Bank Levies and Asset Seizures in Texas Sales Tax Cases

The Texas Comptroller’s Office has various means of enforcing companies’ state sales tax liability. Two of its most effective means of enforcement are bank levies and asset seizures. The Comptroller’s Office can pursue these enforcement mechanisms within weeks of declaring a delinquency, and when a bank or another third party receives notice that the Comptroller’s Office is seeking to collect a tax debt, that party will often have little choice but to comply.

Generally speaking, the Comptroller’s Office pursues bank levies and asset seizures after other collection efforts have failed. As the Comptroller’s Office explains:

“After all collection actions are exhausted, the Comptroller has the authority to seize and sell nonexempt real and personal property belonging to delinquent taxpayers. . . . The taxpayers have 15 days after delinquency before a levy is enforced and 20 days to resolve the delinquency before seized assets are liquidated. Taxpayer assets, including bank accounts, can be frozen without notifying the taxpayer.”

For companies facing bank levies and asset seizures related to their Texas sales tax liability, it is important to understand the Texas Comptroller’s collection process. It is also important to know what steps they can take to protect their assets from seizure. Here are some key insights:

3 Steps in the Texas Sales Tax Enforcement Process

Broadly, there are three steps in the Texas sales tax enforcement process. To collect delinquent sales tax, the Texas Comptroller’s Office can: (i) conduct an assessment (or audit); (ii) impose tax liens; and then, (iii) pursue bank levies and asset seizures.

1. Assessment

The Texas Comptroller’s Office regularly audits companies’ compliance with their state sales tax obligations. Texas sales tax audits can be both invasive and high-risk, and companies must defend themselves effectively during the audit process to avoid unnecessary liability and the risk of facing collection action.

We have written extensively about the process of defending against a Texas sales tax audit. Companies facing sales tax audits must take a proactive approach to challenging auditors’ efforts to impose additional liability and thoroughly document the audit process to pursue an appeal if necessary. Pursuing an appeal generally stays enforcement (though companies may still need to pay the amount in dispute to avoid accruing interest and penalties), and companies may be able to challenge auditors’ final determinations on various grounds.

2. Tax Liens

Once the Texas Comptroller’s Office assesses a taxpayer’s sales tax liability, the clock starts ticking. If the taxpayer does not file a timely appeal or reach an agreement with the Comptroller’s Office, it must pay the assessed amount in full when it is due.

If a taxpayer does not pay its assessed sales tax liability when it is due, the Texas Comptroller’s Office can place a tax lien on the taxpayer’s property. Liens can cover both real and personal property, and, as explained in Section 113.006(b) of the Texas Tax Code, “[o]ne tax lien notice is sufficient to cover all taxes of any nature administered by the comptroller.”

3. Bank Levies and Asset Seizures

After placing a lien on a taxpayer’s assets, the Comptroller’s Office can foreclose on the lien in order to collect the amount that the taxpayer owes (including back taxes, interest, and penalties). As discussed above, two of the Texas Comptroller’s most effective means of enforcement are bank levies and asset seizures.

Once a bank receives a notice of tax lien from the Comptroller’s Office, it is required to report all assets within its possession that are owned by the taxpayer. If the bank subsequently receives a levy notice, it must promptly transfer the taxpayer’s assets to the Texas Comptroller.

The Comptroller’s Office can also seize assets that are in a taxpayer’s possession or in the possession of a third party. For any non-cash assets, the Comptroller’s Office must provide the taxpayer with 20 days’ advance written notice prior to conducting a sale. Other procedural requirements apply as well. Provided that the Comptroller’s Office complies with these requirements, it can use the sale proceeds to satisfy the taxpayer’s outstanding liability, and any excess proceeds will then be paid to the taxpayer (unless another party that has an interest in the seized property files a timely claim).

What Taxpayers Can (and Should) Do If They Are Facing Bank Levies or Asset Seizures to Collect Texas Sales Tax

Taxpayers who are facing bank levies or asset seizures related to their Texas sales tax liability can (and generally should) take several steps to protect themselves. While a case-by-case approach is required, potential steps generally include:

• Make Note of Any Impending Deadlines – Taxpayers who have received lien, bank levy, or asset seizure notices from the Texas Comptroller’s Office should promptly make note of any impending deadlines.
• Conduct an Independent Assessment of Sales Tax Liability – If they have not done so already, taxpayers that are facing sales tax collection actions should also promptly work with their tax counsel to independently assess their sales tax liability.
• Scrutinize the Texas Comptroller’s Enforcement Efforts – Taxpayers may be able to challenge the Texas Comptroller’s enforcement efforts on both substantive and procedural grounds. With this in mind, those who are facing collection should scrutinize these efforts to determine whether a challenge is warranted.
• Pursue Any Administrative or Judicial Remedies that Are Available – If a challenge is warranted, taxpayers should promptly pursue any administrative or judicial remedies they have available. The options available to taxpayers will depend on how much time has passed and what remedies they have pursued to date (if any).
• Attempt to Work Out a Resolution with the Texas Comptroller – In some cases, it may also make sense to attempt to work out a resolution with the Texas Comptroller. If it is not possible to avoid liability entirely, it may be possible to negotiate a settlement that avoids collection while also reducing the amount owed.

Contact the Texas Sales Tax Lawyers at Brown PC

If you need to know more about how to respond to a notice of levy or asset seizure from the Texas Comptroller’s Office, we encourage you to contact us promptly. To request a confidential consultation with a Texas sales tax lawyer at Brown PC, please call 888-870-0025 or contact us confidentially online today.