The Austin Court of Appeals ruled on October 2 that cities don’t have a vested right in local sales tax distributions until four years have passed. Accordingly, the state comptroller may continue to go back for up to four years to redistribute or refund city sales taxes.

In Combs v. City of Webster, several cities argued that the four-year “look-back” provision in the Tax Code, which can result in the redistribution of millions of dollars in mistakenly allocated sales taxes from one city to another, violates the due course of law and the takings provisions of the Texas Constitution. The court disagreed, reasoning that until the four-year statute of limitations has passed, cities merely have a “contingent” or “potential” right to keep the sales tax revenue that has been distributed to them. This is true even if cities have long since spent the revenue under previous budgets.

The case arose out of a dispute over allocation of sales tax revenue between so-called “warehouse cities” and “storefront cities”. Although that allocation issue was clarified by the passage of S.B. 636 earlier this year (read a description of the bill here at, the ruling of the case with respect to the “look-back” will affect all other reallocation decisions for the foreseeable future.

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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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