Texas Court of Appeals, 15th District, 2025

City of Coppell, Texas; City of Humble, Texas; City of DeSoto, Texas; City of Carrollton, Texas; And City of Farmer's Branch, Texas // Kelly Hancock, in His Official Capacity as Acting Comptroller of Public Accounts of the State of Texas v. Kelly Hancock, in His Official Capacity as Acting Comptroller of Public Accounts of the State of Texas // City of Coppell, Texas; City of Humble, Texas; City of DeSoto, Texas; City of Carrollton, Texas; City of Farmer's Branch, Texas; And City of Round Rock, Texas

Texas Court of Appeals, 15th District · Decided November 26, 2025

Opinion

ACCEPTED 15-25-00022-CV FIFTEENTH COURT OF APPEALS AUSTIN, TEXAS 11/26/2025 3:39 PM No. 15-25-00022-CV CHRISTOPHER A. PRINE CLERK FILED IN In the Court of Appeals 15th COURT OF APPEALS For the Fifteenth Judicial District AUSTIN, TEXAS 11/26/2025 3:39:21 PM Austin, Texas CHRISTOPHER A. PRINE Clerk City of Coppell, Texas; City of Humble, Texas; City of Desoto, Texas; City of Carrollton, Texas; City of Farmer’s Branch, Texas; City of Round Rock, Texas, Appellants/Cross-Appellees, v. Kelly Hancock, Acting Comptroller of Public Accounts of the State of Texas, Appellee/Cross-Appellant.

On Appeal from the 201st Judicial District Court, Travis County, Texas Cause No. D-1-GN-21-003198; consolidated with D-1-GN-21-003203

APPELLEE/CROSS-APPELLANT’S RESPONSE BRIEF

Ken Paxton Kyle Pierce Counce Attorney General of Texas Deputy Division Chief State Bar No. 24082862 Brent Webster [email protected] First Assistant Attorney General Office of the Attorney General Tax Litigation Division Ralph Molina P. O. Box 12548 Deputy First Assistant Attorney General Austin, Texas 78711-2548 T: (512) 463-3112 Austin Kinghorn F: (512) 478-4013 Deputy Attorney General for Civil Litigation Counsel for Appellee/Cross- Steven Robinson Appellant Division Chief, Tax Litigation Division Oral Argument Requested IDENTITY OF PARTIES AND COUNSEL Appellants/Cross-Appellees: City of Coppell, Texas City of Humble, Texas City of DeSoto, Texas City of Carrollton, Texas City of Farmer’s Branch, Texas Appellate and Trial Counsel for Appellants/Cross-Appellees: James B. Harris, [email protected] Stephen F. Fink, [email protected] Reed C. Randel, [email protected] Richard B. Phillips, Jr., [email protected] HOLLAND & KNIGHT LLP 1722 Routh Street, Suite 1500 Dallas, Texas 75201 (214) 964-9500 Brandon L. King, [email protected] HOLLAND & KNIGHT LLP San Jacinto Boulevard, Suite 1900 Austin, Texas 78701 Appellees: City of Round Rock, Texas Appellate and Trial Counsel for Appellees: Cindy Olson Bourland, [email protected] BOURLAND LAW FIRM, PC P.O. Box 546 Round Rock, Texas 78680 Bryan Dotson, [email protected] CHAMBERLAIN, HRDLICKA, WHITE, WILLIAMS, & AUGHTRY, P.C.

112 East Pecan Street, Suite 1450 San Antonio, Texas 78205 (210) 278-5844 i Appellee/Cross-Appellant: Kelly Hancock, Acting Comptroller of Public Accounts of the State of Texas Appellate and Trial Counsel for Appellee/Cross-Appellant: Ken Paxton Brent Webster Ralph Molina Austin Kinghorn Steven Robinson Kyle Pierce Counce (lead counsel) [email protected] Peter Berquist [email protected] OFFICE OF THE ATTORNEY GENERAL P.O. Box 12548 Austin, Texas 78711-2548 (512) 463-3112 Former Counsel no longer with Oﬃce of the Attorney General: Grant Dorfman (currently employed by the Texas Business Court, Eleventh Division) James Lloyd (currently employed by the Oﬃce of the Vice President of the United States) Shawn Cowles (currently employed by Dhillon Law Group, Inc.) Alison Andrews (currently employed by Jackson Walker LLP) Brittney Johnston (currently employed by McLane Company, Inc.) Deborah Rao (currently employed by the State Oﬃce of Risk Management) Matthew T. Kennedy (currently employed by Covenant Clearinghouse, LLC) Ray Langenberg (Specially Deputized trial counsel, currently employed by the Oﬃce of the Comptroller of Public Accounts of Texas) Former Counsel no longer with Tax Litigation Division: Amanda Romenesko (currently employed by the Opinion Committee, Oﬃce of the Attorney General of Texas) ii TABLE OF CONTENTS Identity of Parties and Counsel ................................................................................i Index of Authorities ............................................................................................... vi Record References ................................................................................................. ix Statement Regarding Oral Argument ..................................................................... ix Summary of the Argument.......................................................................................1 Argument................................................................................................................ 5 I. Response to Coppell’s Statement of Facts .................................................... 5 A. Additional context on local sales tax and statutory background of Tax Code sections 321.002(a)(3)(A) and 321.203 (Response to Coppell’s Statement of Facts 1.) ......................................................... 5 B. Historical Comptroller interpretation of local sales tax statutes and Rule 3.334 (Response to Coppell’s Statement of Facts 2.) ............ 6 C. Internet sales, fulfillment centers, and the changes to Rule 3.334 (Response to Coppell’s Statement of Facts 3.) .................................... 9 D. Coppell and local sales tax (Response to Coppell’s Statement of Facts 4.) ............................................................................................ 10 II. Response to Coppell’s Argument 2: Rule 3.334 does not contravene the plain meaning of “to receive” or “order” as those words are used in the Tax Code .............................................................................................. 11 A. Rule 3.334 uses the plain meanings of the words “to receive” and “order” (Response to Coppell’s Argument 2. A.) ............................ 11 B. The Comptroller’s interpretation of “place of business of the retailer” is proper, especially when read within the context and function of the entire local sales tax statute (Response to Coppell’s Argument 2. B.) ................................................................ 12 C. Coppell’s use of statutory history provides no guidance to the meaning of today’s statute and is just a vehicle to pass off legislative history as authoritative interpretation (Response to Coppell’s Argument 2. C.)................................................................ 15 iii 1. Coppell’s statutory history argument is really just legislative history and speculation (Response to Coppell’s Argument 2. C. 1.) .................................................................. 16 2. Coppell’s reasoning would mean the Legislature intended an unworkable consummation statute where sales occurred at multiple locations (Response to Coppell’s Argument 2. C. 2.) .................................................................. 17 D. The Comptroller has not previously accepted Coppell’s current interpretation of sales tax consummation (Response to Coppell’s Argument 2. D.)................................................................................ 19 III. Response to Coppell’s Argument 3: Rule 3.334’s regulatory provisions neither contravene the statute nor displace origin-sourcing ........................ 21 IV. Response to Coppell’s Argument 4: The Comptroller’s interpretation of the statute and implementation of Rule 3.334 are consistent with the plain meaning of the challenged terms ........................................................ 23 A. Coppell’s argument that the Comptroller redefined “receive” and “order” fails because the Comptroller did not define those terms (Response to Coppell’s Argument 4. A.)................................. 23 B. Statutes must be read as a whole, yet Coppell would ignore crucial language to reach its own preferred outcome (Response to Coppell’s Argument 4. B.) ............................................................ 25 C. Coppell would ignore helpful model language (Response to Coppell’s Argument 4. C.)................................................................ 26 D. Coppell’s remaining three arguments fail (Response to Coppell’s Argument 4. D.)................................................................................ 27 1. The Comptroller did not invoke the absurdity safety valve ....................................................................................... 27 2. Section 321.203(d) does not prohibit Rule 3.334 .....................28 3. Coppell’s “paper segregation” has no support ....................... 29 iv V. Response to Coppell’s Argument 5: Rule 3.334 faithfully implements the statutory text in light of technological advancements ............................ 31 A. New rules were needed to encompass purely virtual locations.................................................................................. 32 B. The Rule promotes technological innovation by simplifying compliance and aligning the sales tax with economic benefit ..................................................................... 33 Conclusion and Prayer .......................................................................................... 33 Certificate of Compliance ..................................................................................... 35 Certificate of Service............................................................................................. 35 Index of Appendices ............................................................................................. 36 v INDEX OF AUTHORITIES Cases: Page(s) Bullock v. Dunigan Tool & Supply Co., 588 S.W.2d 633 (Tex. App.—Austin 1979, writ ref’d n.r.e.).............. 29, 30, 31 Castleman v. Internet Money Limited, 546 S.W.3d 684 (Tex. 2018)......................................................................... 28 City of Richardson v. Oncor Elec. Delivery Co. LLC, 539 S.W.3d 252 (Tex. 2018) .................................................................... 16, 17 Combs v. City of Webster, 311 S.W.3d 85 (Tex. App.—Austin 2009, pet denied) ............................. 17, 18 Combs v. Health Care Serv. Corp., 401 S.W.3d 623 (Tex. 2013) ................................................................... 27, 28 Entergy Gulf States, Inc. v. Summers, 282 S.W.3d 433 (Tex. 2009) .................................................................. 20, 21 Helena Chem. Co. v. Wilkins, 47 S.W.3d 486 (Tex. 2001) .......................................................................... 13 In re Swift Transp. Co., Inc., 311 S.W.3d 484 (Tex. App.—El Paso 2009, no pet.) .................................... 26 In re Tex. Educ. Agency, 619 S.W.3d 679 (Tex. 2021) (orig. proceeding) ............................................ 32 Jaster v. Comet II Const., Inc., 438 S.W.3d 556 (Tex. 2014) ......................................................................... 27 Lippincott v. Whisenhunt, 462 S.W.3d 507 (Tex. 2015) ......................................................................... 16 Paxton v. City of Dallas, 509 S.W.3d 247 (Tex. 2017) ......................................................................... 16 South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018)................................................................................... 8 Tarrant Appraisal Dist. v. Moore, 845 S.W.2d 820 (Tex. 1993)......................................................................... 22 vi Tex. Dep’t. of Protective and Regulatory Services v. Mega Child Care, Inc., 145 S.W.3d 170 (Tex. 2004) ................................................................... 19, 20 Tex. Employment Comm’n v. Holberg, 440 S.W.2d 38 (Tex. 1969) .......................................................................... 21 Tex. Lottery Comm’n v. First State Bank of DeQueen, 325 S.W.3d 628 (Tex. 2010) ................................................................... 23, 24 Tex. State Bd. of Examiners of Marriage and Family Therapists v. Tex. Med. Ass’n, 511 S.W.3d 28 (Tex. 2017) ........................................................................... 11 TGS-NOPEC Geophysical Co v. Combs, 340 S.W.3d 432 (Tex. 2011) ................................................................... 25, 33 Statutes and Rules: Page(s) Tex. Admin Code: § 3.334................................................................................................... passim § 3.334(a)(9) ....................................................................................... 1, 10, 21 § 3.334(a)(18) ............................................................................... 1, 10, 21, 25 § 3.334(b)(1)(A)..................................................................................... passim § 3.334(b)(5).......................................................................................... passim § 3.334(c)(7) .......................................................................................... passim Tex. Gov’t Code: § 311.011(a).................................................................................................. 25 § 311.011(b) ................................................................................................. 23 Tex. Tax Code: § 111.002(a) ................................................................................................... 5 § 321.002(a)(3) .......................................................................................... 5, 6 § 321.002(a)(3)(A) ................................................................................. passim § 321.203 ............................................................................................... passim § 321.203(a)................................................................................................. 31 § 321.203(a)–(b) ............................................................................................ 5 § 321.203(c) (West 2009) ............................................................................ 18 vii § 321.203(d) .................................................................................... 27, 28, 29 § 321.306 ............................................................................................ 5, 13, 22 Other Authorities: Page(s) 4 Tex. Reg. 3618-29 (1979) ................................................................................ 6, 33 39 Tex. Reg. 9597-611 (2014) ............................................................................. 6, 33 41 Tex. Reg. 260-69 (2016) .......................................................................... 6, 20, 33 45 Tex. Reg. 3499-3518 (2020) ...................................................................... 8, 9, 32 Tex. Reg. 6340–50 (2023)............................................................................. 6, 26 Tex. Reg. 2440–57 (2024)........................................................................... passim Tex. Reg. 4797–808 (2024) ......................................................................... passim Acts 1967, 60th Leg., R.S., ch. 36 ............................................................................ 5 Acts 1979, 66th Leg., R.S., ch. 624, § 6(B)(1) ...................................................... 5, 6 H.B. 1525, 86th Leg., R.S. (2019) ............................................................................ 8 S.B. 582, 66th Leg., R.S. (1979) (enrolled version, pp. 1401–02) ..................... 30, 31 Comptroller’s Decision No. 15,654 (1985) .............................................................. 6 Comptroller Letter Ruling (Star Accession No.) 200510723L (2005) ....................20 viii RECORD REFERENCES “CR” refers to the clerk’s record. “RR” refers to the court report’s record, with the volume before RR and the page number after RR.

