Texas Comptroller Prepping Rules To Collect Online Taxes

Jul 12, 2018

Credit Flickr user TN Drum Guy / cc

The Texas comptroller's office is building new rules on taxing businesses selling to residents online from out of state.

The U.S. Supreme Court cleared the way the new state taxes with its South Dakota vs. Wayfair ruling, which is widely regarded as one of the most important e-commerce rulings in a generation.  

The state could legally collect the sales taxes now. But regulators want to establish when and how the tax is implemented, like a number of transactions or monetary threshold. South Dakota uses 200 transactions or $100,000 as their economic threshold.

But last week the comptroller released a summary of their efforts with legal fixes they want considered next legislative session.

The comptroller wants to replace the sales and use taxes for cities and local governments with a uniform fee based on a weighted average of local sales tax rates. The law already exists in Texas’ tax code, but currently only applies if Congress passes an overhaul of the online sales tax system.

The goal of the change is to make it easier for online businesses to calculate what they owe.

"For instance, right now, if you are retailer you have to know all the tax rates for all the local entities in the state of Texas. There are more than 1,500 taxing entities," said Kevin Lyons, a comptroller spokesman.

So while the local sales tax for San Antonio and Comfort are different, the rate collected and remitted to the comptroller on sales in those cities would be the same.

Local government advocates are unsure if replacing local taxes with a weighted fee is the right move.

"We don't know yet. We’re gonna visit with our members,” said Bennett Sandlin, executive director of the Texas Municipal League. “But we’re gonna work with the comptroller to try and implement this just as soon as they figure out what the legislation they need to file in 2019.”

A 2014 comptroller estimate showed $200 million in additional revenues for local governments in Texas. The comptroller hasn’t updated its estimates to include online sales tax revenue, but did revise its fiscal 2019 numbers up $2.8 billion Wednesday.

In the memo last week from the comptroller’s office, it said the state might not collect the $840 million estimated increase from 2014. The letter cited increased compliance prior to Wayfair by online sellers as the main reason.

Another change the comptroller wants considered is additional liability protection for platforms like Amazon Marketplace or Ebay, incentivizing them to collect and remit on behalf of small businesses using them. According to the comptroller's office, the move could make it easier for businesses and increase compliance.

The collection framework for online sellers won't be in place until early next year, and Lyons says they don't anticipate it going into effect until the middle of 2019.

Paul Flahive can be reached at Paul@tpr.org or on Twitter @paulflahive