The 2011 Texas Legislature, in an effort to pass a balanced state budget without raising taxes, enacted a wide variety of measures that either reduced state expenditures or increased state revenues. A number of those measures directly impacted cities by either shifting responsibilities to local governments or shifting municipal revenue to the state. Among those city-related actions taken by the legislature was a reduction in the local share of the mixed beverage tax, which is collected by the state. Now that several months have elapsed since the cut went into effect, statistics are beginning to reveal how much revenue cities are losing.


Under Texas law, all mixed beverage and private club permit holders must remit to the state comptroller a 14-percent gross receipts tax on mixed beverage sales each month. At the end of each calendar quarter, the comptroller allocates a share of that tax revenue to counties and to each city in which one or more permit holder is located. Those allocations are based on the sales within each jurisdiction.

Until 2011, the amount allocated to each eligible city was 10.7143 percent of the amount paid to the comptroller. The 2011 legislature cut the allocation for both cities and counties to 8.3065 percent.

Experience to Date

The cut took effect on September 1, 2011. Because the comptroller reports mixed beverage tax allocations on a quarterly basis and because September was only one month of the third quarter of 2011, it is difficult to calculate how much cities lost in the third quarter. A reasonable estimate, based on allocation data from prior years, is that cities statewide lost $3.2 million.

The cut was in effect for the entire fourth quarter of 2011 and the entire first quarter of 2012. Between 2007 and 2010, the municipal allocation for those two quarters combined increased at an annual rate of roughly three percent. Because the final quarter of 2010 and the first quarter of 2011 generated an allocation to cities of $31,375,027, it is reasonable to assume (based on an annual growth rate of three percent) that a year later that figure should have been roughly $32.37 million. But that didn’t happen. Instead, the city allocation was only $27,226,548, an estimated loss of 15.9 percent of the revenue that would have been generated without the cut in the municipal allocation.

The total effect of the cut in the first seven months is a loss of roughly $8.34 million in municipal revenue statewide, a decline of approximately 17.2 percent.

The Good News

The cut in the municipal share of the mixed beverage tax was enacted during the regular session in 2011. In the special session that followed, the legislature passed a measure that will return the city share to 10.7143 percent in September 2013….unless, of course, the legislature changes the law again.

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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