STATEMENT REGARDING ORAL ARGUMENT The Comptroller requests oral argument. This appeal presents issues of statutory interpretation and administrative law that are signiﬁcant to the development of Texas jurisprudence, and will otherwise determine where a sale or use is “consummated” for purposes of sourcing local sales and use taxes. Oral argument will aid the Court in addressing the interplay between the consummation statutes and the agency’s rulemaking authority to implement such statutes.

ix SUMMARY OF THE ARGUMENT Almost all sales in Texas are subject to state and local sales tax. The local sales tax covers taxes imposed by counties and cities. Typically, a seller will collect both sales taxes from a purchaser and remit them to the Comptroller. The Comptroller then distributes the local sales tax portion to the county and city where the sale was consummated. In most in-person transactions, there is no question where the sale was consummated—at the brick-and-mortar location where the purchaser bought the item. But in our era of e-commerce, where buyers increasingly make purchases online without any human contact, it becomes harder to determine where the sale was consummated. The Legislature created a consummation hierarchy in Chapter of the Tax Code. To ﬁll in the gaps and provide additional clarity and criteria, the Comptroller amended Rule 3.334 (App. E). Coppell takes issue with certain provisions in Rule 3.334.

Coppell’s appeal is odd. Ostensibly, Coppell prevailed in the trial court on the Rule subsections it now challenges on appeal. According to its brief, Coppell wants the same result, but with an opinion attached to foreclose future arguments. At trial, Coppell challenged Rule 3.334 subsections (a)(9), (a)(18), (b)(1)(A), (b)(5), and (c)(7), and the trial court invalidated all but subsection (b)(1)(A). On appeal, Coppell reasserts the same validity challenges Coppell is asking this Court to “render judgment that the identiﬁed portions of [Rule] 3.334 are invalid.” Coppell’s Br. 51.

The relief Coppell seeks here is pointless because Coppell won the relief it requested below. While it would seem Coppell also seeks to invalidate Rule 3.334(b)(1)(A), it makes no arguments speciﬁc to (b)(1)(A) in its entire brief. Meanwhile, the

Comptroller, by its cross-appeal, seeks to have the judgment reversed as to the invalidity rulings, except for (b)(1)(A).

Importantly, Coppell does not appeal its declaratory judgment loss in the trial court. Coppell requested that fulﬁllment centers be prospectively declared places of business for purposes of the Tax Code. CR 2798. The trial court declined that request. CR 2798. Additionally, the trial court denied all other relief not speciﬁcally granted in its ﬁnal judgment. CR 2798. Having neither briefed nor requested relief on those issues, Coppell has waived them. Thus, the only issue for this Court to decide by either Coppell or the Comptroller’s cross-appeal is whether the Comptroller properly promulgated Rule 3.334 and whether that rule contravenes the Tax Code. Appellant, ﬁrst Cross-Appellee, and ﬁrst plaintiﬀs below are the Cities of Coppell, Humble, DeSoto, Carrollton, and Farmers Branch, Texas (collectively, “Coppell”). Cross-Appellant, Appellee, and defendant below is Glenn Hegar, in his Oﬃcial Capacity as Comptroller of Public Accounts of the State of Texas (the “Comptroller”). Comptroller Hegar resigned on June 30, 2025. Kelly Hancock is the Acting Texas Comptroller of Public Accounts and was automatically substituted into this appeal on July 29, 2025. The City of Round Rock was a plaintiﬀ below and is second Cross-Appellee as to the Comptroller’s cross-appeal only.

For readability, the Comptroller has mirrored Coppell’s brief in this response, and addresses each of Coppell’s arguments in order.

First, Coppell made several claims in its statement of facts that required additional context. Taxable sales have been consummated at a “place of business of the retailer” for decades, and that place of business has often been the physical store location. But determining what exactly is a place of business requires more nuance, and the Legislature has deﬁned the term to bring some clarity to the task. Likewise, the Comptroller has been empowered by the Legislature to further implement the sales tax consummation statutes. The Comptroller has traditionally exercised that power in a consistent way. But e-commerce has created a situation where it is unclear what the “place of business” is for sales tax purposes. More speciﬁcally, cities like Coppell have lured fulﬁllment centers to their municipalities with tax incentives like economic development agreements. These warehouse-like facilities have orders forwarded to them from corporate entities for shipping and delivery. Coppell’s main complaint is that under the Comptroller’s Rule 3.334, these fulﬁllment centers may not automatically qualify as “places of business” for sales tax consummation purposes, causing the local tax to be remitted to another municipality where the retailer’s actual place of business is located.

