7 Ways Out-of-State Businesses Can Get Into Trouble with the Texas Comptroller’s Office

Out-of-state businesses can get into trouble with the Texas Comptroller’s Office in several ways. These include failing to collect Texas sales tax, failing to remit collected sales tax in a timely manner, and incorrectly calculating their Texas sales tax liability, among others. When facing scrutiny from the Texas Comptroller’s Office, out-of-state businesses must defend themselves effectively to avoid unnecessary liability for taxes, interest, and penalties.

Out-of-state businesses may need to comply with Texas’s sales tax laws in various circumstances. For out-of-state businesses that are subject to these laws, working with an experienced Texas tax attorney to manage compliance is essential. The Texas Comptroller’s Office aggressively targets both in-state and out-of-state businesses suspected of underpaying what they owe, and audits and investigations can lead to substantial liability.

When Can Out-of-State Businesses Get Into Trouble with the Texas Comptroller’s Office?

In most cases, out-of-state businesses get into trouble with the Texas Comptroller’s Office by failing to comply with the state’s sales tax laws. An out-of-state business can trigger Texas sales tax liability by establishing even a minimal, temporary, or indirect physical presence in the state, and businesses with no physical presence can face Texas sales tax liability based on “economic nexus.”

Along with sales tax, out-of-state businesses may be subject to various other Texas state tax requirements. With this in mind, some examples of issues that can lead to scrutiny from the Texas Comptroller’s Office include:

• Failure to collect sales tax from Texas residents
• Failure to timely remit collected sales tax
• Incorrectly calculating an out-of-state business’ Texas sales tax liability
• Improperly relying on exemptions from Texas sales tax applicability
• Shipping products into Texas (even temporarily) without collecting sales tax
• Failure to pay motor vehicle, aircraft, oil and gas, or other industry-specific taxes
• Misrepresenting an out-of-state business’s in-state sales figures

Lacking a physical presence in Texas is not necessarily a defense to liability for Texas sales tax (or any other applicable state taxes). Out-of-state businesses facing allegations of noncompliance need to ensure they make informed decisions about their defense, and this requires the advice and insights of an experienced Texas tax attorney who is familiar with the various obligations, exemptions, and defenses that apply.

How Does the Texas Comptroller’s Office Enforce Sales Tax Compliance?

The Texas Comptroller’s Office enforces sales tax compliance through various means. When targeting out-of-state businesses, its primary means of enforcement include:

Texas State Tax Audits

Just like in-state businesses, out-of-state businesses can (and do) face Texas sales tax audits. When facing audits, targeted businesses must be extremely careful to avoid both failing to make required disclosures and disclosing information unnecessarily.

Texas State Tax Investigations

Out-of-state businesses can face Texas state tax investigations as well. If the Texas Comptroller’s Office has reason to believe that a business’s leadership has knowingly failed to comply with the state’s tax laws, it can open an investigation into potential criminal tax law violations.

Texas Comptroller Collection Actions

The Texas Comptroller’s Office can also pursue various means of collection. Liens, levies and litigation are all very real possibilities, and out-of-state businesses can risk losing their Texas sales tax licenses (or their eligibility to obtain a Texas sales tax license) as well.

What Are the Risks of Failing to Comply with Texas’ Sales Tax Requirements?

The risks of failing to comply with Texas’s sales tax requirements are significant. For both in-state and out-of-state businesses, potential risks include (but are not limited to):

• Liability for unpaid taxes (even if no taxes have been collected)
• Liability for interest and penalties
• Liens, levies, and other means of collection
• Loss of eligibility to sell to Texas customers
• Criminal prosecution leading to fines and prison time

In light of these risks, out-of-state businesses that are facing scrutiny from the Texas Comptroller’s Office cannot afford to take chances. Engaging experienced defense counsel is essential, and doing so promptly can help mitigate the risk of unnecessary consequences.

FAQs: Understanding Out-of-State Businesses’ Texas Sales Tax Obligations

When are out-of-state businesses required to collect sales tax from Texas customers?

Out-of-state businesses are required to collect sales tax from Texas customers when they have either “physical nexus” or “economic nexus” with the state. Physical nexus requires some form of physical presence in the state, while economic nexus requires more than $500,000 in annual “total Texas revenue.”

Does the Texas Comptroller’s Office audit out-of-state businesses?

Yes, the Texas Comptroller’s Office routinely audits out-of-state businesses. These audits typically focus on sales tax non-compliance, though out-of-state businesses can also face scrutiny from the Comptroller’s Office for other reasons.

What should I do if I received an audit notice or target letter from the Texas Comptroller’s Office?

If you have received an audit notice or target letter from the Texas Comptroller’s Office, you should promptly engage experienced defense counsel. This is a high-risk scenario that requires experienced legal representation.

How Our Firm Helps Out-of-State Businesses in Texas Sales Tax Matters

Our firm represents in-state and out-of-state businesses in significant Texas state tax controversies. If your business is facing scrutiny from the Texas Comptroller’s Office, we can:

• Assist with preserving all relevant records in compliance with Texas law
• Conduct an attorney-client privileged Texas state tax compliance assessment
• Assess your business’s risk and identify viable defenses
• Intervene in the Texas Comptroller’s audit or investigation
• Execute a comprehensive defense strategy focused on avoiding unnecessary liability

We can provide emergency legal representation for matters involving the Texas Comptroller’s Office when necessary. To learn more about our Texas state tax controversy practice, contact us today.

Request a Confidential Consultation with an Experienced Texas Tax Attorney

If your out-of-state business is facing scrutiny from the Texas Comptroller’s Office, we encourage you to contact us promptly for more information. To request a confidential consultation with an experienced Texas tax attorney at Brown PC, call us at 888-870-0025 or contact us confidentially online today.