Texas Comptroller audit: what an Oklahoma company can expect

An Oklahoma company that collects Texas sales tax usually meets the Texas Comptroller the same way: a letter arrives announcing an audit, a questionnaire comes with it, and the owner sets both aside until the auditor calls. A Texas Comptroller audit runs on a published sequence, and most of the decisions that shape the result come early in that sequence, before most owners have talked to anyone. This piece takes the process apart in the order the Comptroller runs it, from notification letter to hearing decision.

The reader we have in mind is an Oklahoma seller with Texas exposure: a remote seller that crossed the Texas revenue threshold for remote sellers, a contractor on Texas jobs, a manufacturer shipping to Texas customers. If that is you, the audit is a Texas matter governed by Texas procedure, not the Oklahoma Tax Commission process with a different letterhead.

Step one: the Audit Notification Letter and Form 00-750

Selection comes first in the Comptroller's own description of its process. The auditor notifies the taxpayer by mail and asks for a completed Form 00-750, the Audit Questionnaire. If the questionnaire is not returned on time, a second one goes out. The Comptroller's internal timeline tells auditors to send a certified-mail follow-up if the original questionnaire is not back within 30 days, and to make initial contact within 30 days of receiving it. If no appointment gets set, the auditor is instructed to follow up in writing within 45 days and every 45 days after that until one is.

Two things happen in this window that owners rarely see. The auditor researches the account before the first meeting: reporting history, prior audits, the permit record. And the clock on the most consequential option in the entire process starts running.

Records: four years, sometimes longer

The process page is direct about records. Taxpayers must furnish all necessary records requested, and must keep all records for a minimum of four years. The Comptroller may audit for periods longer than four years if the business should have been permitted and was not, or if fraud is detected. For an Oklahoma company that sold into Texas for years before registering, that second sentence is the one to read twice: an unpermitted period is not protected by the ordinary four-year look-back.

Our earlier piece on the records that save you in a state tax audit covers what to assemble. In a Texas sales tax audit, the resale and exemption certificates sit at the center of that pile, and what Oklahoma sellers must keep on Texas resale certificates is its own subject.

The managed audit decision: 60 days from the letter

Here is the practitioner's wrinkle. Texas offers a managed audit for sales and use tax, which the Comptroller's audit manual describes as a review of the taxpayer's own records to determine its liability under Tax Code Chapter 151. In plain terms, the taxpayer does the detailed examination work under a written agreement and audit plan, and the Comptroller reviews and samples rather than performing the field examination itself.

The request has to reach the field audit manager within 60 days of the date the Audit Notification Letter was sent. The manual says a managed audit will not be approved if the fieldwork has already started, or if a prior audit took 80 hours or less. So the decision about whether to ask for one is made in the same weeks the questionnaire is sitting on a desk, and once the auditor shows up for the entrance conference the option is gone.

If approved, the taxpayer has 45 days to deliver the package: the signed agreement, an audit plan, a timeline, the original sales and purchase data, and a statute waiver that extends the limitations period ninety days beyond the timeline completion date. The manual adds a detail that trips up companies that run everything through their CPA: taxpayer representatives empowered via a power of attorney may not sign the managed audit contract. An owner or officer signs. The Comptroller, not the taxpayer, makes the final sample selection.

What a managed audit buys, and what it does not

The incentive is penalty and interest. Absent fraud or willful evasion, the Comptroller may not assess a penalty on a managed audit and may waive all or part of the interest. Then the exception that matters most to a retailer: those waivers do not apply to tax that was collected but not remitted. Tax you charged a Texas customer and kept is outside the deal no matter how cooperative the audit is.

Interest on a managed audit liability restarts 30 days after the billing date. The agreement is designed to close the period, so once the audit is final neither side generally assesses more tax or requests more refund for it. That cuts both ways: any overpayment has to be claimed before the audit becomes administratively final, or it is gone. A taxpayer making reasonable progress can get an additional 20% of the original time, and before the Comptroller revokes a managed audit for delay it sends a letter giving 30 days to show significant improvement. The taxpayer keeps its full administrative remedies to contest the results.

Whether to take this route depends on the state of the books. A company with clean records and mostly honest classification mistakes often benefits. A company that cannot reconstruct its own sales data is agreeing to do work it cannot do, on a timeline with teeth. This is the point where we'd want a lawyer and the CPA looking at the same spreadsheet before the 60 days run.

How a Texas Comptroller audit samples and projects

Once the questionnaire is back, the auditor holds an entrance conference, which the Comptroller describes as a formal discussion to design a cost-efficient audit plan. The scope, the periods, the records to be pulled, and the method all get set here, and an owner who treats it as a courtesy visit misses the chance to shape them.

The method is the part that makes a Texas audit bigger than it looks. Transactions are examined either in their entirety or by sampling. When sampling is used, the auditor notifies the taxpayer and explains how errors are projected. A handful of invoices without a valid certificate inside the sample becomes an error rate, and the error rate gets applied across the whole audit period. The Comptroller's own page says the auditor provides the schedules and a reasonable amount of time to obtain more information, which is the moment to find the missing certificates and the customer confirmations, not after the notice.

Under the Comptroller's Taxpayer Bill of Rights, its professionals will never be paid, promoted or rewarded on the basis of how much tax they collect or assess. The auditor is applying a method. The method is where the money is.