Second, Rule 3.334 accords with the language of the Tax Code. The plain meaning of undeﬁned terms should control, unless reading the statute as a whole compels a diﬀerent reading. The Legislature deﬁned “place of business of the retailer.” The Comptroller took that deﬁnition and provided clarity to how it interprets terms used in the deﬁnition, which is a core function of administrative rulemaking. To support its own a-textual deﬁnition, Coppell oﬀers legislative history and speculation as to the motivations of the Legislature. Coppell’s deﬁnition ﬁnds no support in the statute, or in its novel regulatory acceptance theory. Instead, Coppell’s deﬁnition would result in a nightmare for taxpaying entities, where they would have to guess at which of multiple potential “places of business” received an order to try and divine where consummation took place. The Comptroller’s hierarchy provides clarity and permits only one location to be the recipient of any individual order.

Third, The Comptroller did not usurp the state’s traditional origin sourcing scheme. Destination sourcing is only used when authorized by the Tax Code, especially in section 321.203(e). But many online sales will remain consummated at a place of business, not at the shipping destination. The arguments for the proper promulgation of the Rule are more thoroughly laid out in the Comptroller’s Cross- Appellant brief.

Fourth, the Comptroller did not ignore the plain meaning of the terms “order” or “receive.” The Comptroller interpreted them within their statutory context, giving deference to the legislative deﬁnitions present in the Tax Code. And the Comptroller’s use of model statutory language does not render Rule 3.334 void, as the model language is consistent with the actual statute. Nor did the Comptroller invoke the absurdity doctrine as alleged by Coppell, which permits a court to ignore the language of a statute when strictly applying it would result in an absurd situation.

And this Court should reject Coppell’s attempt to impose “paper segregation” as a consummation standard, as that theory ﬁnds no support in Texas tax statutes or jurisprudence.

Fifth, Rule 3.334 and its enabling statutes are entirely consistent with advancing technologies and reﬂects the Comptroller’s attempt to modernize local sales tax sourcing while accommodating e-commerce.

ARGUMENT I. Response to Coppell’s Statement of Facts In its opening brief, Coppell made several statements in its Statement of Facts that the Comptroller wishes to clarify or correct.

A. Additional context on local sales tax and statutory background of Tax Code sections 321.002(a)(3)(A) and 321.203 (Response to Coppell’s Statement of Facts 1.).

Texas has used an origin-based sourcing system for municipal sales and use taxes since their adoption in 1967. A taxable sale is consummated at the seller’s “place of business” in Texas either (i) where the seller receives the customer’s order or (ii) from which the seller ships or delivers the item if the order was not received at a Texas place of business. Tex. Tax Code § 321.203(a)–(b); See Acts 1967, 60th Leg., R.S., ch. 36. (App. K). A “place of business” is deﬁned, in relevant part, as an established outlet or location operated by a seller, its employee, or its agent from which three or more taxable orders are received during a calendar year. Tex. Tax Code § 321.002(a)(3). The Legislature has never deﬁned the terms “receives,” “order,” “employee,” or “agent” in the statutory scheme. It has, however, repeatedly and expressly granted the Comptroller broad authority to adopt rules for the proper administration, enforcement, and sourcing of local sales and use taxes.

Tex. Tax Code §§ 111.002(a), 321.306. This statutory framework has remained materially unchanged for more than ﬁfty-ﬁve years. The Legislature’s preference for origin sourcing reﬂects a deliberate policy decision, but one that has always been subject to the Comptroller’s interpretive authority to ensure uniform statewide application and to prevent manipulation in light of changing business practices. See

Acts 1979, 66th Leg., R.S., ch. 624, § 6(B)(1) (introducing the “place of business” deﬁnition and order-receipt prong) (App. L).

B. Historical comptroller interpretation of local sales tax statutes and Rule 3.334 (Response to Coppell’s Statement of Facts 2.).

The Comptroller has administered the “place of business” deﬁnition for decades under Rule 3.334 and its predecessors. See 4 Tex. Reg. 3618, 3621 (1979) (App. F); 39 Tex. Reg. 9597, 9604 (2014) (App. G); 41 Tex. Reg. 260, 262 (2016) (App. H). From the outset, the Comptroller has interpreted “receives three or more orders” to require actual receipt of customer orders at the location in the regular course of business. Tex. Tax Code § 321.002(a)(3). Automated servers, third-party warehouses, drop boxes, and similar passive facilities have never been treated as “receiving orders” when the issue was presented in audits or ruling requests. See 48 Tex. Reg. 6341.

For example, the Comptroller’s rulemaking makes clear that its “current interpretation goes as far back as [1985],” where the Comptroller stated that “the Legislature did not want warehousing and storage facilities ... to be the places where sales were consummated for local sales tax purposes unless orders were actually received there by personnel working there, but wanted the oﬃce location out of which the salesman operated to be the place where the sales were consummated.”

Comptroller’s Decision No. 15,654 (1985) (App. P).

The Comptroller has issued rules about what is a place of business and where consummation occurs prior to 2020. See 4 Tex. Reg. 3618, 3621; 39 Tex. Reg. 9597, 9604; 41 Tex. Reg. 260, 262. The pre-2020 rules were consistent with the statutory requirements in the Tax Code: they required that orders be received by the seller at the location in the regular course of business, without allowing automated systems or third-party facilities to qualify as “receiving” orders in a manner that would artiﬁcially establish a place of business. See id. That all remained consistent post-2020. The current version of Rule 3.3341 resulted from a multi-year rulemaking (2020–2024) that clariﬁed, but did not substantively change, this long-standing interpretation in light of modern e- commerce practices. The Rule now expressly states that a location is not a “place of business” if orders are only processed by internet-connected computers or automated software. 49 Tex. Reg. 2451 (outlining § 3.334(b)(5)). Nor does forwarding a previously received order to a facility for fulﬁllment automatically make that location a place of business for tax purposes. See 49 Tex. Reg. 2450 (outlining § 3.334(b)(1)(A)).

Those clarifying conditions codiﬁed the Comptroller’s long-standing interpretation of the words “receives” and “order” in Tax Code section 321.002(a)(3)(A), and thus, where consummation occurs as speciﬁed in Tax Code section 321.203. The changes ensure that only locations where the seller initially receives orders in the regular course qualify, preventing artiﬁcial sourcing through automated or third-party facilities. In other words, the amendments clarify the

1 The version of Rule 3.334 that went to trial and is on appeal in this case was initially published on April 19, 2024 (the “April 2024 Notice”) and was adopted on June 28, 2024 (the “June 2024 Order”). 49 Tex. Reg. 2440–57; 49 Tex. Reg. 4797–808. In this brief, the Comptroller will cite to the Texas Register for the April 2024 Notice and the June 2024 Order for readability, however, both are available in the Clerk Record at CR 2532–50 (April 2024 Notice) and CR 2551–62 ( June 2024 Order), respectively, and are included in the appendix at App. C and App. D.

statutory deﬁnition of place of business to align with its original intent and modern realities.

The demonstrative attached to Coppell’s Opening Brief as Appendix Tab J is misleading and improper: it strikes through statutory language and inserts new text as though the Comptroller rewrote the statute. The Comptroller did no such thing.

The Rule simply interprets the undeﬁned terms “receives” and “order”—terms the agency has always construed to require involvement by the seller’s personnel in receiving such orders. Agencies are entitled to reexamine and clarify their interpretations when business practices evolve, provided they follow the APA and give a reasoned explanation, which the Comptroller did repeatedly in the published preambles. See 45 Tex. Reg. 3499 (2020) (App. I); 49 Tex. Reg. 2440–42; 49 Tex. Reg. 4797–808.

The amendments to Rule 3.334 were promulgated for the following reasons, each of which was stated in the Rule preambles published in the Texas Register: • To reﬂect the expansion of local tax collection obligations on remote sellers following South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), and the enactment of Texas Tax Code section 151.0595 (single local use tax rate for remote sellers); • To implement marketplace-provider legislation (H.B. 1525, 86th Leg., R.S. (2019) (App. M)); • To provide greater clarity to taxpayers regarding the long- standing consummation standards under which a physical location in Texas qualiﬁes as a “place of business” for local-sales- tax-sourcing purposes;

• To reduce audit controversy and compliance burdens by explaining precisely how the Comptroller applies the statutory consummation rules in an era of e-commerce, automated order processing, and massive third-party fulﬁllment centers; • To ensure consistent application of the “place of business” deﬁnition across all sellers (in-state and remote) and to prevent large out-of-state retailers from sourcing billions of dollars of Texas-bound sales to high-tax municipalities simply because a third-party warehouse or automated server happened to be located there; and • To simplify local-tax compliance for small and micro-businesses by adding a presumption that a single location out of which a small or micro-business conducts all of its activities is a “place of business” of the seller.

