The City of Coppell, in conjunction with the Cities of DeSoto and Humble, has filed suit against Glenn Hegar in his official capacity as the Texas Comptroller of Public Accounts arguing that the Comptroller has arbitrarily and capriciously tried to change a long-standing Texas practice based on state law that governs how cities receive local sales tax revenues from Internet sales to the detriment of cities such as Coppell and others.
The lawsuit was filed Monday, July 12 in state court in Travis County, Texas.
“If the Comptroller’s action in rewriting what is known as rule 3.334 as it relates to receipt of local sales tax on Internet sales is allowed to go into effect on October 1, 2021, the change could cost Coppell as much as approximately $26 million or about 18% of its annual revenue,” said Coppell Mayor Wes Mays. “In talking with local Coppell businesses, we have found that the rule also creates a significant burden and confusion for companies to comply with the new rule.”
Simply put, under the Comptroller’s new rule 3.334 local sales tax on Internet sales is no longer collected at the point where orders are received and goods shipped, but rather where a good is delivered. That change, which only the legislature could make, not only violates state law but discards the approach followed by the Comptroller since Internet sales began.
“Cities such as Coppell adopted local sales taxes and promoted warehouse and distribution centers in their communities based on a law providing that local sales tax generated from Internet sales at these locations would support the cost of supporting those facilities,” said Coppell City Manager Mike Land. “The Comptroller’s actions amount to changing the law without legislative approval in the middle of the game.”
“The Comptroller’s new position is the equivalent of removing a municipality’s authority to levy the local sales tax authorized by state law and adopted by a vote of the citizens in our community,” said Mays. “Our elected officials made decisions in the best interest of our community based on the Comptroller’s long-standing approach, consistent with state law, to allocate local sales tax to communities that have provided a home to fulfillment centers that rely on the Internet,” Mays noted.
According to Land, the Texas Legislature in the last session chose not to change the law to authorize this radical change in public policy presumably because of the devastating impact it would have on our communities and others. “Our citizens and elected officials made financial commitments and planned for the future in good faith,” said Land. “We are asking the courts to intervene on behalf of our citizens who have voted for the sales taxes we levy in and based on longstanding state law that hasn’t changed in over a decade.”
The lawsuit requests a declaratory judgement by the court to declare the rule 3.334 invalid as it applies to Internet sales.