What Happens at a Texas Comptroller Redetermination Hearing?

When a Texas sales tax audit results in an unfavorable liability determination, filing a redetermination request is often the next step.  It is not uncommon for Texas sales tax audits to result in unjustified outcomes, and companies can file redetermination requests on various grounds.

Filing a request for redetermination starts with submitting a Statement of Grounds to the Texas Comptroller’s Office. After reviewing a company’s Statement of Grounds, an attorney at the Texas Comptroller’s Office will typically issue a position letter disputing the grounds put forward. At this stage, there may be additional written communications, and, unless a settlement is reached, this part of the process will end with the Texas Comptroller’s Office issuing a letter informing the company that it has the right to choose between an oral or written redetermination hearing.

What to Expect During a Texas Comptroller Redetermination Hearing

When preparing for a Texas Comptroller redetermination hearing, it is critical to know what to expect. Knowing what to expect will enable informed decision-making—not only about the substantive arguments put forward, but also about the strategic aspects of pursuing a favorable resolution.

The procedures for oral and written redetermination hearings are very different. In a written hearing, the parties submit their respective written arguments for consideration by an administrative law judge (ALJ). The ALJ then issues a proposed decision and sends copies to both parties. Upon receiving the proposed decision, the parties have 15 days to file exceptions, and then they have another 15 days to respond to any exceptions filed by the other party. After considering the parties’ exceptions and responses, the ALJ then renders a final decision.

An oral hearing is much more akin to a “mini trial.” As the Texas Comptroller’s Office explains, “[an] oral hearing is a formal hearing where cases are presented, witnesses testify under oath and are examined and cross-examined.” This can take place over a single day or multiple days, depending on the complexity of the case. At the end of the oral hearing, the ALJ will issue a proposed decision, and then the parties will have the same rights to file exceptions and responses as discussed above.

This is all subject to the caveat that taxpayers and the Texas Comptroller’s Office can agree to settle at any time. If a taxpayer only has grounds to challenge a portion of the auditors’ findings, or if the grounds for the taxpayer’s challenge rely on an unsettled interpretation of the law, then targeting a settlement may be the best option. In this scenario, taxpayers will generally want to continue pursuing the hearing process to keep all their options on the table, and opening settlement negotiations will require a strategic approach that makes clear that the taxpayer is both willing to negotiate and prepared to litigate if necessary.

“Exiting” the Redetermination Process and Seeking Relief in Texas State Court

Once a company initiates the redetermination process following an unfavorable Texas sales tax audit, it may “exiting” the process at any time. As the Texas Comptroller’s Office explains, “[a] taxpayer may . . . exit from the redetermination process at any time” by doing all of the following:

• “Paying the amount due ‘under protest,’”
• “Attaching a detailed letter setting out all grounds that [the taxpayer] intends to raise in a lawsuit,” and
• “Filing a lawsuit and attaching a copy of the protest letter . . . within 90 days of payment.”

Companies that do not receive satisfactory outcomes in the redetermination hearing process can also file lawsuits. All lawsuits challenging the outcome of a Texas sales tax audit must be filed in Travis County District Court.

Key Considerations When Preparing to Challenge a Texas Sales Tax Audit Determination

With these procedures in mind, there are several key considerations for companies that are preparing to challenge a Texas sales tax audit determination. For example:

• Is Requesting a Redetermination Hearing the Best First Step? Before filing a Statement of Grounds, it may make sense to consider the other options that are available. For example, in some cases, it may be possible to work with the Texas Comptroller’s Office to seek an agreeable resolution without initiating the formal redetermination process. Conversely, if the redetermination process is unlikely to produce a favorable result, it may make sense to skip this administrative review and proceed directly to state court.
• What Grounds Exist to Challenge the Outcome of the Audit? Companies that need to challenge the outcomes of their Texas sales tax audits should work closely with their tax counsel to ensure they consider all viable grounds. In complex cases, it may be necessary to challenge different findings on different grounds—and clearly presenting a comprehensive case for redetermination will require a highly skilled approach.
• Is Targeting a Settlement the Best Option Under the Circumstances at Hand? Companies considering redetermination hearings should also assess whether pursuing a settlement is the best option under the circumstances. If so, it will also be necessary to assess whether it makes sense to pursue a settlement within or outside the redetermination hearing process.

Again, these are just examples. When companies are facing substantial sales tax liability (plus interest and penalties), an informed and strategic approach is essential. This makes it essential to work closely with experienced tax counsel, and promptly engaging them will help ensure that all viable options remain on the table.

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

If you need to know more about the Texas Comptroller redetermination process or any other aspect of responding to an unfavorable Texas sales tax audit determination, we invite you to get in touch. To request a confidential consultation with an experienced Texas sales tax lawyer at Brown PC, call us at 888-870-0025 or tell us how we can reach you online today.