Texas Comptroller of Public Accounts STAR System
200504187H
HEARING NO. 42,911
RE: **************
TAXPAYER NO.: **************
AUDIT OFFICE: **************
AUDIT PERIOD: DECEMBER 1, 1997 THROUGH JUNE 30, 2001
MOTOR FUELS (GASOLINE) TAX/RFD
BEFORE THE COMPTROLLER
OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS
ELEANOR H. KIM
Chief Administrative Law Judge
VICTOR JOHN SIMONDS
Representing Tax Division
**************
Representing Claimant
HEARING NO. 42,912
RE: **************
TAXPAYER NO.: **************
AUDIT OFFICE: **************
AUDIT PERIOD: DECEMBER 1, 1997 THROUGH JUNE 30, 2001
MOTOR FUELS (DIESEL) TAX/RFD
BEFORE THE COMPTROLLER
OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS
ELEANOR H. KIM
Chief Administrative Law Judge
VICTOR JOHN SIMONDS
Representing Tax Division
**************
Representing Claimant
COMPTROLLER'S DECISION
PRELIMINARY DISCUSSION:
At Claimant’s request, this decision is based upon the written submissions of
the parties.
Official notice has been taken of all records of the Comptroller's office that
pertain to the Claimant and the issues involved in the case. Unless otherwise
indicated, all Section references are to Title 2, Texas Tax Code Ann. (Vernon
2002). References to Rules are to sections of Title 34, Texas Administrative
Code.
On February 3, 2005, Claimant filed Exceptions to the Proposed Comptroller’s
Decision issued on January 19, 2005. The Tax Division filed its Response to
these Exceptions on February 8, 2005. The Comptroller has consider Claimant’s
Exceptions and the Tax Division’s Response, and this Comptroller’s Decision
represents the ruling thereon.
CLAIMANT'S CONTENTIONS:
1. Claimant contends that it is entitled to refunds of taxes paid on gasoline
and diesel fuel lost by drive-offs.
2. Claimant contends that it is entitled to refund of taxes paid on gasoline
based on bad debts incurred as a result of customers’ non-sufficient funds
checks and customers’ failure to pay proprietary credit card bills.
3. Claimant contends that it is entitled to refund of taxes paid on reefer
fuel (diesel “off-road” fuel).
FINDINGS OF FACT:
Claimant filed proposed findings of fact, and the findings of fact set forth
below represent the ruling thereon.
1. Claimant, **************, operates service stations/retail stores selling
fuel (e.g. gasoline, diesel, and reefer fuel), snack foods, delicatessen items,
lottery tickets, and some alcoholic beverages.
2. On April 1, 2002, Claimant requested refunds of taxes paid on sales of
gasoline and diesel fuel to end-users. More specifically, Claimant’s refund
requests related to tax-paid fuel purchases delivered to Claimant’s retail
locations between December 1, 1997 through June 30, 2001.
3. On May 28, 2002, the Comptroller’s office requested that Claimant provide
the following information necessary to verify the refund claims: (a)
specification of tax type and refund amount associated therewith, (b) signed
amended returns, (c) supporting schedules detailing credit gallons claimed by
month, and (d) supporting documentation including purchase invoices, daily logs
reflecting beginning and ending inventory, daily logs of actual gallons sold
per meter readings, and a monthly summary of gallons sold per location.
Claimant did not respond to this correspondence so the Comptroller’s office
denied the requested refunds by letter dated June 28, 2002. Claimant’s
requests for hearings on the denials resulted in the docketing of the
above-captioned proceedings.
4. The Comptroller had performed a motor fuel tax compliance audit for the
same period, and it resulted in no tax due.
5. Claimant has retail outlets throughout the country. Presently, there are
approximately 50 stores in Texas, and during the Refund Period, it operated
approximately 60 retail outlets in Texas.
6. Claimant is owned by ************** (“CORPORATION”), a major U.S. refining
and marketing company. In 2001, CORPORATION purchased ************** (“COMPANY
A”), and as a result of that buy out, CORPORATION became Claimant’s parent
company. CORPORATION owns numerous other companies as well.
