRATION
Subchapter O. STATE SALES AND USE TAX
34 TAC §3.281
The Comptroller of Public Accounts proposes an amendment
to §3.281, concerning records required; information required. This section
is amended to implement Senate Bill 1123, 77th Legislature, 2001, which amends
Tax Code, §151.023 and §151.025. Subsections (a)(1) and (b) of the
proposed rule reflect the changes to Tax Code, §151.025, which describes
the kinds of records and information that certain persons must keep. Subsection
(f) of the proposed rule reflects the changes to Tax Code, §151.023,
which describes the authority of the comptroller to inspect, copy, photograph,
and require the production of records that certain persons hold. Subsection
(e) is added to clarify the length of time that records and resale or exemption
certificates must be retained. Finally, the amendments made to subsections
(a)(2), (c), and (d) are for the purpose of clarity.
James LeBas, Chief Revenue Estimator, has determined that for the first
five-year period the rule will be in effect, there will be no significant
fiscal impact on the state or units of local government.
Mr. LeBas also has determined that for each year of the first five years
the rule is in effect, the public benefit anticipated as a result of enforcing
the rule will be in providing taxpayers with additional information regarding
their tax responsibilities. This rule is adopted under the Tax Code, Title
2, and does not require a statement of fiscal implications for small businesses.
There is no significant anticipated economic cost to individuals who are required
to comply with the proposed rule.
Comments on the proposal may be submitted to Bryant K. Lomax, Manager,
Tax Policy Division, P.O. Box 13528, Austin, Texas 78711.
This amendment is proposed under Tax Code, §111.002, which
provides the comptroller with the authority to prescribe, adopt, and enforce
rules relating to the administration and enforcement of the provisions of
Tax Code, Title 2.
The amendment implements Tax Code, §151.023.
§3.281.Records Required; Information Required.
(a)
Persons who must keep records.
[
(1)
Sellers of taxable items and purchasers who store,
use, or consume taxable items in this state shall keep books, papers, and
records in the form that the comptroller requires.
[
(2)
Examples of persons who are required to
keep records include the following:
(A)
a person who sells, leases, or rents
[
(B)
a person who performs
[
(C)
a person who performs
[
(D)
a person who purchases
[
[
(b)
Records required.
(1)
Records must reflect the total
gross receipts from sales, rentals, leases, taxable services, and taxable
labor. Examples include, but are not limited to, receipts, shipping manifests,
invoices, and other pertinent papers from each rental, lease, taxable service,
and each taxable labor transaction that occurs during each reporting period.
(2)
Records must reflect total
purchases of taxable items. Examples include, but are not limited to, receipts,
shipping manifests, invoices, and other pertinent papers of all purchases
of taxable items from every source that are made during each reporting period.
(3)
Additional records must be
kept to substantiate any claimed deductions or exclusions authorized by law.
Examples include, but are not limited to, receipts, shipping manifests, invoices,
exemption certificates, resale certificates, and other pertinent papers that
substantiate each claimed deduction or exclusion.
(4)
Records may be written, kept
on microfilm, stored on data processing equipment, or may be in any form that
the comptroller may readily examine.
(c)
[
(1)
estimate the person's tax liability
based on any available information that includes, but is not limited to, records
of suppliers;
(2)
use a sample and projection
auditing method to calculate the person's tax liability. For further information,
see §3.282 of this title (relating to Auditing Taxpayer Records);
(3)
suspend the person's permit;
(4)
file criminal charges against
a person who intentionally and knowingly alters or fails to keep records.
For further information, see §3.305 of this title (relating to Criminal
Offenses and Penalties); and
(5)
take other action as authorized
by law to enforce compliance with the Tax Code.
(d)
[
(1)
The comptroller may require any person subject to the Limited
Sales and Use Tax Act to furnish information necessary to:
(A)
identify any person applying for a permit or any person
required to file a return;
(B)
determine the amount of bond required to commence or continue
business;
(C)
determine possible successor liability; and
(D)
determine the amount of tax the person is required to remit.
(2)
The information required may include, but is not limited
to, the following:
(A)
name of the actual owner of the business;
(B)
name of each partner in a partnership;
(C)
names of officers and directors of corporations and other
organizations;
(D)
all trade names under which the owner operates;
(E)
mailing address and actual locations of all business outlets;
(F)
license numbers, title numbers, and other identification
of business vehicles;
(G)
identification numbers assigned by other governmental agencies,
including social security numbers, federal employers identification numbers,
and drivers license numbers;
(H)
names of suppliers, banks, and other persons with whom
the taxpayer transacts business;
(I)
names and last known addresses of former owners of the
business.
(e)
Retention. A person who is
required to keep records under subsection (a) of this section must keep those
records for a minimum of four years from the date on which the record is made,
unless the comptroller authorizes in writing a shorter retention period. A
person must keep exemption and resale certificates for a minimum of four years
following the completion of the last sale that is covered by the certificate.
