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State & Local Tax Disputes

We Help With State & Local Tax Disputes

State and local tax laws often grant broad powers to state and local governments to assess and collect taxes.  Many of these laws are not clear and are not well defined.  This can make state and local tax matters difficult to resolve.

 About State and Local Tax Disputes

The average taxpayer will be subject to state and local tax by various states, cities, and other local tax authorities.  While many taxpayers plan for Federal taxes, most taxpayers fail to plan for their state and local taxes.  This is particularly true for taxpayers who operate in several states.

Taxpayers may only think about these issues once they are contacted by the state or local tax authority.  By this time, taxpayers are often at the mercy of state and local tax authorities.  This is particularly true when the state or local tax authority is aggressively looking for additional tax revenues.

Common State and Local Tax Disputes

The ensuing tax disputes often involve nexus (or connection to the state and local taxing authority) issues, Constitutional and jurisdictional issues, and state and local tax procedural defect issues.

Texas Sales & Use Tax

Given that we are in Texas, we do focus on Texas sales and use taxes.

Texas imposes the sales tax on each sale of a “taxable item” in Texas at the rate of 6.25%. Various local sales taxes may be imposed in addition to the state tax. The maximum combined tax rate for local taxes may not exceed 2% at any location. Therefore, the maximum possible sales tax rate is 8.25%. A taxable item means the sale, lease, or rental of tangible personal property and certain specified services.

The seller of a taxable item is required to collect sales tax from the purchaser at the time of sale unless the purchaser provides the seller with a properly completed resale or exemption certificate.

Although the sales tax is a debt of the purchaser, the seller or service provider is responsible for collecting and remitting the tax. The purchaser and the seller are jointly liable for payment of the tax and the Texas Comptroller may pursue either the purchaser or the seller to collect the unpaid tax.

Texas Sales & Use Tax Exemptions

There are several types of exemptions, including the manufacturing exemption, agriculture exemption, sale-for-resale exemption, and the occasional sale exemption. For each exemption, the Texas Comptroller requires that a purchaser provide the seller with a properly completed exemption certificate or resale certificate.

Although Texas sales and use tax may apply to a transaction, Texas law or Texas Comptroller policy may exempt an otherwise taxable transaction from sales tax.

Successor Liability

Many Texas sales and use tax disputes involve successor liability. This arises when a business owner sells the business or its goods.

If a business owner owes sales or use tax and then sells the business or its stock of goods, the purchaser may become liable for payment of the tax. The purchaser’s liability extends to unknown tax liabilities of the seller.

The buyer of all or part of a business is required to withhold tax from the purchase price. The amount withheld must be sufficient to pay all sales tax, penalties and interest owed by the seller, including any amount that becomes due as a result of the sale, until the seller provides the purchaser with either a receipt of the payment from the Texas Comptroller or a certificate stating no tax is due.

To avoid liability, a buyer must ensure that the amount withheld is sufficient to fully satisfy the taxes that are due and the purchase price paid must be reasonably equivalent to the value of the business or assets the buyer acquires.

The Texas Comptroller has four years from the acquisition date to audit the seller’s pre-acquisition periods and assess additional taxes, for which the purchaser will be liable.

Tax Clearance Certificates

To help avoid this problem, the seller can request that the Comptroller issue a certificate stating that no tax is due or the amount that must be paid before a certificate can be issued.

The Comptroller must issue the certificate or statement within 60 days after receiving the request or within 60 days after the records of the business seller are made available for audit, whichever period expires later, but no later than within 90 days after the date of receiving the request from the purchaser.

Certificates of no tax due are issued by the Texas Comptroller. You can submit a request on paper, by fax, or by email. The seller of the business must authorize the request. That means that if you’re trying to buy a
business, you’ll need the cooperation of the current owner to get a certificate.

Get Help With Your Tax Matter

Advanced planning can help taxpayers avoid many of these types of issues. Our firm frequently assists taxpayers with state and local tax planning and, if disputes arise, audits, appeals, and litigation.

Please call us at (713) 909-4906 or contact us online to schedule an appointment.