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Texas: Gross Sales Tax Underreporting Leads to Stiff Penalty

  • Jan 29, 2013 | Gail Cole

 Texas Comptroller Rewards "Intent to Evade Taxation" with 50% Penalty.

In a recent case before the Texas Comptroller of Public Accounts, a Texas taxpayer argued that a 50% penalty should be dropped because "there was no intent to evade tax." The taxpayer also argued that the 50% penalty was unconstitutional, but that's an issue for the Texas courts, not the Texas Comptroller. 

Since January 1, 2004, pursuant to the Texas Tax Code:

"The chief appraiser must impose an additional penalty of 50 percent if a court finally determines that:

  1. The person filed a false statement or report with the intent to commit fraud or to evade taxes; or
  2. The person altered or destroyed records or other information in the course of proceedings before the appraisal district."

Relevant Texas Code puts "the burden of proof" on the Administrative Hearings Section "if the issue is whether the imposition of additional penalty for a willful or fraudulent failure to pay tax is warranted." The burden of proof is on the taxpayer "if he contends that an action, or proposed action, of the Administrative Hearings Section is otherwise unwarranted."

The Texas Comptroller notes that it "has held on many occasions that gross underreporting of taxable sales, along with other factors or no plausible explanation, is sufficiently indicative of intent to evade the tax to warrant the assessment of the fraud penalty."

Evidence of Intent to Invade

In the case in question, the intent to evade the tax is evidenced by the following:

  • "Petitioner failed to provide complete records, and the underreporting documented within the audit constitutes gross error for which Petitioner offered no plausible explanation."
  • "Petitioner's tobacco purchases exceeded reported taxable sales for all product categories…" during the audit period.

As a result, "Staff's evidence is clear and convincing and demonstrates that the gross underreporting of tax determined by the audit was due to fraud or intent to evade the tax."

The 50% penalty stays.


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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.