Ms. Hurlbert stated that the proposed provisions related to Internet orders will narrow what qualifies for rebates under Chapter 380 agreements. She is also concerned about the revenue loss from businesses that do not have Chapter 380 agreements that will be grandfathered under the amendment.

At the Ways and Means hearing, Ms. Hunt expressed concern that under the comptroller's definition many businesses in the City of Coppell will no longer be considered places of business under the amended provisions.

Mr. Selleck commented that the City of Kilgore has a large number of business-to-business transactions that are sourced to the city; but will, in the future, automate their ordering systems. He is concerned that the city will lose those revenues.

Mr. Fortune, Mr. Olsen, and Mr. Hart commented that the proposed provisions related to Internet orders will impact business-to-business transactions. Mr. Gilmore commented that the amendment will redistribute sales tax from less prosperous communities to their more prosperous neighbors. Mr. Voelker commented that the City of Richardson is concerned about losing sales tax because companies have sourced all of their sales to the city as it is where their employee base, sales force, and call center staff are located, and it is where their product orders are received and processed.

Representative Talarico, Mr. Morgan, Mr. Sheets, Ms. Hurlbert, Mr. Gilmore, Mr. Durham, Mr. Meek, the Board of Directors for the Coppell Chamber of Commerce, Mr. Ball, Ms. Armstrong, Mr. Rollins, Mr. Moseley, US Representative Carter, Ms. Carlson, Ms. Olson Bourland, Mr. Howard, Ms. Howard, Mr. Taplits, Mr. Torigian, Mr. Harris, Mr. Scott, and Mr. Camareno made comments on the impact that the proposed provisions on Internet orders will have on Chapter 380 agreements.

Commenters believe the proposed grandfather provisions violate the Constitution of the State of Texas because they impair existing contracts. Specifically, Mr. Moore commented that the proposed subparagraph (F) runs afoul of Article I, Section 16 of the Constitution of the State of Texas. Texas State Representative Jim Murphy and Ms. Olson Bourland made similar comments.

Mr. Moore suggests that the comptroller revise the provision to grandfather existing agreements entered into before September 1, 2019, to the end of their existing term. Mr. Roberts, Mr. Bailey, Mr. Taplits, Ms. Carlson, Mr. Durham, Mr. Kelemen, Mr. Butcher, Mr. Torigian and Mr. Rollins made a similar request. Mr. Roberts, Mr. Bailey, Mr. Duffie, Mr. Camareno, Mr. Scott, Mr. Taplits, Mr. Torigian, and Mr. Butcher also support extending the grandfather clause from a range of five to 20 years.

Mr. Kroll, Mr. Scott, Ms. Hurlbert, and Representative Murphy commented that cities without Chapter 380 agreements will have to source sales from Internet orders immediately and feel the impact. However, cities with Chapter 380 agreements will benefit because of the delayed implementation.

Texas State Representative Drew Springer commented that rural Texas is specifically hit hard because the cities are losing local tax revenue, which are hit harder as more cities execute Chapter 380 agreements. He further commented that the definition of a place of business as it relates to three or more orders is too broad, which can cause gamesmanship in the context of 380 agreements. Mr. Presley also does not think it is appropriate that cities need to support businesses in other cities.

Representative Springer also commented that Chapter 380 agreements were established long before the proliferation of Internet sales and the Wayfair decision and since these changes, he thinks it necessary to address Internet orders with the amendment.

In response to the comments, the comptroller is delaying the implementation of subsection (b)(5), regarding orders not received by sales personnel until October 1, 2021, giving interested parties an opportunity to seek a legislative change.

Additionally, Representative Springer commented that the lack of a detailed list of all Chapter 380 agreements kept in a central location creates a challenge for obtaining information on the agreements because a lot of agreements are very protected.

Commenters requested data and an analysis to determine the impact the amendment will have on their communities, and information on Chapter 380 agreements. The commenters were: Texas State Representative Sheryl Cole, Representative Zweiner, Mr. Fortune, Mr. Olsen, Mr. Hart, Ms. May, Mr. Land, Ms. Hunt, Mr. Voelker, Mr. Scott, and Mr. Hillman. Mr. Fortune asked that the House Ways and Means committee request additional analysis on the amendment's provisions.

