Receiving a sales tax assessment after a Texas audit or exam notice is often an unexpected problem for a business to address. You may have ongoing concerns about cash flow or more important business management needs to focus on. While the first step is to consider your appeal rights and options, it’s equally important to understand the power of negotiating a Compromise and Settlement Agreement for your sales tax liability.
These settlements are often available in disputed sales tax cases and can be an effective tool for reducing the overall assessment in exchange for withdrawing your hearing request. However, Compromise and Settlement Agreements are often given at the discretion of the Comptroller’s Office and its Litigation Division. This article walks through the process for negotiating a Compromise and Settlement Agreement in Texas and how our sales tax professionals can work to resolve a dispute on behalf of your business.
When Can You Pursue a Settlement with the Texas Comptroller’s Office over a Sales Tax Dispute?
The opportunity to engage in talks about a Compromise and Settlement Agreement happens after receiving a Texas Notification of Audit or Exam Results and taking the proper steps to dispute the results. This requires businesses to file a Statement of Grounds for an Administrative Hearing Request within 60 days of the final date on the Statement. Otherwise, businesses can still submit a Statement of Grounds up to six months after the final date but must pay the entire tax liability first to exercise this appeal right. The Statement of Grounds will explain the reasons for disputing the assessment, including citations to any legal authority and documents that support the appeal.
The auditor will perform another review based on the information provided in the Statement of Grounds and issue an Amended Notification of Audit Results. If you still disagree with the results, the case goes to an attorney within the Hearings and Tax Litigation Division who will represent the Texas Comptroller in a hearing before a judge in the State Office of Administrative Hearings (SOAH). The parties can discuss possible terms for entering into a Compromise and Settlement Agreement at all times during this appeal stage until a decision is made.
Key Leverage Points to Consider in Negotiating a Compromise and Settlement Agreement in Texas
The ability to use a Compromise and Settlement Agreement in a Texas sales tax dispute will depend on several issues that relate to the willingness of the Comptroller’s Office to settle. SOAH hearings before an administrative judge present risks for both the business and the Comptroller’s Office in cases with reasonable arguments for disputing a sales tax assessment. Businesses are looking to avoid an affirmation of the prior assessment against them. In comparison, the Comptroller’s Office does not want to risk an unfavorable ruling that could impact audit and collection efforts in the future.
With this context in mind, businesses can look for the following issues as potential leverage points that could lead to a suitable Compromise and Settlement Agreement:
- The sales tax liability includes waivable penalties and interest.
- The auditor did not accept or failed to consider business records that explain exempt or nontaxable sales.
- The auditor used prejudicial sampling methods to calculate the sales tax liability or made other errors in their findings report.
- The sales tax liability involves questionable or poorly defined rules that create doubt about the taxability of a transaction.
- The auditor disregarded the procedural rights of the business during the audit (e.g., the audit was outside the statute of limitations).
The Litigation Division often has greater authority and discretion to settle a sales tax dispute compared to the state auditor who must strictly follow the applicable audit guidelines and policies. In considering the risks of a business’s successful appeal, the Litigation Division will also have to potentially manage the costs of defending the assessment given limited time and resources.
Consult with a Texas Sales Tax Professional to Resolve an Assessment Dispute
A Compromise and Settlement Agreement can help businesses lower their sales tax bill, establish a manageable payment plan, and avoid the constraints of an ongoing appeal. Negotiating a favorable settlement can be a difficult task without a firm understanding of the possible errors in your audit and the strength of your position compared to the Comptroller’s Office. Our Texas sales tax professionals have the experience and know-how to negotiate Compromise and Settlement Agreements on behalf of businesses.
Schedule a consultation with our office today to further discuss this important part of your sales tax appeal in Texas.