5 Reasons Companies Doing Business in Texas Need to Prioritize State Tax Compliance

In-state and out-of-state companies doing business in Texas need to prioritize state tax compliance. Companies’ compliance obligations can vary widely, and all forms of noncompliance can create significant liability exposure. The Texas tax attorneys at Brown PC assist companies nationwide in managing compliance and, when necessary, defending against Texas Comptroller audits and investigations.

While Texas does not have a state corporate income tax, companies doing business in Texas may still have a variety of state tax compliance obligations. Along with the state’s franchise tax, companies may need to pay sales tax, property tax, fuel and motor vehicle taxes, and various other taxes on a monthly, quarterly, or annual basis. Working with an experienced Texas tax attorney is essential for effectively managing compliance, and companies should work with their tax counsel to ensure they have the documentation needed to withstand scrutiny from the Texas Comptroller’s Office.

Why In-State and Out-of-State Companies Need to Prioritize Texas State Tax Compliance

Effectively managing Texas state tax compliance is important for several reasons. This is true for both in-state and out-of-state companies. Some of the most important reasons to prioritize compliance include:

1. Texas State Tax Compliance is Complex

In-state and out-of-state companies can have multiple tax obligations under Texas law. Determining which taxes apply (and when) can be challenging; and, to maintain compliance, companies must ensure that they collect and remit all applicable taxes when due. From increased revenue to new in-state business activities, various factors can potentially trigger additional tax obligations, and companies must meet all of their obligations in a timely manner.

2. Noncompliance with Texas’s Tax Laws is High-Risk

Failure to comply with a company’s Texas state tax obligations can result in substantial liability. Not only do companies remain liable for any unpaid taxes they owe, but underpayment (or nonpayment) can also trigger interest and penalties.  

3. The Texas Comptroller’s Office Prioritizes Corporate Enforcement

Since Texas does not have a state income tax, the Texas Comptroller’s Office prioritizes corporate enforcement. The Comptroller’s Office routinely conducts audits and investigations targeting all forms of alleged Texas state tax noncompliance.

4. Mistakes Can Be Addressed, But Not Undone

While companies can (and should) take proactive measures to correct past mistakes, state tax mistakes generally cannot be undone. Once a company becomes liable for interest and penalties, the company must pay unless it works out a resolution with the Texas Comptroller.

5. Mistakes at the State Level Can Also Have Federal Implications

In some cases, mistakes at the state level can have implications at the federal level as well. If a company has miscalculated its state tax liability (or misinterpreted or misapplied Texas’s state tax laws), this could cause inaccuracies on its federal returns. Federal tax mistakes can also result in substantial liability for interest and penalties, and Internal Revenue Service (IRS) audits and investigations can also pose substantial risks.

FAQs: Managing Companies’ Risk Related to Texas State Tax Compliance

When do out-of-state companies need to comply with Texas’s tax laws?

Out-of-state companies must comply with Texas’s tax laws if they have either physical or economic nexus with the state. Physical nexus is determined based on a company’s contacts with the state, while economic nexus is determined based on a company’s total revenue from in-state sales.

What if I disagree with the Texas Comptroller’s nexus determination?

If the Texas Comptroller’s Office has determined that your company has nexus with the state and you disagree, challenging the Comptroller’s nexus determination will be a key first step toward defending against unwarranted liability. While there are several ways to dispute the Texas Comptroller’s determination of physical or economic nexus, mounting a successful defense requires an informed, strategic, and well-documented approach taking into account the unique circumstances at hand.

What should I do if my company is not in compliance with its Texas state tax obligations?

If your company is not in compliance with its Texas state tax obligations, coming into compliance needs to be a priority. While there are opportunities to mitigate a company’s liability when addressing state tax law violations proactively, these opportunities can go away once the Texas Comptroller’s Office initiates an audit or investigation.

How Brown PC Can Help

Brown PC is a Texas tax law firm that assists companies with compliance and provides defense representation during state and federal tax audits and investigations. Here are just some of the ways we help in-state and out-of-state companies in Texas state tax matters:

• Assessing Companies’ Compliance Obligations – Our Texas tax attorneys can thoroughly assess your company’s state tax compliance obligations. We can assess your company’s federal tax obligations as well, and we can assist with executing strategies to mitigate your company’s tax liability as warranted.
• Developing and Implementing Comprehensive Compliance Programs – Our Texas tax attorneys can also assist with developing and implementing a comprehensive tax compliance program. When approaching Texas state tax compliance, a custom-tailored approach is key, and all companies subject to the Texas Comptroller’s oversight must ensure they have the documentation needed to demonstrate a good-faith approach to compliance when necessary.
• Dealing with the Texas Comptroller’s Office When Necessary – We also deal with the Texas Comptroller’s Office on behalf of in-state and out-of-state companies when necessary. If your company is facing a Texas state tax audit or investigation, we can intervene, assess your company’s risk, and then develop and execute a defense strategy focused on efficiently achieving a favorable resolution.

Request a Call with a Texas Tax Attorney at Brown PC

If you have questions or concerns about your company’s Texas state tax obligations, we invite you to get in touch. We can help you make informed and strategic decisions, and we can work with the Texas Comptroller’s Office on your company’s behalf as warranted. To request a call with an experienced Texas tax attorney at Brown PC, call us at 888-870-0025 or tell us how we can help online today.