Negotiating Texas Sales Tax Settlements and Payment Agreements

For companies facing substantial Texas sales tax liability following an unfavorable audit or an unsuccessful appeal, paying the full amount due is not necessarily the only option available. Companies that have independently identified Texas sales tax delinquencies may also have options to pay less than the full amount they owe. The Texas Comptroller’s Office will be willing to negotiate settlements in many cases—including settlements with provisions for paying companies’ outstanding sales tax debt over time.

With that said, seeking a Texas sales tax settlement requires an informed and strategic approach. Companies must be able to demonstrate that negotiating a settlement is in the state’s interests, and they must be prepared to propose reasonable terms with which they can comply. While negotiating a sales tax settlement can significantly reduce the amount a company owes, breaching a settlement agreement with the Texas Comptroller’s Office can lead to costly litigation and the potential for additional liability.

5 Key Considerations for Negotiating a Sales Tax Settlement with the Texas Comptroller’s Office

When facing substantial state sales tax liability in Texas, seeking a tax settlement with the Comptroller’s Office is an option worth considering—though it may not be the only option available. Here are five key considerations for companies that find themselves in this scenario:

1. Is Seeking a Settlement Your Company’s Best Option?

Before targeting a sales tax settlement with the Texas Comptroller’s Office, it is imperative to assess whether this is the best option under the circumstances at hand. While seeking a settlement can mitigate a company’s liability, there may also be options for avoiding liability entirely. For example, companies may challenge auditors’ determinations on both substantive and procedural grounds and pursue multiple levels of appeal through administrative procedures and in Texas state court.

2. What Leverage Does Your Company Have?

Just like negotiating with private parties, negotiating with the Texas Comptroller’s Office requires leverage to secure a favorable deal. In many cases, issues that can serve as grounds for appeal can also serve as leverage in settlement negotiations. For example:

• The business’s purported sales tax liability is based on unclear or disputed tax rules.
• The Texas sales tax audit relied on sampling methods that raise questions about its accuracy.
• The auditor failed (or refused) to consider relevant documentation or legal issues.
• The auditor failed to comply with procedural restrictions or requirements.
• The business’s outstanding liability includes waivable penalties and interest.

Of course, if a company has strong grounds to appeal its Texas sales tax liability, it should not accept undue liability via settlement. However, if a company’s likelihood of success on appeal is in question, settling could prove a cost-effective means of resolution for both sides. The complexity of the issues at hand can also play a role in settlement negotiations, as it will factor into the potential costs of seeking judicial enforcement for the Texas Comptroller’s Office.

3. How Much Should Your Company Offer to Pay?

If seeking a Texas sales tax settlement makes sense under the circumstances at hand, the question then becomes: How much should your company offer to pay?

Answering this question requires a thorough assessment of the circumstances at hand. This includes not only your company’s ability to pay, but also the strength of your company’s leverage. Generally speaking, the more leverage a company has, the more the Texas Comptroller’s Office will be willing to move from its current position. Conversely, if the Texas Comptroller’s Office believes that its position is sound and that it can successfully pursue enforcement through liens, levies, asset seizures or other means, it may be less willing to settle on terms that are favorable to the company.

Making an informed decision will necessarily involve a certain amount of judgment. While companies should be careful not to offer more than necessary, they must also make reasonable offers that encourage good-faith settlement negotiations. Experienced tax counsel should be able to provide valuable insights and assist in opening negotiations on favorable terms that will ultimately facilitate a favorable settlement.

4. What Terms Should Your Company Be Willing to Accept?

Beyond the amount to be paid, companies must carefully consider the other terms they are willing to accept as part of a Texas sales tax settlement. For example, companies must be careful not to acknowledge liability for disputed amounts, as this could lead to issues with the Texas Comptroller’s Office in the future. Companies must be careful when negotiating enforcement mechanisms as well, as this, too, can lead to complications that could—and perhaps should—have been avoided.

5. Should Your Company Seek to Pay Over Time?

In this same vein, companies should also consider whether to seek an installment agreement that allows them to pay over time. While seeking a payment agreement can provide flexibility, companies may also secure more favorable settlement terms by agreeing to pay in full (assuming they are financially able to do so).

With that said, if a company cannot satisfy its outstanding Texas sales tax liability with a single lump-sum payment, then seeking an installment plan could be a key aspect of the settlement negotiation process. Ultimately, in all cases, a custom-tailored approach is required, and companies pursuing Texas sales tax settlements should work closely with their tax counsel to ensure they make informed, strategic decisions based on their specific circumstances.

Discuss Your Company’s Options with an Experienced Texas Sales Tax Attorney in Confidence

At Brown PC, we assist in-state and out-of-state companies with resolving significant Texas sales tax controversies. If you need to know more about pursuing a settlement with the Texas Comptroller’s Office, we invite you to get in touch. To request a confidential consultation with an experienced Texas sales tax attorney, call us at 888-870-0025 or tell us how we can get in touch with you online today.