Increased Enforcement by State and Local Tax Authorities
State and local governments have ramped up enforcement to combat budget shortfalls, aggressively seeking revenue through audits, assessments, and collections aimed at businesses and individuals. This includes expansive views of taxable activities, heightened documentation demands, and rigorous reviews of exemptions and deductions, leading to more frequent disputes over sales and use taxes, property taxes, franchise taxes, and similar obligations for taxpayers in Texas and nationwide.
In Texas, the Comptroller of Public Accounts oversees state enforcement, while local appraisal districts and tax assessor-collectors manage property taxes. Key 2025 updates feature expanded sales tax exemptions for extraction equipment starting October 1, quarterly local rate adjustments, and November ballot proposals that may alter homestead exemptions and voter-approval tax rates. Flood-impacted counties also benefit from extended filing/payment relief, and a federal ruling invalidating CMS provider tax rules offers potential relief for healthcare providers.
Navigating Texas State and Local Taxes: A Comprehensive Overview
At The Wilson Firm, we specialize in Texas state and local taxes, guiding clients through compliance and disputes. Here's a breakdown of key taxes:
Sales and Use Tax
Texas levies a 6.25% state rate on retail sales, leases, and rentals of most goods and taxable services, with local jurisdictions adding up to 2% for a maximum combined rate of 8.25%. Use tax applies to untaxed out-of-state purchases used in Texas. Exemptions include manufacturing equipment and certain resale items, with a notable 2025 expansion for extraction equipment effective October 1. Penalties for late filing include a $50 fee, 5-10% of the tax due, and interest; timely payments earn 0.5% discounts.
Franchise Tax
A privilege tax on entities doing business in Texas, based on margin (total revenue less deductions). For 2025 reports (due May 15), the no-tax-due threshold is $2,470,000; rates are 0.375% for retail/wholesale and 0.75% for others, with an EZ computation rate of 0.331% for revenues under $20 million. Compensation deductions are capped at $450,000. Final reports are required for terminating entities.
Property Tax
Administered locally with no state-level tax, rates vary by jurisdiction to fund schools, roads, and public safety. The Comptroller assists with oversight, including Truth-in-Taxation laws requiring public hearings for rate increases over 3.5%. 2025 updates include potential voter-approved amendments lowering voter-approval rates for 55 cities and expanding homestead exemptions.
Hotel Occupancy Tax
Imposed by cities and counties at rates up to 2% state plus local add-ons (e.g., 6-15% in major cities) on room rentals. Collected by hotel operators and remitted monthly; audits focus on underreporting occupancy.
Mixed Beverage Sales Tax and Gross Receipts Tax
Sales tax at 8.25% on mixed drink sales; gross receipts tax at 6.7% on total receipts from alcohol sales by permit holders. Filed monthly with the Comptroller; enforcement targets bars and restaurants for accurate reporting.
Representation in State and Local Tax Disputes
The tax lawyers at The Wilson Firm have substantial experience in representing clients in tax controversies at the state and local levels.
In the state and local tax arena, we focus on representing Texas businesses in commercial property disputes, sales and use tax audits, appeals and litigation. Our tax lawyers represent both businesses and individuals in a number of different types of tax disputes at the state and local level, including:
- Sales and Use tax
- Property tax
- Franchise tax
- Hotel Occupancy tax
- Mixed Beverage Sales tax
- Mixed Beverage Gross Receipts tax
Navigating Audits and Appeals in Texas
Texas audits, conducted by the Comptroller or contracted examiners, verify proper collection, reporting, and payment of taxes, often triggered by data analytics or referrals. The process includes notice, document requests, examinations (field or desk), and a proposed assessment if discrepancies are found. Taxpayers receive a Notification of Audit Results with appeal rights.
For disputes, the appeals process is multi-tiered:
Judicial Appeal
Appeal SOAH rulings to Travis County District Court within 30 days; no upfront payment required post-Senate Bill 903 reforms. For sales tax specifically, appeals must be filed within 60 days of the audit notification. We handle all stages, often securing reductions through evidence and negotiation.
SOAH Hearing
If unresolved, request a formal hearing before the State Office of Administrative Hearings (SOAH) within 20 days; decisions are issued within 6-9 months.
Protest/Redetermination
File a written protest within 30 days of the assessment for informal review.
Get Experienced Legal Support for Your State or Local Tax Issue
Whether you're facing an aggressive audit, an unexpected tax bill, or a dispute with a taxing authority, The Wilson Firm can help. Our attorneys understand the nuances of Texas state and local tax law and will work to protect your financial interests while resolving the issue as efficiently as possible.
Contact us today to discuss your case and learn how we can help you navigate your state or local tax matter with confidence.
Frequently Asked Questions
Audits are often data-driven, focusing on discrepancies in filings, high-risk industries like retail, or random selections. Recent expansions target remote sellers and extraction activities.
File a protest with the Comptroller within 30 days, then escalate to SOAH if needed. For 2025, ensure your margin calculation aligns with the updated $2,470,000 no-tax-due threshold.
Yes, proposed amendments could enhance homestead exemptions; protests remain due by May 15, with streamlined processes in counties like Bexar for commercial properties.
Up to 10% of the tax due plus interest; we can negotiate abatements for reasonable cause during audits.
Increased focus on AI governance for tax compliance, potential tax breaks for businesses, and relief for disaster areas, but stricter audits for underreporting in hospitality and retail.