See 45 Tex. Reg. 3499; 49 Tex. Reg. 2440–42. 49 Tex. Reg. 4797-808.

C. Internet sales, fulﬁllment centers, and the changes to Rule 3.334 (Response to Coppell’s Statement of Facts 3.).

The Comptroller’s changes to Rule 3.334 were made in part in response to the rise of e-commerce. By going to a website, a purchaser is not virtually visiting an established physical location operated by a seller, but rather interacting with remote servers often located outside Texas or controlled by third parties, distinguishable in function from a seller’s brick-and-mortar store with a very large inventory on display.

7 RR 180–81; 187–96; 11 RR 570–72. Once the purchaser identiﬁes an item from the inventory accessed through the website and decides to purchase it, the purchaser enters a credit-card number, but the actual “receipt” of an order requires receipt of such order by the seller’s agents at a place of business, not mere automated routing.

6 RR 73–74; 7 RR 196–97; 49 Tex. Reg. 2441. So, the purchaser’s request is not

“received” in the statutory sense at the fulﬁllment center if it is merely routed there automatically; instead, it must be accessed and acknowledged by the seller’s employees or agents in the regular course of business. 7 RR 180–81; 187–96; 11 RR 570–72.

Fulﬁllment centers are not, in other words, the 21st century’s version of brick- and-mortar stores. They are often third-party warehouses or automated facilities where the seller has no direct control or personnel receiving orders, and the changes to the Rule beginning in 2020 often result in such centers not qualifying as places of business where they do not have “sales personnel.” See 49 Tex. Reg. 2440–57 (outlining sections 3.334(a)(9); (a)(18); (b)(1)(A); (b)(5); (c)(7)).

D. Coppell and local sales tax (Response to Coppell’s Statement of Facts 4.).

Coppell claims it has promoted and supported fulﬁllment centers in its cities.

However, the fulﬁllment centers rely exclusively on orders placed on websites linked by order-management software to computers at the center, but without genuine receipt of orders by the seller at those locations. 11 RR 570–72. They engage only in internet sales.

The loss of local sales tax will be modest in aggregate and oﬀset by gains elsewhere, as explained in the Rule’s ﬁscal note. 49 Tex. Reg. 2440–41. Coppell’s losses will largely represent a gain to the other 1,700 local taxing entities. 49 Tex. Reg. 2441 (noting that “[m]ost, but not all, reductions in taxable transactions sourced to some jurisdictions would be increases in taxable transactions sourced to other jurisdictions” and that there are roughly “1,759 local sales taxing jurisdictions”).

Internet sales have resulted in shifts in the pattern of local-sales-tax collections compared with the period before the advent of internet sales, and the Rule clariﬁes sourcing for the reasons stated infra section I. B.

The Coppell cities are sophisticated municipalities that have long beneﬁted from interpreting the sourcing rules as allocating tax revenue based on the presence of fulﬁllment centers rather than on order receipt by the seller. The clariﬁed Rule does not “take” any vested right; it simply requires that local sales tax be sourced in the manner the Comptroller has always interpreted the statute to require.

II. Response to Coppell’s Argument 2: Rule 3.334 does not contravene the plain meaning of “to receive” or “order” as those words are used in the Tax Code. Coppell argues that how “orders” are “received” contravenes the statutory language of the Tax Code. The Comptroller has not redeﬁned those terms and has merely provided context and clarity for taxpayers on how it will interpret and apply Rule 3.334.

A. Rule 3.334 uses the plain meanings of the words “to receive” and “order” (Response to Coppell’s Argument 2. A.).

The Comptroller agrees with Coppell that the plain meanings of the terms “receives” and “order” should control, unless reading the statute as a whole indicates that a more speciﬁc meaning is apparent. See Tex. State Bd. of Examiners of Marriage and Family Therapists v. Tex. Med. Ass’n, 511 S.W.3d 28, 34 (Tex. 2017). That is of course precisely the situation in this case, and Coppell’s devotion to ignoring the entire statute results in an incomplete interpretation.

B. The Comptroller’s interpretation of “place of business of the retailer” is proper, especially when read within the context and function of the entire local sales tax statute (Response to Coppell’s Argument 2. B.).

The Legislature has deﬁned “place of business of the retailer” in the local tax statutes 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 warehouse, storage yard, or manufacturing plant is not a “place of business of the retailer” unless at least three orders are received by the retailer during the calendar year at the warehouse, storage yard, or manufacturing plant.

Tex. Tax Code § 321.002(a)(3)(A) (emphasis added). The key terms are the verb “receive” and the noun “order.”

The Comptroller has not explicitly deﬁned the words “receive” or “order” in its April 2024 Notice. See 49 Tex. Reg. 2440-57. Instead, in an attempt to provide context, clarity, and guidance to taxpayers and local taxing jurisdictions, the Comptroller has provided criteria for where and when order is deemed received. The adopted Rule 3.334(c)(7) states: The location where the order is received by or on behalf of the seller means the physical location of a seller or third party such as an established outlet, oﬃce location, or automated order receipt system operated by or on behalf of the seller where an order is initially received by or on behalf of the seller and not where the order may be subsequently accepted, completed or fulﬁlled. An order is received when all of the information from the purchaser necessary to the determination whether the order can be accepted has been received by or on behalf of the seller. The location from which a product is shipped shall not be used in determining the location where the order is received by the seller.

49 Tex. Reg. 2452. This standard does not contravene the dictionary deﬁnitions of “receive” or “order,” as inaccurately suggested by Coppell. Coppell’s Br. 19.

What Coppell suggests, instead, is that statutory interpretation must ignore the statute as a whole. Words are to be read in isolation, with slavish devotion to their strict dictionary meaning, with no room for larger context. This is of course absurd and contrary to standards of statutory interpretation. See Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, 493 (Tex. 2001) (“[W]e must always consider the statute as a whole rather than its isolated provisions.”). Moreover, Coppell’s standard would render all administrative rules null if they did not solely regurgitate what is in the statute. An administrative rule may not contravene the underlying statute, but it may elaborate, clarify, or otherwise implement the enabling legislation. Tex. Tax Code § 321.306 (allowing Comptroller to adopt rules for administration, collection, reporting, and enforcement of Tax Code).

In Rule 3.334(c)(7), the Comptroller has clariﬁed when it will interpret that an “order is received.” 49 Tex. Reg. 2452. Which is “when all of the information from the purchaser necessary to the determination of whether the order can be accepted has been received by or on behalf of the seller.” 49 Tex. Reg. 2452. This is important because it is the fundamental task of an agency charged with implementing rules to state its interpretation of what the rule means. And this comports with Coppell’s own suggested deﬁnition that “to receive” means “to get, accept, take, or acquire something.” There must be some singular point in time and space when an “order is received” for purpose of sale consummation. Otherwise, local tax allocation would be an impossibility. The Comptroller has provided objective criteria that make it clear when the Comptroller and taxpaying entities should consider the order received for tax reporting purposes.

Importantly, Coppell oﬀers its own deﬁnition of “place of business” as “an established location operated by the retailer that has the purpose of getting requests from a purchaser to be supplied or delivered a taxable item or that gets at least three requests from a purchaser to be supplied a taxable item in a calendar year.” Coppell’s Br. 20-21. The actual statute requires the location to be “operated by the retailer or the retailer’s agent or employee for the purpose of receiving orders for taxable items” and expressly declares that a “warehouse, storage yard, or manufacturing plant is not a ‘place of business of the retailer’ unless at least three orders are received by the retailer during the calendar year at the [warehouse, storage yard, or manufacturing plant].” Tex. Tax Code § 321.002(a)(3)(A). Coppell’s version silently deletes the “agent or employee” clause, the “for the purpose of receiving orders” clause, and the entire warehouse exclusion—three separate legislative guardrails designed to prevent exactly the result Coppell seeks: treating automated fulﬁllment centers as places where orders are “received.” By omitting these provisions, Coppell’s deﬁnition gives no credence whatever to the remainder of the statute and instead substitutes its own policy preference for the Legislature’s text.

Coppell also paraphrases the operative statutory language as requiring only that a location “get[] requests from a purchaser to be supplied or delivered a taxable item”, thereby replacing the verb “receives” with the far more passive “gets” and swapping the term “order” that the Legislature actually used with the amorphous “request ... to be supplied or delivered.” Coppell’s Br. 20–21. These substitutions are not innocent. “Gets” eliminates any connotation of active acceptance or processing by the seller’s agent, while “request ... to be supplied or delivered” would encompass everything from a casual inquiry to automated data packets that bear no resemblance to a retail “order.”

