The Comptroller of Public Accounts proposes amendments to §3.334, concerning local sales and use taxes. In the wake of South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (June 21, 2018), the amendments provide that remote sellers that are required to collect Texas use tax under §3.286 of this title (relating to Seller's and Purchaser's Responsibilities) should collect local use tax based on the destination location. The amendments also implement the requirement that a seller located in Texas collects local use tax when the seller ships or delivers a taxable item into a local jurisdiction where those use taxes exceed the local sales tax where the sale is consummated. The comptroller also implements House Bill 1525 and House Bill 2153, 86th Legislature, 2019. House Bill 1525 establishes local sales and use tax collection responsibilities on marketplace providers. House Bill 2153 establishes a single local use tax rate that remote sellers may elect to use. The amendments also clarify provisions concerning fulfillment, temporary places of business of the seller, places of business of the seller receiving more than three orders, traveling salespersons, orders over the Internet, and orders placed in person.

Throughout the section, the comptroller adds or amends rule titles. The comptroller also amends cross-references accordingly. The comptroller does not intend to make substantive changes through these additions of and amendments to rule titles and through the amendments to cross-references. The comptroller also reorganizes this section for clarity and readability.

The comptroller amends the definition of "Comptroller's website" in subsection (a)(4) to provide the correct website address.

The comptroller amends the definition of "engaged in business" in subsection (a)(7) to conform the reference to §3.286 of this title.

The comptroller amends subsection (a)(9) to identify activities that are not included in the definition of the term "fulfill".

The comptroller adds a definition for "Internet order" in new subsection (a)(10) to distinguish between an order placed through the Internet as opposed to an order placed in person at a seller's location as contemplated in Tax Code, §321.203(c) and §323.203(c). The comptroller has determined that orders placed on a website, through a software application, or other method using the Internet constitute orders over the Internet. Orders placed by phone call using Voice over Internet Protocol or a mobile device are not considered Internet orders. The comptroller distinguishes orders through a computer or mobile device of the seller because the use of the Internet by sellers and purchasers to place orders has resulted in confusion as to whether an order is placed in person or over the Internet. For example, sellers use the Internet to place orders for items that are not in the store. However, mobile devices have made it possible for purchasers to place online orders at any location, including within a location of the seller. Subsequent paragraphs are renumbered.

The comptroller adds a definition for "marketplace provider" in new subsection (a)(15) as defined in §3.286 of this title.

The comptroller adds a definition for "order placed in person" in new subsection (a)(16). Orders placed in person are those orders placed with the seller while the purchaser is physically present at a seller's location and using a seller's system, computer, or other device. As a seller may use the Internet, a phone, or a catalog to make an order, the definition clarifies that an order is still placed in person regardless of whether the seller uses the Internet, a phone, or a catalog to make the order. Similarly, as a purchaser may use a personal mobile device to make an order while physically present at a seller's location, the definition excludes Internet orders, which as defined are placed from a purchaser's device. Subsequent paragraphs are renumbered.

The comptroller amends the definition of "place of business of the seller - general definition" in renumbered subsection (a)(17) to specify that a website, software application, or other method used to place an Internet order is not a place of business of the seller. Tax Code, §321.002(a)(3)(A) defines "place of business of the retailer" as "an established outlet, office, or location operated by the retailer or the retailer's agent or employee for the purpose of receiving orders for taxable items and includes any location at which three or more orders are received by the retailer during a calendar year." A website, software application, or other method used to place an Internet order is not an established outlet, office, or location operated by the seller and is therefore, excluded from the definition. The comptroller reflects these changes throughout the section.

The comptroller also amends the definition to delete repetitive language and an example that provides that a home office at which three or more items are sold through an online auction website is a place of business of the seller. The comptroller deletes a reference to "administrative offices" because the comptroller determines that an administrative office does not meet the definition of a place of business of the seller.

The comptroller also adds to the definition of "place of business of the seller - general definition" that an outlet, office, facility, or any similar location that contracts with a business to process certain orders or invoices is not a place of business of the seller if the comptroller determines that these certain locations are for the sole purpose to avoid tax due or to rebate tax to the contracting location. This change is made pursuant to the definition "place of business of the retailer" in Tax Code, §321.002(a)(3)(B).

