Tax

Texas Court of Appeals Affirms Provisions of the Sales Tax Rule on Refunds as Illegal & Invalid

May 2015
Author:  Jana Gradeva

Jana Gradeva

Director

SALT Services

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Dallas, Texas 75254-2961

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The Texas Third Court of Appeals has affirmed the trial court’s ruling that some provisions in the Texas Comptroller of Public Accounts’ rule on sales and use tax refund claims are illegal and invalid. The provisions in question include the nine categories of transactional detail and supporting documentation requirements in subsection (a)(4)(C) and (E) and last sentence of subsection (e)(3) of the 2013 revision of the Tex. Admin. Code §3.325. (Hegar v. Ryan, LLC, Texas Court of Appeals, Third District, No. 03-13-00400-CV, 05/20/2015). The appeals court reversed and rendered in part other challenged provisions in that rule and found those to be facially valid.

The comptroller’s rule—first revised in 2011—added more stringent transaction-level documentation requirements to properly file a refund claim. The rule was further amended in 2013 to include more details and documentation from taxpayers when filing the initial refund claim. The requirements included detailed transaction schedules with vendor names, vendor taxpayer ID numbers, invoice numbers, invoice dates, description of each item, reason for refund, applicable citation of authority, amount of refund and local jurisdictions where tax was remitted. The amended rule allowed the comptroller to deny any refund claim that lacked the required minimum information, making the refund claim difficult for taxpayers with no margin of error. In May 2013, the District Court of Travis County declared various provisions in the rule illegal and invalid.

The comptroller appealed, and after reviewing the circumstances to this case, the appeals court affirmed the trial court judgment, saying the nine listed categories of transactional detail and supporting documentation requirements in subsection (a)(4)(C) and (E) posed additional burdens, conditions and restrictions on taxpayers beyond what the statute intended. Both courts agreed the comptroller cannot freely interpret the statute beyond its legislative intent and impose an excessive burden on taxpayers.

If your Texas sales and use tax refund claim has been deemed incomplete and denied, or if you need information on how to file a sales and use tax refund claim, contact your BKD advisor.

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