BILL ANALYSIS C.S.H.B. 134 By: Meyer Ways & Means Committee Report (Substituted) BACKGROUND AND PURPOSE Local sales and use tax administration in Texas can be confusing and unclear for retailers and taxpayers because certain sales are sourced to the location where the item is shipped or delivered or where the purchaser takes possession, which is known as destination sourcing, while other types of sales are sourced to the seller's place of business, which is known as origin sourcing. According to a study conducted by the Tax Foundation, the broad consensus of public finance scholars who study sales taxation is that sales taxes should be destination-based, meaning the tax is owed in the state and jurisdiction where the good or service is consumed. C.S.H.B. 134 seeks to simplify and clarify local sales and use tax administration by establishing destination sourcing as the state's default sourcing method, with exceptions for certain small businesses and businesses with active local economic development agreements. CRIMINAL JUSTICE IMPACT It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution. ANALYSIS C.S.H.B. 134 amends the Tax Code to revise provisions governing the sourcing of sales for purposes of local sales and use taxes. Municipal Sales and Use Tax Origin-Based Sourcing Small Business Retailers C.S.H.B. 134 replaces the provision establishing that all taxable retail sales of a retailer with only one place of business in Texas are considered consummated at that place of business with a provision establishing instead that the sale of a taxable item by a small business is consummated at the business's "principal business location," which the bill defines as the business location where the business's decision makers conduct the daily affairs of the organization. The bill defines "small business" as a sales tax permit holder that has its principal business location in Texas and that has: not more than 100 employees, including all employees of each member of an affiliated group that includes the permit holder; and total combined gross receipts from the sale of tangible personal property and services in the preceding 12 calendar months of less than $2 million, including the gross receipts of each member of an affiliated group that includes the permit holder. The bill defines "affiliated group" by reference to the meaning assigned to that term in statutory provisions relating to the franchise tax. In-Person Sales by Other Retailers C.S.H.B. 134 revises provisions relating to the sales tax imposed on a retailer with more than one place of business to establish that each sale of each taxable item by a retailer other than a small business is consummated at the place of business of the retailer in Texas where the retailer receives the order, provided that the order is placed in person by the purchaser or lessee of the taxable item at the place of business of the retailer in Texas where the retailer receives the order. The bill excludes from the definition of "place of business of the retailer" for purposes of the Municipal Sales and Use Tax Act a computer server, Internet protocol address, domain name, website, or software application. Destination-Based Sourcing C.S.H.B. 134 establishes a destination-based sourcing model for any taxable sale to which the aforementioned sourcing models do not apply and in which the purchaser receives shipment or delivery of, or otherwise takes possession of, the item in Texas by establishing that such a sale is considered consummated at the location in Texas to which the item is shipped or delivered or at which possession is taken by the purchaser. Location of Receipt C.S.H.B. 134 establishes that an order is considered to be received at the location where all of the information from the purchaser necessary to determine whether the order can be accepted has been received by or on behalf of the seller. The order is expressly not considered to be received at a location where the order is subsequently accepted, completed, or fulfilled. Transition for Certain Retailers C.S.H.B. 134 includes temporary provisions set to expire December 31, 2030, providing for a transition to the revised sourcing models for retailers that have active economic development agreements with municipalities. A retailer that has an active economic development agreement with a municipality and has a single place of business in Texas that is within the municipality may elect to collect and report municipal sales taxes based on the location of the retailer's single place of business. A retailer that has an active economic development agreement with a municipality may elect to collect and report municipal sales tax based on the location of the retailer within the municipality from which an item is shipped directly to the purchaser or the purchaser's designee. The bill establishes that such elections are binding on the retailer and the purchaser. The bill defines "active economic development agreement" as a Chapter 380 or 381 economic development agreement, or an investment agreement with a Type A or Type B economic development corporation, under which the local government made payments on or before January 1, 