Texas Register Preamble
The Comptroller of Public Accounts adopts amendments to §3.334, concerning local sales and use taxes, with changes to the proposed text as published in the January 3, 2020, issue of the Texas Register (45 TexReg 98). The rule will be republished.
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 provide additional guidance on determining whether an order is received at a place of business of the seller, and clarify the rules for determining the consummation of sales.
Throughout the section, the comptroller makes non-substantive changes by adding or amending rule titles and cross-references. The comptroller also reorganizes this section for clarity and readability.
The comptroller received requests to extend the comment period from the Round Rock Chamber of Commerce; the City of Coppell; the City of San Marcos; the City of Humble; the City of Frisco; the City of Irving; Jennifer May, on behalf of the City of Sugar Land; James Harris, on behalf of members of the Coalition for Appropriate Sales Tax Law Enactment ("CASTLE") (the cities of Coppell, Farmers Branch, Humble, Grand Prairie, Lancaster, San Marcos, Kilgore, and Lewisville); Robert Camareno, on behalf of the City of New Braunfels; Chuck Bailey; Texas State Senators Charles Schwertner, MD, Donna Campbell, MD, Nathan Johnson, Kirk Watson, Larry Taylor, and Brandon Creighton; and Texas State Representatives James Talarico and John H. Bucy, III.
The comptroller extended the 30-day public comment period another 60 days, for a total of 90 days.
The comptroller also received requests to hold a public hearing under Government Code, §2001.029(b)(2) (Public Comment), from Senators Schwertner, MD, Campbell, MD, Johnson, Watson, Taylor, and Creighton; Representatives Talarico and Bucy; and the cities of Sugar Land, San Marcos, Humble, New Braunfels, Round Rock, and Coppell. The comptroller held a public hearing on February 4, 2020. Additionally, the City of Coppell, the City of Round Rock, Ms. May and Mr. Camareno also requested a second public hearing, which the comptroller denied because all parties received additional time until April 3, 2020, to review and provide comments on the amendments.
The cities of Sugar Land and Grand Prairie inquired about additional time to comment because of the COVID-19 pandemic. John Kroll, HMWK, LLC; Stephen Sheets, on behalf of the City of Round Rock; Mr. Harris; and Jeff Moseley commented that the timing of the implementation of the rule will exacerbate the cities' fiscal and budgetary issues due to the current COVID-19 pandemic. The comptroller denied this request because interested parties had notice of these amendments prior to the pandemic, and the comptroller had already granted an extension to provide comments. Interested parties also had additional opportunities to provide comments during the public hearing and an interim hearing before the Texas House of Representatives, Committee on Ways and Means on February 5, 2020 (the Ways and Means hearing).
During the public comment period, the comptroller received comments in writing and orally.
The City of San Marcos commented that it did not have time to conduct a thorough review of the businesses that will be impacted by the proposed changes, and requested the comptroller postpone adopting the changes at least for two years, if not indefinitely. The comptroller denies this request.
The comptroller received support from multiple city mayors, local economic development corporations, and state legislators. Generally, the commenters supported the provisions concerning the sourcing of sales of Internet orders, which will ensure that cities receive their fair share of local sales and use tax revenues. The commenters stated that a large majority of Texas cities and rural communities are losing revenue they need to provide services to their taxpayers that make Internet purchases. Commenters also stated that the proposed rule as a whole reflects the legislature's intent in passing House Bill 1525.
