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Gemini Las Colinas LLC



After receiving an assessment from the Department for $724,047.43 in gross receipts tax, penalty, and interest, the Taxpayer submitted a timely protest on November 1, 2017. The Taxpayer is an assisted living community that provides apartments and services for its tenants. Though the Department agreed that the receipts from the lease of real property are deductible, much of the amount that made up the receipts was from providing services and was not deductible. Determining the correct amount that would qualify for the deduction, then, was the main issue in this protest. The Department had based its calculation of the assessment using a method based on the Taxpayer’s federal reporting. The Taxpayer argued that the alternative methods of calculating the tax that it presented allowed for a greater deduction to be taken. Though there are no regulations that prescribe a method for calculating receipts when there is a combination of leasing real property and services, the Department has provided rulings that a variety of methods may be used when they are reasonable. Since the assumption was that the assessment was correct, the Taxpayer needed to provide clear countervailing evidence that the method used by the Department, which used the Taxpayer’s federal reporting, was incorrect. The Taxpayer presented two methods of calculating the receipts, both provided long after it received the assessment. The analysis presented, the Hearing Officer determined, was not supported by actual examples in its books and records. The evidence, instead, supported the Department’s conclusion that reporting on an IRS form was more accurate. The Hearing Office determined that the method being used by the Department was reasonable, particularly because at the time of the audit the Taxpayer provided no analysis of its allocation. The Taxpayer supplied competing methods for calculating the amount of a rental deduction but it did not support that the alternative methods used were more reliable. Unsubstantiated statements that an assessment is incorrect cannot overcome the presumption of correctness. In the end, the Taxpayer simply presented insufficient evidence. Because of these reasons, the Hearing Officer ordered the protest denied.