What proof did an audited retailer need to show that sales tax had already been assessed in the purchaser's audit?

Plain-English summary

The Comptroller placed the burden on the audited retailer to prove that tax had already been assessed through the purchaser's audit.

A written statement from the purchaser was not enough. Neither was proof that seller and purchaser were both audited for overlapping periods. The retailer could meet the burden by showing that the purchaser's audit included the transactions at issue and assessed tax on those same transactions.

For a sample-and-projection audit, every actual transaction did not have to appear in the purchaser's sample. But the retailer had to show that the sample covered the same period, covered the same type of transaction, and resulted in tax assessed to the purchaser for that period. When those conditions were met, the state would not assess the same tax twice.

What this means for you

Audited retailers

Obtain audit-level evidence, not merely a customer assurance. Match the transaction or, for a projected audit, the sampled period and transaction category.

Purchasers and tax professionals

Coordinating seller and purchaser audit records can prevent double assessment, but only when the evidence connects the assessments as the letter requires.

Common questions

Was a purchaser's written statement enough? No.

Were overlapping audit periods enough? No.

Did every transaction need to appear in a sample audit? No, if the same period and transaction type were sampled and tax was assessed for that period.

Would Texas intentionally assess the same tax twice? The letter said no when the retailer proved the required overlap.

Citations and references

• Proposed Comptroller Rules of Practice and Procedure § 1.40 (burden of proof, as cited in the letter)
• 34 Tex. Admin. Code Rule 3.282 (auditing taxpayer records)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9201L1151C01

Original ruling text

January 24, 1992

Dear *****:

Thank you for your letter regarding the burden of proof required when
an audited retailer claims an audited purchaser has paid the tax in the
purchaser's audit. I will be responding to your letter for Mr. Koenig.

The burden of proof is on the retailer to demonstrate that the tax has
previously been paid in the audit of the purchaser. Written statements by
the purchaser to the seller are not sufficient proof that the tax was paid
by the purchaser. The fact that both the seller and purchaser are audited
and the audited periods overlap is not evidence the tax was paid by the
purchaser either.

The retailer may satisfy the burden of proof if the purchaser's audit
included the transactions in question and tax was assessed in the same
transactions against the purchaser in the audit. The state does not seek
to assess the tax twice in such a situation.

If the purchaser's audit was a sample and projection audit, then the
retailer must provide proof that the purchaser's audit sample covered the
same period in question (i.e. February 1989 in your hypothetical situation)
and that the sample audit covered the same type of transactions in the
retailer's audit. The purchaser must also have been assessed tax for the
period in question (i.e. February 1989). All of the actual transactions are
not required to be in the purchaser's audit as long as the period and
transactions sampled are the same and taxes assessed to the purchaser for
the period in question in the audit. In such a circumstance the state again
does not seek to assess the tax twice.

For your information, I have enclosed copies of administrative hearings
that discuss the burden of proof on such contentions.

As far as a citation on burden of proof you may want to refer to the
propose Sec. 1.40 of the Comptroller s Rules of Practice and Procedure,
copy enclosed. I have also enclosed Rule 3.282 regarding the auditing of
taxpayer records.

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

You may call me toll free at 1-800-252-5555, ext. 5-0030. The direct line
is 512/475-0030. You may also write to Ta Administration, Comptroller of
Public Accounts.

Sincerely,

David Somerville
Tax Administration Division