What Actually Happens in a Texas Comptroller Sales Tax Audit, Week by Week

If you just opened a letter from the Texas Comptroller of Public Accounts and saw the word "audit," your stomach probably dropped. That's a normal reaction. It's also, honestly, mostly unwarranted.

I'm a former Texas Comptroller sales tax auditor — I worked inside the agency that runs the audits I now defend against. Most of the small business owners I audited would have been a lot less anxious if they had a clear picture of what was about to happen, when, and what the auditor was actually going to do.

So here's that picture — the Texas sales tax audit process, week by week, in plain English. Not legalese. Not consultant-speak. Just what actually happens.

A note on timelines

Real audits don't run on a fixed schedule. A simple audit of a small business with clean records can wrap in 90 days. A complex audit of a contractor with messy records can take a year or longer. I'll give you typical ranges, but treat the week numbers below as "around then," not as deadlines.

What is non-negotiable is the 30-day deadline at the very end. If you remember nothing else, remember that one.

Week 0 — The notice arrives

You receive a written notice in the mail (sometimes by email if you've registered for paperless correspondence with the Comptroller). It states:

• That you've been selected for an audit
• The tax type (sales and use, mixed beverage, motor fuels, etc.)
• The audit period — typically the prior three years (the standard statute of limitations is four years from when the tax was due, but the Comptroller usually starts at three)
• The auditor's name and contact information
• A request to schedule an entrance conference

This letter is not an accusation. It's an opening of a conversation. About half of Texas sales/use tax audits result in some assessment, but most of those assessments are the result of honest classification errors, not fraud or willful evasion.

Weeks 1–2 — The entrance conference

The auditor will reach out to schedule an entrance conference. This used to always be in person at your place of business. Today many are held by phone or video.

The entrance conference is where the auditor:

• Explains the scope of the audit and the audit period
• Asks about your business operations — what you sell, who you sell to, how you invoice, where your records are kept
• Discusses the sampling approach (more on this below)
• Issues an Information Document Request (IDR) listing the records they want

This meeting matters more than people realize. The auditor's first impression of your business and your records shapes how the rest of the audit goes. Be cooperative, accurate, and brief. Don't volunteer information that wasn't asked for. Don't speculate about how you've been handling tax in the past — if you don't know, say "I'll have to check and follow up."

Weeks 2–6 — Records production

This is the biggest workstream of the audit. You'll be pulling and organizing records and submitting them to the auditor. Expect requests for:

• General ledger and sales journal for the audit period
• Sales invoices (a sample of a few hundred, typically)
• Purchase invoices for capital assets and high-dollar items
• Contracts (if you're a contractor, this is the most important category)
• Exemption certificates from your customers
• Bank statements and deposit summaries
• Federal income tax returns
• Sales tax returns you filed during the period
• Copies of any prior audit working papers and assessments

If your records are clean and organized, this phase takes a few weeks. If they're not, this phase can drag for months — and the longer it drags, the worse the audit usually goes. Disorganized records signal to the auditor that there might be more underneath.

Weeks 4–10 — Sampling and the projection

This is where the audit gets technical. The Comptroller almost never reviews every transaction in your audit period. They use a sample — typically 90 days of transactions — and project the results across the entire audit period (usually 3 years).

The math is brutal: a 90-day sample with $10,000 in classification errors typically projects to $40,000+ across a 3-year audit. So small mistakes in the sample become big assessments at the end.

The auditor proposes the sampling methodology. You can challenge it. You can request a different sample period if you have a reason to (a one-time event, an unusual quarter, a season). You can request that certain categories of transactions be reviewed in detail rather than sampled.

Weeks 8–14 — Exceptions and the schedule of differences

The auditor reviews the sample and identifies "exceptions" — transactions where they believe tax should have been collected but wasn't, or where you paid tax that you shouldn't have. They build these into a Schedule of Differences and share it with you.

Each exception is a discrete decision: was this transaction taxable or not? Did the customer have a valid exemption certificate? Was the contract separated or lump-sum? Was the work residential or nonresidential?

You have the chance to respond to each exception. If you have documentation that supports your original treatment — a properly executed exemption certificate, a contract that was actually separated, a residential job that was misclassified as commercial — now is the time to surface it.

Weeks 12–16 — Exit conference and proposed assessment

After exceptions are settled (or marked as disputed), the auditor produces a proposed assessment showing:

• Total tax due
• Penalties (typically 10%)
• Interest (varies by year — the Comptroller publishes rates)
• The auditor's working papers and methodology

This is presented to you in an exit conference. The auditor walks you through the findings and gives you a chance to ask questions.

The proposed assessment is not final. You still have options.

Weeks 16–20 — Notice of Determination and the 30-day clock

You receive a Texas Notice of Tax / Fee Due (sometimes called a Notice of Determination). This is the document with the hard deadline.

You have 30 days from the date of the notice to either:

1. Pay the assessment in full
2. Request an Independent Audit Review Conference (IARC)
3. File a Petition for Redetermination

If you do nothing, the assessment becomes final and the Comptroller can begin collection actions.

This is not the time to procrastinate. Most of the high-leverage moves later in the process — challenging methodology at IARC, raising legal issues at SOAH — depend on filing on time. A missed deadline ends most of those options.

After week 20 — Redetermination and hearings

If you file a Petition for Redetermination, the audit moves into a different phase. The Comptroller's hearings attorneys take over from the field auditor. You can request:

• An Independent Audit Review Conference — an informal review with a senior auditor not previously involved in your audit
• A formal hearing at the State Office of Administrative Hearings (SOAH)
• Settlement negotiations under the Comptroller's settlement program

Each of these has its own rules, deadlines, and strategy. The redetermination phase can take 6–18 months.

This is the phase where the audit becomes legalistic. Many small business owners who handled the audit themselves up to this point hire outside help here.

Common mistakes I saw on the auditor's side of the desk

• Procrastinating on records production. It signals there's something to find.
• Volunteering information beyond what was asked. Auditors will run with what you give them.
• Accepting the auditor's first sampling proposal without negotiation. Most auditors expect pushback.
• Signing extensions of the statute of limitations without a reason. Don't trade away time you don't need to.
• Missing the 30-day Notice of Determination deadline. This is the one mistake that's usually fatal.
• Hiring a consultant who takes a blanket POA and stops returning calls. The audit is happening to your business. Stay in the loop.
• Underestimating sampling's leverage. Most assessments are won or lost in the sampling phase, not in the exception write-ups.

When to hire help

You don't need professional representation for every audit. If your records are clean, your business is simple, and the audit period had nothing unusual in it, you may do fine on your own.

You probably do want help if any of these are true:

• You're a contractor or home-services business with mixed contract types
• The auditor's proposed sample includes an unusual period
• The proposed assessment is more than you can comfortably pay
• You disagree with the auditor's classification of your work (residential/nonresidential, separated/lump-sum, taxable repair/capital improvement)
• You're unsure whether to request IARC or move directly to redetermination

A good representative in the sampling and exception-defense phases can pay for themselves five or ten times over. A bad one can take a five-figure check and produce nothing useful.

The Texas sales tax audit timeline at a glance

Sources & references

• Texas Comptroller — The Auditing Process
• Texas Comptroller — Auditing Fundamentals
• Texas Comptroller — Form 01-137 Power of Attorney
• Texas Comptroller — Managed Audit Program