(f)
The comptroller or the comptroller's
authorized representative may examine, copy, and photograph any records of
any person who is required to keep records under subsection (a) of this section,
to verify the accuracy of any return or to determine any tax liability. However,
during an audit, an auditor for the comptroller should obtain permission from
a taxpayer to copy or photograph records that are proprietary in nature, unless
the comptroller reasonably believes that the taxpayer may have committed fraud
or taken action to evade taxes. If the taxpayer does not grant the auditor
permission to copy or photograph records, and the comptroller believes that
the records are necessary to determine the tax liability of the taxpayer,
then the comptroller may obtain records through other means under authority
granted by Tax Code, §111.0043.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on March 13, 2002.
TRD-200201560
Martin Cherry
Deputy General Counsel for Taxation
Comptroller of Public Accounts
Earliest possible date of adoption: April 28, 2002
For further information, please call: (512) 463-3699
34 TAC §3.282
The Comptroller of Public Accounts proposes an amendment
to §3.282, concerning auditing taxpayer records. This amendment implements
Senate Bill 1037, 77th Legislature, 2001. Senate Bill 1037 adds Tax Code, §151.0232,
that allows the comptroller to establish by rule a program in which a taxpayer
may hire a certified public accountant (CPA) who is not employed by the comptroller
to perform an audit to determine a taxpayer's liability for sales and use
tax. The proposed section defines the CPA Audit Program in subsection (a)(1)
and provides a reference in subsection (g) to a new rule regarding the CPA
Audit Program. The other amendments to the section are for the purpose of
clarity.
James LeBas, Chief Revenue Estimator, has determined that for the first
five-year period the rule will be in effect, there will be no significant
fiscal impact on the state or units of local government.
Mr. LeBas also has determined that for each year of the first five years
the rule is in effect, the public benefit anticipated as a result of enforcing
the rule will be in providing taxpayers with additional information regarding
their tax responsibilities. This rule is adopted under the Tax Code, Title
2, and does not require a statement of fiscal implications for small businesses.
There is no significant anticipated economic cost to individuals who are required
to comply with the proposed rule.
Comments on the proposal may be submitted to Bryant K. Lomax, Manager,
Tax Policy Division, P.O. Box 13528, Austin, Texas 78711.
This amendment is proposed under Tax Code, §111.002, which
provides the comptroller with the authority to prescribe, adopt, and enforce
rules relating to the administration and enforcement of the provisions of
Tax Code, Title 2.
The amendment implements Tax Code, §151.0232.
§3.282.Auditing Taxpayer Records.
(a)
The following words and terms, when used in this section,
shall have the following meanings, unless the context clearly indicates otherwise.
(1)
Certified Public Accountant (CPA)
Audit Program--A program that the comptroller creates under Tax Code, §151.0232,
in which a taxpayer may hire a certified public accountant who is not employed
by the comptroller to perform a sales and use tax audit to determine a taxpayer's
liability under Tax Code, Chapter 151.
(2)
[
(3)
[
(b)
The comptroller or an authorized representative of
the comptroller may audit a taxpayer's accounts and records
[
(c)
The comptroller may use a detailed auditing procedure or
a sample and projection auditing method to determine tax liability. Sampling
procedure may include manual sampling techniques and computer-assisted audit
techniques, whichever produce the most accurate results in the most efficient
manner.
(d)
A sample and projection auditing method is appropriate
if:
(1)
the taxpayer's records are so detailed, complex, or voluminous
that an audit of all detailed records would be unreasonable or impractical;
(2)
the taxpayer's records are inadequate or insufficient,
so that a competent audit for the period in question is not otherwise possible;
or
(3)
the cost of an audit of all detailed records to the taxpayer
or to the state will be unreasonable in relation to the benefits derived,
and sampling procedures will produce a reasonable result.
(e)
Before using a sample technique to establish a tax liability,
the comptroller must notify the taxpayer in writing of the sampling procedure
to be used.
(f)
The comptroller may authorize taxpayers that meet certain
requirements to perform managed audits.
(1)
A taxpayer who wishes to participate in a managed audit
must request authorization from the comptroller's office to conduct a managed
audit under this section. Authorization will only be granted as part of a
written agreement between the taxpayer and the comptroller's office. The agreement
must:
(A)
be signed by an authorized representative of the comptroller
and the taxpayer; and
(B)
specify the period to be audited and the procedure to be
followed.
