Notice from the Texas Comptroller’s Office about an upcoming sales tax audit or a bill for unpaid sales tax will send a chill down any business owner’s spine. For advertising agencies, this experience can be truly discomforting as the Texas state auditor dissects every contract, invoice, and purchase to confirm sales tax was properly collected and paid. Limited sales tax knowledge and a lack of support can make the strongest business owners feel helpless throughout the process. Our guide provides a starting point for defending your advertising agency in a Texas sales tax audit or related appeal and identifying the issues that could make all the difference in your tax bill.
Why Advertising Agencies Are Often the Target of Texas Sales Tax Audits
Sales tax audits in Texas can happen for a variety of reasons. Your advertising agency may simply be unlucky because of randomized audit selection, or the audit could be a consequence of other issues. For example, the Texas Comptroller’s Office may rely on data from your prior sales tax returns, the audit of a related entity, or other information it receives about your business.
The risk of an audit for advertising agencies in Texas can be higher compared to other industries because of the mixed sales tax treatment of your products and services. It’s not uncommon for advertising companies to provide a combination of offerings, some of which may be taxable while others are not. This makes it easy for mistakes to occur and is a fact the Texas Comptroller’s Office understands well. Our information guide on how Texas sales tax applies to advertising agencies explains this topic in greater detail.
Key Issues to Consider in Your Texas Advertising Company’s Sales Tax Audit Defense
The process for Texas sales tax audits is not overly complex but can be difficult to navigate without prior experience and confidence in your past reporting. The difficulty for most business owners usually comes from several issues but how they impact an audit will depend on the unique circumstances of your advertising agency. Your answers to the following questions may provide a good measure of your preparedness for a Texas sales tax audit and whether additional support could be beneficial.
- Do you have a Texas sales tax permit and have you been reporting and paying sales tax?
- How complete and detailed are your business records?
- Do you know how Texas sales tax applies to every advertising product or service you provide?
- Do you have a sales tax collected but not remitted issue?
- Are there notable differences in your reported sales compared with common control documents, such as your federal income tax returns or bank statements?
- Does your advertising agency provide products or services to customers located in states other than Texas?
Advertising agencies that lack detailed records to support their past sales tax reporting are likely to face scrutiny from the auditor that could result in additional assessment. Sometimes this scrutiny is justified while other times it is a failure of the auditor to properly consider your documents or other aspects of the advertising agency. Our sales tax professionals provide clients with a rigorous defense of their audit to protect them from overzealous state auditors and unfair sales tax policies.
What Happens If You Disagree with the Results of a Texas Sales Tax Audit?
Getting hit with a sales tax assessment after a Texas Comptroller audit can feel like a gut punch, especially for advertising agencies navigating the state’s complex tax rules. The good news? You have the right to appeal in Texas—and depending on the situation, you may be able to reduce your tax liability.
Once you receive a Notification of Audit Results or Notification of Exam Results, you have 60 days to request a redetermination hearing before the assessment becomes final. If that deadline passes, you can still escalate the dispute through an administrative hearing, though that process requires paying the assessed tax upfront. Before deciding whether to appeal, it’s crucial to know what issues could work in your favor.
Common Reasons an Advertising Agency Could Benefit from Appealing a Sales Tax Audit
If your audit didn’t go as planned, here are some key reasons you might have grounds to challenge the results:
- Misclassification of Taxable vs. Nontaxable Services – Texas tax law is tricky when it comes to advertising services. If an auditor mistakenly classified your nontaxable services (like creative concept development, public relations services, consulting, or media placement) as taxable, you may have a strong case for appeal.
- Disputed Taxability of Employee-Fabricated Property – Sales tax applies to finished art and other tangible items created in-house, but if your preliminary artwork was wrongly classified as taxable, you could argue for a reassessment.
- Auditor Ignored Key Documentation – If you have exemption certificates, resale certificates, out-of-state sales, or other records proving certain sales weren’t taxable in Texas—and the auditor didn’t properly consider them—you might be able to challenge the findings.
- Errors in Sampling Methods – Auditors sometimes use sampling to estimate your taxable sales if documents are insufficient. If their sample included biased data or parameters, the results could be inaccurate, and you might have grounds for appeal.
- Substantial Penalties or Interest Charges – The Comptroller’s Office can waive penalties in certain situations. If the advertising agency has a strong history of past compliance or other favorable circumstances, removing these penalties during appeal may be possible.
- Disagreements Over Third-Party Purchases – If your agency acts as a seller rather than an agent, some purchases should not be taxed because they are bought for resale purposes. If the audit mistakenly assessed tax on these purchases, you may have a solid appeal argument.
Navigating a sales tax audit appeal can be complicated, but understanding these potential issues can help you decide whether to fight back. If your agency recently received an audit assessment, don’t wait—exploring your options early could mean the difference between a fair outcome and an unnecessary tax burden.
FAQs on Texas Sales Tax Audits and Appeals for Advertising Agency Businesses
Q: How Far Back Can the Texas Comptroller’s Office Audit and Assess My Advertising Agency for Sales Tax?
Texas generally limits sales tax assessments to four years from when the advertising agency filed the sales tax return under the statute of limitations in Administrative Code Rule § 3.339. However, some circumstances could extend this period, such as failing to file a return or filing a return with fraudulent information.
Q: Can the Texas Comptroller’s Office Audit My Advertising Agency If I’m Not Located in Texas?
Yes, your advertising agency could still have nexus in Texas if it provides taxable products or services to customers in the state. This can create sales tax obligations that could lead to an audit if not followed. The economic threshold in Texas is $500,000 in revenue from sales in the state from the past 12 calendar month period.
Q: What Is the Deadline to Appeal the Results of a Texas Sales Tax Audit?
The first deadline to appeal an assessment following a Texas sales tax audit is generally 60 days from the date shown on a Notification of Audit or Exam Results.
How Sales Tax Helper Can Support Your Advertising Company in a Texas Sales Tax Audit or Appeal
Advertising agencies are often at a disadvantage in Texas sales tax audit and appeal processes because of unfamiliarity with the rules that will determine the outcome of their case. Our sales tax professionals help to even the playing field by identifying auditor errors and other appealable issues that could limit your sales tax liability. To learn more about how we may be able to help your advertising agency in its audit defense or appeal, schedule a consultation with us today.