TEXAS COST OF GOODS SOLD AUDIT FOR PRODUCTS MANUFACTURER RESULTS IN $5.2 MILLION IN SAVINGS

CLIENT

Our client is a Fortune 100 global healthcare products giant with a major presence in over 20 US states and
Canada.

CHALLENGE

Texas Franchise Tax (Margin) has been in a continuous evolution since the day it became law. Most recently, the state amended and reinterpreted several statutes and regulations concerning what constitutes Texas Cost of Goods Sold as it pertains to the margin tax computation.

Texas was auditing our client’s Franchise Tax Reports for multiple tax periods, some of which overlapped with tax years being audited by the Internal Revenue Service (IRS). The Texas audit resulted in an assessment of approximately $1.5 million in additional tax and interest related to its original filing positions. In addition, it was responsible for reporting federal changes to Texas once the IRS audit finalized and the Revenue Agent Report was issued.

SOLUTION

Selected for its significant expertise in Texas Franchise Tax audits, DMA was tasked with reviewing the Texas audit reports for accuracy, and uncovering potential opportunities for assessment reduction. DMA utilized its unique multi-team approach, bringing together a highly-skilled team of Revenue Agent Report (RAR) compliance specialists and tax minimization experts, to thoroughly review the audit assessment and incorporate the impact of the federal adjustments.

RESULT

After reviewing the audit assessment and workpapers, DMA was able to identify opportunities to reduce the
assessment. These savings opportunities directly related to expenses included in the Texas Cost of Goods Sold. DMA prepared all correspondence and issues substantiation for the client, and all savings issues were fully accepted by the Texas auditors. As a result of DMA’s thorough review process, the client’s initial audit assessment was reduced to zero, and additional refunds of $3.7 million in tax and interest were realized, bringing the total audit savings to $5.2 million. These tax savings strategies were then incorporated into the current tax period and other statutorily open tax periods, resulting in an average additional savings of $1.25 million a year.

WHY DMA?

DMA has a rich history of successful Texas audit review and management engagements with large multinational companies including chemical manufacturers, consumer goods manufacturers, electronic device manufacturers, medical device manufacturers, software companies and pharmaceutical companies. DMA’s review issues are practical, proven, and sustainable; and often can be incorporated into future tax periods for many more years of benefit.

“The DMA team was instrumental in mining the Texas filings for tax savings opportunities. Their thoroughness in documenting the affirmative issues included in the audit resulted in a quick turnaround and refund approval. We are also set up to minimize our Margin liability going forward.”