Could a seller use tax refunded by Texas to reduce the purchaser's unrelated past-due account balance?

Plain-English summary

A nursing home had a past-due account balance, and the seller placed a tax-refund credit on that account instead of returning the money.

Tax Code § 111.104(f) barred refunding collected tax to the seller unless the seller had returned the tax and interest to the person who paid it. Under Rule 3.325(b)(2), the tax had to be returned to the purchaser or handled on the customer's account as permitted by the rule.

The seller could not use a state tax refund to pay down the customer's other outstanding debt unless the customer agreed.

Common questions

Could the seller keep the refund because the customer owed money? No.

Could it credit the refund against the past-due balance? Only with the customer's consent.

What authority did the letter cite? Tax Code § 111.104(f), Rule 3.325(b)(2), and Hearing 15,599.

Citations and references

• Tex. Tax Code § 111.104(f)
• 34 Tex. Admin. Code Rule 3.325(b)(2)
• Hearing 15,599

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9002L0990E05

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

February 21, 1990

Dear ***:

Thank you for your letter regarding applicability of Rule 3.325
(b) (2) in cases where an account consistently reflects a past due
balance.

You stated that a refund request was processed for a local nursing
home. The nursing home consistently carries a past due balance.
A credit for the tax was placed on the nursing home's account in
lieu of a refund.

TEX. TAX CODE ANN. SEC. 111.104(f) states, "No taxes, penalties, or
interest may be refunded to a person who has collected the taxes
from another person unless the person has refunded all the taxes
and interest to the person from whom the taxes were collected."

As provided in Rule 3.325(b)(2), the tax must be refunded to the
purchaser or, with the customer's account. Tax refunded to a seller
by the state cannot be used by the seller to liquidate an outstanding
debt owed by the seller's customer unless the customer agrees.

Enclosed is an edited copy of Hearing 15,599 for your information.

This opinion is based on the facts presented. If there additional
or different facts, the opinion may change.

If you have any questions or need additional information, you may
call me toll free at 1-800-252-5555, extension 3-4666, or the
regular number 512/463-4666. You may write to Tax Correspondence,
Comptroller of Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence