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Hiya, folks, and welcome back to another edition of Texas Tax Roundup. It seems like a lot of people might have been taking a vacation in July, getting a break from this heat, so not all that much to talk about—other than, for some reason, mixed beverages. Let’s see what happened!

Notable Additions to the State Tax Automated Research (“STAR”) System

Mixed Beverage Taxes

Audit Procedures/Additional Penalties

Comptroller’s Decision Nos. 118,594, 118,595 (2023)—The ALJ determined that the assessment of mixed beverage taxes against a taxpayer was not in error when the assessment was based on a pour test at the taxpayer’s establishment, sales receipts from the pour test, a price sheet, and vendor-reported purchases, and the taxpayer didn’t provide any evidence to support their claim that the assessment was wrong. The ALJ also upheld the assessment of a 50% additional penalty when the error rate for the assessments was approximately 86% and the taxpayer did not establish a plausible explanation for underreporting.

Comptroller’s Decision Nos. 117,911, 117,912 (2023)—The ALJ upheld the assessment of mixed beverage gross receipts tax and mixed beverage sales tax when the assessment was based on sales records and the taxpayer’s mixed beverage gross receipts tax and mixed beverage sales tax reporting and the taxpayer didn’t provide any evidence showing error. The Comptroller also upheld a 50% additional penalty when the taxpayer’s overall error rate exceeded 50% for each assessment and there was not plausible explanation for the underreporting.

Comptroller’s Decision Nos. 118,107, 118,108, 118,109 (2023)—The ALJ agreed with the assessment of mixed beverage taxes and sales and use taxes against a taxpayer that operated a restaurant and full-service bar when the taxpayer failed to provide any records demonstrating that the audit was in error. The ALJ further upheld an assessment of an additional 50% penalty against taxpayer in connection with the mixed beverage tax assessment because of the taxpayers had an overall error rate of 61.87% in the mixed beverage gross receipts tax audit and 58.3% in the mixed beverage sales tax audit with no plausible explanation for the underreporting.

Personal Liability
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Written by TL Fahring | Posted in Beverage Tax • Texas Tax Law

Court Cases

Franchise Tax

Apportionment

Conagra Brands, Inc. v. Hegar, No. 03-21-00111-CV (Tex. App.—Austin Aug 24, 2022, no pet. h.)—The Third Court of Appeals held that a taxpayer could not include gross receipts from certain securities in its apportionment-factor denominator for purposes of calculating its Texas franchise tax.[1]

The taxpayer in question was in the business of producing food products for sale to grocery stores, convenience stores and food service businesses. In order to mitigate the risks associated with potential fluctuations in the price of necessary components and raw materials, the taxpayer bought and sold commodity futures contracts.
The taxpayer argued that these securities were inventory for federal tax purposes and that the gross proceeds from the sale of these securities should be included in its apportionment factor denominator. On appeal, however, the taxpayer didn’t dispute the trial court’s finding that the securities weren’t inventory as defined in the Internal Revenue Code. Instead, the taxpayer argued that the securities were in substance inventory under the U.S. Supreme Court’s decision in Corn Products Refining Co. v. Comm’r, 350 U.S. 46 (1955).