Few letters make a business owner’s stomach drop like one announcing a sales tax audit. The good news is that an audit is a review of your records, not an accusation. Most audits are routine, and a business with organised books and a clear understanding of its obligations can get through one with far less stress. This guide explains how Texas sales tax audits generally work, what auditors look for, how to prepare your records and how to respond if the auditor’s findings seem wrong. It is general information, not legal or tax advice, and rules change, so confirm details with the Texas Comptroller of Public Accounts or a qualified professional. For a broader view of staying ahead on tax, see our article on tax planning for startups.
In this article
- Who Conducts Texas Sales Tax Audits?
- How an Audit Usually Unfolds
- Records to Prepare
- Common Problem Areas
- How to Prepare When You Get a Notice
- During the Audit: Practical Tips
- If You Disagree With the Findings
- Penalties, Interest and Payment Options
- Reducing Your Audit Risk Going Forward
- Frequently Asked Questions
- The Bottom Line
Who Conducts Texas Sales Tax Audits?
In Texas, sales and use tax is administered by the Comptroller of Public Accounts. The agency’s audit staff review whether a business collected, reported and paid the right amount of tax. Information, forms and guidance are published on the Comptroller’s sales and use tax pages. Businesses can be selected for many reasons, including industry patterns, discrepancies in filings, refund claims or information from other sources. Being selected does not mean you did something wrong.
How an Audit Usually Unfolds
- Notice: you receive a written notice stating the periods under review and the records requested
- Scheduling: an auditor contacts you to agree on a time and location, often your place of business or your accountant’s office
- Records review: the auditor examines sales, purchases, exemption certificates, and bank and filing records
- Testing: where records are large, auditors may use sampling to estimate errors across the audit period
- Findings: the auditor discusses preliminary results and any proposed adjustments
- Response: you can provide extra documents, dispute items or ask for a review
- Assessment or refund: a final determination states any tax, penalty and interest owed, or any overpayment
Timelines and procedures vary, so read every notice carefully and respond by the dates given.
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Records to Prepare
| Record | Why it matters |
| Sales invoices and point-of-sale reports | Show taxable and non-taxable sales |
| Sales tax returns and payment confirmations | Prove what you reported and paid |
| Exemption and resale certificates | Support sales where you did not charge tax |
| Purchase invoices and receipts | Show whether tax was paid on items you bought for use |
| Bank and card statements | Used to cross-check reported sales |
| Fixed asset lists | Show equipment purchases where use tax may apply |
| General ledger and chart of accounts | Explain how transactions were categorised |
| Contracts and shipping records | Support location and delivery treatment |
Keep your records organised by period, and make sure they are complete. Missing documentation is a common reason for adjustments, because an auditor may treat undocumented sales as taxable. Our guide to digital accounting and filing explains how to build a records system that is ready for review.
Common Problem Areas
Missing or invalid exemption certificates
If you sell to customers who claim an exemption, such as resale, you generally need valid certificates on file. Without them, the sale may be treated as taxable. Collect certificates at the time of sale rather than months later, and check that they are complete.
Use tax on purchases
When a business buys items without paying sales tax, for example from an out-of-state seller, and uses them in Texas, use tax may be due. Equipment, supplies and software are common examples.
Taxable versus non-taxable items
Texas treats some services and products differently from others. Bundled charges, shipping, installation and digital goods can cause confusion. Review how each type of sale is treated, and apply the rule consistently.
Reporting differences
Differences between sales reported on tax returns and amounts shown in bank deposits, income tax filings or marketplace reports can trigger questions. Reconcile your sales regularly so that you can explain any gap.
Multiple locations or online sales
Selling from several places or through marketplaces adds complexity. Confirm where sales are sourced and who is responsible for collecting tax in each situation. [CLIENT LINK PLACEHOLDER]
How to Prepare When You Get a Notice
- Read the notice and note deadlines
- Gather the requested records and identify any gaps
- Ask your accountant or a tax professional to review your position
- Reconcile sales and returns for the audit period
- Collect missing exemption certificates where possible
- Prepare a short, factual explanation of your business, systems and any unusual transactions
- Designate one point of contact who deals with the auditor
- Keep copies of everything you provide
During the Audit: Practical Tips
- Be polite, organised and responsive
- Answer questions truthfully, but do not guess; say you will check and follow up in writing
- Provide only the records requested, and keep a log of what you hand over
- Ask the auditor to explain any method used, especially sampling
- Request written confirmation of any agreement
- Do not ignore deadlines or requests for information
If You Disagree With the Findings
You usually have options to challenge an assessment, such as providing additional documentation, asking for a review of the audit method or pursuing a formal redetermination or appeal process. The steps and time limits are set by Texas law and Comptroller rules, so act quickly and get professional advice. A tax attorney can be valuable when the amounts are significant or the issues are complex, and our article on why you should hire a tax attorney explains when that step makes sense.
Penalties, Interest and Payment Options
If an audit finds unpaid tax, you may owe the tax plus interest and, in some cases, penalties. Penalties can sometimes be reduced or waived where there is a good reason, such as reliance on written guidance or a first-time error. If you cannot pay in full, contact the Comptroller to ask about payment arrangements instead of ignoring the bill.
Reducing Your Audit Risk Going Forward
- File on time, and pay what you owe
- Use accounting software that tracks taxable and non-taxable sales
- Keep exemption certificates current and indexed
- Reconcile sales tax collected with amounts reported every month
- Train staff who take orders or process sales
- Review your procedures when you add products, locations or sales channels
- Schedule an annual check-up with your accountant
Small mistakes add up over several years, which is why regular review matters. Our list of common small business accounting mistakes is a good starting point. The SBA also offers a general overview of paying business taxes.
Frequently Asked Questions
How far back can a Texas sales tax audit go?
There are limits on how far back the Comptroller can assess tax, but they depend on the situation, so check current rules or ask a professional.
Do I need an accountant for an audit?
It is not required, but a professional can help you prepare records, communicate with the auditor and protect your interests.
What happens if I cannot find some records?
Tell the auditor and offer alternative evidence, such as bank statements or supplier confirmations. Do not invent documents.
Will an audit always result in extra tax?
No. Some audits end with no change, and some result in refunds.
The Bottom Line
A Texas sales tax audit is manageable when you stay calm, keep good records and respond promptly. Know what the Comptroller expects, collect exemption certificates, reconcile your reports and seek advice when the stakes are high. Preparing now, long before any notice arrives, is the best protection your business can have.
