For Contested Sales Tax Cases
The Texas Comptroller may settle a claim for a tax, penalty, or interest only if the taxpayer proves by a 51% chance that:
Grounds for Insolvency Settlement
1. Collection Will Cause Insolvency
The taxpayer must demonstrate that collection of the total amount due would make them insolvent and must submit all required financial records, including:
- Federal income tax reports
- An inventory of all property owned, wherever located
2. Insufficient Property to Satisfy Debt
The taxpayer must show there is no property that may be seized by the courts of this or another state, or that the value of the taxpayer’s property is less than the total amount due and the debts against the property. Additionally, the taxpayer must prove one of the following:
- Insolvent
- In liquidation
- Ceased to do business
Procedural Requirements
- An insolvency settlement proposal must be submitted in a redetermination proceeding after a hearing number has been assigned but before a notice of hearing has been issued.
Documentation Required:
- All federal income tax returns
- Financial statements
- Bank statements for the past six months
Referral to SOAH
If the Comptroller does not accept a taxpayer’s insolvency settlement proposal, the taxpayer may request that the matter be referred to the State Office of Administrative Hearings (SOAH).
The Comptroller will refer to SOAH only factual disputes regarding whether the taxpayer met the insolvency requirements.
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Frequently Asked Questions
What is a contested sales tax case?
A contested sales tax case involves a dispute between a taxpayer and the Texas Comptroller regarding the assessment or amount of state sales tax owed. The taxpayer can challenge the determination through a formal hearing process.
What qualifies as grounds for an insolvency settlement?
Insolvency settlements may be granted if the taxpayer proves that collecting the tax would render them insolvent. This includes showing either a lack of property to cover the debt or that they are insolvent, in liquidation, or no longer in business.
When can an insolvency settlement proposal be submitted?
An insolvency settlement proposal must be submitted during the redetermination phase, after a hearing number has been assigned but before the notice of hearing is issued. This is a procedural requirement.
What documents are required to support an insolvency claim?
The taxpayer must submit complete financial documentation, including federal income tax returns, financial statements, and bank statements for the past six months, as well as a detailed inventory of all property owned.
What happens if the Comptroller rejects the settlement proposal?
If the Comptroller rejects the proposal, the taxpayer can request the case be referred to the State Office of Administrative Hearings (SOAH), which will handle disputes about whether insolvency requirements were met.