If you have been audited for sales, liquor, or franchise tax and do not think you owe the tax assessment, you might file for a REDETERMINATION/ADMINISTRATIVE HEARING. Your only other option is to pay the assessment by the deadline (60 days for non-fraud audits, 20 days for fraud audits).
It is a fact that Petitioners (i.e., businesses that file for a hearing) will lose over 90% of these decisions. I know it sounds unfair. And it is. My firm has been involved with 100’s of administrative hearings regarding audit assessments or denied refund requests. I can tell you it is difficult to win any case at a formal hearing. I would suggest not going all the way to a hearing if you can avoid it. More on that later.
We are here to HELP (if needed). TEXAS TAX GROUP was founded in 2007 with the motto: No Taxation Without Representation. Yes, I know I borrowed that phrase from the American Revolution. But I think it fits. I am the president of this Texas Sales/Use tax consulting firm and an ex-Texas Comptroller auditor (16 years).
Over the last 15 years, TEXAS TAX GROUP has grown to include 15 ex-Texas Comptroller auditors, supervisors, and tax policy experts – https://texastaxgroup.wpengine.com/your-team. TEXAS TAX GROUP has been involved in 100s of Texas Comptroller Redetermination Hearings and defended over 6,000 sales/use tax audits. You can see who we are if you click this link – www.texastaxgroup.com.
THE REDETERMINATION/ADMINISTRATIVE HEARING PROCESS
The hearings process is lengthy and starts with filing a STATEMENT OF GROUNDS FOR HEARING request after receiving your TAX BILL (i.e., Notification of Audit Results) – see #1 – Sample TAX BILL. You should become familiar with the filing requirements for filing a Redetermination (Administrative) Hearing (see #2 – Sample Tax Bill – page 2).
If the Comptroller grants a hearing, then you are given 90 days from the notification date to work again with your original auditor (unless your original auditor was a “contract auditor”). This extension is often referred to as the 90-DAY PERIOD LETTER (see #3 – Hearing Approval Letter “90-DAY LETTER”).
Usually, the auditor during this time will not grant any tax reduction. After the 90-DAY PERIOD expires, you will then be assigned to a Texas Comptroller Hearings Attorney. Eventually, the hearings attorney will issue a POSITION LETTER (see #4 – Sample Position Letter). Often this letter denies all of your contentions and offers little to no reduction. If any reduction is granted, it will be listed in this document.
If you do not agree with the POSITION LETTER, you will have 45 days to REPLY TO THE POSITION LETTER. If you do not reply to the Position Letter within 45 days (or do not request an extension to reply, your case could be dismissed for “Want of Prosecution” (no reply). Building a stronger case with your Reply to the Position is important. It is always best to continue to develop your “body of evidence” to support your case with additional accounting records, research documents, and written contention(s) development. This is your last “best” opportunity to build your case in writing or through direct contact with the hearings attorney. Yes, you can directly call the hearings attorney to discuss your case. However, do not expect a sympathetic ear.
The hearings attorney will then issue a RESPONSE TO THE PETITIONERS REPLY TO THE POSITION LETTER (see #5 – Response to the Reply to the Position Letter). This document will respond to all contentions and written evidence provided. In most cases, the hearings attorney will deny your contentions. If any concessions are granted they will be contained in the REPLY. After this, the hearings attorney will send you a document that asks if you would still like to proceed with the hearings process. And if so, would you like either an ORAL (via online video) HEARING or a WRITTEN SUBMISSIONS HEARING (see #6 – Request for Petitioner to request written or oral hearings option).
At this time, you will receive a very important notice titled: ORDER #1 – SETTING ORAL (or WRITTEN) SUBMISSION HEARING (see #7 – Order #1 – Hearings Rules). This document outlines the basic requirements that the agency hearings attorney and the Petitioner (you) are expected to understand about the “hearing.”
If you are representing yourself, you should refer to the agency document titled Guide to the Self-Represented Litigants (see #8 – link to Texas Comptroller site). Although you can represent yourself, several actions must be taken to protect your rights, including (but not limited to): issuing final pleadings/contentions, optional discovery requests, providing final exhibits, providing witness list, stipulations, and setting motions. The Comptroller requires you to do all this electronically.
I would strongly suggest requesting the ORAL HEARING option. Keep in mind that before COVID, all ORAL HEARINGS were held in person. But for now, they are all held via video unless an exception is made. ORAL HEARINGS give you the chance to cross-examine the auditor and any other experts the Comptroller decides to present at hearings. In my opinion, it is always better to request an ORAL HEARING. But it is also important to know that they can swear in and question anyone you have listed as a witness.
The bottom line is that hearings are complicated and you, the Petitioner, lose over 90% of the time. There is also an option called INSOLVENCY (see #9 – Insolvency Requirements) which, although hard to prove, can reduce the audit if the judge agrees. I have reviewed 100’s of hearings decisions, and rarely have I seen a reduction based on an insolvency claim. IMO, the safest option is to SETTLE the audit/refund request somehow. That is, convince your hearings attorney that you are right so they can agree to reduce the audit assessment or grant the refund request and dismiss the hearing. This option usually does not happen. If it does, the attorney will issue a MOTION TO DISMISS (see attachment #10 – Motion to Dismiss).
The last option is to seek a SETTLEMENT well before you are near the final hearing date. It is important to note that the Texas Comptroller does not “make deals,” such as agreeing to be paid 50 cents on the dollar. I have never seen that done. However, on a case-by-case basis, the Texas Comptroller may consider settlement options prior to a hearing. TEXAS TAX GROUP has a Settlement Coordinator (Margie Merwin) that can discuss the specific available settlement terms/options based on your assessments and the strength of your case.
Please note that TEXAS TAX GROUP has negotiated over 400 SETTLEMENTS during the hearings process over the last 15 years. If you are being audited or already in the hearings process, then let us help. We will review your audit at no cost and give you our initial opinion.
Good luck to you all.
Dino Marcaccio, President (ex-Texas Comptroller Auditor, 16 Years)
TEXAS TAX GROUP, INC.
9950 Westpark Drive, Ste 430
Houston, Texas 77063
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