Mr. Voelker and Mr. Scott requested that the comptroller gather information across the state regarding Chapter 380 and Chapter 381 agreements to fully understand how the agreements are being used. Mr. Voelker also requested that the comptroller perform an impact analysis to determine how the changes will affect local sales tax collections and existing businesses. Mr. Scott made similar requests.

Mr. Ryan commented that he does not believe the amendment complies with Texas Government Code, §2001.024 (Content of Notice), which requires specific content in the notice of a proposed rule, relating to the fiscal impact of such amendment. Mr. Ryan believes that a fiscal note detailing the fiscal implication for small business in reprogramming software, the shifting of local tax among jurisdictions, the upending of pre-existing Chapter 380 or 381 agreements, and the economic cost to the public is required. Mr. Christian and Mr. Harris agreed. Mr. Harris, additionally, stated that the comptroller did not give adequate notice when reversing a policy as required under federal case law. Mr. Morgan commented that the fiscal impact statement contradicts the known impact to the City of Round Rock. Mr. Sheets and Ms. Olson Bourland made similar comments. Ms. Hunt made similar comments relating to the City of Coppell.

Mr. Morgan; Ms. Hunt; Mr. Land; Mr. Sheets; Representative Talarico; Representative Zwiener; US Representative Carter; Mr. Voelker; Mr. Morgan; the Board of Directors for the Coppell Chamber of Commerce; Mr. Christian; Mr. Ryan; Ms. Christian; Mr. Scott; Mr. Camareno; Mr. Gilmore; Mr. Erb; Mr. Meek; the Board of Directors for the Round Rock Chamber of Commerce; Mr. Kasner; Mr. Torigian; Mr. Kroll; Mr. Moore; and Mr. Harris requested that the comptroller solely implement the provisions in House Bills 1525 and 2153 and the Wayfair decision. Mr. Kroll and Mr. Harris provided draft amendments to accomplish the objective.

Ms. Hunt requested that the comptroller withdraw the amendment as proposed and republish only the language required to implement House Bill 1525 and House Bill 2153 based on the staggering effects of the COVID-19 pandemic on public health and the economy. Ms. Olson Bourland and the Board of Directors for the Coppell Chamber of Commerce had similar comments.

Mr. Butcher, Mr. Ball, Ms. Armstrong, US Representative Carter, Ms. Christian, Mr. Harris, Mr. Erb, Mr. Kroll, Mr. Camareno, Ms. Olson Bourland, Mr. Durham, Mr. Kelemen, Ms. Carlson, Mr. Harris, Mr. Sheets, and Mr. Pannell stated that the amendment is improper because it goes beyond the scope of the Wayfair decision, House Bill 1525, and House Bill 2153, and beyond the comptroller's authority.

Ms. Hunt, Mr. Land, the Board of Directors for the Coppell Chamber of Commerce, Mr. Sheets, Representative Talarico, Mr. Gilmore, Mr. Erb, Representative Zwiener, Representative Murphy, Mr. Meek, Mr. Camareno, Mr. Pannell, Mr. Taplits, Mr. Harris, Mr. Hillman, Mr. Ball, and Mr. Selleck further requested that the comptroller leave the remaining issues for the legislature to decide in future sessions. Ms. Hunt and Mr. Land asked that the Ways and Means Committee request that the comptroller only implement House Bills 1525 and 2153.

Mr. Ryan, Mr. Christian, Mr. Harris, and Mr. Torigian opined that the legislature has accepted the comptroller's long-standing administration of local sales taxes without regard to the technology used by the customer to submit an order and that the comptroller cannot make changes without a statutory change. Mr. Harris commented that in Combs v. City of Webster, the Court stated that "whether {a} result involves 'fair' tax policy is a question for the legislature."

Mr. Presley commented that the way the comptroller has proposed changes has given the legislature adequate time to address the issue. Representative Leman commented that it is a part of the comptroller's function to provide clarifications when needed in a timely manner so that we can have a successful economy.

The comptroller declines to make revisions based on these comments. The comptroller has broad rulemaking authority under Tax Code, §§111.002 (Comptroller's Rules; Compliance; Forfeiture); 321.306 (Comptroller's Rules); and 323.306 (Comptroller's Rules). There is ambiguity in the consummation rule as evidenced by the questions that the comptroller received. There are situations in which the same fact pattern results in sourcing by companies in different manners. The comptroller's changes provide clear guidance to address these situations. The comptroller conducted a statewide fiscal impact analysis as required under the Administrative Procedures Act. The comptroller declines to only implement House Bills 1525 and 2153 and the Wayfair decision. The comptroller delays the implementation of subsection (b)(5), regarding orders not received by sales personnel, until October 1, 2021, giving interested parties time to seek a legislative change.