7. Since CORPORATION’s acquisition in 2001, sales from Claimant’s stores are
captured into a centralized database, which operates on a retail accounting
software program known as ************** (“COMPANY B”). When a customer makes
purchases at a store, the cashier rings up the sales by category (e.g., fuel,
merchandise, food, etc.), and the resulting electronic data from the cash
registers is transmitted to a centralized database during close out, which
occurs every 24 hours. At the end of the day, Claimant’s managers at the
stores will close out the registers and COMPANY B information is then moved
into the “backroom,” another type of accounting software utilized by Claimant
that organized the data prior to releasing it to CORPORATION’s corporate
office. While the information is in the backroom, Claimant’s managers review
the information, entered deposit amounts and electronic credit card amounts,
reconciled cash shortages with invoices, and reviewed fuel inventories (through
stick readings) at the beginning and ending of the shift. Once this process is
complete, the data is sent to CORPORATION’s corporate office.
8. A portion of Claimant’s gasoline and diesel fuel refund claims is related
to bad debt deductions for “drive-offs” during the periods March 1, 2001,
through June 6, 2001. A “drive-off” is an incident in which a person drives
into a gas station, pumps fuel into his/her vehicle, and drives away without
paying for the fuel.
9. Originally, Claimant sought a refund of taxes paid on drive-offs for the
entire Refund Period. In its Supplemental Reply dated December 9, 2003,
Claimant agreed to drop its refund claim based on drive-offs for the period of
December 1, 1997 through February 28, 2001. The record documentary evidence
supporting Claimant’s requested bad debt deductions for drive-offs during the
periods March 1, 2001, through June 6, 2001 includes: (a) location of Texas
store, (b) gallons lost, and (c) dollar amount associated with gallons lost.
10. In computing the bad debt credits for drive-offs, Claimant took the total
gallons lost for each month and divided it by the total number of gallons for
gasoline and diesel fuel (combined) sold for that corresponding month to
compute a drive-off percentage. This percentage then was applied to total
gasoline gallons and total diesel fuel gallons for that month to compute
gasoline drive-off gallons and diesel drive-off gallons. For example, for
March 2001, Claimant had actual drive-off gallons of 13,303, total gasoline
gallons of 6,730,118, and total diesel gallons of 4,287,983. A drive-off
percentage of 0.1207% was computed for March 2001 by dividing 13,303 by
11,018,101 (i.e., sum of 6,730,118 and 4,287,983). The percentage was applied
to 6,730,118 gasoline gallons to compute gas drive gallons of 8,126 and was
also applied to 4,287,983 diesel gallons to compute diesel drive-off gallons of
5,177.
11. When a drive-off occurs, Claimant’s store cashier is supposed to press the
“drive-off key” on the cash register, which enables the COMPANY B system to
record the number of gallons stolen, the date and time of day, and the pump
number. The employee is also supposed to manually enter the incident in a
“drive-off log,” which lists the store number where the theft occurred, the
employee’s name, the date and time of the incident, the dollar amount
associated with the theft, the pump number, the make of car and its vehicle
license tag number, the employee’s signature and the store manager’s
verification. The managers and district managers used the manual “drive-off
logs” to compare the totals captured by the cashiers in the automated system.
The stores maintain the drive-off logs for approximately 6 months. No
drive-off logs exist for the pertinent period of the refund claim.
12. In its pleadings, Claimant stated that it accepted checks that were
dishonored by customers’ banks for the period January 1998 through June 2001,
but several documents submitted in support of the refund claim indicate the
refund related to non-sufficient fund checks covers January 1998 through
December 2000.
13. Since at least February 1997, Claimant contracted with COMPANY C, which
was later acquired by and became part of ************** (COMPANY D) to collect
the bad checks. Claimant obtained a list from COMPANY D showing the debtor’s
name, the date on the check, the check amount, and the identifying store number
for the period June 1, 2000 through June 30, 2001.
14. Claimant submitted a schedule showing the total NSF amount for each month
for January 1998 through December 2000. A bad debt allowance percentage of 16%
was applied to each month’s total NSF amount to compute the amount attributed
to fuel, which in turn was converted into the number of gallons of gasoline
that the amount represented. For example, for January 1998, the summary
reflects that Claimant’s total NSF amount was $**************. Claimant
multiplied 16% to $************** to compute total fuel NSF to be
$**************. Using 20 cents as a divider, Claimant converted the amount to
1,271 gallons for January 1998.
