What's Happening in Texas Tax Litigation

1
What's Happening in Texas Tax Litigation Ray
Langenberg Scott, Douglass McConnico, LLP 600
Congress Suite 1500 Austin, TX 78701 512.495.6300
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Combs v. Chevron USA, Inc. - Pending in Court of
Appeals

• Taxpayer added new claims to motion for
  rehearing.
• Comptroller Rule 1.7(d) The statement of
  grounds may be amended up to the time that a
  reply to the position letter is required, and not
  later, unless by permission of the assigned
  administrative law judge
• Tex. Tax Code 112.152(a) The grounds of
  error contained in the motion for rehearing are
  the only issues that may be raised in a suit
  under this subchapter.

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Comptroller Hearing No. 45,_____(pending)

• Taxpayer added claims to redetermination
  proceeding more than four years after tax was due
  and payable.
• Tax Code 111.104(c)(3) A claim for refund
  must be filed before the expiration of the
  applicable limitation period as provided by this
  code or before the expiration of six months after
  a jeopardy or deficiency determination becomes
  final, whichever period expires later.

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Combs v. Chevron USA, Inc. - Pending in Court of
Appeals

• Scaffolding service.
• Comptroller Hearing No. 29,470 (1994) the
  applicable Comptrollers Decisions look to all
  the facts and circumstances, with the key element
  seeming to be whether operational control over
  the tangible personal property involved has been
  transferred to the taxpayers customers.

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Reynolds Metals Company v. Combs Pending in
the Court of Appeals
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Verizon North, Inc. v. Combs Pending in the
Court of Appeals

• SAP business software
• Comptroller Rule 3.308(b)(1) Computer program
  means a series of instructions sold as a
  completed program which are coded for acceptance
  or use by a computer system and which are
  designed to permit the computer system to process
  data and provide results and information

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SC Kiosks, Inc vs. Combs Pending in District
Court
Service Contract
Commission
Wireless Carrier
Free Telephone
Taxpayer
Customer

• Texas Tax Code 151.006 sale for resale
  includes the sale of TPP to a purchaser who
  acquires the property or service for the purpose
  of reselling it in the normal course of
  business in the form or condition in which it is
  acquired and the sale of TPP to purchaser who
  acquires the property for the purpose of
  transferring it as an integral part of a
  taxable service.
• Under Texas contract law, consideration
  consists of either a benefit to the promisor or a
  detriment to the promisee.

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7-Eleven, Inc. v. Combs To Be Appealed to
Court of Appeals

• Store Software delivered in Texas

Host Software - Central Office
Not at issue
Store Software - Franchise Stores Outside
Texas (2,946)
Store Software - Company Stores Outside
Texas (1,742)
Store Software - Company Stores In Texas (286)
Exempt Resale
Taxable
Exempt Tax-Free Inventory, Used Outside Texas
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GTE Southwest, Inc. v. Combs Pending in
District Court

• Manufacturing exemption for telecommunications
  equipment.
• Tax Code 151.318(a)(2) manufacturing
  exemption tangible personal property directly
  used or consumed in or during the actual
  manufacturing, processing, or fabrication of
  tangible personal property for ultimate sale if
  the use or consumption of the property
• Tax Code 151.009 - Tangible personal property
  personal property that can be seen, weighed,
  measured, felt, or touched or that is perceptible
  to the senses in any other manner, and, for the
  purposes of this chapter, the term includes a
  computer program and a telephone prepaid calling
  card.

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Comptroller Hearing No. 45,_____(pending)
Before
After
Parent
Parent
Acquisition Corp
Taxpayer
merger
Taxpayer

• Acquisition cost gt Taxpayer historical cost.
• Comptroller Rule 3.547(c)(7) - transfers of
  assets must be reported at the transferors
  basis.
• Tax Code 171.109(m) prohibits push down
  accounting.
• Hearing No. 41,470 overruled.

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Texas Entertainment, Inc. v. Combs Pending in
District Court

• First Amendment issues regarding 5 fee per entry
  to establishment with live nude entertainment and
  on-premises consumption of alcoholic beverages.
• Trial court denied States plea to the
  jurisdiction challenging summary judgment to
  determine validity of the statute without having
  paid the tax.