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