The comptroller adds a definition for "remote seller" in new subsection (a)(19) as defined in §3.286 of this title. Subsequent paragraphs are renumbered.

The comptroller amends the definition of "temporary place of business of the seller" in renumbered subsection (a)(23) to clarify that a temporary place of business of the seller includes a sale outside the walls of a distribution center, manufacturing plant, storage yard, warehouse, or similar facility of the seller in a parking lot or similar space sharing the same physical address as the facility. Sellers may hold sales to the public outside the walls of their facilities on a temporary basis. The comptroller clarifies that these sales constitute temporary places of business of the seller. The comptroller makes these changes throughout the section. Subsequent paragraphs are renumbered.

The comptroller adds new subsection (b), restating the provision of former subsection (e) concerning place of business - special definitions. The new subsection (b) is substantially the same as former subsection (e) but with changes to more closely reflect the definition of "place of business of the retailer" in Tax Code, §321.002(a)(3)(A). A seller does not receive orders at administrative offices that solely serve as the base of operations for a traveling salesperson or that provide administrative support to a traveling salesperson. Moreover, the mere fact that a salesperson is assigned to work from, or work at, a distribution center, manufacturing plant, storage yard, warehouse, or similar facility operated by a seller does not mean that a seller receives orders at these locations. Therefore, these locations by themselves do not meet the definition of a place of business of the retailer under Tax Code, §321.002(a)(3)(A). The comptroller amends the section to reflect these changes throughout. Therefore, the comptroller no longer includes administrative offices supporting traveling salespersons and distribution centers, manufacturing plants, storage yards, warehouses, or similar facilities operated by a seller at which salespersons are assigned to work in the definition of "place of business of the seller."

In new paragraph (1)(A), the comptroller clarifies that locations operated by a seller must receive three or more orders in a calendar year from persons other than employees, independent contractors and natural persons affiliated with the seller to be considered a place of business of the seller in Texas. In new paragraph (3) the comptroller restates the provisions from former subsection (e) relating to purchasing offices with minor changes for ease of readability.

The comptroller adds new subsection (c) to include the existing provisions of former subsection (h) concerning local sales tax. The new subsection (c) is similar to former subsection (h) but with some changes. New paragraph (1) provides the general sales tax rules as applied to specific situations and combines the provisions related to the consummation of sale rule, as that language appeared in former subsections (h)(1) and (h)(3).

New subparagraph (A) restates the deleted language in former subsection (h)(3)(A) relating to the consummation of sale rule for orders placed in person at a seller's place of business in Texas. The comptroller includes in subparagraph (A) orders placed at a temporary place of business of the seller. The comptroller does not add the provisions found in former subsection (h)(6)(C) because it repeats the general consummation of sale provisions applicable to temporary places of business.

Additionally, throughout new paragraph (1), the comptroller incorporates the language found in former subsection (h)(4) concerning traveling salespersons. Tax Code, §321.002(a)(3)(A) does not support treating administrative offices or other locations that are not places of business of the seller that merely serve as a location from which a traveling salesperson operates as a place of business of the seller. The comptroller makes this change to conform the consummation of sales made by traveling salespersons to Tax Code, §321.203 and §323.203. The comptroller does not incorporate the examples found in former subsection (h)(4) because the examples merely restate the consummation of sale rules.

The comptroller explicitly provides in new subparagraph (A) that orders taken by traveling salespersons are not placed in person at the seller's place of business in Texas. Traveling salespersons typically take orders at the customer's location and the customer's location is not a place of business "operated by the seller" as required by Tax Code, §321.002(a)(3)(A). See Comptroller's Decision No. 48,843 (2009) ("According to the plain meaning of the statutory definition, a site must be "operated by the retailer" before it can be considered the retailer's place of business.").

The comptroller adds new subparagraph (B) to include the provision in former subsection (h)(3)(B) concerning orders received at a place of business of the seller in Texas and fulfilled at a location that is not a place of business of the seller with changes.

In new clause (i), the comptroller does not incorporate the phrase "through the Internet" found in former subsection (h)(3)(B). Clause (i) does not apply to orders over the Internet because Internet orders are not received at a place of business of the seller in Texas. The comptroller also includes language concerning traveling salespersons in new clause (i).

