Court Decision May Make Texas Sales and Use Tax Refund Claims Easier to File

A recent Travis County District Court decision steps back the Texas Comptroller’s efforts to make it more difficult for taxpayers to file Texas sales and use tax refund claims.  The case is Ryan, LLC v. Combs, Docket No. D-1-GN-12-002388.  Judge Amy Clark Meachum issued a final order in the case on May 10, 2013 that invalidated two Texas Comptroller rules that stated the documents and information taxpayers need to file with Texas sales and use tax refund claims.

Judge Meachum’s order states that the two Texas Comptroller sales and use tax rules are illegal and invalid because they impose “additional burdens, conditions, and restrictions on sales and use tax refund claims” in excess of the Texas Tax Code’s requirements.  Texas law prohibits administrative agencies like the Texas Comptroller from issuing rules that impose requirements not found in the underlying statutes because it undermines the intent of the Texas Legislature.

Requirements for Filing Texas Sales and Use Tax Refund Claims

Here, the Texas Tax Code requires only that a Texas sales and use tax refund claim (1) be written; (2) “state fully and it detail each reason or ground on which the claim is founded;” and (3) be filed before the statute of limitations expires.

However, the 2011 and 2013 Texas Comptroller rules that the judge’s order invalidated required those claiming Texas sales and use tax refunds to submit a large amount of additional documents and information with their initial refund claims. This information included a schedule of transactions showing vendor names, invoice dates, invoice numbers, descriptions of items purchased, amounts paid, vendors’ taxpayer identification numbers, and local jurisdictions to which taxes were paid. The rule also required those claiming Texas sales and use tax refunds to “submit supporting documentation required by the comptroller to verify any refund claimed or credit taken.”  If a Texas sales and use tax refund claim didn’t meet these requirements, the filing of the claim did not toll the statute of limitations.  This means that if a taxpayer claiming a Texas sales and use tax refund did not give the Texas Comptroller all the supporting documents before limitations expired, the statute of limitations would bar the claim.  The judge determined that these requirements exceeded those in the statute.

Impact on Taxpayers Filing Texas Sales and Use Tax Refund Claims

So, what does this mean for Texas taxpayers, particularly those with Texas sales and use tax refund claims?  In short, it may make Texas sales and use tax refund claims easier to file.  Before the Texas Comptroller enacted her 2011 and 2013 rules regarding Texas sales and use tax refund claims, taxpayers claiming Texas sales and use tax refunds only needed to file a short document stating the grounds for their sales and use tax refund in order to toll the statute of limitations.  The taxpayer seeking the sales and use tax refund then could wait months or even years to provide support documents.  As a result, if the Texas Comptroller doesn’t appeal the judge’s opinion, or if the courts of appeals uphold the opinion, taxpayers should have an easier time claiming Texas sales and use tax refunds.

That said, even if the judge’s decision stands, procedural pitfalls for taxpayers filing Texas sales and use tax refund claims remain. Filing Texas sales and use tax refund claims can be a complicated process.  Procedural missteps can cause taxpayers filing Texas sales and use tax refund claims to lose their right to appeal the Texas Comptroller’s denial of their Texas sales and use tax refund claim in court, or lose their Texas sales and use tax refund claim entirely.  Therefore, it is important that taxpayers seek professional advice, such as that of a Texas tax attorney, before filing Texas sales and use tax refund claims.

As of now, the Texas Comptroller hasn’t stated whether she will appeal the judge’s decision striking down her Texas sales and use tax refund rules.  However, from the statements of the judge and attorneys at trial, appeal seems likely, and the Texas Comptroller appears to have taken steps in preparation for a possible appeal.  I’ll update the comments of this blog entry once I hear whether the Texas Comptroller has decided whether to appeal.


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