Demand for State Tax Consulting Services

A&T provides a professional service for businesses that requires the services of a firm with substantial knowledge and experience in state taxes. A&T major focuses has been on transaction taxes (Texas Sales Tax) and gross receipts tax (Texas Franchise Tax). Businesses find it difficult to comply with the tax laws in these two areas. Sales tax audits performed on Texas businesses results in businesses owing additional taxes 60 to 70 percent of the time. State tax compliance is vitally important for a business to succeed. If not handled properly, the business can incur substantial penalties and the state can remove a business' right to do business in a state. Many businesses fail in being able to comply with the state tax laws and their regulations because lack of knowledge of the tax laws and the mandated record keeping requirements.

Problems Associated with State Tax Compliance

Texas Franchise and Sales tax laws has many rules governing these taxes and the record requirements. To defeat the tax auditor, a business must have a good record keeping system in place. Businesses are required to maintain record of each of its sales and purchases. Business needs to be able prove who their transactions were with and have sufficient documentation regarding the transactions to prove that tax was properly handled. If business cannot produce records of its transactions at the time of audit, the business can end up with a very large tax assessment. The burden of proof is on the business, not the state.

A&T Expertise in Areas of State Tax

Over the last 30 years, A&T has had many CPAs use A&T expertise to resolve sales and franchise tax issues to help reduce large tax assessments and obtain substantial refund of tax overpayments. A&T has had many CPAs firms request A&T to resolve cases where the auditor was in the process of assessing many thousands of dollars. Most business find it very difficult to overcome an estimated sample audit. And auditors have substantial discretion in how to conduct an audit. Once a tax examination is completed, the burden shifts to the taxpayer to prove the audit is wrong or what they do owe. A business without substantial knowledge and experience in state taxes will find it very difficult.

Example of Problems Businesses Encounters

A&T had CPA in San Antonio requested help for his client to reduce a sales tax audit assessment. The auditor was in the process of assessing a construction company over $1,800,000. The company purchases and install widows in high rise buildings. A&T performed it own examination and determine the audit method used resulted in an assessment being twice the actual amount owed. A&T used its information as proof it was more accurate than the auditor's. A&T used its information to negotiate an audit settlement with the manager of the Comptroller's Audit Division to settle the audit for $900,000, less than half of the originally amount being assessment.

Example of Franchise Tax Compliance Problem

CPA firm in Houston requested that A&T assist their client with a Texas Franchise Tax Audit. The firm ran an auto storage site for the city of Houston. Auditor was in the process of assessing additional receipts base on not allowing the taxpayer's cost of sales deduction. A&T upon examining the receipts discovered majority of receipts collected were pass through receipts. The contract with city stated the taxpayer had to collect the wrecker fees for the towing companies and other fees for the City. The taxpayer deducted these receipts as cost of sales. The auditor disallowed the cost of sales deduction claiming service company was not allowed a deduction for cost of sales. A&T determine these fees were pass through receipts, receipts not belonging to the taxpayer. A&T used this information in substantially reducing the taxpayer's franchise tax assessment.

Problem with Two States Taxing the Same Transactions

In another case, the Texas auditor assessed sales tax on rental of heavy construction equipment rented to a New Mexico customer who used the equipment on oil and gas fracking jobs. The taxpayer recorded the equipment as New Mexico (N.M.) rental and paid the tax to N.M. The sale tax should have been recorded and paid to Texas. The firm's controller who is CPA filed with N.M. to recover the sales tax to off-set the tax paid to Texas. N.M. denied the refund stating the N.M. law taxes rented equipment based where rented equipment was used, not rented. Since the taxpayer could not prove where the rented equipment was used, N.M. denied the refund. To recover the tax, A&T requested an Administrative Hearing with N.M. A&T's position was two different state cannot tax the same transaction because it would be a violation of the U.S. Constitution's Commerce Clause. The Commerce Clause limit states from having laws that restrains trade into its state. A&T showed that if its client had to pay taxes in two state it was at a competitive disadvantage. The Administrative Judge agreed and approved the refund of more than $100,000.

Problems Encountered with Transaction Taxes

The state tax that creates the most problems for most businesses is sales tax. Sales tax is a transaction tax and is administered by the Texas Comptroller's Office. Both parties to a taxable transaction has responsibility of paying sale taxes. If tax is assessed on the sellers' side of the transaction it is referred to as Sales Tax. But if the tax is assessed on the purchasers' side of the transaction, the tax being paid is referred to as Use Tax. The State of Texas can look to either party for the tax on a transaction, seller or purchaser, till the tax is paid. Businesses are required to pay tax as use tax on items purchased for use by the business, if tax was not paid to the seller. The state at the time of audit will has the auditor examine for both taxpayer sales and purchases.

Use Tax Problems

Many people think sales tax audit is just about a business' sales. A sales tax audit is also about proving tax was paid on taxable purchases - purchases made from out of state and instate non-permitted sellers or businesses that are not aware their services were taxable at the time of the sale. The state when auditing for sales tax will look to business to pay the tax on their purchases.

Purchases subject to Use Tax

YES - purchases from out of state are taxable - as Use Tax

YES - if the seller fails to charge sales tax, the business is still required to pay the tax - as Use Tax

YES - if a business cannot produce a purchase invoice proving the seller properly charged sales tax, the firm will still owe the tax on the sale - as Use Tax

YES - if a business uses contract labor and if the service provided is not properly documented, the auditor will assess the tax as a taxable service - subject to Use Tax. The business needs documents, like invoices or statements, proving the service provided is not taxable.

Tax Compliance Requires Taxability knowledge for Different Industries

Most business will purchase products and services from many different industries and as result must know whether the seller applied sale tax to their transactions properly. To be able to comply with the use tax requirements, business need to know how tax should be applied to the various industries they purchase goods and service from, i.e. technology, manufacturing, E-commerce, retailing, wholesale, construction, and repair services.

Why A&T?

CPAs Troy Harrison and Dennis Dockery have the experience and knowledge in dealing with Texas Laws, Rules, Tax Policy, State's Dispute Process, and the Comptroller Personnel; to be able to assist firms who need a compliance review, to manage their audit, file for refunds of over-paid taxes or contest an audit assessment.

Call today .(713) 587-6612 or (806) 352-0900 for a consultation to determine if your firms need the services offered by A&T's consultants, Troy Harrison and Dennis Dockery.