Disputing a sales tax assessment in Texas is an important right for business owners to understand and consider before submitting payment or taking other actions. The appeal process may offer businesses several opportunities to reduce their sales tax liability either through ruling from an administrative law judge or negotiated settlement with the Comptroller’s Office.
Our guide explains issues that may warrant an appeal of your audit results and the different steps for engaging in the process. Our Texas sales tax professionals provide businesses with varying levels of representation and support in their disputes depending on their needs. If you recently received an assessment notice, contact us about contesting the liability with the professionals at Sales Tax Helper, LLC.
When Can a Business Appeal a Sales Tax Assessment in Texas?
The right to contest a sales tax assessment generally begins once the Texas Comptroller’s Office issues either a Texas Notification of Audit Results or a Texas Notification of Exam Results. The Comptroller’s Office typically issues these notices after completing an audit or review of a business’s sales tax account. These notices become final 60 days after their statement date, which is an important date to remember for considering the appeal options discussed in more detail below.
Note: If your business is currently under audit, alternative dispute resolution processes may still be available through the audit office. You can request a reconciliation conference with the audit manager, and if that is unsuccessful, you can ask for an independent audit review conference. These can be cheaper and faster methods for addressing issues with an auditor’s process or findings before they become final.
Reasons to Consider Appealing an Assessment of Texas Sales Tax
Appealing a sales tax due notice usually requires a cost-benefit analysis that weighs the potential reward of challenging the assessment compared with its costs. This requires understanding the different issues that could result in a reduced tax bill following a successful appeal. Common examples that our Texas sales tax professionals regularly see in their handling of appeals for businesses often include the following:
- The assessment includes penalties (these are often waivable by the Comptroller’s Office)
- You have disagreement over the taxability of a good or service the business sells
- The auditor refused to consider or accept certain business records that support your tax position (e.g., exemption certificates or proof of out-of-state sales)
- The auditor used a prejudicial sampling method to determine tax owed
Identifying the issues available for appeal can help you determine potential leverage in the dispute and whether it may make sense to seek a settlement or pursue litigation to obtain a formal ruling from the Texas District Court.
The Texas Sales Tax Appeal Process
The Texas sales tax appeal process after an audit’s end involves three stages that businesses can use to pursue a reduction in tax liability. Throughout each of these steps, businesses will also have opportunities to request a settlement agreement with the Comptroller’s Office.
Requesting a Redetermination Hearing Before the Final Date on the Sales Tax Audit or Exam Notice
The first appeal option is an informal redetermination hearing that businesses can request before a Notification of Audit or Exam Results becomes final. Businesses only have 60 days to make this request from the date shown on the notice. The request should state the amount of tax, penalties, or interest the auditor should remove from the assessment and the reason for these adjustments.
The benefit of pursuing a redetermination hearing is that the business does not have to pay the assessment amount in advance. However, interest does continue to accrue on the amount of tax ultimately owed after the redetermination.
Preparing a Statement of Grounds for an Administrative Hearing
If a redetermination hearing is unsuccessful or the assessment final date has passed, businesses can request a hearing of their dispute through the State Office of Administrative Hearing (SOAH). Requesting a hearing requires filing a Statement of Grounds to the Audit Processing Section of the Texas Comptroller’s Office.
The Statement of Grounds will explain the basis of your disagreement and the factual or legal arguments that support it. An authorized representative must sign the Statement of Grounds and submit it by mail or email within six months of the final date on the Notice of Audit or Exam Results. This will also require completion of a power of attorney if the authorized representative is a third party, such as a Texas sales tax professional from Sales Tax Helper. The business must also pay the full amount of sales tax allegedly owed, including accrued penalty or interest.
If you are outside the six-month appeal period, you may still be able to request a refund hearing if it is made within the statute of limitations for the period. This is usually four years from when the sales tax was due and payable.
The Statement of Grounds goes to the auditor who will review the raised issues and supporting documentation. The auditor will either deny the request or agree to certain adjustments. If the adjustments are agreeable, then you can settle the dispute by signing a form called a Taxpayer’s Withdrawal of Request for a Hearing and Consent to Contested Case Dismissal. If you still disagree with the auditor’s decision, the dispute will go an attorney in the Hearings and Tax Litigation Division who will represent the Comptroller’s Office in a hearing.
Requesting a Settlement with the Audit Division or Administrative Hearings Section
Before the dispute goes to SOAH, you may have an opportunity to enter into a Compromise and Settlement Agreement. The Hearings and Tax Litigation Division often has greater discretion in resolving contested sales tax assessments compared to the state auditors who are bound to follow strict rules and policies. Generally, settlement offers and opportunities are a trade-off in the Comptroller’s Office’s willingness to accept a lesser amount of sales tax in exchange for a faster, more certain resolution of the case.
The Comptroller’s Decision Following a SOAH Hearing Before an Administrative Law Judge
Disputes that do not settle with the Litigation Division will go to a hearing before an administrative law judge with the SOAH. This process operates much like a court trial with the presentation of evidence and arguments in support of each party’s position. The judge will then issue a proposed decision that the Comptroller’s Office will consider in making a final decision. Businesses can further appeal unfavorable decisions following the SOAH hearing by filing a lawsuit in Texas District Court.
Meet with a Texas Sales Tax Professional About Appealing an Assessment
An appeal of your Texas sales tax bill can be an effective method for reducing liability and addressing unfair audit practices by the Comptroller’s Office. Having a trusted and experienced representative throughout the process can be beneficial in advocating for your tax position and managing each step of the appeal. For additional support reviewing or filing a dispute over results from a Texas sales tax audit, our team of sales tax professionals are here to help. Schedule a consultation with our office today.