Imagine you are under audit by the Texas Comptroller for sales and use tax. You have really good records, you have taxed your customers properly, you have all the documentation you need to prove the essence of the transaction and support your non-taxable sales. But the auditor tells you that you’re wrong and schedules the transactions on your audit and now you have a tax assessment including additional penalties and interest. You thought you understood the rules, you thought you were doing the right thing but now an auditor is telling you that you were wrong.
BUT—what if the auditor is wrong. Or, even worse, what if they are just telling you no because they are banking on your limited knowledge of the tax laws. We see it all the time. Auditors tell taxpayers no, because they know that you don’t know what to say next. We do know what to say next.
Several years ago, an older gentleman appeared in our office with his stellar files in hand. He owned a Power Sports company that sold Jet Skis, mules, four-wheelers, etc. He was also the proud owner of an audit bill from the State of Texas that was only about to cost him $30,000. He asked our tax consultant if she could look at his files and tell him what he had done wrong. Upon inspection, she was impressed with the care that he had taken to make sure he had everything in order. He hadn’t done anything wrong, in fact he had done everything right. She assured him that we would take care of this issue for him. She called a meeting with the auditor and his supervisor— our client walked out of the Dallas East audit office with a no-tax-due audit.
Another example but on a much bigger scale—a pipe company in West Texas, was faced with a $900,00 assessment from only four sales transactions. It was clear that three of the four sales were non-taxable new construction—they were pipes in the ground—doesn’t get much clearer than that. The auditor was very difficult to deal with and rejected every document that we presented that proved that the transactions were non-taxable. Our tax specialist called the manager of the audit office to review the documentation and counsel her auditor in the appropriate taxation. The manager refused to even look at the documentation, blindly supporting the auditor. As a next step our tax specialist called a meeting with the auditor, the supervisor and an engineer from each of the three energy companies for whom the client had done the work. On the day of the meeting, in addition to our tax specialist, there were four auditors, the supervisor and three engineers in the room. At the end of that meeting, the client’s newly reduced audit bill was $128,000—$772,000 lower than what the auditor had assessed.
Keep in mind that just because you know the rules doesn’t mean that the auditor will and just because YOU do everything right doesn’t mean the auditor will agree. An exceptional tax specialist will not only know the tax law and the policies and procedures employed by the Agency, but they will also be very creative in how to communicate with auditors and supervisors to effectively represent the taxpayer and their rights.