SECTION 3.325. Refunds and Payments Under Protest

(a) Requirements for refund claims.

(1) Refund claims by non-permitted purchasers. A person who does not have a sales and use tax permit and who has paid tax in error to a permitted seller may request a refund only from the permitted seller to whom the tax was paid. The permitted seller who refunds tax to a purchaser may claim a refund as provided by paragraph (2) of this subsection. A permitted seller may assign its right to refund to the purchaser, who may then request a refund directly from the comptroller as provided by paragraph (4) of this subsection.

(2) Refund claims by permitted sellers and third party assignees and successors.

(A) With one exception relating to the return transactions, no taxes, penalties, or interest will be refunded by the comptroller to a permitted seller who has collected tax in error from a purchaser until all such taxes are first refunded or credited with the purchaser's written consent to the person from whom they were collected. If the refund claim relates to a return of tangible personal property, a permitted seller is entitled to claim a credit or request a refund of sales tax equal to the amount of sales tax refunded to a purchaser when the purchaser receives a full or partial refund of the sales price of a taxable item that is returned to the seller.

(B) Before a permitted seller refunds to a purchaser tax collected in error on the sale of a taxable item, the permitted seller must obtain from the purchaser a properly completed exemption or resale certificate that meets all the requirements of §3.285 of this title (relating to Resale Certificate; Sales for Resale) and §3.287 of this title (relating to Exemption Certificates). The permitted seller must retain the certificate to document the basis for the refund.

(C) After the permitted seller has refunded or credited the tax to the account of the purchaser, the permitted seller may then seek reimbursement from the comptroller in accordance with the procedures that are outlined in paragraph (4) of this subsection or take a credit on a future sales and use tax return filed by the seller in the amount refunded or credited to the account of the purchaser.

(D) Refunds on exports. See §3.323 of this title (relating to Imports and Exports) for information about amounts a seller can refund on taxable items that are exported by a purchaser.

(E) A permitted seller's right to a refund may be assigned to a third party such as a creditor, settlement trustee, or successor entity. The comptroller will grant or deny a refund claimed by a third party assignee on the same basis as if it had been claimed by the original seller. The third party assignee must comply with all requirements of this section when filing any refund claim, including the requirement to refund or credit tax paid in error to the purchaser in accordance with subparagraph (C) of this paragraph.

(3) Refund claims by permitted purchasers.

(A) How to file a refund claim. A permitted purchaser may amend a return for the period in which an overpayment was made, file a refund claim with the comptroller according to the requirements of paragraph (4) of this subsection, or take a credit on a future sales and use tax return filed by the purchaser for taxes paid in error to a permitted seller. The permitted purchaser must have been permitted at the time the tax paid in error was due and payable in order to claim a refund directly from the comptroller, amend a return for the period in which an overpayment was made, or to take a credit on a future sales and use tax return. If the permitted purchaser was not permitted at the time the tax paid in error was due and payable, the permitted purchaser must be assigned the right to refund by the permitted seller and must file a refund claim with the comptroller for the assigned taxes that meets the requirements in paragraph (4) of this subsection.

(B) Sample and projection method of calculating refund claims. A permitted purchaser who paid tax in error to a permitted seller may compute the amount of overpayment by use of a projection based on a sampling of transactions and on a method that complies with generally accepted sampling methods as approved by the comptroller. The purchaser must have been permitted for the entire period included in the projection. The method by which the projection and computation were performed must be retained and be made available upon request of the comptroller.

(C) Credits.

(i) Reports and documentation. A permitted purchaser who paid tax in error to a permitted seller and who takes credits on tax returns is required to report the total amount of tax credit being taken and the earliest date of the tax paid in error on a supplemental sales tax report prescribed by the comptroller. The permitted purchaser must retain, for the period required in Tax Code, Chapter 111, all documentation that is necessary to support the credit claimed.

(ii) Credits allowed on certain purchases. See §3.338 of this title (relating to Multistate Tax Credits and Allowance of Credit for Tax Paid to Suppliers) for additional rules about credits that can be claimed by permitted purchasers.