15. The bad debt allowance percentage of 16% in Finding of Fact No. 14 was
used based on a document titled “Bad Debt Pro Rata Calculation (Partial payment
on invoice that is written off as bad debt.” The document was transmitted to a
CORPORATION’s employee via e-mail from Sonya Bynes, a Comptroller employee with
Revenue Accounting Division. The document contains the following information:
Total Invoice $**************; Fuel Charge $**************; Texas Fuel Tax
$************** and Money Received $**************. The document calculates
two percentages using the following formula: (a) Fuel Charge/ Invoice Total =
$**************/$************** = 65% and (b) Fuel Tax/Invoice Total =
$**************/$************** = 16%. These percentages were used to compute
“prorata split” as follows: (a) Fuel Charge: Dollar Received X Fuel Charge
Percentage = $**************X 65% = $************** (paid toward fuel); (b)
Fuel Tax: Dollar Received X Fuel Charge Percentage = $************** X 16% =
$************** (paid toward tax). Using the examples noted above, the
document provides that $************** should be subtracted from
$************** to compute the amount of tax not received (i.e.,
$**************). This amount was then converted into gallons by dividing by
20-cent tax rate.
16. In the Supplement to its Final Reply dated September 15, 2004, Claimant
offered an alternative percentage of 12% that it claims should be attributed to
bad debt. Claimant calculated this percentage by taking the sum of total
gallons of diesel fuel and gasoline sold by all of Claimant’s active gas
stations during 2003 and multiplying those gallons by the tax rate of 20 cents
to compute the tax dollars. This amount was divided by the total sales for all
of Claimant’s active gas stations (excluding money orders and lottery tickets)
during 2003.
17. When Claimant was part of the COMPANY A organization, Claimant used
COMPANY A’s credit card center. When CORPORATION acquired COMPANY A, the
credit card center also became a part of the CORPORATION organization. Credit
cards were issued during the Refund Period, and the bad debts from those charge
accounts that were uncollectible were attributable to CORPORATION
organization’s credit card operations, not a third-party bank. Claimant
submitted a summary schedule showing its total company bad debt for each year
during the refund period. The amount for each year was multiplied by the
percentage of Texas stores to compute Texas bad debt allowance, which was
multiplied by 16% to calculate total fuels tax associated bad debts. The
amount was converted into gallons.
18. Claimant remitted motor fuels tax on sales of reefer fuel, also known as
off-road fuel. This kind of fuel is generally used to operate refrigeration
units on trucks or trailers or to operate off-road equipment such as farming
and logging equipment.
19. Claimant submitted a document titled “Monthly Reefer Gallons Summary,”
which reflects total diesel reefer gallons sold for the period of January 1998
through June 2001 to be 1,215,085 gallons. The summary notes that gallons for
January 2000 through June 2001 purport to be “actual” gallons, but the
supporting schedules indicate that Claimant calculated the monthly gallons for
10 stores for those months using amounts in the tax discount/rebate account of
its general ledger. For prior months for which Claimant had no records,
Claimant estimated reefer gallons using the data from January 2000 through June
2001. For each month of this 18-month period, Claimant divided the number of
reefer gallons by the total gallons sold that month to compute a percentage.
An average of 0.8026% was calculated based on the 18-month period, and this
average percentage was applied to the total monthly gallons sold to estimate
the total reefer gallons sold for January 1998 through December 1998 and for
May 1999 through December 1999. Claimant used the averages of May 1999 through
December 1999 estimate reefer gallons for January 1999 through April 1999.
20. No detail supporting the general ledger was provided.
21. Claimant submitted disbursement tickets from station number 4521 for April
and May 2003, which are given to customers who purchase reefer fuel. The
tickets on their face do not indicate reefer fuel, but they show Claimant gave
the customers a rebate in an amount equal to the motor fuel tax.
