THE CURIOUS COST OF THE SALES TAX REALLOCATION PROPOSAL

The House Ways and Means Committee recently heard testimony on proposed legislation that would increase transparency in the sales tax reallocation process for Texas cities.  In addition to hearing from several city officials about the benefits of providing due process to cities prior to reallocating tax revenue, the committee heard testimony from the comptroller’s office about the alleged expense of the bill.     

Under current law, Texas cities are not afforded an opportunity to dispute decisions made by the state comptroller to reallocate sales tax revenue between cities due to reporting errors.  House Bill 590, by State Representative Senfronia Thompson, would grant cities the ability to request an independent audit review by the comptroller regarding sales tax reallocation decisions, while also allowing cities to view certain basic information concerning the pending reallocation.  In short, the bill would give cities a limited degree of input to make sure the comptroller correctly reallocates sales tax revenue. 

Oddly, the comptroller’s office has informed the Legislative Budget Board that the combined cost of providing reallocation information to cities and accommodating a relatively small number of independent audits would exceed ten million dollars over the next five years.  Even more perplexing is the comptroller’s estimate that the passage of H.B. 590 would necessitate the hiring of 31 full-time employees to comply with the bill’s requirements.

It must be noted that the fiscal note on H.B. 590 is identical to the fiscal note on a different reallocation bill filed by Rep. Thompson last legislative session.  That bill (H.B. 1377) would have made dramatically different changes to the reallocation process.  Last session’s proposal required the comptroller’s office to conduct formal administrative hearings to settle reallocation disputes, and granted cities the right to appeal the comptroller’s final reallocation decision to Travis County district court. Common sense dictates that the costs of conducting an administrative hearing and paying costs associated with a lawsuit would far exceed the expense to the comptroller of conducting a less involved audit.  Nonetheless, the comptroller’s office has indicated that both bills would cost the office the exact same amount in money and added personnel.

The meticulous forecasting by the comptroller with regard to every dime spent and the number of full-time employee added under H.B. 590 is difficult to reconcile with the comptroller’s difficulty in producing other expenditure amounts of interest to Texas cities.  It is commonly known that the comptroller administers local sales taxes.  For this service, the comptroller deducts two percent of the local share of the sales tax and deposits that amount in the state’s general revenue fund.  The two-percent fee generates over $100 million annually, of which cities pay close to $79.52 million. As reported in previous issues of the Legislative Update
(www.tml.org/leg_updates/legis_update012111a_reverse_intergovernmental_aid.asp),  the comptroller’s office has been unable to even approximate how much money it has cost the office to provide these services. How can the future cost of a not-yet-enacted bill be so precisely determined?

Earlier this year, TML established a Sales Tax Committee to determine the cost to the comptroller for administering local sales taxes.  Preliminary findings show that the cost of that function is approximately $27.7 million, resulting in a “profit” of $51.82 million to the State of Texas.  Even assuming the fiscal note on H.B. 590 accurately reflects the expected costs to be imposed on the comptroller’s office providing more transparency and due process, is it too much to ask that the state use a small portion of the excess revenue generated from the two-percent fee to support a more equitable sales tax reallocation process for Texas cities? 


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Texas Municipal League.

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