After SB 82 repealed the old 25% sales tax fraud penalty and replaced it with the General Provisions chapter's 50% fraud penalty, which rate applies to audit assessments that were already pending and billed at 25% before the changeover date but not finalized until after it?

Subject

Fraud Penalty 50% Or 25% — On Pending Audit Assessments Billed Before 9/1/93 But Finalized After

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9312L1273F03

Plain-English Summary

This is an internal Comptroller Tax Policy memo, dated December 10, 1993, from Martin Cherry to four colleagues (Mike Borkland, Joe Vogel, Tom Ellis, and Richard Craig) — it is not a reply to a taxpayer inquiry. Its purpose was to settle an internal disagreement about how to apply a change in the sales tax fraud penalty made by SB 82.

Before SB 82, the sales tax act had its own fraud penalty of 25%. SB 82 repealed that 25% sales-tax-specific fraud penalty and did not replace it with a new sales-tax-specific rate. The memo concludes that, as a result, sales tax fraud assessments now fall back on the fraud penalty in the General Provisions chapter, which is 50%.

Everyone involved agreed the new 50% penalty applies to fraud assessments originally billed after SB 82's effective date, no matter what period the billing covers. The open question was what penalty applies to audits that were already billed and pending on the changeover date itself but not finalized until afterward.

The memo resolves that question: assessments that were pending on the effective date, and for which the penalty had already been assessed at 25%, continue to bear the 25% penalty even if they aren't finalized until after the changeover. The reasoning has two parts:

1. SB 82's language says it applies to the collection and enforcement of "taxes imposed" before, on, or after the effective date — but the memo notes the issue here is about the penalty, not the tax itself, so that language doesn't control.
2. The Code Construction Act — specifically Government Code 311.031(a)(3) and (4) — supports keeping the 25% penalty for those pending assessments, because the repeal of a statute does not affect any penalty already incurred under the statute before its repeal, nor any proceeding concerning that penalty; such proceedings and penalties may still be instituted, continued, or enforced as if the statute had never been repealed.

The memo closes by asking recipients to distribute copies internally so everyone applies the same rule going forward, and it notes a link to a previous accession number, 9311114L.

What This Means For You

This document is internal guidance, not a taxpayer ruling. It was written to resolve disagreement among Comptroller staff about which penalty rate to use during a statutory transition — it does not respond to a specific taxpayer's facts or grant taxpayer-specific relief.

If you're a tax professional dealing with a Texas sales tax fraud assessment from around the SB 82 changeover (fall 1993): The rate that applies may depend on the timing of the original billing, not just when the assessment was finalized. Per this memo:

• Assessments originally billed after SB 82's effective date: 50% fraud penalty (the General Provisions chapter rate that filled the gap left by SB 82's repeal of the sales-tax-specific 25% penalty).
• Assessments already pending and billed at 25% as of the effective date, even if not finalized until later: the 25% rate continues to apply, per the memo's reading of Government Code 311.031(a)(3) and (4).

Note on scope: This memo does not state the exact effective date of SB 82 (it refers only to "the changeover date" and "9/1/93" appears in this letter's title/filename, not in the body text itself). It also does not address any tax type other than sales tax fraud penalties, and it does not describe the underlying facts of any particular taxpayer's audit.

Q&A

Q: Is this a letter ruling issued to a taxpayer?
A: No. It is an internal Tax Policy Division memo from Martin Cherry to four named Comptroller staff members (Mike Borkland, Joe Vogel, Tom Ellis, Richard Craig), written to resolve an internal disagreement about penalty rates so "we can all operate under the same procedures."

Q: What did SB 82 change about the sales tax fraud penalty?
A: SB 82 repealed the 25% fraud penalty that had been part of the sales tax act. It did not adopt a separate, sales-tax-specific fraud penalty to replace it, so the fallback is the 50% fraud penalty found in the General Provisions chapter.

Q: Which penalty rate applies to a fraud assessment billed after SB 82 took effect?
A: 50%, regardless of the tax period the billing covers, according to the memo.

Q: Which rate applies to an audit that was already billed and pending, with the fraud penalty already assessed at 25%, on the effective date — but not finalized until later?
A: 25%. The memo concludes those assessments continue to bear the 25% penalty even after finalization, based on the Code Construction Act's protection of penalties already incurred under a repealed statute (Gov't Code 311.031(a)(3) and (4)).

Q: Why doesn't SB 82's language about "taxes imposed" before, on, or after the effective date settle the question?
A: Because the memo characterizes the dispute as being about the penalty, not the underlying tax — so that particular SB 82 language, which speaks to taxes imposed, wasn't treated as controlling the penalty-rate question.

Original ruling text

Date: December 10, 1993

To: Mike Borkland, Joe Vogel, Tom Ellis, Richard Craig

From: Martin Cherry

Subject: Fraud penalty; 25% or 50%

This is intended to set out the resolution of the issues that we
have been discussing about the effect of changes by SB 82 on the
fraud penalty. SB 82 repealed the 25% fraud penalty contained in
the sales tax act. SB 82 did not adopt a separate fraud penalty
for sales tax.

The result therefore is that we fall back on the fraud penalty
specified in the General Provisions chapter, which is 50%.

I believe we all agree that the 50% penalty applies to fraud
assessments originally billed after the effective date of SB 82,
regardless of the period covered by the billing; the disagreement
has been in deciding what penalty applies to audits which had been
billed on the changeover date but were notfinalized until after
that date.

After further discussion and research, and based on the discussion
between Mike, Roy Scudday, Richard and I recently, we concluded that
assessments pending on the effective date for which the penalty was
assessed at 25% will continue to bear a 25% penalty, even if not finalized
until after that date. First, SB 82 says it applies to the collection and
enforcement of "taxes imposed" before, on, or after the effective date.
However, our issue is one of penalty, not tax.

Also, support exists in the Code Construction Act for maintaining the
25% penalty. Gov't Code 311.031(a)(3) and (4) provide that the
repeal of a statute does not affect "any penalty . . . incurred under
the statute before its repeal"nor any "proceeding . . . concerning any
. . . penalty." Further, any such proceeding "may be instituted,
continued, or enforced, and the penalty . . . imposed, as if the statute
had not been repealed . . ."

Please provide copies to the appropriate persons in your respective
areas, so we can all operate under the same procedures.

NOTE: Previous Accession Number 9311114L.1 and/or 9311114L