Can the Texas Comptroller Shut Down Your Business for Sales Tax Debt?

The Texas Comptroller’s Office has substantial authority to enforce businesses’ state sales tax obligations. However, one thing it cannot do is shut down a business over a sales tax debt. With that said, the Comptroller’s Office can pursue various means of enforcement that can make it difficult for businesses to continue operating, and, as a result, businesses that are facing outstanding Texas sales tax liability should consult with experienced tax counsel to ensure that they are making informed and strategic decisions about how best to proceed.

How the Texas Comptroller Can Enforce Businesses’ Sales Tax Obligations

If your business is behind on its Texas sales tax obligations, what are the risks involved? In this scenario, businesses (and, in some cases, their owners and other individuals) can face risks including:

Texas Sales Tax Audits

The Texas Comptroller’s Office routinely conducts sales tax audits focused on uncovering businesses’ underpayment of their state sales tax liability. If your business is facing a Texas sales tax audit, defending against the audit needs to be a priority. While this is true in all scenarios, it is especially true if you know that your business has not fully complied with its sales tax obligations.

There are several ways to approach a high-stakes Texas sales tax audit. If it is unlikely that your business will be able to avoid liability entirely, then the best approach may be to proactively target a settlement that mitigates your company’s financial responsibility. Determining what is best under the circumstances will involve consulting an experienced Texas sales tax attorney who can provide advice based on their experience representing clients in similar scenarios.

Interest and Penalties

Unpaid Texas sales tax accrues both interest and penalties. Interest begins to accrue after 60 days, while penalties begin to accrue immediately. A 5-percent penalty applies for the first 30 days, and a 10-percent penalty applies beginning on day 31. Interest and penalties can substantially increase the amount that businesses owe; and, similar to a business’s obligation to pay delinquent sales tax, the Texas Comptroller’s Office can enforce a business’s obligation to pay interest and penalties through liens, levies, asset seizures, and other means.

State Tax Liens

Once a business falls behind on its sales tax obligations, the Texas Comptroller’s Office can begin the collection process by securing a state tax lien. In Texas, a state tax lien covers all taxes owed, whether they accrue before or after the lien is secured.

Liens can have substantial impacts on businesses. Not only can they impair a business’s ability to dispose of its assets, but they can also impact businesses’ ability to secure credit going forward. As discussed below, once the Texas Comptroller’s Office secures a lien, it can promptly pursue a levy or asset seizure.

Levies and Asset Seizures

Securing a state tax lien allows the Texas Comptroller’s Office to move forward with pursuing levies and asset seizures. Levies compel banks and other third parties to transfer funds (or other assets) to the Comptroller’s Office, while asset seizures allow the Comptroller’s Office to sell a business’s real or personal property and then use the sale proceeds to satisfy the business’s tax debt. Depending on a business’s financial circumstances, a levy or asset seizure could substantially impair its ability to continue operating as a going concern.

Suspension or Revocation of Licenses and Permits

In addition to pursuing liens, levies, and asset seizures, the Texas Comptroller’s Office also has the authority to suspend or revoke a delinquent business’s state tax licenses and permits. If the business does not have other means of generating revenue (i.e., out-of-state sales or sales of non-taxable goods or services), this could pose substantial challenges as well. Additionally, under Section 151.708 of the Texas Tax Code, “engag[ing] in business as a retailer” without a required permit is a criminal offense, and “[e]ach day a person or an officer of a corporation operates a business without a permit or with a suspended permit is a separate offense.”

Personal Liability

In certain circumstances, a business’s owners, officers, directors, and other personnel can face personal liability for the business’s delinquent tax liability, including interest and penalties. Under Section 111.016 of the Texas Tax Code, individuals who qualify as “responsible individuals” can be held personally liable if they are involved in the business’s sales tax operations and they willfully “fail[] to pay or cause to be paid” sales tax owed to the Texas Comptroller’s Office. Willful tax law violations can lead to criminal charges—including felony charges in many cases.

Protecting Your Business (and Yourself) Against Texas Sales Tax-Related Risks

With these risks in mind, owners and executives who have concerns about their business’s outstanding sales tax liability should consult with experienced tax counsel promptly. While options are available, it is critical to make informed decisions on a case-by-case basis, and acting promptly can also be essential in some cases.

An experienced Texas sales tax lawyer can provide the advice and representation needed to pursue a favorable resolution that protects the business to the fullest extent possible. Whether this involves disputing the business’s sales tax liability, pursuing a settlement with the Texas Comptroller’s Office, or taking some other legal action will depend on the circumstances at hand. If your business’s viability is in jeopardy, you need to be confident that you are making sound decisions that protect your business’s interests not only vis-à-vis the Texas Comptroller’s Office, but vis-à-vis its commercial creditors and other interested parties as well.

Discuss Your Business’ Outstanding Sales Tax Liability with a Texas Sales Tax Lawyer at Brown PC

If you need more information about the risks of substantial sales tax liability in Texas, we invite you to get in touch. To request a confidential consultation with an experienced Texas sales tax lawyer at Brown PC, give us a call at 888-870-0025 or tell us how we can help online today.