(2)
In determining whether to authorize a managed audit, the
comptroller may consider, in addition to other factors the comptroller considers
relevant:
(A)
the taxpayer's history of tax compliance, including taxpayer:
(i)
timely filing of all reports;
(ii)
timely payment of all taxes and fees due the state;
(iii)
prior audit history;
(iv)
delinquency in other taxes;
(v)
correction of problems identified;
(vi)
collection of tax that was not remitted; and
(vii)
whether a penalty waiver had been denied on prior occasions
and the reason for denial.
(B)
the amount of time and resources the taxpayer has available
to dedicate to the audit;
(C)
the extent, availability, and completeness of the taxpayer's
records for the period to be covered by the managed audit;
(D)
the taxpayer's ability to pay any expected liability; and
(E)
the size and sophistication of the taxpayer.
(3)
The decision to authorize or not authorize a managed audit
rests solely with the comptroller.
(4)
A managed audit may be limited to certain categories of
liability under Tax Code, Chapter 151, including tax on:
(A)
sales of one or more types of taxable items;
(B)
purchases of assets;
(C)
purchases of expense items;
(D)
purchases under a direct payment permit; or
(E)
any other category specified in an agreement authorized
by this section.
(5)
Before the audit is finalized, the comptroller may examine
records that the comptroller determines are necessary to verify the results.
(6)
Unless the audit or information reviewed by the comptroller
under this subsection discloses fraud or willful evasion of the tax, the comptroller
may not assess a penalty and may waive all or part of the interest that would
otherwise accrue on any amount identified to be due in a managed audit. This
subsection does not apply to any amount collected by the taxpayer that was
a tax or represented to be a tax but was not remitted to this state.
(7)
Except as provided by applicable law, the taxpayer is entitled
to a refund of any tax overpayment disclosed by a managed audit.
(g)
The comptroller may authorize taxpayers
who meet certain requirements to participate in the CPA Audit Program. For
more information, see §3.368 of this title (relating to Certified Public
Accountant (CPA) Audit Program).
(h)
(1)
A holder of a direct payment permit may request authorization
from the comptroller to use a percentage-based reporting method. The authorized
percentage must be used for a three-year period specified by the comptroller,
unless the authorization is revoked by the comptroller.
(2)
The authorization to report under this subsection may be
revoked if the comptroller determines that the percentage being used is no
longer representative because of a change in the taxpayer's business operations
or in law, including a change in the interpretation of a law or rule. For
example, two decisions from the Court of Appeals changed the list of items
that may be purchased tax free by manufacturers. Subsequently the legislature
passed two bills that significantly changed the tax responsibilities of manufacturers.
Each of these changes affected a manufacturer's percentage used to report
taxable purchases.
(3)
The decision of the comptroller to deny or revoke authorization
under this section is not subject to appeal.
(4)
When authorizing reporting under this section, the comptroller
may categorize transactions by dollar amount, by type of taxable item purchased,
by the purpose for which the taxable item will be used, or by other standards
appropriate to the taxpayer's operations.
(i)
[
(1)
The sampling method must be one that has been approved
by the comptroller.
(2)
The taxpayer must record the method by which the projection
and computation were performed and must make available, on request by the
comptroller, information explaining the method employed and the records on
which the projection and computation were based.
(j)
[
(1)
A taxpayer may take a credit by amending the sales tax
return for the period in which the tax was originally paid.
(2)
If a taxpayer chooses to take the credit by claiming a
refund, the claim must identify the period in which the tax was originally
paid.
(3)
A taxpayer
who claims
[
(4)
Interest will be paid on tax amounts found to be erroneously
paid for reports due on or after January 1, 2000, whether claimed on a request
for refund or claimed in an audit. See also §3.325 of this title
(relating to Refunds, Interest, and Payments Under Protest)
and Tax
Code, §111.064.
(k)
[
(l)
[
(1)
Resale and exemption certificates should be available at
the time of the audit. All certificates obtained on or after the date the
comptroller's auditor actually begins work on the audit at the seller's place
of business or on the seller's records after the entrance conference are subject
to verification. All incomplete certificates will be disallowed regardless
of when they were obtained.
(2)
The seller has 60 days from the date written notice is
received by the seller from the comptroller in which to deliver the certificates
to the comptroller. Written notice shall be given by the comptroller upon
the filing of a petition for redetermination or claim for refund. For the
purposes of this section, written notice given by mail is presumed to have
been received by the seller within three business days from the date of deposit
in the custody of the United States Postal Service. The seller may overcome
the presumption by submitting proof from the United States Postal Service
or by other competent evidence showing a later delivery date. If the seller
is not in possession of the certificates within 60 days from the date written
notice is given by the comptroller that certificates pertaining to periods
or transactions specified in the notice are required, any deductions claimed
which require resale or exemption certificates will be disallowed. Exemptions
claimed by those certificates acquired during this 60-day period will be subject
to independent verification by the comptroller before the deductions will
be allowed. Certificates delivered after the 60-day period will not be accepted.