(4) A person who requests a refund from the comptroller must:

(A) submit a claim in writing that states fully and in detail each reason or ground on which the claim is founded;

(B) identify the period during which the claimed overpayment was made;

(C) include, at a minimum, each of the following about each transaction upon which a refund is requested:

(i) purchaser or seller's name, as appropriate;

(ii) invoice number, if applicable;

(iii) date of transaction;

(iv) description of the item(s) purchased or sold;

(v) specific reason for the refund, such as applicable statutory authority;

(vi) purchase or sale amount subject to refund;

(vii) total amount of tax refund requested;

(viii) identification of all local jurisdictions to which tax was remitted; and

(ix) if requesting a refund for taxes paid in error to a permitted seller, the seller's name, address and sales tax permit number or information that allows the comptroller to identify the seller's sales tax permit number;

(D) submit the claim within the applicable limitations period as provided by subsection (b) of this section; and

(E) submit supporting documentation to verify any refund claimed or credit taken, such as copies of invoices, cancelled checks, and executed contracts. If the supporting documentation cannot be easily mailed or otherwise easily submitted to the agency, the refund claim must include a statement that all supporting documentation necessary to verify the claim will be made available to the comptroller upon request.

(b) Statute of limitations for refund claims.

(1) Unless otherwise indicated by this section, a claim for refund must be made within four years from the date on which the tax was due and payable as provided by Tax Code, §151.401.

(2) A claim for refund for tax paid pursuant to a deficiency determination must be made by the later of:

(A) four years from the date on which the tax was due and payable; or

(B) six months after the date on which the deficiency determination for the periods becomes final, and is subject to the restriction imposed by paragraph (3) of this subsection.

(3) A refund claim filed within six months after the date on which a deficiency determination becomes final is within the limitations period for all items included in the deficiency determination. A refund claim for all other items is subject to the limitations period in paragraph (1) of this subsection.

(4) Extension of limitations period. Before the expiration of the statute of limitations, the comptroller and a taxpayer may agree in writing to extend the limitation period in accordance with Tax Code, §111.203. An extension applies only to the periods specifically mentioned in the agreement and no single extension agreement may be for a period that exceeds 24 months from the date of the expiration of the limitations period being extended. Any refund request pertaining to periods for which limitations have been extended must be made prior to the expiration date of the agreement. Following expiration of the agreement, the statute of limitations applies to subsequent refund requests as if no extension had been authorized.

(5) A redetermination or refund proceeding does not toll the statute of limitations, except for the issues contested.

(6) Failure to file a claim within the limitations prescribed by this section constitutes a waiver of any demand against the state on account of the overpayment.

(7) The informal review of a refund claim by the comptroller is not a hearing or contested case and does not toll the limitation period for any subsequent claim for refund on the same period and type of tax for which the claim was fully or partially denied.

(8) For more information about the statute of limitations, see §3.339 of this title (relating to Statute of Limitations).

(9) Limitations on refunds and credits claimed by organizations exempt from sales and use tax under Tax Code, §151.310. Organizations that are exempt from sales and use tax under Tax Code, §151.310 should see §3.322 of this title (relating to Exempt Organizations) for information about limitations on refunds and credits that may be claimed depending on whether the organization qualifies for exemption either before or on or after September 1, 2009.

(10) Requirements to toll the statute of limitations.

(A) Subject to the other paragraphs of this subsection regarding the statute of limitations, a refund claim that is filed with the comptroller will toll the statute of limitations if the following requirements are met:

(i) the claim states fully and in detail each reason or ground on which the claim is founded, as required by subsection (a)(4)(A) of this section;

(ii) the claim identifies the period during which the claimed overpayment was made, as required by subsection (a)(4)(B) of this section;

(iii) if the claim is being filed by a non-permitted person who is an assignee of or successor to a refund that may be owed, the person submits with the claim for refund the assignment of right to refund; and

(iv) if a person other than the person to whom the refund is due is submitting the claim for refund, a power of attorney is submitted with the claim.