In supplying this deﬁnition, Coppell is attempting to usurp the Legislature and Comptroller’s role in interpreting and implementing tax statutes, while simultaneously redeﬁning a legislatively deﬁned phrase. Whereas the Comptroller adds clarity to what the undeﬁned words “receive” and “order” mean in the context of the Tax Code, Coppell seeks to change the actual words already supplied by the Legislature. After all, the Legislature has deﬁned “place of business of the retailer” in Chapter 321, there is no reason for Coppell to oﬀer its own deﬁnition. Tex. Tax Code § 321.002(a)(3)(A).

C. Coppell’s use of statutory history provides no guidance to the meaning of today’s statute and is just a vehicle to pass oﬀ legislative history as authoritative interpretation (Response to Coppell’s Argument 2. C.).

Coppell argues that statutory history can guide the Court (but instead provides the Court with legislative history and conjuncture) to reach a conclusion that the Legislature intended for sales to be consummated at multiple locations (but then provided no way to determine where the local tax should be sent). This Court should reject the speculative arguments Coppell makes that would result in a dysfunctional sales tax consummation scheme.

1. Coppell’s statutory history argument is really just legislative history and (Response to Coppell’s Argument 2. C. 1.).

Coppell argues that statutory history can help guide a court’s interpretation of a statute, thus the history of the deﬁnition of “place of business” can help understand how it should be understood today. However, Coppell immediately deviates from that principle to engage in speculation about why laws changed, instead of how they changed. Coppell’s Br. 24.

Instead of statutory history, Coppell spends pages referring to legislative bill analysis, appellate decisions, Comptroller administrative decisions from 1967 and 1975, and old positions of the Comptroller in court cases. Coppell’s Br. 21-24. In determining legislative intent, Coppell does everything except rely on the plain language of the statute. Instead, it invents a narrative about why the Legislature supposedly acted. This should be disregarded by this Court as it would disregard any other speculation or legislative history. City of Richardson v. Oncor Elec. Delivery Co. LLC, 539 S.W.3d 252, 261 (Tex. 2018) (“When a statute is clear and unambiguous ... we do not resort to extrinsic interpretive aids, such as legislative history, because the statute’s plain language is the surest guide to the Legislature’s intent.”) (citation modiﬁed) (quoting Paxton v. City of Dallas, 509 S.W.3d 247, 257 (Tex. 2017)). The words in the statute can and should control. See Lippincott v. Whisenhunt, 462 S.W.3d 507, 509 (Tex. 2015) (per curiam) (noting that where “language is unambiguous, [courts] interpret the statute according to its plain meaning.”).

Coppell goes further and illustrates the central problem the Comptroller seeks to avoid. Coppell argues that the Legislature “conﬁrmed its understanding, consistent with the plain meaning of ‘receives’ and ‘order,’ that the same order could be received at diﬀerent locations.” Coppell’s Br. 27. But for administration of the sales tax statutes, an order must be “received” at only one location, so that the sale can be consummated at that location, and accordingly local sales tax rates applied and distributed to the taxing entities. By providing clarity to the consummation hierarchy as found in Texas Tax Code section 321.203, Comptroller’s Rule 3.334 ensures that sales will be consummated at one location. 49 Tex. Reg. 2446.

2. Coppell’s reasoning would mean the Legislature intended an unworkable consummation statute where sales occurred at multiple locations (Response to Coppell’s Argument 2. C. 2).

Coppell posits that it can conﬁrm that the Legislature intended for it to be possible that “more than one established location operated by a retailer” can receive an order. Coppell’s Br. 28. Its evidence for this is not the plain language of the statute.

Instead, Coppell believes that the Legislature made changes to the sales tax consummation statute in response to Combs v. City of Webster. Coppell’s Br. 29.

Coppell purports to have this knowledge due to a bill sponsor’s Statement of Intent.

Coppell’s Br. 30. This is textbook legislative history and should be disregarded. City of Richardson, 539 S.W.3d at 261.

Coppell’s reliance on Combs v. City of Webster is misplaced because the Austin Court of Appeals explicitly found “no evidence showing that a suﬃcient number of orders were received at the warehouses.” 311 S.W.3d 85, 98 (Tex. App.—Austin 2009, pet. denied). This holding implies that orders forwarded to warehouses for mere fulﬁllment do not constitute “receipt” at those locations under the statute.

Thus, Webster supports the Comptroller’s interpretation that automated or passive routing to a fulﬁllment center does not qualify as receiving an order.

Coppell’s analysis depends on the 2009 amendments to section 321.203(c), which adds that a sale is consummated at a retailer’s place of business “in this state where the retailer ﬁrst receives the order, provided that the order is placed in person by the purchaser.” Tex. Tax Code § 321.203(c) (West 2009) (App. O) (added by Acts 2009, 81st Leg., ch. 1360, § 5, eﬀ. June 19, 2009) (emphasis added).

While the 2009 legislation prioritized in-person sales over delivered sales for sourcing purposes, it left the statutory deﬁnition of “place of business” untouched.

The amendments did not expand that deﬁnition to automatically include every fulﬁllment warehouse as a place of business. Accordingly, the Comptroller’s rule clariﬁcation aligns with the unchanged legislative framework by requiring genuine order receipt by the seller.

Contrary to Coppell’s assertions, this does not show Legislative intent that an order can be received at multiple locations. It shows Legislative intent that an order placed in person is only received at the location where the in-person purchase takes place. It does not ratify consummation at multiple locations—which is the problem to be avoided—but ensures that consummation will be at the place most associated with the sale. This interpretation is entirely consistent with the Comptroller’s rulemaking.

The local sales tax consummation statute functions eﬀectively only if an order is deemed “received” just once, at a single qualifying place of business. See, e.g., 49 Tex. Reg. 2441. It is reasonable for the Comptroller to interpret the statute as excluding multiple “receipts” by the same vendor merely because an order passes through various hands or systems en route to delivery. The consummation hierarchy accounts for businesses having multiple places of business at which orders may be received, but does not permit an order to be received more than once. See Tex. Tax Code § 321.203. This approach prevents sourcing manipulation and ensures fair tax allocation.

D. The Comptroller has not previously accepted Coppell’s current interpretation of sales tax consummation (Response to Coppell’s Argument 2. D.).

Coppell argues that the Comptroller has engaged in some type of regulatory acceptance through its prior interpretations of the Tax Code. Coppell’s Br. 33.

Coppell’s position is that if a statute has been “given a longstanding construction by a proper administrative oﬃcer” and is “re-enacted without substantial change, the Legislature is presumed to have been familiar with that interpretation and to have adopted it.” Tex. Dep’t. of Protective and Regulatory Services v. Mega Child Care, Inc., 145 S.W.3d 170, 176 (Tex. 2004). It is of course prudent to presume that the Legislature is familiar with court cases and Comptroller rules. Id. But Coppell has speciﬁcally pointed out that “until 2020, the Comptroller had never in a rule placed any conditions” on sale order receptions. Coppell’s Br. 33. The Comptroller amended Rule 3.334 by incorporating prior, reasonable applications of the statute to assist taxpayers and auditors in interpreting both deﬁned and undeﬁned terms like “receives” and “order.” These clariﬁcations codify long-standing agency practices without altering the underlying law. As a result, the Rule promotes uniformity and reduces audit disputes. The preamble to the June 2024 Order identiﬁes several pre- 2020 instances where the Comptroller determined that the shipping location was not necessarily where the order was “received.” 49 Tex. Reg. 4800-01. The pre-2020 instances include older Comptroller rules and Comptroller private letter rulings. See, e.g., 41 Tex. Reg. 260, 265 (2016); Comptroller Letter Ruling (Star Accession No.) 200510723L (2005) (App. Q ). These examples demonstrate the agency’s consistent view that fulﬁllment alone does not establish order receipt. This history underscores that the 2020–2024 amendments merely clariﬁed, rather than changed, existing policy.

Coppell cannot point to a “longstanding construction by a proper administrative oﬃcer” to invoke the Mega Child Care holding, because the absence of a rule is not the same as an actual rule or interpretation. 145 S.W.3d at 176. And this must be the case because, otherwise, no new rules covering previously untouched territory could ever be enacted. This Court should disregard Coppell’s regulatory acceptance argument. Coppell’s argument is essentially that if the Comptroller has not previously issued a rule, then that is a longstanding agency interpretation, and therefore accepted by the Legislature and is henceforth binding.

But the Legislature did not impose time restrictions on when the Comptroller may enact rules regarding the administration of Chapter 321.

Coppell further argues in a footnote that the Comptroller has “supported bills that would have amended Chapter 321 to make it consistent” with Rule 3.334.

