Protesting a Texas Sales Tax Audit: Deadlines That Can Kill Your Case

If your business has just been through an unfavorable Texas sales tax audit, you have the right to file an appeal. Businesses can appeal the Texas Comptroller’s determination of their sales tax liability on various grounds, and filing a successful appeal can be essential for avoiding unwarranted taxes, interest, and penalties.

But strict deadlines apply, and businesses must meet additional requirements to successfully challenge the outcomes of their Texas sales tax audits. Mistakes and oversights can prove very costly, making it critical for businesses to take an informed, strategic, and proactive approach from the outset of the appeals process.

Businesses Have 60 Days to Appeal a Texas Sales Tax Audit

Under Texas law, once a business receives a Notice of Audit Results from the Texas Comptroller, the business has 60 days to initiate an appeal. As explained in the Texas Comptroller’s publication, Contesting Disagreed Audits, Examinations and Refund Denials:

“A deficiency determination becomes final 60 days after the statement date on the Notification, and is the Comptroller’s official determination. Full payment is due within 10 days after the day it becomes final. If the amount of the determination is not paid within 10 days after it becomes final, an additional penalty of 10 percent of the amount of the determination will be added. Interest continues to accrue on the tax/fee until paid.”

As a result, for businesses that need to dispute the outcome of a Texas sales tax audit, timely initiation of the appeals process is critical. While it may be possible to request a refund hearing after this initial 60-day window, doing so requires payment of all assessed taxes, interest, and penalties.

This initial 60-day window applies to filing an appeal with the Texas Comptroller. If a business is unable to achieve a satisfactory resolution through the administrative appeals process, the business can then take its protest to court. Strict deadlines apply here as well, and businesses must ensure they comply with all procedural and substantive requirements to seek appropriate relief.

Preparing for a Texas Sales Tax Audit Appeal

For businesses that are facing unfavorable Texas sales tax audit determinations, filing a successful appeal is the only way to avoid unwarranted liability. To help maximize their chances of success, businesses can take steps, including:

1. Conducting an Independent Assessment of Sales Tax Liability

Before pursuing an appeal, businesses must first ensure that they have grounds to do so. With this in mind, if a business has not already conducted an independent assessment of its sales tax liability—taking into account the Texas Comptroller’s position—it should do so promptly. If a business cannot affirmatively demonstrate why the Comptroller’s position is misguided, it will not be able to achieve a different result on appeal.

2. Reviewing All Relevant Communications

Businesses that are considering appeals of Texas sales tax audits should also review all relevant communications. This includes communications with auditors throughout the audit process. The purposes of this review are twofold: (i) to assist with evaluating the validity of the Texas Comptroller’s methodologies, calculations, and conclusions; and (ii) to confirm that the business has done everything necessary to comply with the law and lay the groundwork for a successful appeal.

3. Exhausting Informal Means of Resolution

In some cases, businesses can pursue informal means of resolution before initiating the formal audit process. For example, if the Texas Comptroller has not yet issued a Notice of Audit Results, it may be possible to request a reconciliation conference or an Independent Audit Review Conference (IARC). If the Comptroller has issued a Notice of Audit Results, it may still be possible to engage with appropriate personnel within the Comptroller’s office proactively to seek a favorable resolution that avoids the need for a formal appeal.

4. Preparing a Statement of Grounds

If a formal appeal is needed, one of the first steps will be to prepare a statement of grounds. As the Texas Comptroller explains:

“If you disagree with the results of an audit, your statement of grounds must list the items in the audit with which you disagree, either individually or by category, and why you disagree. If you disagree with the agency’s interpretation of the law, you must cite legal authority for your position.”

Preparing a comprehensive and legally supported statement or grounds can set the stage for a successful audit (though there are no guarantees). Doing so requires working with experienced legal counsel who can dissect the Texas Comptroller’s decision-making processes and determinations and then clearly explain why they are not supported by the law.

5. Filing a Timely Request for an Administrative Hearing

As noted above, there is a 60-day deadline for filing an appeal following an unfavorable Texas sales tax audit. Businesses must file their statement of grounds and request for an administrative hearing by mail or email using the addresses specified on the Texas Comptroller’s website.

6. Preparing Relevant Documentation and Testimony

After requesting a hearing, businesses should then work with their legal counsel to prepare all relevant documentation and testimony. This may include testimony from members of the business’s finance department, professionals from the business’s accounting firm, and other subject matter experts. Thorough preparation is essential, and here too, businesses should rely on their legal counsel to do what is necessary.

7. Identifying and Preserving Issues for Further Appeals

Since an appeal may or may not result in a favorable outcome, when going through the appeals process, businesses (or their legal counsel) should ensure they identify and preserve issues for further appeals. If securing a favorable result ultimately involves going to court, being prepared to present all pertinent issues will help ensure that the process is as efficient and cost-effective as possible.

Request a Confidential Consultation with a Texas Sales Tax Audit Lawyer at Brown PC

While this is not the only way to challenge an unfavorable Texas sales tax audit, it is the major step in most circumstances. If you need more information about your business’s options for challenging an unfavorable Texas sales tax audit, call us at 888-870-0025 or contact us online today.