LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 89TH LEGISLATIVE REGULAR SESSION March 24, 2025 TO: Honorable Morgan Meyer, Chair, House Committee on Ways & Means FROM: Jerry McGinty, Director, Legislative Budget Board IN RE: HB134 by Meyer (relating to the location at which certain sales are consummated for purposes of local sales and use taxes.), Committee Report 1st House, Substituted There would be a reduction in state service fee revenue derived from administration of local sales and use taxes. However, absent the detailed data necessary to estimate probable net change in sales tax revenue for each local taxing jurisdiction, the reduction cannot reliably be estimated. The bill would amend, and repeal certain provisions of the Tax Code and the Special District Local Laws Code concerning municipal and county sales and use tax sourcing.This bill would amend and repeal certain provisions of Chapters 321 and 323 of the Tax Code and repeal Section 3853.202 of the Special District Local Laws Code and certain provisions of Section 323.203 of the Tax Code to provide that, for purposes of local sales and use taxes, sales of taxable items are consummated at the location in Texas to which the item is shipped or delivered or where the purchaser takes possession.The bill would provide that the term place of business does not include a computer server, Internet protocol address, domain name, website, or software application.The provisions of the bill would not apply to a small business, defined as a sales tax permit holder that is located in Texas, has not more than 100 employees, and had less than $2,000,000 in gross sales of tangible personal property and services in the preceding 12 calendar months. The employment and gross sales limitations would be inclusive of the employees and gross sales of all members of an affiliated group that includes the permit holder.The bill would allow a retailer that has an active economic development agreement, as defined by the bill, with a municipality and has a single place of business in the state located in that municipality, or that has a location within that municipality from which items are shipped to purchasers, to elect to source sales tax to the location within that municipality until December 31, 2030.This bill's changes in law would not affect tax liability accruing before January 1, 2026.This bill would take effect January 1, 2026.Relative to current law as interpreted in T.A.C. Title 34, Part 1, Chapter 3, Subchapter O, Rule 3.334, this bill would tend to reduce the volume of taxable transactions sourced at a place of business that is not the place where a purchaser takes possession of a purchased taxable item, increasing the volume sourced to the place a taxable item is shipped or delivered. This could result in net change in sales tax revenue of local taxing entities generally, which may be significant for some jurisdictions. Most, but not all, reductions in taxable transactions sourced to some jurisdictions would be increases in taxable transactions sourced to other jurisdictions. It is likely, however, there would be a reduction in aggregate local sales tax levies for transactions sourced to unincorporated areas without local sales tax or with cumulative local county and special district tax rates less than the cumulative local rates that applied at the locations where the taxable transactions were formerly sourced, and a consequent reduction in state service fee revenue derived from administration of local sales and use taxes. Provisions in the bill mitigating this likelihood are exceptions for small businesses and, through the end of 2030, certain retailers with active economic development agreements allowed to source transactions to their place of business within a municipality with which they have entered the agreement.Complicating the matter, the state of current law is contested, with part of the current rule in effect and part stayed by court decision, but the court decision is being appealed.Also unclear is the extent of compliance with the current rule. Online marketplace providers, and remote sellers that have not opted for remittance under the uniform local sales and use tax rate, are in compliance and sourcing local tax on a destination basis and would not be affected by provisions of the bill.While on balance it is expected there would be a net decline in aggregate local sales tax revenue and state service charge revenue due to sales delivered into unincorporated areas with cumulative local sales tax rates lower than average, the extent of probable decline, relative to the current rule, is unknown.Certainly, for municipalities with economic development agreements for the sharing of local sales tax preserved by the bill through 2030, the decline would be significant beginning in 2031. However, should the outcome of current litigation not be in their favor, the jurisdictions with the economic development agreements would gain revenue through 2030 in consequence of the bill, relative to compliance with current law as expressed in Rule 3.334.Upon the reevaluation of their analysis and in consideration of the committee substitute, the Comptroller has determined the detailed data necessary to estimate probable net change in sales tax revenue for each taxing jurisdiction the dollar amount and shipping or delivery address of the purchaser for each taxable sale when the order was not placed in person by the purchaser at a seller's location is not reported to the comptroller. Absent such specific data for millions of transactions of sellers not excepted as small businesses, the net change in revenue for taxing jurisdictions, whether individually or in the aggregate, cannot reliably be estimated. Local Government ImpactThere would be a reduction in aggregate local sales tax levies for transactions sourced to unincorporated areas without local sales tax or with cumulative local county and special district tax rates less than the cumulative local rates that applied at the locations where the taxable transactions were formerly sourced. Source Agencies: b > td > 304 Comptroller of Public Accounts LBB Staff: b > td > JMc, KK, SD
LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 89TH LEGISLATIVE REGULAR SESSION
March 24, 2025
TO: Honorable Morgan Meyer, Chair, House Committee on Ways & Means FROM: Jerry McGinty, Director, Legislative Budget Board IN RE: HB134 by Meyer (relating to the location at which certain sales are consummated for purposes of local sales and use taxes.), Committee Report 1st House, Substituted
TO: Honorable Morgan Meyer, Chair, House Committee on Ways & Means
FROM: Jerry McGinty, Director, Legislative Budget Board
IN RE: HB134 by Meyer (relating to the location at which certain sales are consummated for purposes of local sales and use taxes.), Committee Report 1st House, Substituted
Honorable Morgan Meyer, Chair, House Committee on Ways & Means
Honorable Morgan Meyer, Chair, House Committee on Ways & Means
Jerry McGinty, Director, Legislative Budget Board
Jerry McGinty, Director, Legislative Budget Board
HB134 by Meyer (relating to the location at which certain sales are consummated for purposes of local sales and use taxes.), Committee Report 1st House, Substituted
HB134 by Meyer (relating to the location at which certain sales are consummated for purposes of local sales and use taxes.), Committee Report 1st House, Substituted
There would be a reduction in state service fee revenue derived from administration of local sales and use taxes. However, absent the detailed data necessary to estimate probable net change in sales tax revenue for each local taxing jurisdiction, the reduction cannot reliably be estimated.