DISCUSSION AND CONCLUSIONS OF LAW:
Claimant originally raised several contentions in support of its refund claims
for gasoline and diesel fuel taxes. However, on multiple occasions, Claimant
amended and/or supplemented its position during the consolidated proceedings,
and such actions resulted in Claimant’s contentions being narrowed to three
contested issues. The process led the Tax Division to state that the
consolidated cases have “followed a most torturous path”, and the record
suggests that the Tax Division’s statement was not an exaggeration.
All contentions, except for one, relate to the sufficiency of Claimant’s
documentation. The parties’ dispute can be summarized as follows: Claimant
contends that it has provided sufficient documentation to prove its refund
claim, and the Tax Division contends that the denials of the refund claims
should be upheld because Claimant has not provided documentation required by
either Rule 3.173 or Rule 3.193.
Each of Claimant’s contentions should be denied.
Drive-Offs
A portion of Claimant’s gasoline and diesel fuel refund claims is related to
credits claimed for “drive-offs.” A “drive-off” is an incident in which a
person drives into a gas station, pumps fuel into his/her vehicle, and drives
away without paying for the fuel. Drive-offs essentially represent loss of
fuel by theft.
The Tax Code authorizes the filing of a refund claim for taxes paid on motor
fuel that was lost by theft. See Section 153.121(a) (gasoline) and Section
153.224(a) (diesel fuel). Both statutes require a refund claim to be filed
within one year after the first day of the calendar month following the theft
loss. Id. Claimant’s April 1, 2002 refund claims were timely only for the
periods of March 1, 2001, through June 6, 2001, resulting in Claimant’s
concession to the appropriateness of the refund denials for periods prior to
March 1, 2001. Thus, the contested refund amount relates to drive-offs that
occurred between March 1, 2001 and June 6, 2001.
In construing Sections 153.121(a) and 153.224(a), the Comptroller promulgated
Rule 3.173(d)(3), which specifically addresses drive-away thefts, including the
maintenance of documentary evidence to prove fuel lost by theft. A claimant is
required to maintain a police report or documentation that the loss resulting
from the drive-away theft has been or will be taken as a deduction of the
federal income tax return during the same or subsequent reporting periods and
is also required to maintain a separate report for each incident prepared and
signed by the employee who witnessed the theft. See Rule 3.173(d)(3)(A)(i) and
(ii). The employee’s report must include the date, time of the incident, fuel
type, the number of gallons, outlet location, and a police report, if the theft
was reported to the police. Id.
In its pleadings, Claimant contends that it has submitted sufficient
documentation which “overall” meets the requirements of Rule 3.173(d)(3). The
Tax Division, however, contends otherwise. According to the Tax Division,
Claimant’s documentary evidence identifies the store, date, and gallons, but
does not show the time of occurrence or the type of fuel lost. A review of the
record supports the Tax Division’s contention. Claimant computed the drive-off
for each fuel type by allocating the total “drive-off” gallons to gasoline
gallons and diesel fuel gallons based on sales. In other words, the breakdown
of drive-offs for each fuel type was an estimated amount, not actual.
According to the Tax Division, such an “estimate is not acceptable, and falls
short of what is required to support the request.” Although Rule 3.173(d)(3)
is silent regarding the production of the actual number of gallons lost by
theft, such information is required by statute. Distributors and suppliers are
required by statute to maintain records showing the number of gallons of
gasoline or diesel fuel lost by fire, theft, or accident. See Sections
153.117(a)(5) and 153.219(a)(5). Obviously, the statutory requirement
evidences a legislative intent of tracing lost or stolen fuel, by gallons, from
purchase to refund, and enabling some form of verification by the comptroller.
Rule 3.173(d)(3) sets forth specific mandatory record-keeping requirements to
allow verification. The Tax Division contends that the documentation submitted
fails to comply with the requirement that each drive-away theft be supported by
a separate report prepared and signed by an employee. Claimant responds that
each store maintains a manual “Drive-Off Log” that is tantamount to a separate
report and produced a recent document titled “Drive-Off Log” that captures the
following information: (1) the store number where the theft occurred, (2) the
employee’s name, (3) the date and time of the incident, (4) the dollar amount
associated with the theft, (5) the pump number, (6) the make of car and its
vehicle license tag number, (7) the employee’s signature and (8) the store
manager’s verification. At the same time, Claimant admits that it does not
have the Drive-Off Logs for the refund period because the manual logs are only
maintained for six months due to lack of storage spaces. Despite Claimant’s
admission that the necessary manual logs were discarded, Claimant nevertheless
contends such fact is not fatal to it refund claims. Claimant argues that the
summary schedules that were submitted should be sufficient to support its
claims because they accurately represent the information captured by the
automated centralized database. Claimant’s argument must be rejected. The
purpose of documentation is to satisfy the comptroller that a theft has, in
fact, occurred. Such a requirement has been in place since December 6, 1996,
and Claimant has not provided sufficient documents to establish the existence
of the drive-offs during the refund period, as required by the rule.