(B) If the refund claim meets the requirements of subparagraph (A) of this paragraph, but does not meet the other requirements under subsection (a)(4) of this section, the claim will be denied and the person may request a hearing as provided by subsection (e) of this section.

(C) If a person does not meet the requirements of subparagraph (A) of this paragraph, the statute of limitations will not be tolled.

(c) Interest on Refunds.

(1) Eligibility for Interest. Interest is earned on refunds except in the following situations:

(A) a refund claim for a period for which a report is due before January 1, 2000;

(B) credits taken by a taxpayer on a return;

(C) tax paid on an account that is later determined to be uncollectable and written off as a bad debt for federal tax purposes. See §3.302 of this title (relating to Accounting Methods, Credit Sales, Bad Debt Deductions, Repossessions, Interest on Sales Tax, and Trade-Ins); and

(D) as otherwise determined by the comptroller.

(2) Interest rates.

(A) Refunds claimed before September 1, 2005. The interest rate for a refund that is claimed before September 1, 2005 and granted for a period for which a report is due after December 31, 1999 is the rate set in Tax Code, §111.060, as provided in Tax Code, §111.064.

(B) Refunds claimed on or after September 1, 2005. The interest rate for a refund that is claimed on or after September 1, 2005 and granted for a period for which a report is due after December 31, 1999 is the lesser of the annual rate of interest earned on deposits in the state treasury during December of the previous calendar year as determined by the comptroller or the rate set in Tax Code, §111.060, as provided in Tax Code, §111.064.

(3) Calculation of Interest. Interest accrues on refund claims identified in paragraph (1) of this subsection at a rate determined by paragraph (2) of this subsection on the net amount that is found to be erroneously paid:

(A) beginning on the later of 60 days after the date of payment or the due date of the tax report; and

(B) ending, as determined by the comptroller, on either:

(i) the date of allowance of credit that results from either a final decision that the comptroller has issued or from an audit; or

(ii) a date that is not more than 10 days before the date of the refund warrant.

(d) Determining when a refund is claimed.

(1) The postmark date or its equivalent on a refund request determines when a refund is claimed.

(2) If refund claims or credits are pending with the comptroller and a person makes additional claims for refund, the date of each claim controls whether interest is due and the amount applicable to each separate claim.

(e) Denial of refund claim.

(1) The comptroller will notify the claimant if the comptroller determines that a refund claim cannot be granted in part or in full and will also notify the claimant which requirements of subsection (a)(4) of this section were not met. The claimant may then request a refund hearing within 30 days of the denial.

(2) A person may not refile a refund claim for the same transaction or item, tax type, period, and ground or reason that was previously denied by the comptroller.

(3) After receiving a timely request for a refund hearing, the comptroller may issue a written demand notice requesting that all documentation to enable the comptroller to verify the claim be produced within 180 days from the date of the demand notice. A person may not introduce into evidence at the hearing any documents that were not timely produced as requested by the demand notice. This limitation does not apply to a judicial proceeding filed in accordance with Tax Code, Chapter 112. The ability of the comptroller to demand documentation once a claim for a refund hearing is requested does not eliminate the requirement that persons provide documentation under subsection (a)(4)(E) of this section when the refund is first claimed.

(f) Payments under protest. A person who intends to file suit under Tax Code, Chapter 112, Subchapter B, must submit to the comptroller a letter of protest with the payment of the tax that is the subject of the protest. For information about payments under protest and electronic funds transfer payments, see §3.9(h) of this title (relating to Electronic Filing of Returns and Reports; Electronic Transfer of Certain Payments by Certain Taxpayers). The letter of protest must state fully and in detail every reason that the taxpayer contends that the assessment is unlawful or unauthorized and must accompany the payment. If the payment and letter of protest do not accompany one another, the payment will not be deemed to have been made under protest. The comptroller will advise the taxpayer of the amount of payment under protest that the comptroller has received and the date of the payment.

Source Note: The provisions of this §3.325 adopted to be effective July 19, 2011, 36 TexReg 4570; amended to be effective January 7, 2013, 38 TexReg 148