Mr. Kelemen, Mr. Morgan, Mr. Sheets, Ms. Olson Bourland, Mr. Ryan, Mr. Christian, Mr. Harris, Mr. Camareno, Mr. Pannell, Ms. Carlson, and Mr. Kroll stated that the amendment conflicts with the statute or is not supported by law. Also, Mr. Morgan, Mr. Sheets, and Ms. Olson Bourland commented that the statute and the legislative intent require origin-based sourcing. Mr. Morgan commented that the legislature has always concluded that origin-based sourcing is the most effective method to allocate resources.

Mr. Ryan, Mr. Christian, Mr. Harris, Mr. Kroll, Mr. Camareno, and Mr. Pannell commented that Chapter 321 makes no distinction based on the technology used by the customer to communicate an order except when made in person.

Mr. Harris commented that concluding that Internet orders are not received anywhere is at odds with the comptroller's longstanding position that Internet orders are received at a location in Texas.

He commented that treating Internet orders for taxable items differently from non-Internet orders violates Tax Code, §321.002(a)(3) and §321.203. He commented that in the City of Webster, the comptroller stated that Internet orders can be received at a place of business. He further stated that Chapter 321 already provides the rules for Internet orders. Mr. Sheets and Ms. Olson Bourland made similar remarks.

Ms. Olson Bourland stated numerous reasons that she believes the amendment is contrary to law, including that the amendment is unconstitutional and contradicts comptroller's guidelines and letter rulings. She also commented that the comptroller is judicially estopped from asserting that pertinent portions of the Tax Code are ambiguous.

She commented that the term "fulfillment" does not appear in the statute, but instead contains the term "consummate," which means offer, acceptance, and payment of an item. Mr. Sheets proposed to revise the rule to provide that Internet orders are treated the same as orders submitted and received by other means of communication. He also proposed that when making orders through the Internet or by any other means of communication, the sale is consummated where the order is received, regardless of where the order is fulfilled. Mr. Kelemen made a similar request for revision.

In response to these comments, the comptroller deleted the proposed language regarding Internet orders.

Representative Talarico, Representative Zwiener, Mr. Sheets, Mr. Morgan, Ms. Olson Bourland, Mr. Ryan, and Mr. Ball stated that origin-based sales tax has been applied across the board to all transactions. Ms. Olson Bourland further stated that the amendment completely upends the framework by making Internet orders destination-sourced for purposes of local sales tax.

Mr. Ryan commented that local taxes default to the place of delivery to the customer only when there is no place of business of the seller to which taxes should be allocated.

Mr. Sheets commented that Tax Code, §321.203(b) states that if a retailer has only one place of business, all of a retailer's sales of taxable items are consummated at that place of business, except as provided in subsection (e). Mr. Sheets proposed language to that effect. Mr. Sheets commented that if the comptroller applies the Internet order rule to a seller with a single place of business in the state, the amendment is illegal. Ms. Carlson and Mr. Butcher had similar requests.

Representative Talarico commented that sales tax is based on the business, not on the consumer, and thus, it should apply to purchases over the phone or online. Mr. Stratton commented that he supports an origin-based sales tax system because it is "simpler to calculate, harder to pass the buck on, and more protective of our privacy." However, Mr. Presley commented that all transactions other than the customer showing up at the business should be based on destination.

The comptroller declines to make revisions based on these comments. For the reasons previously stated, the comptroller is deleting the provisions regarding Internet orders, and is adopting provisions regarding orders placed in person, and those not placed in person.

Mr. Kelemen, Mr. Kennedy, Mr. Kroll, Mr. Pannell, Mr. Land, Ms. Hurlbert, Mr. Edmonson, Mr. Ryan, Ms. Christian, Mr. Duffie, Mr. Harris, Ms. Olson Bourland, the Board of Directors for the Coppell Chamber of Commerce, and the Round Rock Chamber of Commerce commented that the proposed provision for Internet orders will place additional administrative compliance burdens on sellers which will force them to update their software within a short timeframe.