There would be a reduction in state service fee revenue derived from administration of local sales and use taxes. However, absent the detailed data necessary to estimate probable net change in sales tax revenue for each local taxing jurisdiction, the reduction cannot reliably be estimated.
The bill would amend, and repeal certain provisions of the Tax Code and the Special District Local Laws Code concerning municipal and county sales and use tax sourcing.This bill would amend and repeal certain provisions of Chapters 321 and 323 of the Tax Code and repeal Section 3853.202 of the Special District Local Laws Code and certain provisions of Section 323.203 of the Tax Code to provide that, for purposes of local sales and use taxes, sales of taxable items are consummated at the location in Texas to which the item is shipped or delivered or where the purchaser takes possession.The bill would provide that the term place of business does not include a computer server, Internet protocol address, domain name, website, or software application.The provisions of the bill would not apply to a small business, defined as a sales tax permit holder that is located in Texas, has not more than 100 employees, and had less than $2,000,000 in gross sales of tangible personal property and services in the preceding 12 calendar months. The employment and gross sales limitations would be inclusive of the employees and gross sales of all members of an affiliated group that includes the permit holder.The bill would allow a retailer that has an active economic development agreement, as defined by the bill, with a municipality and has a single place of business in the state located in that municipality, or that has a location within that municipality from which items are shipped to purchasers, to elect to source sales tax to the location within that municipality until December 31, 2030.This bill's changes in law would not affect tax liability accruing before January 1, 2026.This bill would take effect January 1, 2026.Relative to current law as interpreted in T.A.C. Title 34, Part 1, Chapter 3, Subchapter O, Rule 3.334, this bill would tend to reduce the volume of taxable transactions sourced at a place of business that is not the place where a purchaser takes possession of a purchased taxable item, increasing the volume sourced to the place a taxable item is shipped or delivered. This could result in net change in sales tax revenue of local taxing entities generally, which may be significant for some jurisdictions. Most, but not all, reductions in taxable transactions sourced to some jurisdictions would be increases in taxable transactions sourced to other jurisdictions. It is likely, however, there would be a reduction in aggregate local sales tax levies for transactions sourced to unincorporated areas without local sales tax or with cumulative local county and special district tax rates less than the cumulative local rates that applied at the locations where the taxable transactions were formerly sourced, and a consequent reduction in state service fee revenue derived from administration of local sales and use taxes. Provisions in the bill mitigating this likelihood are exceptions for small businesses and, through the end of 2030, certain retailers with active economic development agreements allowed to source transactions to their place of business within a municipality with which they have entered the agreement.Complicating the matter, the state of current law is contested, with part of the current rule in effect and part stayed by court decision, but the court decision is being appealed.Also unclear is the extent of compliance with the current rule. Online marketplace providers, and remote sellers that have not opted for remittance under the uniform local sales and use tax rate, are in compliance and sourcing local tax on a destination basis and would not be affected by provisions of the bill.While on balance it is expected there would be a net decline in aggregate local sales tax revenue and state service charge revenue due to sales delivered into unincorporated areas with cumulative local sales tax rates lower than average, the extent of probable decline, relative to the current rule, is unknown.Certainly, for municipalities with economic development agreements for the sharing of local sales tax preserved by the bill through 2030, the decline would be significant beginning in 2031. However, should the outcome of current litigation not be in their favor, the jurisdictions with the economic development agreements would gain revenue through 2030 in consequence of the bill, relative to compliance with current law as expressed in Rule 3.334.Upon the reevaluation of their analysis and in consideration of the committee substitute, the Comptroller has determined the detailed data necessary to estimate probable net change in sales tax revenue for each taxing jurisdiction the dollar amount and shipping or delivery address of the purchaser for each taxable sale when the order was not placed in person by the purchaser at a seller's location is not reported to the comptroller. Absent such specific data for millions of transactions of sellers not excepted as small businesses, the net change in revenue for taxing jurisdictions, whether individually or in the aggregate, cannot reliably be estimated.
Local Government Impact
There would be a reduction in aggregate local sales tax levies for transactions sourced to unincorporated areas without local sales tax or with cumulative local county and special district tax rates less than the cumulative local rates that applied at the locations where the taxable transactions were formerly sourced.
Source Agencies: b > td > 304 Comptroller of Public Accounts
304 Comptroller of Public Accounts
LBB Staff: b > td > JMc, KK, SD
JMc, KK, SD