Also, Claimant complains that the rule requirement of a police report is
unreasonable, but if no police reports exist, Rule 3.173(d)(3) requires as
alternative proof documentation submitted showing that the amounts have been
taken as a deduction on the federal income tax return during the same or
subsequent reporting periods. There is nothing in the record to establish that
the losses that occurred in 2001 were deducted on Claimant’s federal income tax
return(s).
In summary, Claimant’s assertion that it “overall” meets the requirements of
Rule 3.173(d)(3) is somewhat misleading. Its refund requests for gasoline and
diesel fuel taxes associated with drive-offs were properly disallowed.
Credits for Bad Debts
Claimant seeks a refund of taxes paid on gasoline sales based on bad debt
deductions and states two specific reasons for bad debt occurrences – its
customers’ non-sufficient fund checks and its customers’ failure to pay credit
card charges.
A permitted gasoline distributor may claim a bad debt credit for taxes paid by
the distributor on gasoline sold on account if a determination is made that the
account is uncollectable and worthless and if the account is written off as a
bad debt on the distributor’s accounting books. See Section 153.1195(a). In
construing this statute, the Comptroller promulgated Rule 3.193.
With regard to customers’ non-sufficient fund checks, Claimant submitted
documentation indicating that it was seeking a refund based on bad debt credits
for the period of January 1998 through December 2000. Claimant calculated its
bad debt credits by multiplying each month’s total NSF amount to compute the
amount attributed to fuel, which in turn was converted into the number of
gallons by 16% of gasoline that the amount represented. According to Claimant,
a Comptroller employee authorized the 16% bad debt allowance. Alternatively,
Claimant contends that it should be allowed to use 12% to compute its bad debt
allowance. The Tax Division rejects both proposed percentages and argues
Claimant’s documents that were submitted in support of the claimed bad debt
credits are inadequate. Specifically, the Tax Division contends that the
documents fail to meet the requirements of Rule 3.193(a)(2), which provides
that a distributor must establish the allowance of bad debt credits through
records that show: (A) the date of sale(s), (B) name and address of purchaser;
(C) invoices reflecting the charge for tax; (D) payment of taxes by the
distributor; (E) all payments or credits that have been applied to the
purchaser’s account; and (F) the uncollected amounts designated as bad debts in
its accounting records.
The record is clear that Claimant has not submitted documents that satisfy the
rule requirements noted above. Nevertheless, Claimant asserts that the claimed
bad debt credits should be allowed because it submitted the list from GPC
identifying the debtors and because the proposed estimated percentage is a
conservative figure. However, both proposed estimated percentages to calculate
the claimed bad debt credits require assumptions that are not supported by
evidence. The agency must assume that each bad check that is accounted for in
the monthly NSF total included the purchase of fuel and that each fuel purchase
represented 16%, or alternatively 12%, of the customer’s invoice. But
Claimant’s summary records for the Refund Period cannot be used to verify those
assumptions. The only basis offered by Claimant for selecting the 16%
estimated allowance was that it was a percentage given to it by a Comptroller
employee. The inference is that the Comptroller employee authorized the use of
that percentage. The Tax Division responds that the document containing the
16% allowance “does not suggest or imply that all taxpayers can estimate bad
debt credits at 16% generally.” The evidence supports the Tax Division’s
contention. In reviewing the document in question (See Finding of Fact No.
