TexasMarch 20213 min read

Protesting Texas Sales Tax Audit Results

The Texas Comptroller is notoriously aggressive on sales tax compliance, but they aren’t always correct and accurate with its sales and use tax audits, and the consequences are disturbing.

Sometimes it’s clear that the state has over-assessed you during a sales tax audit, making the decision to protest the assessment an easy one. Other times, though, the answer isn’t so obvious. Over the years, we have seen numerous occasions where the state either misconstrued the sales tax law or misapplied the correct meaning during an audit. For all the cases like this that we do see, I’m sure there are many more that we don’t, and it’s unlikely that a business owner not well versed in Texas sales tax would be able to identify and fight these issues with the Texas Comptroller. What makes this particularly troubling is that in Texas, once the Comptroller has issued its findings, the burden of proof is on you, the taxpayer, to prove your innocence!

Texas — Sales Tax

Guilty until proven innocent; the ugly side of Texas tax law

The nightmare became a reality for a mixed beverage retail store that fell victim to the lack of evidence trap. In this case, the Texas business did not provide records acceptable to the auditor’s liking. As a result, the auditor depended on purchase data and credit card sales to determine tax liability. The audit resulted in an assessment that was multiplied when the auditor tacked on 10% interest in addition to a gigantic 50% penalty. Of course, the audit results were protested (unsuccessfully) with the Texas Comptroller before making their way to the State Office of Administrative Hearings (“SOAH”).

On appeal, SOAH affirmed the Comptroller’s assessment. Specifically, SOAH determined that the Comptroller can estimate sales tax liability based on the available information if the taxpayer fails to maintain adequate records.

Despite arguing that the assessment incorrect, the taxpayer was only able to provide a single register printout to summarize sales for one of the years audited. Without any corroborating evidence, the judge was forced to rule in the Comptroller’s favor with respect to the tax at issue.

Audit Process Overview

Notice & Initial Response2–8 weeks

The state issues a formal audit notice. This is the most critical moment to engage legal representation.

Document Gathering4–12 weeks

Auditor requests sales records, invoices, exemption certificates, bank statements, and tax returns.

Field Work & Examination8–24 weeks

Auditor reviews records, applies sampling methodology, and may request follow-up documentation.

Preliminary Findings3–6 weeks

Auditor issues a preliminary assessment. A critical challenge point before the assessment becomes final.

Rebuttal & Negotiation4–12 weeks

Your attorney submits formal rebuttals and legal argument. Many cases are resolved at this stage.

Final Assessment2–4 weeks

State issues its final determination. Appeal deadlines begin here if unresolved.

Lessons learned

This case serves as a good example for why it’s so important to have someone experienced in sales tax to represent your business after being assessed by the Texas Comptroller. While having redundant, consistent, and logical evidence certainly would have helped this business owner’s case, having a qualified representative that knows how to present and argue the issues at hand could have resulted in a completely different outcome. Additionally, a sales tax professional would have accurately predicted the uphill battle ahead and pushed the Comptroller to settle the case before trial with much more favorable results.

Sales Tax Helper has over five decades of cumulative experience in assisting taxpayers who need to litigate their tax matters to get just results. Our firm focuses on the tough situations, the times when hard-hitting actions are needed to take a negative situation and get the very best out of it. Additionally, we work with CPAs and tax consultants whose clients need aggressive legal help when dealing with the Texas Comptroller or other tax authorities.

If you’ve been assessed by the Texas Comptroller, schedule a sales tax assessment review with our sales tax experts. Whether you hire our firm or not, we offer a thorough and honest evaluation so you can decide how to proceed with knowledge and confidence.

Resources:

•Mixed Beverage Sales Tax/RDT, CPA HEARING 115,327
•Tax Code § 111.0081(c)
•Texas Tax Code § 111.0611. Personal Liability for Fraudulent Tax Evasion
•Texas Tax Code § 111.061. Penalty on Delinquent Tax or Tax Reports
•Tax Code § 111.205(b)
•Tax Code § 111.103; 34 Tex. Admin. Code § 3.5(e)
•http://comptroller.texas.gov/taxes/publications/96-1789.pdf.
•Tax Code §§ 111.009, 105; APA, Tex. Gov’t Code § 2001.146; S.B. 1095, 85Th Leg., 2017; 34 Tex. Admin. Code § 1.35.
•APA, Tex. Gov’t Code § 2001.146(g).

Whether you need a sales tax attorney or consultant, Sales Tax Helper matches the service to meet your needs. [Contact us](/contact-us) today at 866-458-7966 for a consultation.

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