The commenters were: Cathy Bennett, on behalf of the City of Ivanhoe; Steve Presley, on behalf of the City of Palestine; D. Dale Fowler, on behalf of the Victoria Economic Development Corporation; Scott Cain, on behalf of the City of Cleburne; Texas State Representative Travis Clardy; Texas State Representative Oscar Longoria; Texas State Representative Ken King; Polo Narvaez, on behalf of the City of Los Fresnos; Bob F. Brown and Keith Wright, on behalf of the City of Lufkin; Keith Patridge, on behalf of the McAllen Economic Development Corporation; Texas State Representative Keith Bell; Jerry Phillips and Frankie Davis, on behalf of the City of Kermit; Jose G. Solis, Rick Salinas, Tony Chavez, Albert Cavazos, Maggie Quilantan, and Avelardo Mireles, on behalf of the City of Lyford; Jeff Underwood, on behalf of the City of Alton; Steve PeÃ±a, on behalf of the City of Alton Development Corporation; Robert Salinas, on behalf of the City of Alamo; Texas State Senator Charles Perry; Texas State Senator Eddie Lucio, Jr.; Texas State Representative Armando "Mando" Martinez; Patrick McNulty, on behalf of the City of South Padre Island; Marie McDermott, on behalf of the Economic Development Corporation of Weslaco; Texas State Representative Sergio MuÃ±oz, Jr.; Brenda Enriquez, on behalf of the Greater Mission Chamber of Commerce; David Suarez, on behalf of the City of Weslaco; Texas State Representative Trent Ashby; Roxanne M. Ray, on behalf of the South Padre Island Chamber of Commerce; Darla Lapeyre, on behalf of the South Padre Island Economic Development Corporation; Texas State Senator Robert L. Nichols; Texas State Senator Peter Flores; Texas State Senator Lois Kolkhorst; Texas State Representative Kyle Kacal; Texas State Senator Juan "Chuy" Hinojosa; Mario Lozoya and Graham Sevier-Shultz, on behalf of the Greater Brownsville Incentives Corporation; Texas State Representative Geanie Morrison; Texas State Representative Ernest J. Bailes, IV; Texas State Senator Dawn Buckingham; Texas State Representative Cody Harris; Richard Newton, on behalf of the City of Colleyville; Texas State Representative Ben Leman; Andrew Smith, on behalf of the City of Hillsboro; Brad Pingel, on behalf of the City of Pampa; Michael Dyson, on behalf of the City of Rollingwood; City Council for the City of Rowlett; Noe Ronnie Larralde, on behalf of the Edinburg Chamber of Commerce; Sergio Contreras, on behalf of the Rio Grande Valley Partnership; Susette McNeel, on behalf of GeoInvoice, Inc.; Eddie TreviÃ±o, Jr., on behalf of the Texas Border Coalition; Benjamin Gomez, on behalf of the City of San Benito; Texas State Representative Eddie Lucio, III; Texas State Representative R.D. "Bobby" Guerra; Daniel Silva, on behalf of the Mission Economic Development Corporation; Kenneth Jones, Jr., on behalf of the Lower Rio Grande Valley Development Council; Rose Benavidez, on behalf of the Starr County Industrial Foundation; Dalinda Guillen, on behalf of the Rio Grande City Economic Development Corporation; and Tina O'Jibway, on behalf of Texas State Senator Robert Nichols.
John Kennedy commented on behalf of the Texas Taxpayers and Research Association that the association has some members who support the amendment as proposed; however, it also has members for which the amendment creates additional confusion and compliance costs.
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." Mr. Sheets and Cindy Olson Bourland, on behalf of the City of Round Rock, commented that change to the definition is not a clarification because the words "fulfill" and "fulfillment" do not appear in Chapter 321 and that sales are taxed where they are "consummated," not "fulfilled." Mr. Sheets proposed to add a new sentence to the definition stating that "except for sales under section (b)(1)(C), where a sale is consummated does not depend on where a sale is fulfilled."
Ms. May commented that the definition of "fulfill" is clear for tangible personal property, but it is unclear how it applies to intangible items such as access to research on online platforms. She requested further clarification in the section for how services such as information services are fulfilled.
The comptroller declines to make the suggested changes. The definition gives effect to Tax Code, §321.203 (Consummation of Sale) and the comptroller will consider addressing consummation of certain services at a later date.
The proposed rule added 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 received comments regarding this definition. Commenters stated that the definition of "Internet order" will create confusion and requested that the comptroller's office make revisions to clearly define what constitutes an "Internet order."
During the Ways and Means hearing, Texas State Representative Erin Zwiener requested clarification regarding orders received over cellular phones. Mr. Kennedy made similar comments and requested clarification on the treatment of email orders. Ms. Olson Bourland and Bob Scott requested clarifications on Voice over Internet Protocol (VoIP) and whether that constitutes an Internet order.
Mr. Kennedy also requested that the comptroller define the term "order" to clarify when an order is received. Brian Pannell, on behalf of Dell Technologies, made similar comments and also requested clarification concerning purchase orders.
Mr. Sheets commented that the comptroller should define the word "Internet" as found in Tax Code, §151.00393 (Internet), which provides that the Internet is used to "communicate information." He commented that the concept of an "Internet order" does not appear in Chapter 321 of the Tax Code and that it is nothing more than one of many tools for communicating information, no different than the US Postal Service and telephone land lines. Mr. Kroll and Mr. Harris echoed these comments. Mr. Sheets proposed a revised Internet order definition.
