Claims Referred to Audit Division
Refund claims submitted to the Comptroller’s office will be referred to the Audit Division for auditor verification if one or more of the following conditions apply:
- The claim is for $25,000 or more in taxes.
- Refund period is included in either an in-progress or completed audit period.
- The claim is for less than $25,000 in taxes but small claims for the taxpayer now aggregate to $25,000 or more in taxes during the past four years.
Cursory Review at Audit Headquarters
A refund claim referred to the Audit Division will undergo a cursory review in Audit Headquarters to ensure that the claim includes enough information to be transferred to a field office for auditor verification. A letter will be sent to the taxpayer advising as to which field office the refund claim was assigned and how to contact the manager of the assigned office. If the refund claim does not include all required information, a letter will be sent to the designated contact explaining how the refund claim was deficient. A denial letter may be sent if the items requested are no longer authorized in statute (typically four years).
Documentation the Auditor May Request
The assigned auditor will contact the person designated in the refund request letter to obtain the documentation necessary to verify the refund request. If requested documentation is not provided by the auditor’s deadline – usually within 30 days – the refund claim may be denied, either partially or fully. Documentation that may be requested may include, but is not limited to, the following:
- Power of attorney (PDF) or letter of authorization
- Refund request schedules (PDF) (preferably in electronic format)
- Assignment of Right to Refund forms (PDF)
Must be submitted if the taxpayer is not permitted.
- Proof that tax was paid to vendor on a purchase invoice via cancelled checks with check stub, bank statements, credit card statements, accounts payable distribution or other documentation
- Proof that tax collected in error from a customer by a permitted seller was refunded to that customer via cancelled checks, credit memos, accounts receivable ledger and/or credit memo acceptance forms (PDF).
- Resale/exemption/direct-pay permit certificates
- Sales and/or use tax general ledger accounts (transaction-level detail)
- Other general ledger accounts
- Chart of accounts
- Field tickets
- Utility study
For claims that gas or electricity is used in an exempt manner over 50 percent of the time
- Plant tour
- Sales/use tax return working papers
- Federal tax returns
- Financial statements
- Documentation of any refunds already received by the taxpayer
- If the refund claim was sampled, documentation showing how the population base was created and documentation supporting the sample’s compliance with Comptroller guidelines.
Auditor Verification Procedures
- Tax Account Reconciliation
For permitted taxpayers, the auditor will reconcile the sales and use tax accounts in the general ledger to the reported amounts, beginning with the first reporting period of the refund claim through the most current period. The auditor will be looking for tax underpayments, overpayments and credits already taken for the items in the refund request. This is typically the first step of verification. The auditor may reconcile any reporting periods that have been filed since the initial reconciliation was performed. If significant underpayments are found, the auditor may make an assessment for the underpayments in addition to verifying the refund claim.
- Review of Supporting Documentation
The auditor will review the invoices, proof of payment and customer certificates as applicable for the transactions included in the refund request. The auditor may conclude that additional documentation or information is necessary to determine if the transactions qualify for the claimed exemption. The auditor may also want to see items purchased and gain an understanding of how purchased items are used.
- Taxability Research
The auditor may research statutes, administrative rules, hearings and other documents on the State Tax Automated Research (STAR) System to determine if the items qualify for the claimed exemption(s). The auditor may also research tax publications.
If the transactions included in a refund claim are voluminous, the auditor may use sampling to verify the refund claim. Sampling methods are described in the Sampling Manual (PDF).
Review and Processing
After the auditor verifies the refund claim and determines the amounts that can be approved for refund, the auditor will conduct an exit conference with the taxpayer. Thereafter, the refund will be submitted for processing, and the refund package will be mailed to the taxpayer’s designated contacts. If the refund has been totally denied, only a denial letter will be sent. Occasionally, a denial letter will be sent from Headquarters after the cursory review.
Payment of the Refund
The refund package is mailed to the taxpayer upon completion of the review by the Regional Processing Center. The refund check is mailed separately by the Fund and Payment Reconciliations section. A paper refund check will be mailed to the address on file for the taxpayer unless special instructions have been received or contact the Revenue Accounting Division at 512-463-4561 to obtain Form 74-221, Tax Refund Direct Deposit Authorization to initiate the process to receive payments electronically.
Helpful Hints For Requesting a Refund
- If you are being audited, give your refund transactions to the auditor to be included in the audit; this is more efficient for the auditor. Also, if your audit will include assessments for underpayments, credits allowed in the audit will reduce penalties and interest assessed by the auditor, resulting in a larger credit than if you filed a separate refund request.
- When filing amended returns that reduce the tax originally reported, include a letter that describes in detail the reason for the refund request. If the overpayment is due to calculation errors, running the wrong report or a typo, include a copy of the original calculation or report and the correct calculation or report.
- Have documentation ready for review before you file the refund claim. Respond timely to auditor requests for documentation and information.
- Combine small refund claims into fewer, larger claims when possible. It is much more efficient for the Audit Division to verify and process one large claim rather than several small claims.
- When filing a refund claim for a non-permitted purchaser, review all Assignment of Right to Refund forms to ensure they are fully and properly completed and include any referenced attachments.
- If the refund claim is filed by a representative, include a power of attorney form signed by an officer, director or owner.
- Provide the auditor with schedules of refund claim transactions in electronic format.
- Include electronic files on a CD or DVD with the refund claim.
- Provide a printed copy of the refund request letter, schedules of transactions, power of attorney forms and Assignment of Right to Refund forms (including attachments) with the refund claim.
What if I disagree with the results of my refund claim?
The refund package or denial letter will include a statement of taxpayer rights and instructions on how to contest the refund claim results by filing a refund hearing request or a notice of intent to bypass hearing within 60 days of the date of the letter. The rights and instructions are also explained in the Contesting Disagreed Audits, Examinations and Refunds (PDF) brochure.
If you disagree with the results of the refund claim verification, your only options are to request a refund hearing or file a notice of intent to bypass hearing within 60 days of the letter date. You may not file a new refund request for the same items with the same contentions. You may not take credit for denied items on an original or amended return or receive credit for denied items in an audit.