2025, based on local sales and use tax collections. County and Municipal Sales and Use Tax C.S.H.B. 134 removes and repeals provisions governing the consummation of sales for purposes of the county sales and use tax and makes the provisions governing the consummation of sales for purposes of the municipal sales and use tax applicable also with respect to the county sales and use tax, including provisions establishing certain applicable definitions. The bill repeals a provision that makes a repealed municipal sales tax provision inapplicable to the Dickinson Management District No. 1. Applicability on Tax Liability C.S.H.B. 134 expressly does not affect tax liability accruing before the bill's effective date. That liability continues in effect as if the bill had not been enacted, and the former law is continued in effect for the collection of taxes due and for civil and criminal enforcement of the liability for those taxes. Repealed Provisions C.S.H.B. 134 repeals the following provisions: Section 3853.202(d), Special District Local Laws Code; and Sections 323.203(b), (c), (c-1), (d), (e), (e-1), (f), (g), (g-1), (g-2), (g-3), (h), (i), (j), (k), and (m), Tax Code. EFFECTIVE DATE January 1, 2026. COMPARISON OF INTRODUCED AND SUBSTITUTE While C.S.H.B. 134 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill. The substitute revises the definition of the term "small business" present in the introduced by doing the following: increases the maximum number of employees of a sales tax permit holder that constitutes a small business under the definition from 20, as in the introduced, to 100; and increases the maximum total combined gross receipts from the sale of tangible personal property and services in the preceding 12 calendar months that qualifies a sales tax permit holder as a small business under the definition from less than $500,000, as in the introduced, to less than $2 million.
BILL ANALYSIS
# BILL ANALYSIS
C.S.H.B. 134
By: Meyer
Ways & Means
Committee Report (Substituted)
C.S.H.B. 134
By: Meyer
Ways & Means
Committee Report (Substituted)
BACKGROUND AND PURPOSE Local sales and use tax administration in Texas can be confusing and unclear for retailers and taxpayers because certain sales are sourced to the location where the item is shipped or delivered or where the purchaser takes possession, which is known as destination sourcing, while other types of sales are sourced to the seller's place of business, which is known as origin sourcing. According to a study conducted by the Tax Foundation, the broad consensus of public finance scholars who study sales taxation is that sales taxes should be destination-based, meaning the tax is owed in the state and jurisdiction where the good or service is consumed. C.S.H.B. 134 seeks to simplify and clarify local sales and use tax administration by establishing destination sourcing as the state's default sourcing method, with exceptions for certain small businesses and businesses with active local economic development agreements.
CRIMINAL JUSTICE IMPACT It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.
RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.
ANALYSIS C.S.H.B. 134 amends the Tax Code to revise provisions governing the sourcing of sales for purposes of local sales and use taxes. Municipal Sales and Use Tax Origin-Based Sourcing Small Business Retailers C.S.H.B. 134 replaces the provision establishing that all taxable retail sales of a retailer with only one place of business in Texas are considered consummated at that place of business with a provision establishing instead that the sale of a taxable item by a small business is consummated at the business's "principal business location," which the bill defines as the business location where the business's decision makers conduct the daily affairs of the organization. The bill defines "small business" as a sales tax permit holder that has its principal business location in Texas and that has: not more than 100 employees, including all employees of each member of an affiliated group that includes the permit holder; and total combined gross receipts from the sale of tangible personal property and services in the preceding 12 calendar months of less than $2 million, including the gross receipts of each member of an affiliated group that includes the permit holder. The bill defines "affiliated group" by reference to the meaning assigned to that term in statutory provisions relating to the franchise tax. In-Person Sales by Other Retailers C.S.H.B. 134 revises provisions relating to the sales tax imposed on a retailer with more than one place of business to establish that each sale of each taxable item by a retailer other than a small business is consummated at the place of business of the retailer in Texas where the retailer receives the order, provided that the order is placed in person by the purchaser or lessee of the taxable item at the place of business of the retailer in Texas where the retailer receives the order. The bill excludes from the definition of "place of business of the retailer" for purposes of the Municipal Sales and Use Tax Act a computer server, Internet protocol address, domain