Texas – Taxpayer Relied on Incorrect Information Provided by Comptroller

SALT Report 3037 – A Texas Administrative Law Judge issued a ruling regarding a convenience store operator’s request for refund due to the fact that the Taxpayer relied on erroneous tax rate information provided by the Comptrollers office.  In this case, the Taxpayer obtained a sales tax permit, which stated that the sales tax rate in effect in the Taxpayer’s city was 6.75%.  However, the rate in effect in that particular city was actually 7.75%.

Over the next two years, the Taxpayer collected sales tax at the rate of 6.75% as listed on its sales tax permit as well as on its preprinted sales tax returns.  In addition, the Taxpayer filed its sales tax returns using the Comptroller’s WebFile system, which calculated the amount of tax due based on the 6.75% rate.

In 2011, the Comptroller’s office sent the Taxpayer a letter notifying him that his sales tax account had been under review and the Comptroller determined that because the business was located within certain city limits, they would be issuing a corrected sales tax permit, and that the Taxpayer should be collecting sales tax rate at the 7.75% rate.  Additionally, the Comptroller’s office mailed a second notice to the Taxpayer advising him that the tax due for all prior reporting periods would be recalculated and a Texas Notice of Tax Due would be issued for the underpaid returns.

The Taxpayer paid the recalculated amounts and filed a refund request arguing that he is entitled to a refund for its payment of the underpaid returns because he “detrimentally relied on information issued by Comptroller’s office.”  To prove his point the Taxpayer submitted the original sales tax permit, and copies of the preprinted sales tax returns and WebFile returns, all of which were issued by the Comptroller and indicated that the rate in effect was the lower 6.75%.

Upon review of the case, the Administrative Law Judge stated that the fact that the Taxpayer failed to collect and remit the additional 1.0% tax was not in dispute.  Rather, the question was whether the Taxpayer should be held harmless because he was acting on erroneous information received from various sources including the Comptroller’s website and employees.

In certain situations, the Comptroller will provide relief to a Taxpayer who has relied on erroneous advice provided by the Comptroller’s office, if the Taxpayer can establish:

  • That erroneous advice was given,
  • That the taxpayer gave sufficient information to enable the Comptroller or an employee to provide correct advice
  • That the taxpayer followed the advice, and
  • The taxpayer has suffered or will suffer harm unless the Comptroller adheres to the advice

Based on the above, the ALJ stated that although the Comptroller’s detrimental reliance policy is not statutorily required it is offered in certain situations as “a matter of fundamental fairness.” In this particular case, the ALJ determined that although the Taxpayer provided accurate address information, both the Comptroller’s printed documents and WebFile system failed to correctly identify that the Taxpayer’s business was subject to the additional 1% tax rate imposed in his city.

Further, the ALJ ruled that the evidence submitted by the Taxpayer proved that there was nothing to suggest that the Taxpayer provided incorrect or misleading information, or had more than one place of business, used traveling salespersons, itinerant vendors, or temporary places of business that would affect the information provided by the Comptroller’s office.  As a result, the ALJ ruled that the Taxpayer was entitled to relief based on the Comptroller’s detrimental reliance policies and the refund claim was granted.

For Further Information

Texas Comptroller of Public Accounts – Decision, Hearing No. 108,538