Effective Ways to Overcome Texas Sales Tax Audit and Penalties
The main task of an auditor is to determine whether the companies have collected, reported and properly paid the state taxes. They try to identify paid excess taxes and cover government expenses on things that might be absolved. Taxpayers sometimes pay taxes on items that may be exempt.
Sale tax Audits can be conducted to:
1. To ensure that tax laws are applied in a uniform way in Texas
2. To Avoid tax evasion
3. To promote the intentional compliance or consistency
4. To educate taxpayers
If you meet the criteria for Late filing or collecting the sales but not paying sales tax, you will be held liable for the tax due, receiving sales tax audit with penalties as well as interest.
If you get a notification of sale tax audit
In Texas, the Office of the Comptroller of Public Accounts will frequently audit company sales tax returns and may impose penalties for late filing, incorrect reports, intentional errors, intentional omitting information or other violations.
After receiving a notification, if you do not agree with a penalties or resolution issued by the Comptroller of Public Accounts, you have several options that you can follow to appeal your decision. These options are:
1. Statute of LimitationsIn the sales tax law, the "statute of limitations" is the maximum amount of time that state authorities have to investigate and begin a possible audit or process related to a Texas sales tax return in case of insufficient payment, incorrect reports, etc. Comptroller can’t begin an audit or issue a fine after this period of time.
The statute of limitations in Texas is 4 years from the due date of the tax. If the tax was underestimated by at least 25%, a limitation period is not provided.
2. Penalties depending on the violationSales tax audit usually includes a 10% penalty. On the off chance, that this is your first audit, it ought not make a fine, except for the sums that are considered "taxes collected but not sent" or for the periods in which the installment of back taxes is owed.
Penalty on fraud:On the off chance that this isn't your first Audit then 10% is standard on the aggregate sum of amount owed. In some cases, an additional 50% fine may be assessed if the error is considered a "serious" error.
In these cases, the State can also create an "Evaluation of personal responsibility", which is an evaluation against the directors of the company.
3. Sampling/Testing of sales tax auditPractically all the state tax offices utilize some sort of testing system in their audits. Reviews on sale tax and use tax rarely completed less than three years. So, it requires a lot of information which might be liable to investigation. Nitty gritty check isn't practical or attractive. So testing is the sensible option.
4. Appealing to the Comptroller of Public Accounts in TexasIf you do not agree with penalties or decision made by the Texas Comptroller of Public Accounts, you have the right to file an appeal and request a recheck. In the case of an appeal of the department, an official request must be filed with the Comptroller of Public Accounts in less than 30 days after the issuance of the notification.
5. InsolvencyInsolvency is the inability to pay debts, since they expire in the usual course of business and/or have liabilities that exceed the fair market value of the assets held, or insufficient assets to pay all debts. Tax Code Section 111.102 gives authority to the Comptroller for collection procedures to resolve the claim for taxes, fines or interest. To prove that you are truly bankrupt and eligible for this option they require significant documentations.
6. Settlement optionsThe state is not interested in closing your businesses. If they do, then they will receive less income. They will compensate with you and you will get different answers depending on where in the process you will request for the settlement. In some cases, you can get an interest-free payment plan or you can have exemption on all fines and interest. So, this is the time to consult with an experienced and professional tax advisor for the better settlement options.
7. Bankruptcy versus Texas sales taxif a taxpayer is bankrupt and did not have income to remit taxes collected or file returns, the taxes which were collected will generally not be discharged by the bankruptcy court unless the reorganization plan allow or enable such downloads. If the state doesn’t submit a proof of claim before the date of restriction, the state tax claim may be settled in some cases.
8. Request a Waiver for the Sales Tax Audit PenaltiesAfter getting notification, if you do not agree with some part of the audit then there are many levels of audit or you can appeal to the Comptroller. Procedures for protest vary from state to state. It can go from simple to complex.
Level of Appeal:1. There are some state agencies which allow only one level of administrative appeal before forcing you to present your cases in front of the court.
2. Most states offer two levels of administrative appeal from which one is usually an optional informal conference.
3. Some states allow three levels of administrative appeal.
4. Some states offer alternative dispute resolution or resolution programs other than the administrative appeal process.
9. Legal sales tax appeals in TexasTexas is the state which does not offer administrative appealing.
In that state. if all other paths of sales tax appealing fail, companies can file a final appeal in the Texas judicial system.
To Remember:The claim must be filed with the District Court within thirty days of the rejection of the protest motion for a new hearing or within ninety days after the protest is filed.
Taking everything into account, Texas sales and use tax audits can be a terrifying and costly issue. You must keep all records up and a certified tax professional ought to be reached to help throughout the procedure.
Sales and use tax audit isn’t not an easy task. You need to invest satisfactory efforts internally or look for outside help. The barrier of organizations against a tax auditor on sales is a profoundly particular region of counseling. Throughout the 15 years of working with customers to limit the tax forced on them, we have gained a priceless experience and it would be a joy to convey it to you. Whether you use this information to manage your audit completely from beginning to end or at least to become familiar with the process to know how to avoid common difficulties, then it will have been very valuable.