Mr. Pannell commented that the amendment will create an undue burden on Texas retailers as they will be required to calculate and collect tax based on the method of communication through which their customers choose to submit orders. Mr. Edmonson, Mr. Kroll, Mr. Land, Mr. Torigian, Mr. Ryan, Ms. Christian, Mr. Duffie, Mr. Harris, and the Board of Directors for the Coppell Chamber of Commerce made similar comments.

The comptroller declines to make revisions based on these comments because taxpayers already must keep records of sales, and such a burden is inherent in the consummation statutes (like the burden of identifying a particular place of business that receives an order when a business has multiple places of business). Taxpayers will also have time to update their systems under the extended implementation date.

Mr. Ryan, Mr. Christian, Ms. Olson Bourland, Mr. Butcher, Mr. Harris, and Mr. Kroll commented that the proposed provisions regarding Internet orders violate the Internet Tax Freedom Act because they discriminate against the Internet.

The provisions do not impose a tax on or discriminate against the Internet, and therefore, do not violate the Internet Tax Freedom Act.

Mr. Ryan commented that sellers are at risk of class action lawsuits for failing to notify their customers that they may pay a higher amount of tax depending on the method the customer uses to place the order. Mr. Ryan adds that sellers are also at risk if they are unable to distinguish between Internet orders and other orders when calculating local taxes.

Mr. Kelemen; Mr. Hillman; Mr. Olsen; Mr. Land; Ms. Hurlbert; Mr. Camareno; Mr. Voelker; Ms. May; Mr. Scott; Mr. Kennedy; Ms. Olson Bourland; Mr. Durham; Mr. Harris; and Teresa Wiley, on behalf of Sysco, Inc., requested that the comptroller delay the implementation date to provide additional time for entities to comply with the provisions on Internet orders and traveling salespersons. In response to these comments, the comptroller has deleted the proposed provision regarding Internet orders, and delayed the implementation of subsections (b)(4) and (b)(5) regarding orders received by sales personnel when they are not at a place of business of the seller and orders not received by sales personnel to October 1, 2021.

The comptroller adds new subsection (d) to include the provisions in former subsection (i), relating to use tax. The comptroller adds new paragraph (1), which includes the language in former subsection (i)(1) concerning general local use tax rules with non-substantive changes for ease of readability.

The comptroller adds new paragraph (2) to include the provisions in former subsection (i)(2) concerning general use tax rules applied to specific situations with changes.

In light of the Wayfair decision, the comptroller gives effect to the Tax Code's requirement that sellers engaged in business in the state collect local use tax for sales consummated in Texas and for sales consummated outside Texas based on the local taxing jurisdictions in which a taxable item is first used, stored, or consumed, regardless of the specific local jurisdiction in which a seller is engaged in business. See Tax Code, §§321.205, 322.105 (Use Tax: Where Use Occurs), and 323.205.

When a sale is consummated in Texas, a seller is engaged in business in this state through the presence of property or employees in the state. See Tax Code, §§151.107 (Retailer Engaged in Business in this State), 321.203, and 323.203. Therefore, the language that a seller be engaged in business in a local jurisdiction for sales consummated in Texas is superfluous. Moreover, an engaged in business standard for local use tax does not give effect to the Tax Code's requirement that a seller collect local use tax that is due and creates an opportunity for sellers to avoid collecting local use tax due. See Tax Code §§151.103(Collection by Retailer; Purchaser's Receipt), 321.003 (Other Portions of Tax Applicable), 321.205, 322.108 (Certain Provisions of Municipal Sales and Use Tax Applicable), 323.003(Other Portions of Tax Applicable), and 323.205. Therefore, the comptroller deletes the "engaged in business" requirement for local use tax throughout the section.

In new paragraph (2), the comptroller implements the Wayfair decision by clarifying that the seller is responsible for collecting the local use tax due on the sale based upon the location in this state to which the order is shipped or delivered or at which the purchaser of the item takes possession.

In new subparagraphs (B) and (C), the comptroller also explicitly states that the location of the seller in Texas does not affect the determination of whether the seller is required to collect additional local use tax due. In new clauses (i) and (ii), the comptroller provides two examples to illustrate when a seller is required to collect additional local use taxes.