name, website, or software application. Destination-Based Sourcing C.S.H.B. 134 establishes a destination-based sourcing model for any taxable sale to which the aforementioned sourcing models do not apply and in which the purchaser receives shipment or delivery of, or otherwise takes possession of, the item in Texas by establishing that such a sale is considered consummated at the location in Texas to which the item is shipped or delivered or at which possession is taken by the purchaser. Location of Receipt C.S.H.B. 134 establishes that an order is considered to be received at the location where all of the information from the purchaser necessary to determine whether the order can be accepted has been received by or on behalf of the seller. The order is expressly not considered to be received at a location where the order is subsequently accepted, completed, or fulfilled. Transition for Certain Retailers C.S.H.B. 134 includes temporary provisions set to expire December 31, 2030, providing for a transition to the revised sourcing models for retailers that have active economic development agreements with municipalities. A retailer that has an active economic development agreement with a municipality and has a single place of business in Texas that is within the municipality may elect to collect and report municipal sales taxes based on the location of the retailer's single place of business. A retailer that has an active economic development agreement with a municipality may elect to collect and report municipal sales tax based on the location of the retailer within the municipality from which an item is shipped directly to the purchaser or the purchaser's designee. The bill establishes that such elections are binding on the retailer and the purchaser. The bill defines "active economic development agreement" as a Chapter 380 or 381 economic development agreement, or an investment agreement with a Type A or Type B economic development corporation, under which the local government made payments on or before January 1, 2025, based on local sales and use tax collections. County and Municipal Sales and Use Tax C.S.H.B. 134 removes and repeals provisions governing the consummation of sales for purposes of the county sales and use tax and makes the provisions governing the consummation of sales for purposes of the municipal sales and use tax applicable also with respect to the county sales and use tax, including provisions establishing certain applicable definitions. The bill repeals a provision that makes a repealed municipal sales tax provision inapplicable to the Dickinson Management District No. 1. Applicability on Tax Liability C.S.H.B. 134 expressly does not affect tax liability accruing before the bill's effective date. That liability continues in effect as if the bill had not been enacted, and the former law is continued in effect for the collection of taxes due and for civil and criminal enforcement of the liability for those taxes. Repealed Provisions C.S.H.B. 134 repeals the following provisions: Section 3853.202(d), Special District Local Laws Code; and Sections 323.203(b), (c), (c-1), (d), (e), (e-1), (f), (g), (g-1), (g-2), (g-3), (h), (i), (j), (k), and (m), Tax Code.
EFFECTIVE DATE January 1, 2026.
COMPARISON OF INTRODUCED AND SUBSTITUTE While C.S.H.B. 134 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill. The substitute revises the definition of the term "small business" present in the introduced by doing the following: increases the maximum number of employees of a sales tax permit holder that constitutes a small business under the definition from 20, as in the introduced, to 100; and increases the maximum total combined gross receipts from the sale of tangible personal property and services in the preceding 12 calendar months that qualifies a sales tax permit holder as a small business under the definition from less than $500,000, as in the introduced, to less than $2 million.
BACKGROUND AND PURPOSE
Local sales and use tax administration in Texas can be confusing and unclear for retailers and taxpayers because certain sales are sourced to the location where the item is shipped or delivered or where the purchaser takes possession, which is known as destination sourcing, while other types of sales are sourced to the seller's place of business, which is known as origin sourcing. According to a study conducted by the Tax Foundation, the broad consensus of public finance scholars who study sales taxation is that sales taxes should be destination-based, meaning the tax is owed in the state and jurisdiction where the good or service is consumed. C.S.H.B. 134 seeks to simplify and clarify local sales and use tax administration by establishing destination sourcing as the state's default sourcing method, with exceptions for certain small businesses and businesses with active local economic development agreements.
CRIMINAL JUSTICE IMPACT
It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.
RULEMAKING AUTHORITY
It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.
ANALYSIS
C.S.H.B. 134 amends the Tax Code to revise provisions governing the sourcing of sales for purposes of local sales and use taxes.
