Texas Sales Tax Audit Defense & Representation
Led by a Former Texas Comptroller Tax Auditor & Large CPA Firm Partner
Businesses facing a Texas sales tax audit need someone with strong technical knowledge, not generic SALT support. Every project at State Tax Resources is led by a practitioner with deep experience on both sides of the Texas Comptroller audit process. We provide practical guidance, audit representation, and strategic support before, during, and after the audit. If your business is instead facing a Texas franchise tax audit, our Texas Franchise Tax Audit Defense & Representation team offers that same depth of experience.
Preparing for a Texas sales tax audit requires a thoughtful approach and thorough preparation before the audit begins. This includes reviewing sales and purchase records for a four-year lookback period, validating resale and exemption certificates received from customers, and evaluating the taxability of both sales and purchases. Whether you are facing a sales and use tax audit or simply want to assess potential exposure before an examination begins, our pre-audit review can help identify issues early and improve audit outcomes.
Review our comprehensive pre-audit checklist below, developed by a former Texas Comptroller auditor with extensive experience in Texas sales tax audit experience.
Texas Sales Tax Audit Guide: A Pre-audit Checklist
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Don’t Panic: There is no reason to panic but it is very important to not ignore the notice. An audit could have been generated on your company for a number of different reasons but that does not automatically mean that you will end up owing additional tax. There are some situations where you might even be entitled to a refund.
Read the Notice to Verify the Audit Period: Texas has a 4-year statute of limitations so the audits normally cover 4 years.
Respond Timely: Missing the requested return due date could cause increased scrutiny.
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Sales/use tax returns for the audit period
Workpapers to support the sales/use tax returns
Charts of accounts and financial statements
General ledgers and trial balances
Sales invoices and resale and exemption certificates
Purchase invoices and capital asset records
Bank statements
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Reconcile sales reported on returns to make sure they match financial statements and federal income tax returns. Keep in mind that sales tax is reported on a separate entity basis even if an entity is disregarded for federal tax purposes.
Review nontaxed Texas sales and verify that valid resale or exemption certificates are on file. Immediately request any missing certificates.
Evaluate taxability decisions made for different types of sales (e.g. delivery, installation for tangible personal property; data processing for taxable services)
Review purchases to confirm that use tax was reported if vendors did not charge sales tax on taxable transactions.
Gather contracts and purchase orders that might be needed for the auditor to understand transactions.
Determine the process for the auditor to review sales or purchase invoices if requested.
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Appoint a single point of contact.
Execute a Power of Attorney for anyone outside the company that may need to interact with the auditor.
Make sure any samples selected by the auditor include accounts that could benefit the company.
Ask the auditor to direct all questions to the single point of contact and also ask employees within the company to defer to the point of contact if the auditor asks them any questions.
Respond as quickly as possible to requests from the auditor. It is preferable that you are waiting on the auditor rather than the auditor waiting on you.
Remember that auditors are people too!! Be respectful and helpful to the auditors and you will have a better audit experience. Auditors meet regularly with their supervisors and one topic is aged audits. Auditors want to close the audit as quickly as you do.
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Taxpayers generally deal with a Texas sales tax audit once every four years. Experienced state & local tax professionals often have handled hundreds of sales tax audits for clients.
Texas audit notices are public record which results in some firms aggressively calling companies under audit. Consider evaluating several experienced firms rather than going with the first firm that calls you.
If you hire a firm for audit assistance on a contingent fee basis, make sure you are kept updated on the status of the audit so that the starting point for the fee calculation is not an unnecessarily high number.
Experience on both sides of the Texas Comptroller audit process provides valuable insight into how audits are conducted and how issues are evaluated. This perspective can help businesses prepare more effectively, manage the audit process, and achieve better outcomes.
Facing a Texas Sales Tax Audit?
If you have received notice of a Texas Comptroller audit or would like an expert, independent review of your filings before the auditor arrives, let's talk. We provide experienced sales tax audit help, sales tax audit defense, and representation throughout the audit process.
John.laborde@statetaxresources.com
Phone: 713-367-1932
https://www.statetaxresources.com/
Facing a Texas franchise tax audit instead? See our Texas Franchise Tax Audit Assistance page.
Why Businesses Choose State Tax Resources
Led by a Former Texas Sales Tax Auditor with Public Accounting Experience
Many years of experience providing Texas sales tax audit assistance and representation, including pre-audit planning, document organization, auditor communications, and audit defense throughout the examination process.
Understanding of how to work with Texas Comptroller auditors to address audit issues efficiently and help ensure fair audit outcomes.
Practical experience assisting businesses through both Texas sales and use tax audits and audits by other states.
Technical Expertise That Stands Up to Audit Scrutiny
Deep understanding of sales taxability issues, including Comptroller policy changes and court decisions.
Extensive experience reviewing resale and exemption certificates and assisting clients in obtaining updated documentation when necessary.
Strong technical knowledge to support effective sales tax audit defense strategies.
Authority on Texas Sales Tax Law and Policy
Strong knowledge of how court cases, Comptroller hearings, and policy developments affect audit outcomes.
Hands-on experience addressing issues commonly raised in a Texas Comptroller audit.
Experience supporting refund positions involving industry-specific revenue exclusions and taxability issues.
Audit Defense and Issue Resolution
Extensive experience addressing common audit adjustments proposed during a Texas sales tax audit and developing effective responses.
Strong track record of sales tax audit defense, Independent Audit Reviews (IARs), and redetermination proceedings.
Experience representing businesses through all phases of a sales and use tax audit.
Introductions to Trusted Tax Attorneys When Needed
Established relationships with Texas tax attorneys for matters requiring legal representation, ensuring seamless referrals.
What Is a Texas Sales and Use Tax Audit?
A Texas sales and use tax audit examines whether a business properly collected, reported, and remitted sales and use taxes. Proper preparation and documentation can significantly improve audit outcomes and reduce disputes with the Texas Comptroller.
What is the Lookback Period for a Texas Sales Tax Audit?
The audit can be for a period of up to four years. The statute of limitations is four years from the date the tax was due and payable. The statute of limitations does not apply if no sales tax returns were filed, false or fraudulent sales tax returns were filed, or the reported tax was understated more than 25%. See Rule 3.339.
Does a Texas Sales Tax Audit Have to be Completed at the Taxpayer’s or Consultant’s Office?
No. This might have been true many years ago but today most records are available electronically and audits are typically completed remotely. Auditors may still request an on-site visit for a facility tour or if they think an in-person meeting would be beneficial.
What is the Highest Risk Area for a Texas Sales Tax Audit?
One of the first areas an auditor reviews is nontaxed sales that are not supported by resale or exemption certificates. The sales tax associated with these sales should have been charged to the customer by the seller if a valid certificate was not provided. These customer liabilities often become the seller's liabilities in a sales tax audit.
What is a Managed Sales Tax Audit
A managed audit is an audit that is completed by the taxpayer or firm hired by the taxpayer. The primary benefit is the potential reduction in penalty and interest. A request for a managed audit must be submitted within 60 days of the date of the Audit Notification Letter.
Schedule a Free Initial Consultation
Get guidance from a former Texas Comptroller auditor with years of experience providing sales tax audit assistance, audit defense, audit representation, refund claim support, and Texas sales and use tax consulting services.