See §3.285 of this title (relating to Sales for Resale; Resale Certificate); §3.287
of this title (relating to Exemption Certificates); and §3.288 of this
title (relating to Direct Payment Procedures and Qualifications).
(3)
When a 60-day letter has been received, a resale or exemption
certificate is the only acceptable proof that a taxable item was purchased
for resale or qualifies for exemption.
(m)
[
(n)
[
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on March 13, 2002.
TRD-200201559
Martin Cherry
Deputy General Counsel for Taxation
Comptroller of Public Accounts
Earliest possible date of adoption: April 28, 2002
For further information, please call: (512) 463-3699
Subchapter C. APPRAISAL DISTRICT ADMINISTRATION
Records
required.
]
Every person
engaged in:
]
making
sales, leases, or rentals of
] tangible personal property;
performing
]
taxable labor, such as fabricating, processing, and producing tangible personal
property; [
or
]
performing
]
taxable services
that are listed in Tax Code, §151.0101
[
, such as amusement services, cable television services, personal services,
motor vehicle parking and storage services, and the repair, remodeling, maintenance,
and restoration of certain tangible personal property
]; or
purchasing
]
taxable items[
, must keep records in such form as may readily be examined
by the comptroller or his authorized agents or employees
].
(2)
The records must reflect the
total gross receipts from sales, rentals, leases, taxable services, and taxable
labor. Purchasers' records must reflect the total purchases of taxable items.
Additional records must be kept to substantiate any claimed deductions or
exclusions authorized by law. When records regarding the amount and applicability
of any deductions or exclusions from the measure of the tax, or evidence of
compliance with optional reporting methods, are insufficient, the comptroller
may estimate deductions or exclusions based on any records available or disallow
all deductions and exclusions.]
(b)
] Failure to keep accurate records.
If
a person who is required to keep records under subsection (a) of this
section
[
any person
] fails to keep accurate records of gross
receipts
,
[
and
] gross purchases,
deductions, and
exclusions,
the comptroller
may take actions that include, but
are not limited to, the following:
[
will estimate the tax liability
based on any information available, including, but not limited to, records
of suppliers. In addition, the comptroller may suspend the permit of the taxpayer,
file misdemeanor charges, or take other action as authorized by statute to
enforce compliance. Records may be written, kept on microfilm, or stored on
data processing equipment.
]
(c)
] Information required.
(1)
] Managed audit--A taxpayer self-review
and analysis of invoices, checks, accounting records, or other documents or
information to determine a taxpayer's liability for tax under Tax Code, Chapter
151, as allowed under a written agreement with the comptroller authorizing
a managed audit as described in subsection (f) of this section.
(2)
] Percentage-based reporting
method--A method by which a direct payment permit holder may be authorized
to categorize purchase transactions according to standards specified in a
letter of authorization issued under the provisions set out in subsection
(h)
[
(g)
] of this section, reviews an agreed-on sample of
invoices in those categories to determine the percentage of taxable transactions,
and uses that percentage to calculate the amount of tax to be reported.
Taxpayer
accounts may be audited by authorized representatives of the comptroller
]
at any time during regular business hours at the discretion of the comptroller
or the comptroller's authorized agent or representative.
[(g)]
The comptroller may authorize
direct payment permit holders that meet certain requirements to report tax
on purchases using a percentage-based reporting method.
(h)
] A taxpayer
who holds
[
holding
] a permit issued under Tax Code, Chapter 151, who has paid Texas
tax in error on purchases of taxable items, whether sales tax was remitted
directly to this state or to a retailer holding a permit under Tax Code, Chapter
151, may compute the amount of overpayment by use of a projection based on
a sampling of transactions.
(i)
] A taxpayer
who holds
[
holding
] a permit issued under Tax Code, Chapter 151, may obtain reimbursement
for amounts determined to have been overpaid by taking a credit on one or
more sales tax returns or by filing a claim for refund with the comptroller
within the limitation period specified by Tax Code, Chapter 111. See §3.325
of this title, (relating to Refunds, Interest, and Payments Under Protest).
claiming
] a
credit or
submits
[
submitting
] a refund request for local
taxes must identify the period in which the local tax was paid and the local
taxing jurisdiction to which the local tax was reported.
(j)
] If records are inadequate to
accurately reflect the business operations of the taxpayer, the auditor will
determine the best information available and base the audit report on that
information. See §3.281 of this title (relating to Records Required;
Information Required) for information on proper records.
(k)
] Resale and exemption certificates.
(l)
] Both sellers and purchasers
are subject to audit and assessment of tax on any transactions on which tax
was due but has not been paid.
(m)
] The comptroller may proceed
against either the seller or purchaser, or against both, until the tax, penalty,
and interest have been paid.
Chapter 9.
PROPERTY TAX ADMINISTRATION