15), it is obvious that the Comptroller employee is using specific data (either
hypothetical or actual) and providing step-by-step guidance using known
information to demonstrate the pro-rata application of a customer’s partial
payment on an invoice that has both the purchase of motor fuel and other goods
as required by Rule 3.193(a)(2). The document in question neither establishes
nor authorizes the use of a general 16% allowance, and Claimant’s attempt to
argue otherwise is simply unpersuasive. The document does illustrate in a
practical manner why, for verification purposes, Rule 3.193(a)(2) requires
invoices and payment information be maintained.
Claimant’s alternative proposed estimated bad debt allowance of 12% is also
flawed. According to Claimant, this estimated percentage was calculated by
taking the sum of the total gallons of diesel fuel and gasoline sold by all of
Claimant’s active gas stations during 2003, multiplying those gallons by the
tax rate of 20 cents to compute the tax dollars, and then dividing that amount
by the total sales for all of Claimant’s active gas stations (excluding money
orders and lottery tickets) during 2003. Essentially, the proposed 12%
allowance represents the percentage of total tax amounts Claimant paid in 2003
to its total sales in 2003. Claimant argues that this percentage is reasonable
because it had more operational stations during the refund period. However,
the estimate has no direct correlation to the amount written off as bad debts.
Further, Claimant’s pleadings and supporting documentation make clear that its
claim of bad debt credits as a result of NSF checks relates solely to gasoline,
yet the alternative proposed percentage includes diesel fuel in its
computation. No explanation is offered for that inclusion. Even if an
adjustment were to be made, it would not resolve the biggest problem faced by
Claimant. The estimated approach still requires the agency to assume that each
bad check accounted for in the monthly NSF total included the purchase of fuel
and that each fuel purchase represented 12% of the customer’s invoice. Neither
assumption can be verified by evidence. Claimant’s request for bad debt
credits based on NSF checks was properly disallowed.
Also at issue is Claimant’s request for bad debt credit based on its customers’
failure to pay credit card charges. The Tax Division contends that Claimant’s
request should be denied because Rule 3.193(b)(2) specifically disallows it.
According to Claimant, the rationale for the rule’s exclusion of credit card
charges from bad debt credits is that the credit card company pays the
distributor for the fuel, and the customer then owes the credit card company,
not the distributor. For this reason, Claimant states that it withdrew the
refund claim related to credit cards issued by a third-party bank, but argues
the same rationale does not apply to proprietary credit cards issued by
Claimant or Claimant’s related company. Claimant asserts that non-payments of
proprietary credit card charges are more analogous to customers’ insufficient
fund checks, and therefore, the requested bad debt credits should be allowed.
However, Claimant’s argument does not address several obstacles to its claim.
First, Claimant used the same estimated percentage of 16% that it used to
compute its bad debt credits for NSF checks. That estimate percentage was
rejected above as unverifiable, and the same problem exists here. But more
significantly, Claimant’s contention that it should be entitled to bad debt
credits based on customers’ failure to pay credit card charges conflicts with
the express terms of Section 153.1195(d). This statute provides that bad debt
credits allowed under Section 153.1195 do “not apply to a sale of gasoline that
is delivered into the fuel supply tank of a motor vehicle … and for which
payment is made through the use and acceptance of a credit card.” Rule
3.193(b)(2) merely restates the statutory prohibition. Although Claimant’s
rationale of the rule is the same one articulated for Section 153.1195(d) in
Comptroller’s Decision No. 39,243, the statute itself controls the disposition
of the issue. In enacting Section 153.1195(d), the Legislature expressed a
clear statutory restriction that bad debt credits are not allowed for credit
card charges and made no distinctions between types of credit cards.
Consistent with the statute, the comptroller, defines “credit card” to mean
“any card, plate, key or like device by which credit is extended to and charged
to the purchaser’s account.” See Rule 3.193(b)(1). Proprietary credit cards
fall within this definition. Neither the statue nor the rule permits the
distinction argued by Claimant. Claimant’s request for refund was properly
denied under Section 151.1195(d) and Rule 3.193.
As a side note, contrary to Claimant’s contention, the rationale articulated in
Comptroller’s Decision No. 39,243 would apply when a related but separate
company issues credit cards to Claimant’s customers. Texas motor fuels tax is
based on the separate entity theory of taxation. See STAR Accession No.
