Texas Does NOT Regulate State Tax Consulting Firms
You’ve heard it before. If it sounds too good to be true, it probably is. Some Texas state tax consultants promise to take care of your entire audit (including both the field audit as well as the highly complex and time-consuming Administrative Hearings process) for a single flat fee. DON’T BELIEVE IT!
I take calls from businesses under state tax audit all day long. Here are the seven most common complaints I hear from businesses about consultants who charged them a flat fee to ‘manage’ their audit:
- The consultant performed ZERO pre-audit evaluations of my records
- The consultant simply handed over my records to the auditor and hoped for the best
- The consultant allowed the auditor take my records with them back to their audit office
- The consultant provided complete access to my accounting program
- The consultant didn’t have office space to HOST or MANAGE my audit and the auditor
- The consultant avoided my calls and emails
- The consultant disappeared once it was clear the auditor was going to put up a fight
As it turns out you get what you pay for. Paying a firm a $2500 to $3200 FLAT FEE to simply forward all your accounting records to the auditor is not a good idea.
Read the contract of any FLAT FEE FIRM. It says nothing about any pre-audit work, maintaining control of your accounting data, or actively managing the audit.
FLAT FEE FIRMS will take your records and hand them over to the auditor. That is it. If the auditor over-assesses sales tax for any reason then the FLAT FEE FIRM is usually not around for very long. Challenging an over-assessed audit can take 6 months to over a year to resolve. FLAT FEE FIRMS will not be around for that long…..and they will never represent you all the way to an Administrative Hearing unless you pay them more money. Most FLAT FEE FIRMS have no experience with the Administrative Hearing process.
No. 1 – The Texas Comptroller must by law (Section 552.001 – Texas Open Records Act) disclose all audits at no charge to the public on a weekly basis.
No. 2 – There is no State Regulation of ANY KIND for Texas Tax Audit Consulting firms including FLAT FEE FIRMS.
No. 3 – Most FLAT FEE consulting firms work out of a ‘rent-a-room’ temporary office or PO Box and most of their consultants work out of their homes
No. 4 – Most FLAT FEE FIRMS do not let you know if your audit is in trouble. The first time you realize there is a problem is when you receive a final TAX BILL. By then it could be too late to fix the audit.
Over the last 11 years, I have had 100’s of businesses come to me with over-assessed sales tax audits after they hired an inexperienced consultant to defend them. In certain cases, Texas Tax Group filed for an Administrative Hearing to fight these incorrectly assessed audits through the lengthy and often difficult Administrative Hearings process. Usually, we were able to reduce the tax. However, the cost is almost always more than if we were hired in the first place. And if we weren’t able to reduce the inflated tax assessment, then our clients were forced to pay taxes they didn’t owe or else be forced out of business.
In every one of these cases, the original consultant conducted little, if any, ‘pre-audit’ work which would have included basic gross sales and tax reconciliations as well as conducting sales tax research on the clients’ sales and/or purchases. Because of the negligence of the original consultant, the auditors were able to significantly overtax the business owners.
Houston Area Retail Stores Over Assessed by $200,000 – Double Tax Scenario
Let me show you an example of an audit that was over-assessed by over $200,000 in sales tax, penalties, and interest. On November 16, 2015, a business owner came to my office with this nearly $400,000 FRAUD TAX BILL. She owned three retail stores in the Houston area. She hired a local accountant who knew nothing about how sales tax audits were conducted on the retail stores (i.e., these are VERY dangerous audits). As a result of the direct negligence of the accountant, the aggressive auditor denied the records provided as inadequate and then proceeded to more than DOUBLE the tax due using ‘default’ audit estimation techniques allowed by the Texas Comptroller’s Office. In fact, there were adequate records to conduct the audit, but neither the auditor nor the accountant met to discuss the issue.
Because this audit was classified as a FRAUD audit, the owner was personally responsible for the tax. This meant her house had a lien placed on it as of the tax bill date for the nearly $400,000 audit liability. Now for even worse news. The accountant failed to file for an Administrative Hearing. Therefore, the entire audit liability was technically final.
I had no idea if I could help this client. We went ahead and asked for a special allowance, in this case, to let my firm completely redo this terribly over-assessed audit. I told the client that if I failed, then she could easily lose all three stores and all the equity in her home. In addition, the Texas Comptroller might ask the Texas Attorney General’s Office to sue her personally in District Court for the entire liability.
Houston Area Garbage Collection Company Over Assessed by $500,000
In another extreme case involving a Houston area garbage collection company, the auditor overcharged the owner by $500,000 in sales tax. Texas Tax Group ended up using the records available to the original consultant. Over a period of 6 months working with the assigned Comptroller Hearings Attorney, we succeeded in reducing the audit by $500,000. Note: The company would have been easily put out of business if the original tax bill had to be paid.
What Can You Do If Harmed By a Shady Consultant?
What if, in your opinion, your representative caused your business to be over-assessed tax? What can you do about it? Unfortunately, not much. Again, Texas does not license or regulate Texas state tax consulting firms. At best you would have to go after them in a Civil Court and try to get a judge to understand HOW you were damaged. Of course, this would difficult. In fact, I have been hired in multiple lawsuit cases to act as an expert witness against some of these questionable firms.
I believe that the State of Texas should regulate the state tax consulting industry to ‘weed out’ the bad players. One of the main reasons I left the Comptroller’s Office to start Texas Tax Group was because I saw so many businesses being taken advantage of by these types of consultants. So again, think twice before hiring a consultant who charges a flat fee to manage your audit!