Coppell’s Br. 34, n.33. Bills that have not become law—regardless of an agency’s position on them—should not guide this Court’s interpretation of the actually enacted statutes. See Entergy Gulf States, Inc. v. Summers, 282 S.W.3d 433, 443 (Tex.

2009) (noting that courts “attach no controlling signiﬁcance to the Legislature’s failure to enact [legislation]”) (quoting Tex. Employment Comm’n v. Holberg, 440 S.W.2d 38, 42 (Tex. 1969)).

III. Response to Coppell’s Argument 3: Rule 3.334’s regulatory provisions neither contravene the statute nor displace origin-sourcing.

Beginning in 2020, and concluding in 2024, the Comptroller amended Rule 3.334 to provide clarity for taxpayers and local taxing jurisdictions about where sales tax should be sourced. This is especially true for sales made online by businesses with more than one place of business in the state of Texas. The trial court invalidated some of the amended portions of Rule 3.334. CR 2797-99. The Comptroller has given reasons for the amendments and detailed why the trial court incorrectly ruled against the Comptroller in its opening brief. The Comptroller reiterates those arguments as follows: • Rule 3.334(a)(9) on “fulﬁll;” • Rule 3.334(a)(18) on what is a “place of business of the seller;” • Rule 3.334(b)(5) on what is not a “place of business of the seller;” and • Rule 3.334(c), applying to “all sellers.”

Comptroller’s Br. 12–24.

However, the trial court correctly held that it could not “prospectively declare Fulﬁllment Centers as places of business.” CR 2798. Coppell did not ask for relief on this issue.

In its conclusions of law, the trial court also found that Rule 3.334(b)(1)(A) is a “descriptive statement within the meaning of Texas Tax Code section 321.002(a)(3)(A).” CR 2847. Coppell appears to take issue with those rulings in its brieﬁng. See Coppell’s Br. 34-37. But Coppell oﬀers no reasons as to why the trial court’s judgment is incorrect or why this Court should ﬁnd that section invalid.

Coppell complains that “[n]ot one of the limiting conditions on what is a place of business imposed by the Comptroller in [Rule] 3.334 is found in the statutory deﬁnition of that term.” Coppell’s Br. 37. But of course, if the deﬁnitions were included in the statute, there would be no need for administrative rulemaking.

Coppell’s actual complaint about the language in Rule 3.334 is that the Comptroller has allegedly added words to the statute. Coppell’s Br. 37. But this is not correct. The Comptroller has merely interpreted the statute within the scope of its legislative mandate. See, e.g., Comptroller’s Br. 42-44.

Interpreting and implementing the statute is within the Comptroller’s authority issued from the Texas Legislature. See Tarrant Appraisal Dist. v. Moore, 845 S.W.2d 820, 823 (Tex. 1993) (“Construction of a statute by an administrative agency charged with its enforcement is entitled to serious consideration.”). The Legislature spoke clearly: “The comptroller may adopt reasonable rules and prescribe forms that are consistent with this chapter for the administration, collection, reporting, and enforcement of this chapter.” Tex. Tax Code § 321.306. Coppell’s problem is not that the Comptroller’s rule contravene the statute, but that the Comptroller adopted rules at all.

IV. Response to Coppell’s Argument 4: The Comptroller’s interpretation of the statute and implementation of Rule 3.334 are consistent with the plain meaning of the challenged terms.

Coppell argues that the Comptroller “argued that term of art, context, and avoiding absurdity required rejection of the plain meanings of ‘receives’ and ‘order.’” Coppell’s Br. 37. Coppell has misunderstood the Comptroller’s trial court arguments, which are stated more completely in the Comptroller’s Cross- Appellant’s brief.

A. Coppell’s argument that the Comptroller redeﬁned “receive” and “order” fails because the Comptroller did not deﬁne those terms (Response to Coppell’s Argument 4. A.).

Coppell asserts that the legislatively deﬁned phrase “place of business of the retailer” is not a term of art. Coppell’s Br. 38. This argument does not matter. The Legislature requires that “[w]ords and phrases that have acquired a technical or particular meaning, whether by legislative deﬁnition or otherwise, shall be construed accordingly.” Tex. Gov’t Code § 311.011(b). Whether or not “place of business of the retailer” is a term of art, it is undeniably legislatively deﬁned. Tex. Tax Code § 321.002(a)(3)(A). That legislative deﬁnition controls.

It is true that the Comptroller stated in its June 2024 Order that “place of business” is a “term of art.” 49 Tex. Reg. 4798. But this has no bearing on the Comptroller’s interpretation, because the Comptroller correctly recognized that “the term is more limited than its plain and ordinary meaning,” which is appropriate whether a particular phrase is a term of art or is legislatively deﬁned. Id. The plain meaning of a phrase does not control when the Legislature has deﬁned the phrase.

Tex. Lottery Comm’n v. First State Bank of DeQueen, 325 S.W.3d 628, 635 (Tex. 2010)

(“We rely on the plain meaning of the text as expressing legislative intent unless a diﬀerent meaning is supplied by legislative deﬁnition[.]”). Additionally, the Comptroller’s interpretation of the phrase “place of business” in Rule 3.334 is consistent with the Legislative deﬁnition. See Comptroller’s Br. 14-19. Besides, if we were to apply the plain meaning of the phrase “place of business of the retailer,” it is doubtful anyone would conjure to mind images of robotic fulﬁllment centers or server farms.

Coppell spends a great deal of ink opining that the Comptroller could not deﬁne the terms “receive” or “order.” See Coppell’s Br. 38-39. The problem with this argument is that the Comptroller did not deﬁne the terms “receive” or “order.”

See generally 49 Tex. Reg. 2440–57; 49 Tex. Reg. 4797–808. The Comptroller has instead given a “clear articulation of the comptroller’s interpretation of the term ‘received’” and when an order is deemed to be received. 49 Tex. Reg. 4801.

Interpretation and provision of criteria is diﬀerent than redeﬁning a statute. The Comptroller’s interpretation is found in Rule 3.334(c)(7) and reads: The location where the order is received by or on behalf of the seller means the physical location of a seller or third party such as an established outlet, oﬃce location, or automated order receipt system operated by or on behalf of the seller where an order is initially received by or on behalf of the seller and not where the order may be subsequently accepted, completed or fulﬁlled. An order is received when all of the information from the purchaser necessary to the determination whether the order can be accepted has been received by or on behalf of the seller.

The location from which a product is shipped shall not be used in determining the location where the order is received by the seller.

49 Tex. Reg. 2452. This cannot plausibly be read to be a deﬁning of “receive.” It is instead a clariﬁcation of when the Comptroller will interpret a sale as being received.

The interpretation is entirely consistent with the legislative language.

B. Statutes must be read as a whole, yet Coppell would ignore crucial language to reach its own preferred outcome (Response to Coppell’s Argument 4.B.).

Coppell argues that the language “for the purpose of receiving orders,” as used by the Legislature in the Tax Code, does not provide context for interpreting the Tax Code. Coppell’s Br. 39-41. This argument deﬁes the requirement that statutes be read as a whole and in context. See, e.g., TGS-NOPEC Geophysical Co v. Combs, 340 S.W.3d 432, 439 (Tex. 2011) (“[I]f a diﬀerent or more precise deﬁnition is apparent from the term’s use in the context of the statute, we apply that meaning[.]”); Tex. Gov’t Code § 311.011(a) (“[W]ords and phrases shall be read in context[.]”).

Cutting to the heart of the matter: Coppell wants fulﬁllment centers to be the place where sales are consummated for purposes of local sales tax allocation. See Coppell’s Br. 36. But a fulﬁllment center does not typically have anything to do with “receiving” the “order” of a sale of a good, except perhaps shipping it to the purchaser. Rule 3.334 clariﬁes that fulﬁllment centers are not automatically places of business unless they meet certain objective criteria—which is true of every place of business. 49 Tex. Reg. 2449-51 (outlining § 3.334(a)(18); (b)(1)(A)). A fulﬁllment center can become a place of business for sales tax purposes, but it is not automatically one. Id. at 2443 (“A fulﬁllment center that is not a ‘place of business’ under the [] rule could easily become one by directly receiving three or more orders.”)

C. Coppell would ignore helpful model language (Response to Coppell’s Argument 4. C.).

Coppell argues that the Comptroller has relied on the Streamlined Sales and Use Tax Agreement in adopting the language in Rule 3.334(c)(7). Coppell’s Br. 41- 42. It is true that the Comptroller adopted language which is also used in the Streamlined Agreement. See 48 Tex. Reg. 6340–41 (2023) (App. J). And the State of Texas did not adopt the Streamlined Agreement. But nothing prevents the Comptroller or Legislature from taking parts of the Streamlined Agreement, while ignoring other parts—and other state interpretations of that agreement. In re Swift Transp. Co., Inc., 311 S.W.3d 484, 490 n.2 (Tex. App.—El Paso 2009, no pet.) (“The decisions of other courts, by contrast, may be persuasive but are not binding on us.”).

