If Texas HB4072 becomes law, the way businesses calculate and remit sales tax will be fundamentally changed. Historically businesses have collected sales tax where the sale was made, usually where the business is located, and all sales tax was credited to the local taxing districts. The system worked well until the internet came along.
Some Texas companies, looking to increase their profits, found a way to take advantage of the current system. For example, Dell Computer established a shipping point in Round Rock. The city entered into a Chapter 380 agreement with Dell to split the amount of local sales tax collected between the company and the city. If you order a Dell computer online from Dell directly, it will be sold in Round Rock and the sales tax will be collected there, not in the city to which you had the computer delivered. Round Rock receives the local sales tax from the Comptroller and splits it with Dell.
HB4072 is intended to eliminate this legal loophole. HB4072 would change the point where sales tax is collected to the taxing district where the product was finally delivered to the customer. Under this bill, if Dell ships a computer to Lubbock, Dell has to report the sale as if it occurred in Lubbock, not Round Rock. Round Rock no longer gets the local sales tax and so has nothing to split with Dell. Dell will lose the extra revenue, but it can easily implement the systems necessary to account for the sales tax and remit it to the state.
This change will not impact retail stores where sales take place at a retail location. Dell sells the product to a reseller in Grapevine. When the reseller sells the computer to a consumer, sales tax is collected and remitted to Grapevine. But if that retailer also sells online and delivers to cities outside Grapevine, they will now have to charge the right sales tax rate for the city to which the product was shipped and report the sale to the Comptroller as being delivered in another city and that city will get the local sales tax.
Let’s take another example, a small print shop that takes orders and prints in Fort Worth, but delivers to customers all over Tarrant County. That small business will have to keep track of the sales tax rate in every city to which it ships, charge the customer the right amount of tax and then report it each month to the Comptroller by taxing jurisdiction. The Comptroller has promised a “system” to make this easy, but neither offers details nor predicts when that system will be available. This will be a nightmare for many small businesses.
We have taken the position that this may be a needed change, but until we know more about how it will work, we should not lay this burden on small business. If you agree, CLICK HERE and let your State Representative know you would like a “No” vote on HB4072.