Texas Does NOT Regulate State Tax Consulting Firms
You’ve heard it before. If it sounds too good to be true, it probably is. Some Texas state tax consultants promise to take care of your entire audit (including both the field audit as well as the highly complex and time consuming Administrative Hearings process) for a single flat fee. DON’T BELIEVE IT!
I take calls from businesses under state tax audit all day long. Here are the seven most common complaints I hear from businesses about consultants who charged them a flat fee to ‘manage’ their audit:
- The consultant performed ZERO pre-audit evaluations of my records
- The consultant simply handed over my records to the auditor and hoped for the best
- The consultant allowed the auditor take my records with them back to their audit office
- The consultant provided complete access to my accounting program
- The consultant didn’t have office space to HOST or MANAGE my audit and the auditor
- The consultant avoided my calls and emails
- The consultant disappeared once it was clear the auditor was going to put up a fight
As it turns out, you really do get what you pay for. And with consultants who charge a flat fee, you are either paying too much or not paying enough for the quality work required to get the job done right.
Keep in mind, very few of these consultants are former Texas Comptroller auditors and most don’t have an office in your city. Many of them are accountants, bookkeepers or even CPAs with little experience with managing state tax audits. Even worse, since Texas does not regulate state tax consulting firms in any way, there are basically FAKE FIRMS out there posing as consulting firms. So it really is BUYER BEWARE when choosing a Texas state tax consulting firm.
Over the last 11 years, I have had 100’s of businesses come to me with over assessed sales tax audits after they hired an inexperienced consultant to defend them. In certain cases, Texas Tax Group filed for an Administrative Hearing to fight these incorrectly assessed audits through the lengthy and often difficult Administrative Hearings process. Usually we were able to reduce the tax. However, the cost is almost always more than if we were hired in the first place. And if we weren’t able to reduce the inflated tax assessment, then our clients were forced to pay taxes they didn’t owe or else be forced out of business.
In every one of these cases, the original consultant conducted little, if any, ‘pre-audit’ work which would have included basic gross sales and tax reconciliations as well as conducting sales tax research on the clients’ sales and/or purchases. Because of the negligence of the original consultant, the auditors were able to significantly overtax the business owners.
Houston Area Retail Stores Over Assessed by $200,000 – Double Tax Scenario
Let me show you an example of an audit that was over assessed by over $200,000 in sales tax, penalties and interest. On November 16, 2015 a business owner came to my office with this nearly $400,000 FRAUD TAX BILL. She owned three retail stores in the Houston area. She hired a local accountant who knew nothing about how sales tax audits were conducted on the retail stores (i.e., these are VERY dangerous audits). As a result of the direct negligence of the accountant, the aggressive auditor denied the records provided as inadequate and then proceeded to more than DOUBLE the tax due using ‘default’ audit estimation techniques allowed by the Texas Comptroller’s Office. In fact, there were adequate records to conduct the audit, but neither the auditor, nor the accountant, met to discuss the issue.
Because this audit was classified as a FRAUD audit, the owner was personally responsible for the tax. This meant her house had a lien placed on it as of the tax bill date for the nearly $400,000 audit liability. Now for even worse news. The accountant failed to file for an Administrative Hearing. Therefore, the entire audit liability was technically final.
I had no idea if I could help this client. We went ahead and asked for a special allowance in this case to let my firm completely redo this terribly over assessed audit. I told the client that if I failed, then she could easily lose all three stores and all the equity in her home. In addition, the Texas Comptroller might ask the Texas Attorney General’s Office to sue her personally in District Court for the entire liability.
Houston Area Garbage Collection Company Over Assessed by $500,000
In another extreme case involving a Houston area garbage collection company, the auditor over charged the owner by $500,000 in sales tax. Texas Tax Group ended up using the records available to the original consultant. Over a period of 6 months working with the assigned Comptroller Hearings Attorney, we succeeded in reducing the audit by $500,000. Note: The company would have been easily put out of business if the original tax bill had to be paid.
What Can You Do If Harmed By a Shady Consultant?
What if, in your opinion, your representative caused your business to be over-assessed tax? What can you do about it? Unfortunately, not much. Again, Texas does not license or regulate Texas state tax consulting firms. At best you would have to go after them in a Civil Court and try to get a judge to understand HOW you were damaged. Of course, this would difficult. In fact, I have been hired in multiple lawsuit cases to act as an expert witness against some of these questionable firms.
I believe that the State of Texas should regulate the state tax consulting industry to ‘weed out’ the bad players. One of the main reasons I left the Comptroller’s Office to start Texas Tax Group was because I saw so many businesses being taken advantage of by these types of consultants. So again, think twice before hiring a consultant who charges a flat fee to manage your audit!