Both, Mr. Camareno and Mr. Kroll, commented that the amendment is unclear whether an Internet order can cease to be an Internet order. Mr. Camareno commented that there are times when an Internet order involves human interaction to fulfill an order, and other times when it is automated. Additionally, Mr. Kroll; Craig Morgan, on behalf of the City of Round Rock; Mr. Camareno; Mr. Kennedy; Kyle Kasner; and Karen Hunt, on behalf of the City of Coppell, requested that the amendment be revised to adequately address business-to-business transactions through the Internet because those orders are fundamentally different from business-to-consumer transactions. Mr. Kroll stated that the definition also causes issues when businesses lease computers from a seller because under the property tax rules, the seller retains ownership of the leased computer.
David Edmonson, on behalf of TechNet, and Mr. Pannell commented that rather than choosing specific points in the sales process and giving them more weight than others (thus creating loopholes for sellers and purchasers to use to their advantage), an alternative approach might be the creation of a composite of selling activities test similar to the one used by the state of Illinois to help identify the local sales tax that is most appropriate.
The comptroller declines to make this revision because the creation of a composite of selling activities test is not within the comptroller's rulemaking authority. A composite of selling activities test would require a legislative change because it is not supported by Tax Code, Chapters 321 and 323.
Additionally, in response to these comments, the comptroller is deleting the proposed definition of "Internet order" and the provisions for consummation of sales for Internet orders.
The comptroller amends the definition of "itinerant vendor" in subsection (a)(10) to clarify that an itinerant vendor is a seller who does not have a place of business in the state as provided in Tax Code, §321.203(e)(1). The comptroller also removes the example of an itinerant vendor concerning a person who sells rugs because it is no longer necessary. The comptroller also clarifies that a salesperson operating out of a place of business is not an itinerant vendor. The comptroller deletes from the definition "office" or "other location that provides administrative support to the salesperson" because those do not meet the definition of a place of business of the seller in Tax Code, §321.002(a)(3)(A) (Definitions).
The comptroller adds a definition for "marketplace provider" in new subsection (a)(14) as defined in §3.286 of this title.
The comptroller adds a definition for "order placed in person" in new subsection (a)(15). Orders placed in person are those orders placed with the seller while the purchaser is physically present at a seller's place of business, regardless of how the seller subsequently enters the order. Subsequent paragraphs are renumbered.
Mr. Kroll proposed defining the term as "an order placed by a purchaser with the seller while physically present at the seller's place of business." The comptroller agrees to make the revision for clarity.
The comptroller amends the definition of "place of business of the seller - general definition" in renumbered subsection (a)(16). 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." The reference to the retailer's "agent or employee" indicates that sales personnel must be at the site, and this requirement has been added to the definition.
In addition, the amended definition clarifies that the term does not include a computer server, an Internet protocol address, a domain name, a website, or a software application. Many sellers house their computer servers at a co-location facility or rent computer server space at a managed hosting site. But an ordinary person would not consider the physical locations of these computer servers to be places of business of the seller. Similarly, an ordinary person would not perceive an Internet protocol address, a domain name, or a website as an "established outlet, office, or location" so as to constitute a place of business. The comptroller reflects these changes throughout the section.
The comptroller also deletes the reference to call centers, showrooms, and clearance centers because those facilities are places of business of the seller only if sales personnel of the seller receive three or more orders during a calendar year at those facilities. The amendment deletes the former example regarding a home office at which items are sold through an online auction website because the example is addressed by new language regarding orders received through a shopping website. The comptroller also amends the definition to delete repetitive language. 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 under Tax Code, §321.002(a)(3)(A).
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 of avoiding tax due or of rebating tax to the contracting location. This change is made pursuant to the definition of "place of business of the retailer" in Tax Code, §321.002(a)(3)(B).
Paul Voelker, on behalf of the City of Richardson; George Kelemen, on behalf of the Texas Retailers Association; and Mr. Harris expressed concerns with the definition of a place of business. Specifically, Mr. Harris stated that the definition is not consistent with the statute or the decision in Combs v. City of Webster, 311 S.W.3d 85 (Tex. App. Austin 2009, pet. denied). He also stated that it contradicts the statutory definition. Mr. Harris and Mr. Kelemen requested that the comptroller revise the definition to restate the statutory language. Mr. Voelker requested that no revisions be made to the current definition. Rudy Durham, on behalf of the City of Lewisville, commented that the place of business definition needs to be updated to keep up with changes in technology. The comptroller declines to make the requested revisions because the amended definition gives effect to the statutory language.
The comptroller adds a definition for "remote seller" in new subsection (a)(18) 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)(22) 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 deletes the definition of "traveling salesperson" in subsection (a)(21) because the comptroller will treat traveling salespersons as seller's agents or employees as referenced in Tax Code, §321.002(a)(3)(A). Subsequent paragraphs are renumbered.Cont'd...
Next Page Previous Page