This Court should consider any language in the statute and in Rule 3.334 on its own—without relying on other states’ interpretations. Id. To the extent the Comptroller cites to the Streamlined Agreement and the approval of the language by twenty-four other states, the Comptroller was giving context for its reasoning in adopting that particular language, but it never suggested that such context was controlling on this Court or any other court.

The Comptroller’s interpretation of the language in Rule 3.334(c)(7) is consistent with the statutory scheme. Surely providing context for where language comes from can only aid interested parties when an agency is adopting an administrative rule. And equally surely, had the Comptroller merely adopted this tried and tested language without stating its source, Coppell would be making the opposite complaint—that the Comptroller is not revealing all information it has.

D. Coppell’s remaining three arguments fail (Response to Coppell’s Argument 4. D.).

Coppell argues: (1) that the Comptroller is attempting to ignore the plain language of the statute under the absurdity doctrine; (2) that section 321.203(d) prohibits Rule 3.334; and (3) that a “paper segregation” doctrine should control. All three fail.

1. The Comptroller did not invoke the absurdity safety valve.

Coppell argues that the Comptroller wants to defeat plain meaning of the statute by invoking an asserted absurdity. Coppell’s Br. 42-47. This is not true.

Coppell’s argument hinges entirely on the Comptroller using the word “absurdity” in its trial court brieﬁng. CR 2707.

There are two absurdity rules when it comes to interpreting statutes. The more drastic states that if using the plain meaning of a word in a statute would create an absurd result, then the plain meaning may be ignored. See Jaster v. Comet II Const., Inc., 438 S.W.3d 556, 569 (Tex. 2014) (“Courts should not enforce the plain meaning of a statute’s text if doing so leads to absurd or nonsensical results”) (citation modiﬁed). At no point in the rulemaking process, or in any of the trial court proceedings did the Comptroller suggest that one must avoid the plain meaning of the statute’s text, as required for the absurdity safety valve. See Combs v. Health Care Serv. Corp., 401 S.W.3d 623, 630 (Tex. 2013) (“[The] bar for reworking the words our Legislature passed into law is high, and should be. The absurdity safety valve is reserved for truly exception cases, and mere oddity does not equal absurdity.”). Nor does the Comptroller do so now. The Comptroller did use the word “absurd” in its brieﬁng. But this is not akin to invoking the absurdity doctrine.

Instead, the Comptroller argued that statutes must be interpreted to avoid absurd results. Castleman v. Internet Money Limited, 546 S.W.3d 684, 688 (Tex. 2018) (“[W]e must make logical inferences when necessary to eﬀect clear legislative intent or avoid an absurd or nonsensical result that the Legislature could not have intended.”) (citation modiﬁed). This is an important distinction. The Comptroller wants to avoid absurd results, whereas Coppell thinks the Comptroller is attempting to avoid the language of the statute. Coppell is constructing a strawman and it should be rejected. The Comptroller is simply interpreting the statute and implementing a rule that clariﬁes the singular point that an order will be deemed received for purposes of tax consummation.

2. Section 321.203(d) does not prohibit Rule 3.334.

Coppell argues that section 321.203(d) of the Texas Tax Code proscribes the Comptroller’s Rule. See Coppell’s Br. 43-46. That section reads: (d) If the retailer has more than one place of business in this state, and Subsections (c) and (c-1) do not apply, the sale is consummated at: (1) the place of business of the retailer in this state where the order is received; or (2) if the order is not received at a place of business of the retailer, the place of business from which the retailer’s agent or employee who took the order operates.

Tex. Tax Code § 321.203(d). Put simply, the Tax Code provides that if a buyer places an order, the order is not made in person, and the seller has more than one place of business in Texas, then the sale will be consummated at place where the order is received ((d)(1)) or the place where the seller’s employee operates ((d)(2)). Tex. Tax Code § 321.203(d).

Coppell’s interpretation is that the fulﬁllment center would be the place of business for consummation purposes. Coppell’s Br. 19-21. The Comptroller’s Rule clariﬁes that the “location where the order is received … means the physical location of a seller … where an order is initially received … and not where the order may be subsequently accepted, completed, or fulﬁlled.” 49 Tex. Reg. 2452 (outlining Rule 3.334(c)(7)). Although Coppell makes much about the Comptroller attempting a transition from “origin sourcing” or “destination sourcing,” the Comptroller’s Rules actually clariﬁes that most sales will still be consummated at the place where the order is received—and not the location of the buyer. Coppell’s Br. 12–13; 49 Tex. Reg. 2446. But subsection (d) is not a ﬁnal catchall which prohibits further interpretation by the Comptroller, as subsection (e) still exists, and there are situations where clarity is needed.

3. Coppell’s “paper segregation” has no support.

Coppell is asking this Court to adopt a novel theory of “paper segregation.”

Coppell’s Br. 45-47. This theory ﬁnds no support in Texas nor any other state and is based on Coppell’s misreading of an argument rejected by an appellate court in 1979.

See Bullock v. Dunigan Tool & Supply Co., 588 S.W.2d 633 (Tex. App.—Austin 1979, writ ref’d n.r.e.). This Court should not adopt this theory now. Interestingly, the term

“paper segregation” does not appear at any point in Texas law outside the Dunigan case. See id. at 635. In fact, Dunigan uses the phrase “paper separation.” Id. But neither phrase appears in any other cases, treatise, textbook. Nor does the Comptroller ever use it in its STAR system. The term was coined by the Dunigan court, not the Comptroller in a rulemaking See id. at 633. It is not used in the Comptroller’s rulemaking or brieﬁng.

The paper segregation theory goes like this: A sale can be consummated where “physical segregation” takes place. Coppell’s Br. 45-46. That is, where the item being sold is physically transferred to the buyer. “Paper segregation” takes place when an order is accepted. Coppell’s Br. 46-47. That is, where the segregation in inventory takes place—but on paper only, not actually accounting for eventual delivery or possession by the buyer. Coppell did not raise this argument before the trial court. For the ﬁrst time in this Court, Coppell advances the theory.

Nevertheless, the theory is unavailing and should be rejected.

According to Coppell, the Legislature, in response to Dunigan, created a consummation-by-paper-segregation standard in the Tax Code. Coppell’s Br. 45-46.

Coppell writes that the “Legislature has decided where consummation occurs in the limited (d)(1) situation: where paper segregation happens.” Coppell’s Br. 47. But this is not true by the plain language of the bill in question: For the purpose of determining the proper local sales tax Imposed by this Act, a retail sale, lease, or rental is consummated as provided in Paragraphs (a), (b), (c), and (d) of this subdivision, regardless of where transfer of title or possession or segregation in contemplation of transfer of title or possession of the taxable item occurs unless the tangible personal property sold, leased, or rented is delivered by the retailer or his agent to an out-of-state destination or to a common carrier for delivery to an out-of-state destination.

S.B. 582, 66th Leg., R.S. (1979) (enrolled version, pp. 1401–02) (App. N). Nor does the current sales tax statute create any type of “paper separation” standard. Tex. Tax Code § 321.203(a) (“A sale is consummated as provided by this section regardless of the place where transfer of title or possession occurs.”).

Additionally, Coppell misinterprets the Court of Civil Appeal’s use of “paper separation.” That court actually rejected the argument that Coppell now advances, writing that “consummation of a taxable sale can occur where physical segregation happens or where paper segregation occurs.” Coppell’s Br. 46. The Court explicitly stated that because the statutes in question accounted for consummation at “the exact point of sale where physical separation or segregation take place” there was no need to consider any alternative “paper separation” arguments. Dunigan, 588 S.W.2d at 637.

V. Response to Coppell’s Argument 5: Rule 3.334 faithfully implements the statutory text in light of technological advancements.

Coppell’s contention that the amended subsections of Rule 3.334 are tethered to an “outdated sales model—person to person” mischaracterizes both the Rule’s operation and the breadth of the governing statutes, Tax Code §§ 321.002(a)(3)(A) and 321.203. Far from ignoring technological developments, the Rule modernizes local sales tax sourcing by anchoring “place of business” to physical locations where orders are substantively received while accommodating e-commerce through clear, administrable criteria. 49 Tex. Reg. 2450–51. This approach aligns with the statutes’ purpose of allocating local tax revenue to physical places of business rather than arbitrary virtual footprints like servers or IP addresses. Tex. Tax Code § 321.002(a)(3)(A). Coppell’s contrary reading would tax based on server farms rather than where the sale is substantively consummated, contrary to the statutory text and legislative intent. 45 Tex. Reg. 3501. Rule 3.334 ensures administrable local taxation without contravening the statutory text or legislative intent.

