How Does a Comptroller Mixed Beverage Tax Audit Actually Work, Step by Step?

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A mixed beverage tax audit follows the Texas Comptroller’s standard audit process: selection, a notice by mail, a review of the account, an initial conference, a request for records, fieldwork that examines transactions in full or by sample, and schedules of proposed adjustments that the business can dispute before the results are billed. What sets a mixed beverage audit apart is its evidence. The Comptroller compares the alcohol a permittee bought with the sales it reported, and its rule presumes that everything purchased was sold in a taxable way until the business shows otherwise.

How businesses are selected

Tax Code Section 183.026 gives the Comptroller discretion over how often to audit mixed beverage permittees and lists factors it may consider: reasonable and prudent accounting standards, the permittee’s audit history, the effect on state revenue, and other factors. The Comptroller’s description of its auditing process lists the general ways it identifies audit candidates, including prior audits that produced $25,000 or more in tax due, computer-based random selection by industry, information shared by other state agencies, analysis of tax returns, and leads from the public.

The steps

  1. Notice. The auditor notifies the business by mail of its selection.
  2. Preparation. The auditor reviews the account’s reporting history and any prior audits.
  3. Initial conversation and scheduling. The auditor discusses the business and its operations, schedules the audit, and lists the records that may be needed.
  4. Records. The business furnishes the records the auditor requests, from sales and purchase records to the working papers behind its returns.
  5. Audit plan. The auditor and the business discuss an audit plan.
  6. Fieldwork. Transactions are examined in full or by sampling; if sampling is used, the auditor explains how errors will be projected across the audit period.
  7. Proposed adjustments. At the end of fieldwork, the auditor gives the business schedules showing potential underpaid or overpaid tax, and the business has a reasonable amount of time to supply more information disputing them.

The audit ends in the Comptroller’s notice of determination of any tax due, or a refund of any overpayment. A business that disagrees with the determination can petition for redetermination within the deadline set in the Tax Code.

What is different in a mixed beverage audit

  • Two taxes at once. The audit covers the permittee’s mixed beverage gross receipts tax and the mixed beverage sales tax, which share the same underlying sales records.
  • Purchases as the benchmark. The Comptroller’s rule, 34 Texas Administrative Code Section 3.1001, presumes that the disposition of all alcohol a permittee purchased is taxable until established otherwise. Purchases from wholesalers and distributors give the auditor an independent measure of what the business had available to sell.
  • Records decide the method. When the required records are kept and produced, the audit tests them. When they are not, the rule lets the Comptroller compute the liability from any available source and estimate it, and presumes that all alcohol purchased was sold.

Preparing before an audit notice arrives

The strongest preparation is the one the audit tests: records kept in the form Rule 3.1001 requires, non-sale uses of alcohol documented when they happen, and a monthly reconciliation of purchases, inventory, and reported sales, along with the working papers behind each return.

This article is general information about Texas alcoholic beverage law, not legal advice, and reading it does not create an attorney-client relationship. Statutes and TABC rules change; confirm current requirements with the Texas Alcoholic Beverage Commission, the relevant city or county, or a licensed Texas attorney before acting.

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