Municipal Sales and Use Tax
Origin-Based Sourcing
Small Business Retailers
C.S.H.B. 134 replaces the provision establishing that all taxable retail sales of a retailer with only one place of business in Texas are considered consummated at that place of business with a provision establishing instead that the sale of a taxable item by a small business is consummated at the business's "principal business location," which the bill defines as the business location where the business's decision makers conduct the daily affairs of the organization. The bill defines "small business" as a sales tax permit holder that has its principal business location in Texas and that has:
not more than 100 employees, including all employees of each member of an affiliated group that includes the permit holder; and
total combined gross receipts from the sale of tangible personal property and services in the preceding 12 calendar months of less than $2 million, including the gross receipts of each member of an affiliated group that includes the permit holder.
The bill defines "affiliated group" by reference to the meaning assigned to that term in statutory provisions relating to the franchise tax.
In-Person Sales by Other Retailers
C.S.H.B. 134 revises provisions relating to the sales tax imposed on a retailer with more than one place of business to establish that each sale of each taxable item by a retailer other than a small business is consummated at the place of business of the retailer in Texas where the retailer receives the order, provided that the order is placed in person by the purchaser or lessee of the taxable item at the place of business of the retailer in Texas where the retailer receives the order. The bill excludes from the definition of "place of business of the retailer" for purposes of the Municipal Sales and Use Tax Act a computer server, Internet protocol address, domain name, website, or software application.
Destination-Based Sourcing
C.S.H.B. 134 establishes a destination-based sourcing model for any taxable sale to which the aforementioned sourcing models do not apply and in which the purchaser receives shipment or delivery of, or otherwise takes possession of, the item in Texas by establishing that such a sale is considered consummated at the location in Texas to which the item is shipped or delivered or at which possession is taken by the purchaser.
Location of Receipt
C.S.H.B. 134 establishes that an order is considered to be received at the location where all of the information from the purchaser necessary to determine whether the order can be accepted has been received by or on behalf of the seller. The order is expressly not considered to be received at a location where the order is subsequently accepted, completed, or fulfilled.
Transition for Certain Retailers
C.S.H.B. 134 includes temporary provisions set to expire December 31, 2030, providing for a transition to the revised sourcing models for retailers that have active economic development agreements with municipalities. A retailer that has an active economic development agreement with a municipality and has a single place of business in Texas that is within the municipality may elect to collect and report municipal sales taxes based on the location of the retailer's single place of business. A retailer that has an active economic development agreement with a municipality may elect to collect and report municipal sales tax based on the location of the retailer within the municipality from which an item is shipped directly to the purchaser or the purchaser's designee. The bill establishes that such elections are binding on the retailer and the purchaser. The bill defines "active economic development agreement" as a Chapter 380 or 381 economic development agreement, or an investment agreement with a Type A or Type B economic development corporation, under which the local government made payments on or before January 1, 2025, based on local sales and use tax collections.
County and Municipal Sales and Use Tax
C.S.H.B. 134 removes and repeals provisions governing the consummation of sales for purposes of the county sales and use tax and makes the provisions governing the consummation of sales for purposes of the municipal sales and use tax applicable also with respect to the county sales and use tax, including provisions establishing certain applicable definitions. The bill repeals a provision that makes a repealed municipal sales tax provision inapplicable to the Dickinson Management District No. 1.
Applicability on Tax Liability
C.S.H.B. 134 expressly does not affect tax liability accruing before the bill's effective date. That liability continues in effect as if the bill had not been enacted, and the former law is continued in effect for the collection of taxes due and for civil and criminal enforcement of the liability for those taxes.
Repealed Provisions
C.S.H.B. 134 repeals the following provisions:
Section 3853.202(d), Special District Local Laws Code; and
Sections 323.203(b), (c), (c-1), (d), (e), (e-1), (f), (g), (g-1), (g-2), (g-3), (h), (i), (j), (k), and (m), Tax Code.
EFFECTIVE DATE
January 1, 2026.
COMPARISON OF INTRODUCED AND SUBSTITUTE
While C.S.H.B. 134 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill.
The substitute revises the definition of the term "small business" present in the introduced by doing the following:
increases the maximum number of employees of a sales tax permit holder that constitutes a small business under the definition from 20, as in the introduced, to 100; and
increases the maximum total combined gross receipts from the sale of tangible personal property and services in the preceding 12 calendar months that qualifies a sales tax permit holder as a small business under the definition from less than $500,000, as in the introduced, to less than $2 million.