Main Stage, Inc., dba PT'S II v. W. Sherman McBeath, Administrator, Texas Alcoholic Beverage Commission, Honorable Jim Mattox, Attorney General of the State of Texas & Honorable Ann W. Richards, Treasurer of the State of Texas--Appeal from 167th District Court of Travis County

Mainstage v. TABC IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,
AT AUSTIN
NO. 3-91-080-CV
MAIN STAGE, INC. D/B/A PT'S II,

APPELLANT

 
vs.
W. SHERMAN McBEATH, ADMINISTRATOR,
TEXAS ALCOHOLIC BEVERAGE COMMISSION, ET AL.,

APPELLEES

 
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 167TH JUDICIAL DISTRICT
NO. 470,552, HONORABLE MARY PEARL WILLIAMS, JUDGE

Main Stage, Inc., d/b/a PT's II, (hereafter "Main Stage"), appeals from an adverse judgment in a tax refund suit. See Tex. Tax Code Ann. 112.051 (1982 & Pamph. 1992). Appellee, the Texas Alcoholic Beverage Commission (hereafter "TABC"), poses the issue on appeal as follows: When an alcoholic-beverage permittee charges customers a fee to enter its premises and then sells drinks at reduced prices, can the TABC collect gross-receipts tax on the normal sales price of the beverages? Without deciding the issue, however, we will reverse and render judgment for Main Stage because the normal sales price is not the basis on which TABC assessed the gross-receipts tax here.

 
FACTS

Main Stage operates a topless bar in Fort Worth, Texas. At times Main Stage lowers its drink prices in addition to its organizational inhibitions. But, the bar sometimes requires a "cover" charge at the door.

State law authorizes TABC to collect a tax on the gross receipts from the sale or service of mixed beverages. See Tex. Alco. Bev. Code Ann. 202.02 (Supp. 1992). TABC contends Main Stage sought to reduce its gross receipts and thereby reduce the amount of tax owed by reducing its drink prices and recovering its losses through the door charge. Clearly, tax is due on the actual gross receipts from the sale of alcoholic beverages. TABC contends that under these circumstances it is authorized to collect tax based upon the normal selling price of each beverage, rather than on the reduced price. However, that is not the basis on which it assessed appellant's tax. TABC did not determine the normal price of the beverage or what the gross receipts would have been had the drinks been sold at their normal price. Instead, it assessed tax on Main Stage's total door receipts, relying for authority upon section 202.02 of the Alcoholic Beverage Code and section 41.50(d)(2)(F) of TABC's auditing rules. Tex. Alco. Bev. Comm'n, 16 Tex. Admin. Code 41.50(d)(2)(F) (1988). TABC argues only that it may assess tax on the normal drink price and concedes it cannot exceed that basis.

Main Stage paid the $10,128.51 tax on its door receipts under protest and then sought a refund. See Tex. Tax Code Ann. 112.051. Main Stage argued at trial that TABC is not authorized under these facts to tax its total door receipts. The trial court ruled against Main Stage.

DISCUSSION

Main Stage raises three points of error in this appeal. The first two relate to TABC's taxing authority. Because of our disposition of the case, we need not reach Main Stage's third point of error.

During the period in question, section 202.02 provided:

 

A tax at the rate of 12 percent is imposed on the gross receipts of a permittee from the sale, preparation, or service of mixed beverages or from the sale, preparation, or service of ice or nonalcoholic beverages that are sold, prepared, or served for the purpose of being mixed with alcoholic beverages and consumed on the premises of the permittee.

 

1984 Tex. Gen. Laws, 2nd C.S., ch. 31, art. 2, 13, at 210 (Tex. Alco. Bev. Code Ann. 202.02, since amended).

Generally, door receipts are not includable in a permittee's gross receipts and TABC does not collect tax on the proceeds. Door receipts are subject to state sales tax collected by the Comptroller. Limited Sales, Excise, and Use Tax Act, Tex. Tax Code Ann. 151.0028 (Pamph. 1992); Comptroller of Public Accounts, 34 Tex. Admin. Code 3.298(1)(F)(i) (Supp. 1992) (Amusement Services). TABC assesses no tax on the service of "[c]omplimentary alcoholic beverages," a term defined in the rules as "[t]hose alcoholic beverages served without any charge whatsoever to the person served." 16 Tex. Admin. Code 41.50(a)(1) (emphasis added). However, TABC's auditing rules provide for collection of tax on complimentary drinks which are served to customers in conjunction with a door charge. The pertinent subsection provides:

