Proposed changes to how sales tax is collected are coming close to reality, but for many cities like Coppell, the new rule could have a significantly negative impact on revenues.
Mike Land, city manager, said the state comptroller is proposing to change
Texas Administrative Code 3.334, which dictates how tax is collected in the state. The change would specifically affect intrastate sales, or sales made within the state. Historically if a purchase was made in a different city, but the order was fulfilled in Coppell, the city would be able to collect the sales tax. The comptroller is proposing to change the collection to the destination instead of the origin.
For example, if someone orders an item at Staples in Plano, the order would be fulfilled at the Staples distribution center in Coppell. Based on the new rule, Plano would receive the sales tax instead of Coppell since Plano is the destination.
Land said if the new rule is enacted, Coppell could lose up to 60 percent of its sales tax.
“This is an extremely important rule for the city of Coppell,” Land said. “Traditionally for the city, sales tax has been something we have used to provide a high quality of life and provide a high level of services.”
Coppell is not a retail hub, Land said, but the west side of the city is a significant generator of sale tax in the community. Located on the west side are centers like Amazon, Staples, Uline and others. In terms of revenue, Land said the new rule could reduce the city’s general fund by $12 million annually, or about 16 percent.
The comptroller’s reasoning for the proposed changes isn’t clear, Land said. He said the issue came about as a result of the decision made by the Supreme Court in 2018 for the South Dakota vs. Wayfair case, which green lighted many states, including Texas, the ability to charge sales tax for interstate sales or sales made outside the origin state.
In 2019, the state legislature passed two bills, HB 1525 and HB 2153, to support the Supreme Court’s decision. As a result, local municipalities are allowed to collect sales tax from interstate sales.
Changes were proposed to be made to Texas Administrative Code 3.334, to allow that sales tax to be collected.
However, when cities got a chance to see the proposed rule, it was not written as expected.
“When we viewed that rule, all of it sudden, we believe, it went way beyond legislative intent as it related to the interstate sales,” Land said. “It actually started changing the rules for intrastate sales.”
The new rule is set to go into effect in April. Land said the city has requested the comptroller for more time to send in comments and concerns about the proposed changes.
The problem, Land said, is complex and will not be solved overnight. Until more information can be gathered on the direction the comptroller will take, the city has prepared for the worst and has put a hold on hiring new positions and capital purchases.
“This is something our entire organization has already started working on and putting ideas and plans and strategies in place so if this rule was to be enacted we have a plan of action going forward,” Land said.
An update on the new rule and how Coppell will move forward will be presented at Tuesday’s City Council meeting.