Comptroller Proposes New Local Sales and Use Tax Rules

The Texas comptroller has proposed what is essentially a rewrite of the existing administrative rules governing local sales and use tax administration. While it appears that the primary purpose of the proposal is to reorganize the rules to make them more readable, the proposal includes some new provisions that could affect city sales and use tax collection.  The comptroller estimates that the two changes described below should result in increased local sales and use tax revenues for some cities:

    • The most notable amendment relates to expanding when a seller is required to collect local use taxes. Under current rules, an intrastate seller’s obligation is to collect local use taxes based on the sales and use tax rate in the destination where the purchaser receives the item.  But that’s only true if the seller is engaged in business in the destination taxing jurisdiction.

      For example, if a purchase of an item is currently made at a location in Texas that has a total sales and use tax rate of less than 8.25 percent, and is shipped to the purchaser in a Texas city that has adopted a sales and use tax, the seller is required to collect the local use taxes of the city where the item is received.  (That collected amount is the difference between the sales and use tax rate at the point of sale and at the destination, but only if the seller is “engaged in business” in the city where the item is received.)

      The new amendment would eliminate the requirement that a seller be “engaged in business” in the city where the item is received. This has the effect of requiring every seller in the example above to collect local use taxes in the destination city.  

    • Another amendment would require a seller that does not physically have a place of business in the state, but is otherwise “engaged in business” in the state, to collect local use taxes based on where the item is delivered. This represents a change from the current rule, which requires the seller to be “engaged in business” within a local taxing jurisdiction in order to be responsible for local use taxes.

Click here for a detailed Legislative Update article discussing many issues relating to remote sales and the sourcing of sales and use taxes under the comptroller’s current rules.

Each city should review the proposed rules, available at:

http://www.sos.state.tx.us/texreg/archive/May302014/Proposed%20Rules/34.PUBLIC%20FINANCE.html#60

Comments on the proposal may be submitted to Teresa G. Bostick, Manager, Tax Policy Division, P.O. Box 13528, Austin, Texas 78711-3528. Comments must be submitted by June 29, 2014.

TML member cities may use the material herein for any purpose. No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the Texas Municipal League.

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