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Houston State & Local Tax Attorneys

If you searched for a “Texas state tax attorney” or “state and local tax attorney,” you are probably dealing with the Texas Comptroller, a sales and use tax audit, a franchise tax assessment, or a multi-state apportionment question. We are Houston tax attorneys, and we represent businesses and individuals in state and local tax matters — most often Texas, but also for clients moving here from California or other high-tax states. This page covers the categories of state and local tax work we handle and where the disputes usually arise.

Texas Tax System in Context

Texas does not have a personal income tax, which is one of the reasons businesses and individuals continue to relocate here. Texas does have sales and use tax, franchise tax (sometimes called the “margin tax”), property tax administered at the county level, motor vehicle tax, hotel occupancy tax, mixed beverage taxes, and a host of industry-specific excise taxes. The Texas Comptroller of Public Accounts administers most state-level taxes other than property tax, and the Comptroller has broad authority to audit, assess, and collect.

Texas tax disputes follow their own process — a redetermination hearing at the Comptroller’s office, an Independent Audit Review, an administrative law hearing at SOAH, and, if needed, district court suit. We have written about disputing Texas tax assessments and the procedural rules that apply.

Texas Sales and Use Tax

The Texas sales tax is imposed on each retail sale of a “taxable item” in Texas at a state rate of 6.25%. Local taxing jurisdictions can add up to 2% more for a combined maximum of 8.25%. A taxable item includes tangible personal property and certain enumerated services (data processing, information services, real property repair, security services, and others). The seller collects and remits, but the tax is the debt of the purchaser, and the Comptroller can pursue either party.

Use tax applies when a Texas resident or business buys a taxable item from an out-of-state seller who did not collect sales tax. With the Supreme Court’s decision in South Dakota v. Wayfair, out-of-state sellers with sufficient economic nexus must now collect Texas sales tax. Nexus thresholds, marketplace facilitator rules, and remote seller registration are all on the audit map.

Sales Tax Exemptions and Exemption Certificates

Texas sales tax has many exemptions: manufacturing equipment, sale for resale, agricultural use, certain medical equipment, and the occasional sale exemption among them. Each requires the purchaser to provide the seller with a properly completed exemption or resale certificate at the time of sale. Where the certificate is missing or defective, the Comptroller can come back years later and assess the sales tax against the seller — even where the underlying transaction would have qualified for exemption if the paperwork had been correct.

Audit defense in this area is about reconstructing the record: locating exemption certificates, accepting them in good faith, and challenging the Comptroller’s reliance on managed audit sampling techniques. Sales tax audits are statistical sampling exercises, and a small number of disputed transactions can swing the total assessment substantially.

Sales Tax Audits and the Redetermination Process

A Texas sales tax audit usually starts with a letter and proceeds through records review, fieldwork, an exit conference, and a Notification of Audit Results. The taxpayer then has 60 days to request a redetermination, which is the gateway to administrative review. We handle Texas sales tax audits at every stage and prefer to get involved early enough to control the sampling and the workpapers.

If redetermination does not resolve the case, the next step is an administrative law hearing at the State Office of Administrative Hearings. Beyond that, the taxpayer can pay the assessment and sue for refund in Travis County district court. Each step has its own evidentiary and procedural rules and its own opportunities for settlement.

Texas Franchise (Margin) Tax

The Texas franchise tax applies to most entities doing business in Texas. The base is “margin,” computed as the lesser of 70% of total revenue, total revenue minus cost of goods sold (COGS), total revenue minus compensation, or total revenue minus $1 million. Rates are 0.75% for most taxpayers and 0.375% for retailers and wholesalers. The tax sounds simple but is highly contested in three areas: what counts as “total revenue,” what counts as “cost of goods sold,” and how revenue is apportioned to Texas.

The Texas Supreme Court has decided several major franchise tax cases on the COGS question. We have written about what counts as COGS for franchise tax purposes and how the rule has evolved. For businesses near the no-tax-due threshold, planning the revenue, COGS, and compensation elections can make the difference between owing nothing and owing real money.

Owner Liability for Texas Business Taxes

One of the most common questions clients ask is whether the owner of a Texas business is personally liable for the business’s unpaid sales or franchise tax. Texas law is not as clean as the federal trust fund recovery penalty rules. We have written about whether a Texas business owner is liable for business taxes, and the answer turns on facts the Comptroller often gets wrong.

Successor Liability and Tax Clearance Certificates

When a Texas business or its assets are sold, the buyer can inherit the seller’s unpaid sales and use tax liabilities. Section 111.020 of the Tax Code requires the buyer to withhold from the purchase price an amount sufficient to satisfy any unpaid tax, penalty, and interest of the seller until the seller produces a certificate from the Comptroller showing nothing is due. Buyers who fail to withhold can be assessed for the seller’s full tax bill, including amounts assessed after the closing for periods before the closing.

The fix is the tax clearance certificate. The seller (with the buyer’s involvement) requests the certificate from the Comptroller, who has 60 days to respond (with extensions available where the seller’s records are not yet available). The certificate caps the buyer’s exposure. We handle these requests routinely as part of M&A diligence for Texas businesses.

Multistate Apportionment and Nexus

Texas uses single-sales-factor apportionment for franchise tax. The Texas-receipts numerator and the everywhere-receipts denominator can produce surprising results, particularly for service businesses sourcing receipts by location of customer benefit. Combined with the post-Wayfair economic nexus rules, multistate sellers often face audit exposure in states they did not realize they had filing obligations in. We help businesses build a nexus map, file back returns where needed, and use voluntary disclosure agreements to reduce penalties.

Relocating from California to Texas

California is the source of much of our inbound work. California aggressively pursues former residents for income tax on out-of-state income for years after the move, and we have written about California taxing out-of-state trusts. A clean break from California requires more than a Texas address. The Franchise Tax Board looks at where you bank, where you doctor, where your dependents are, where your vehicles are registered, and many other factors. We help clients plan and document the residency change so the move actually saves the tax.

Industry-Specific Texas Taxes

Texas levies specialized taxes on many industries: mixed beverage gross receipts and sales tax for bars and restaurants, hotel occupancy tax for hospitality, motor fuels tax, severance taxes on oil and gas production, motor vehicle taxes, and excise taxes on cigarettes and tobacco. Each has its own audit program at the Comptroller and its own technical rules. We have handled disputes across most of these categories.

Texas Property Tax Disputes

Property tax in Texas is administered at the county level through appraisal districts and appraisal review boards. Most disputes are resolved through the appraisal review board protest process; some go to district court binding arbitration; large commercial cases sometimes end up in district court suits. While property tax is outside the Comptroller’s jurisdiction, it is often the largest state-level tax bill a Texas business pays, and we coordinate with property tax counsel on those matters when needed.

Working With Our Houston State and Local Tax Attorneys

Most of our state and local tax work falls into three buckets: defending a Texas Comptroller audit, advising on a relocation or business sale where Texas tax exposure is one of the deal questions, or building a multistate nexus and apportionment plan for a growing business. We get involved at any stage, but the earlier we can shape the workpapers, the better the result. Our fee schedule and attorney bios are public.

Hire a State Tax Attorney Near Me

Advanced planning can help taxpayers avoid many state tax 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 schedule an appointment to talk to a Texas state and local tax attorney.