(F) Complimentary alcoholic beverages shall be recorded on service checks only. A check should be prepared for each individual or party served. The check should be prepared as if it was a normal sale and then clearly marked as being complimentary. The service checks should be grouped daily and filed with the daily summary showing the information on the summary as required by sub-section (e)(2) of this section. A serving of an alcoholic beverage shall not be a complimentary alcoholic beverage if it is served under conditions which include, but are not limited to the following: the alcoholic beverage is served in conjunction with food or any other thing sold to the recipient, or if any entertainment or entry fee is charged. Any alcoholic beverage served under the above or similar conditions is subject to the gross receipts tax computed on the basis of the normal charge for sale or service of such alcoholic beverage by the permittee.

 

16 Tex. Admin. Code 41.50(d)(2)(F) (emphasis added). (1) The rule does not expressly address record-keeping or taxation of reduced-price drinks served in conjunction with a door charge.

TABC argues that it may consider the conditions under which a beverage is served or sold in determining tax liability. Thus, when a beverage is served without charge but an entry fee is charged, the complimentary status may be disallowed and the beverage taxed at its normal price. TABC contends that when reduced-price drinks are served in conjunction with an entry fee, those drinks are taxable in the same manner. Reduced-price drinks, TABC argues, are not "without any charge whatsoever," and thus are not within the statutory definition of tax-exempt, complimentary alcoholic beverages. Further, TABC contends its authority under the last sentence of section 41.50(d)(2)(F), authorizing it to tax receipts on the basis of the "normal charge" when alcoholic beverages are served under "similar conditions," extends to reduced-price drinks.

Assuming TABC's position is correct, section 41.50(d)(2)(F) does not provide for what occurred here. The rule does not call for a tax on entry fees. At best, the rule authorizes gross-receipts tax to be assessed based on the normal selling price of a beverage served or sold in conjunction with the charging of an entry fee, rather than on its reduced price. As TABC stated in its brief, the rule "does not tax the entry fees. . . . [but] only permits a tax to be based on the `normal' selling price of alcoholic beverages . . . [and] does not impose a tax liability . . . greater than" that price.

Here, a normal selling price was not determined. In the case of complimentary drinks, section 41.50 requires detailed record keeping including documenting the normal sales charge of each beverage given away. See 16 Tex. Admin. Code 41.50 (d)(2)(F),(e). Reduced-price drinks are not expressly encompassed within these record-keeping procedures. Main Stage did not keep these records and could not furnish TABC the information that would allow it to determine the normal selling price on which to assess gross-receipts tax. TABC did not determine a normal drink charge based upon the information available. Instead, TABC imposed gross-receipts tax on the total door receipts without regard to the normal drink price. We hold that the rule does not authorize assessing a gross-receipts tax on this basis, and TABC cites no authority for collecting a tax on this basis.

A rule or order promulgated by an administrative agency acting within its delegated authority should be construed under the same principles as if it were the act of the legislature. Texas Liquor Control Bd. v. Attic Club, Inc., 457 S.W.2d 41, 45 (Tex. 1970). Accordingly, in the same manner as statutes imposing a tax, administrative rules must be construed strictly against the taxing authority and liberally in favor of the taxpayer. See Bullock v. Statistical Tabulating Corp., 549 S.W.2d 166, 169 (Tex. 1977); Bullock v. Marathon Oil Co., 798 S.W.2d 353, 357 (Tex. App. 1990, no writ).

We sustain the first two points of error; we reverse the trial court's judgment; and we render judgment for Main Stage in the amount of $10,128.51, plus interest and costs.

 

Marilyn Aboussie, Justice

[Before Chief Justice Carroll, Justices Aboussie and Kidd]

Reversed and Rendered

Filed: June 17, 1992

[Do Not Publish]

1. The terms "normal charge," "normal sale," and "similar conditions" are not defined.