You just received notification that your business has been selected for a Texas Comptroller state tax examination. Unless you have been through the audit process before, you probably have lots of questions and concerns. Of course one of the first questions most business owners ask is, “Why my business?” Although it’s common to think you did something wrong, this usually isn’t the case. However, if you have been selected for audit, Texas Tax Group has a team of 15 former Texas Comptroller State Tax Auditors who can help you save time and money.
I AuditsReported receipts are perhaps the single biggest driving factor in the audit selection process. It is simple math: the higher your reported receipts, the higher your potential tax exposure. The Comptroller knows this which is why they audit larger businesses on a more regular basis.
Audit LeadsYou may have been selected for audit because someone has reported your business to the Texas Comptroller. This is called an Audit Lead. Although most Audit Leads are legitimate, many are illegitimate. Legitimate Audit Leads come from people who know someone is making errors. For example, former employees who know people are cheating will tell the state. Sometimes businesses will turn in their competitors if they know a competitor is reporting taxes incorrectly. Audit Leads also come from Texas Comptroller Auditors directly. This may happen when an auditor notices a mistake on your invoice while auditing one of your clients. Then there are illegitimate Audit Leads. These are usually disgruntled people with axes to grind. Other examples are people going through divorces and disgruntled former employees who wish to cause problems. They do not necessarily know of any errors. They just wish to cause havoc for an individual or a business.
Random SelectionThe most likely reason your business was selected for audit is simply due to bad luck. In other words, your tax identification number was selected at random. It is also possible that your business is in an industry the Comptroller is targeting due to poor compliance. Unfortunately, there’s not much you can do about the Texas Comptroller’s audit selection process. However, you can call Texas Tax Group at 1-855-892-8348 for a free consultation. Our former Texas Comptroller State Tax Auditors are available to discuss your options.
Reporting HistorySome businesses are selected for an audit because their reporting history seems “funny”. For example, one of my former audit assignments while working at the Texas Comptroller was to audit an establishment classified as a “retail” store. This “retail” store was apparently only reporting 5% of their sales as taxable. Clearly, that seemed funny. As it turned out, the establishment was a tattoo parlor. Tattoo services are a particular type of Personal Services that aren’t taxable. The only items they were required to pay tax on were on the sale of Tangible Personal Property (TPP) items such as ear and nose rings, studs, etc. So upon further investigation, they were in fact collecting and remitting their taxes correctly. See Publication 96-265 (Taxable Services). In this case, the business owner most likely chose an improper NAICS code when registering with the Texas Secretary of State. Errors in the NAICS code cause many needless audits. However, once an audit has been generated, the state almost never cancels the audit. So even if you can explain why your reporting history seems funny, the state will most likely still conduct the audit anyway.
Prior Productive AuditsIf your business owes more than $10,000 in additional taxes due to an audit then you will automatically be audited again in three to four years. This is why it is so important to have proper representation during a Texas Comptroller State Tax Examination. Not only can Texas Tax Group ensure you are treated fairly, but we can also identify and resolve any existing state tax issues. And although we can’t guarantee you won’t owe any money on your current audit, we can determine exactly what transactions you are required to collect tax on, how much tax to collect, and how much to remit. Armed with this knowledge, you should be able to avoid owing any additional taxes on your follow-up audit and get your business back into the random selection pool.
Additional Reasons for Audit Selection
- Certificate of NTD (No Tax Due) request
- Leads from newspaper articles
- Leads resulting from a bankruptcy action
- Security Release Request
- Insolvency Investigation
- Refund Request
- Amended Returns