In new clause (ii), the comptroller addresses where orders taken by traveling salesperson are considered received. The comptroller clarifies that orders taken by traveling salespersons are not received by the seller at the purchaser's location because the purchaser's location is not a place of business of the seller. See Comptroller's Decision No. 48,843 (2009).

The comptroller adds new subparagraph (C) to restate the provision in former subsection (h)(3)(C) concerning orders fulfilled at a place of business of the seller in Texas. The language is the same except for new language addressing traveling salespersons.

The comptroller adds new subparagraph (D) restating the provision in former subsection (h)(3)(D) concerning orders fulfilled within the state at a location that is not a place of business of the seller. The language is the same as it appeared in former subsection (h)(3)(D), except for new language addressing traveling salespersons.

The comptroller adds new subparagraph (E) and includes the provision in former subsection (h)(3)(E) concerning orders received outside of the state and fulfilled outside of the state with changes addressing traveling salespersons operating from a location outside of Texas and remote sellers.

In subparagraph (E) and throughout the section, the comptroller amends the language to implement the Wayfair decision. The Wayfair decision clarified the substantial nexus requirement established in the United States Supreme Court analysis of the Due Process and Commerce Clauses of the United States Constitution. The Court stated that "{substantial} nexus is established when a taxpayer {or collector} 'avails itself of the substantial privilege of carrying on business' in that jurisdiction." Wayfair, 138 S. Ct. at 2099 (quoting Polar Tankers, Inc. v. City of Valdez, 557 U.S. 1, 11 (2009)). The Court also reiterated that "States may not impose undue burdens on interstate commerce."

In light of the Wayfair decision, the comptroller provides in subparagraph (E) that a remote seller that is required to collect Texas use tax under §3.286(b)(2) must also collect local use tax based on the location to which the item is shipped or delivered or at which the purchaser of the item takes possession unless the remote seller elects to collect the single local use tax rate enacted in House Bill 2153. See Tax Code, §321.205(c) and §323.205(c).

The comptroller adds new subparagraph (F) restating the provision in former subsection (h)(3)(F) concerning an exception for qualifying economic development agreements entered into before January 1, 2009, pursuant to Tax Code, §321.203(c-4) - (c-5) or §323.203(c-4) - (c-5) .

The comptroller adds new paragraph (2) and includes the language in former subsection (h)(1) concerning local sales taxes due and local use taxes due without any changes. The comptroller restates the language in former subsection (h)(2) concerning multiple special purpose district taxes and multiple transit authority taxes in paragraph (3) without changes to the language.

The comptroller adds new paragraph (4) to include the language found in former subsection (h)(5) concerning drop shipments, but does not incorporate the examples found in former subsection (h)(5)(A). The comptroller adds new subparagraph (B) restating the language found in former subsection (h)(5)(B) without changes.

The comptroller adds new paragraph (5) to add the language found in former subsection (h)(6) concerning itinerant vendors and vending machines without changes to the language.

The comptroller adds new paragraph (6) to address the consummation of sale for Internet orders. This subsection becomes effective April 1, 2020.

In new subparagraph (A), the comptroller provides the general rule, with certain exceptions, that Internet orders are not received at a place business of the seller in Texas. A website, software application, or other method used to place an Internet order is excluded from the definition of place of business of the seller. Therefore, orders placed over the Internet are not received at a place of business of the seller in Texas.

In new subparagraph (B), the comptroller addresses orders placed using at the seller's device.

In new subparagraph (C), the comptroller addresses Internet orders fulfilled from a place of business of the seller in Texas.

In new subparagraph (D), the comptroller addresses Internet orders fulfilled from a location in Texas that is not a place of business of the seller in Texas.

In new subparagraph (E), the comptroller addresses Internet orders fulfilled from a location outside of the state.

In new subparagraph (F), the comptroller provides a temporary exception from the provisions regarding Internet orders for economic development agreements pursuant to Local Government Code, Chapters 380 and 381 and entered into before September 1, 2019.

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, 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, 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, 321.003, 321.205, 322.108, 323.003, 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.

The comptroller adds new subsection (e) to include the provisions in former subsection (b), relating to the effects of other law, with minor non-substantive changes to the provisions as they appeared in former subsection (b).

The comptroller adds new subsection (f), to include the provisions of former subsection (c), relating to tax rates without changing the provisions as they appeared in former subsection (c).