200103116L (March 22, 2001) (Gasoline purchased by one legal entity cannot be
considered to have been purchased by another legal entity or reported as
purchased by another legal entity, even if that other entity is a subsidiary or
a sister corporation). Under the separate legal entity theory of taxation, the
related company will pay Claimant, and Claimant’s customers will pay the
related company the amount charged plus interest. If Claimant directly issues
credit cards to its customers, Claimant made a business decision to act as a
credit card company and to obtain any financial benefits, such as interest,
derived from that role. Presumably, in making that business decision, Claimant
considered and weighed the benefits of being a credit card company versus the
loss of the ability to claim potential bad debt credits as a distributor
selling on account.
Reefer sale
Claimant contends that it remitted diesel fuel taxes on sales of reefer fuel,
also known as off-road fuel. This kind of fuel is generally used to operate
refrigeration units on trucks or trailers or to operate off-road equipment such
as farming and logging equipment.
In seeking a refund, Section 153.223(a) provides that an original invoice
containing information required by the Comptroller must be produced with the
refund claim. To prove payment of tax, the Comptroller generally requires a
claimant to produce the original invoice showing the date of purchase, type of
fuel purchased, number of gallons purchased, price per gallon, and the amount
of taxes paid on the fuel. See Rule 3.173(d). The Tax Division contends
Claimant’s documentation fails to satisfy these requirements. Claimant admits
that it does not have the documents mandated by law. Instead, Claimant
submitted monthly summary schedules calculating its refund claim based on an
amount in its rebate account reflected in the general ledger for January 2000
through June 2001. According to Claimant, that rebate account captures tax
rebates given to customers who purchased reefer sales. Although details to the
general ledger are not available, Claimant asserts that the comptroller can
verify its assertion based on disbursement tickets it issued in 2003 showing
rebates of taxes for reefer sales. Claimant contends it is entitled to a
refund of taxes equal to the amount in its rebate account as reflected in its
general ledger for January 2000 through June 2001 and that an estimated
percentage from that general ledger account should be extrapolated to the
remaining periods. Again, Claimant seeks a refund based on assumptions and
estimates, and its contention should be denied.
Furthermore, although reefer sales are generally considered off-road fuel, they
do not automatically result in a refund of tax. For example, when presented
with a question whether Texas provides fuel tax refunds for “reefer”, the Tax
Policy Division responded as follows: “If the reefer has it own fuel supply
tank separate from the motor fuel supply tank used to propel the motor vehicle,
100% of the state motor fuels tax is refundable. If the reefer shares the same
motor fuel supply tank used to propel the motor vehicle, no refund is
available.” See STAR Accession No. 200309089L (September 2, 2003). Claimant’s
summary documents of its “rebate” accounts do not enable the agency to verify
the delivery of the fuel, whereas invoices typically provide some indication of
delivery.
Off-highway fuel use is an exemption from diesel fuel tax. The burden is on
Claimant to establish entitlement to the refund sought and, since an exemption
from taxation is asserted, the proof must be clear and convincing. Bullock v.
National Bancshares Corporation of Texas, 584 S. W. 2d 268 (Tex. 1979);
Comptroller’s Decision 41,436 (2002); Rule 1.40(2)(A). In the absence of
invoices, Claimant has not established that the number of tax-paid gallons on
the reefer fuel for which refund is claimed is correct or that the disputed
reefer fuel was delivered into separate fuel supply tanks. Having failed to
carry its burden, Claimant’s refund claim must be denied.
RECOMMENDATION:
Based upon the foregoing findings of fact, conclusions, and discussion, the
refund claims should denied in their entirety.
Signed April 18, 2005
ELEANOR H. KIM
Chief Administrative Law Judge
HEARING NO. 42,911 and 42, 912
ORDER OF THE COMPTROLLER
The above decision of the Administrative Law Judge is approved and adopted in
all respects. This decision becomes final twenty-three (23) days from the date
of this Order.
If a rehearing is desired, a Motion for Rehearing must be filed with the
Administrative Law Judge no later than twenty-three (23) days after the date of
this Order, and must state the grounds upon which the motion is based.
RENDERED and ISSUED April 18, 2005.
CAROLE KEETON STRAYHORN
Texas Comptroller
ACCESSION NUMBER: 200504187H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 04/18/2005
TAX TYPE: FUELS-CH153