The exit conference and what the auditor hands you

After the documentation is in, the auditor holds an exit conference to inform the taxpayer of the audit results and ensure the taxpayer understands the adjustments, along with penalty waiver recommendations and interest. The manual is explicit that the taxpayer does not have to agree. Auditors are required to hand over the Contesting Disagreed Audits brochure, Publication 96-1253, at every exit conference whether the taxpayer agrees or not.

Auditors also try to collect the deficiency in the field when they can, and the manual notes why a taxpayer might pay even while disagreeing: interest stops accruing on the amount paid if the contention is later not upheld. Paying does not waive the right to contest; it is a posture decision.

Penalty and interest, as the manual states them

The penalty is 5% for the first 30 days after the report's due date and an additional 5% for the second 30 days. Simple interest begins to accrue on audit liabilities on the sixty-first day after the due date of the report period, at one percent above the prime rate published on the first business day of the year. Check the current figure before relying on any rate. Credit interest on overpayments begins 60 days after the date of payment or the due date, whichever is later.

Penalty waivers are reviewed automatically; the taxpayer does not have to request one. The Taxpayer Bill of Rights says the Comptroller will give consideration to waiving penalties for a taxpayer that has not previously paid or filed late, including a first-time audit situation. Interest waivers are seldom granted, and the manual names the narrow grounds: undue delay caused by the Comptroller, reliance on Comptroller advice, and natural disasters.

Reconciliation conference and the Independent Audit Reviewer

Two informal remedies sit between the exit conference and a formal hearing: a reconciliation conference, where the audit manager or supervisor meets with the auditor and the taxpayer over the disputed items, and the Independent Audit Review conference, where a third party within the agency meets with both sides. Only one IAR conference may be held per audit, and it has to happen before the audit goes to the General Counsel for hearing. A projection error or a misread exemption often gets fixed here, without the cost of a formal record.

After supervisor and processing-center review, the notification of results is mailed to the taxpayer.

The notice and the deadline printed on it

This is the second short window. To contest an assessment without paying it, a Statement of Grounds must be received by the deadline on the Audit Notification. The Comptroller's audit manual describes a redetermination request period that runs from the Notice of Tax Due, with a shorter period after a jeopardy determination. We were not able to confirm the current statutory period in the Tax Code for this article, so treat the date on your notice as the controlling one and count backward from it.

Timeliness rules are specific. A mailed request is judged by the date stamp the agency's mail room affixes, on or before the expiration date. A hand-delivered request must be received by agency staff on or before that date. An electronic request is timely if received on or before the expiration date, through 11:59 p.m., by the agency's system timestamp. Miss the date and the manual's answer is blunt: the taxpayer must pay the liability and then file a refund request. The refund claim route itself runs within the four-year limitation period or within six months after the deficiency determination becomes final, whichever is later.

Contrast this with Oklahoma, where an OTC proposed assessment carries its own protest period under Oklahoma law and its own hearing track at the Commission. An Oklahoma CPA who knows the OTC calendar cold cannot assume the Texas one matches it.

The hearing track, step by step

A timely request puts the case on an administrative hearing track that ends before an Administrative Law Judge at the State Office of Administrative Hearings. The manual lays out the intervals:

1. Pre-hearing: the taxpayer has 90 days to gather evidence, and the auditor has 10 days to respond to each issue raised.
2. A proposed decision issues within 30 days after the hearing or the review of written submissions.
3. Either side may file exceptions within 15 days, and the other side has 15 days to respond.
4. After the decision, the taxpayer has 15 days to move for rehearing.
5. If rehearing is denied, the taxpayer has 30 days to file suit in district court.

There is a parallel door. A taxpayer may pay the assessment under protest, with a detailed letter of grounds, and sue in Travis County District Court within 90 days of the payment. That route trades the administrative record for a court from the start, and it requires the cash up front. Which door makes sense depends on the amount, the legal question, and whether the dispute is really about facts (a certificate exists or it does not) or about law (whether a service is taxable at all).

Once a liability is final and unpaid, the manual gives the taxpayer 15 days after delinquency before a levy is enforced and 20 days before seized assets are liquidated.

Representation, and when it earns its keep

The Comptroller says professional representation is not required of taxpayers in dealing with an audit, and the Taxpayer Bill of Rights confirms that every taxpayer has the right to engage the person of their choice. Both are true, and many Texas audits are a CPA's job from start to finish. Our firm is licensed in Oklahoma and Texas, which matters only because the question of who should be in the room changes as the audit moves.

That calculus shifts when the 60-day managed audit decision is live and the books are messy; when sampling has projected an error rate the company believes is wrong and the schedules need a challenge to the method rather than more invoices; when tax was collected and not remitted, because no waiver reaches that amount; and when the matter is heading to a Statement of Grounds, where what gets written frames everything that follows at SOAH and in district court. An audit also has a way of becoming a business problem. A projected liability across four years can change a sale price, a lender's covenant math, or a partner buyout, and it will show up in any buyer's diligence of an Oklahoma company with Texas revenue.

If a Texas Audit Notification Letter is sitting on your desk, the two dates that matter are already counting: 60 days from the letter for a managed audit, and the deadline that will be printed on the notice once the audit closes. Reach us through the contact page or our Oklahoma City office while both are still ahead of you. A conversation early is almost always cheaper than a problem later.

This article is general information about Oklahoma, Texas, and federal law, not legal advice, and it does not create an attorney-client relationship. Facts matter; talk to a lawyer about yours.