Proposed changes to how sales tax is collected are coming close to reality, and for many cities like Carrollton, the new rule could have a significantly negative impact on revenues.
Bob Scott, chief financial officer, said sales tax sourcing is origin-based in Texas and can be very complex depending on the circumstance. Origin-based means the sale is sourced to the location of the seller. Scott said when a seller does not have a “place of business” that the sale can be sourced, the sale reverts to the destination or the location of the buyer.
“The comptroller’s proposed rule significantly tightens the definition of a 'place of business,' making it likely that many Carrollton businesses that currently source their local sales tax to Carrollton will no longer be able to do so,” Scott said.
Scott said the city hired a consultant to estimate the potential impact. The consultant estimated Carrollton could lose up to 18 percent of its revenue if the comptroller’s proposal goes through.
“This is an estimate, and while no one knows for sure, the potential loss of $7 million to $8 million of sales tax is of great concern to the city,” Scott said.
While the reason for the change was unclear at first, the comptroller says the proposal was put in place to prevent certain businesses from engaging in unethical business practices.
Other cities like Coppell are in the same boat and have been in contact with the comptroller’s office about the proposed rule change. The change brings a hard blow to these cities but others like Dallas, for example, will more than likely benefit from it.
The comptroller will be receiving comments and concerns about the proposal through mid-February.
Scott said Carrollton will submit its comments to the comptroller but anticipates the new rule would more than likely go into effect on April 1.