A. New rules were needed to encompass purely virtual locations.

Coppell asserts that the statutes’ language is “broad enough to include new approaches based on technological developments,” implying that digital elements like websites or data centers qualify as a “place of business” under § 321.002(a)(3)(A) without physical personnel or actual receipt of orders. Coppell’s Br. 47. This overlooks the statutes’ integrated framework, which ties consummation to a “place of business” deﬁned as “an established outlet, oﬃce, or location operated by the retailer or the retailer’s agent or employee,” explicitly qualiﬁed by “for the purpose of receiving orders.” Tax Code § 321.002(a)(3)(A). The phrase “receiving orders” is not surplusage; it denotes substantive business activity at that location, not passive digital hosting. See In re Tex. Educ. Agency, 619 S.W.3d 679, 687 (Tex. 2021) (orig. proceeding) (“[W]e construe the Legislature’s chosen words and phrases within the context and framework of the statute as a whole, not in isolation.”).

The Rule’s requirement of “sales personnel” or actual receipt of orders— whether via phone, in-person, or digitally routed through a website—precisely implements this by ensuring the “place” is where a transaction is substantively consummated. 49 Tex. Reg. 2451 (outlining § 3.334(b)(5)). This is not a person-to- person relic; it reﬂects that modern e-commerce still relies on personnel for order intake, veriﬁcation, and fulﬁllment decisions, even if initiated online.

B. The Rule’s promotes technological innovation by simplifying compliance and aligning the sales tax with economic beneﬁt.

Contrary to Coppell’s portrayal, the Rule does not “limit” the statutes to an obsolete model; it facilitates e-commerce growth by providing bright-line rules for remote sellers. Without the “sales personnel” or order receipt criterion, sellers could base order receipt on digital presences alone, complicating audits and eroding trust in the system. The Comptroller’s over forty-year interpretive history, including pre- 2020 guidance as to sales personnel and receiving orders, conﬁrms this is not a retroactive shift but a necessary clariﬁcation. See 4 Tex. Reg. 3618, 3621; 39 Tex. Reg. 9597, 9604; 41 Tex. Reg. 260, 262.

Coppell cites no authority that “broad” statutory language mandates including every innovation without limits; indeed, statutory construction requires harmonizing text with purpose. See TGS-NOPEC Geophysical Co., 340 S.W.3d at 439.

Here, the statute’s goals demand adaptation to e-commerce without subsidizing virtual “businesses” that do not receive orders. The Rule achieves this, refuting any claim of obsolescence. In sum, the Rule is a forward-looking safeguard, not a backward glance.

CONCLUSION AND PRAYER Coppell is asking this Court to render the same judgment as the trial court, but with an opinion attached. Instead, this Court should deny Coppell’s requested relief, and reverse and render judgment in favor of the Comptroller as requested in the Comptroller’s cross-appellant brief.

Respectfully submitted.

Ken Paxton /s/ Kyle Pierce Counce Attorney General of Texas Kyle Pierce Counce Deputy Division Chief Brent Webster State Bar No. 24082862 First Assistant Attorney General T: (512) 463-3112 [email protected] Ralph Molina Deputy First Assistant Attorney Peter Berquist General Assistant Attorney General State Bar No. 24131255 Austin Kinghorn T: (512) 936-1383 Deputy Attorney General for Civil [email protected] Litigation Tax Litigation Division Steven Robinson P. O. Box 12548 Division Chief, Tax Litigation Division Austin, Texas 78711-2548 F: (512) 478-4013 Counsel for Appellee/Cross-Appellants

Certiﬁcate of Compliance This document complies with the typeface requirement of Tex. R. App. P. 9.4(e) because it has been prepared in a conventional typeface no smaller than 14- point for text and 12-point for footnotes. This document also complies with the word- count limitations of Tex. R. App. 9.4(i) because it contains 8983 words, excluding any parts exempted by Tex. R. App. 9.4(i)(1), as counted by the computer program used to prepare this document. /s/ Kyle Pierce Counce KYLE PIERCE COUNCE Certiﬁcate of Service I certify that a copy of this document was served on all counsel of record by e- mail and/or e-service on November 26, 2025.

James B. Harris Cindy Olson Bourland [email protected] [email protected] Stephen F. Fink BOURLAND LAW FIRM, PC [email protected] P.O. Box 546 Reed C. Randel Round Rock, Texas 78680 [email protected] Richard B. Phillips, Jr. Bryan Dotson [email protected] [email protected] HOLLAND & KNIGHT LLP WHITE, WILLIAMS, & AUGHTRY, P.C.

1722 Routh Street, Suite 1500 112 East Pecan Street, Suite 1450 Dallas, Texas 75201 San Antonio, Texas 78205 (214) 964-9500 (210) 278-5844 Counsel for Appellee Brandon L. King [email protected] HOLLAND & KNIGHT LLP San Jacinto Boulevard, Suite 1900 Austin, Texas 78701 Counsel for Appellants/Cross-Appellees /s/ Kyle Pierce Counce KYLE PIERCE COUNCE

INDEX OF APPENDICES Final Judgment ...................................................................................... Appendix A Conclusions of Law ................................................................................ Appendix B Tex. Reg. 2440–57 (Apr. 29, 2024) (“April 2024 Notice”) ................ Appendix C Tex. Reg. 4797–4808 ( June 28, 2024) (“June 2024 Order”) .............Appendix D 34 Tex. Admin. Code § 3.334 ................................................................. Appenidx E Tex. Reg. 3618–29 (1979) .................................................................... Appendix F Tex. Reg. 9596–611 (2014) ............................................................... Appendix G Tex. Reg. 260–69 (2016) .................................................................. Appendix H Tex. Reg. 3499–3518 (2020) ............................................................... Appendix I Tex. Reg. 6340–50 (2023) .................................................................. Appendix J Acts 1967, 60th Leg., R.S., ch. 36 ...........................................................Appendix K Acts 1979, 66th Leg., R.S., ch. 624, § 6(B)(1) ......................................... Appendix L H.B. 1525, 86th Leg., R.S. (2019) .......................................................... Appendix M S.B. 582, 66th Leg., R.S. (1979) (enrolled version, pp. 1401–02) ........... Appendix N Tex. Tax Code § 321.203(c) (West 2009) ............................................. Appendix O Comptroller’s Decision No. 15,654 (1985) ............................................. Appendix P Comptroller Letter Ruling (Star Accession No.) 200510723L (2005) ... Appendix Q

APPENDIX A 12/03/2024 11:08:06 AM Velva L. Price District Clerk Travis County D-1-GN-21-003198 CAUSE NO. D-1-GN-21-003198* (Consolidated with D-1-GN-21-003203) CITY OF COPPELL, TEXAS, § IN THE DISTRICT COURT OF CITY OF HUMBLE, TEXAS, § CITY OF DESOTO, TEXAS, § CITY OF CARROLLTON, TEXAS, § CITY OF FARMERS BRANCH, TEXAS, and § CITY OF ROUND ROCK, TEXAS, § § Plaintiffs, § TRAVIS COUNTY, TEXAS v. § § GLENN HEGAR, in his official capacity § as Comptroller of Public Accounts of § the State of Texas, § § Defendant. § 201ST JUDICIAL DISTRICT § (*Assigned to the 250th District)

FINAL JUDGMENT On October 14–16, 2024, the Court heard the merits of these consolidated causes. Attorneys James Harris and Reed Randel appeared for Plaintiffs City of Humble, Texas; City of Desoto, Texas; City of Carroll, Texas; City of Coppell, Texas; and City of Farmers Branch, Texas (the Coppell Plaintiffs). Attorneys Cindy Olsen Bourland and Bryan Dotson appeared for Plaintiff City of Round Rock, Texas (the Round Rock Plaintiff). Attorneys Kyle Counce and Ray Langenberg appeared for Defendant Comptroller of Public Accounts of the State of Texas (the Comptroller). The parties announced ready and proceeded to trial.

After careful consideration of the evidence and arguments of counsel, the Court renders judgment as follows:

FINAL JUDGMENT Page 1 of 3 Cause No. D-1-GN-21-003198 (Consolidated) The Court FINDS that Section 321.002(a)(3)(A) of the Tax Code requires a determination of whether at least three orders were received by the retailer during the calendar year. Therefore, the Court cannot prospectively declare Fulfillment Centers as places of business.

Accordingly, the Court FINDS that Coppell Plaintiffs’ request to declare Fulfillment Centers receiving only Website Orders places of business under the 2016 version of 34 TAC § 3.334 should be and is DENIED.

The Court FINDS that 34 TAC § 3.334(a)(9) contravenes existing statutes by adding a definition at the agency level that the Legislature has not defined in Chapter 151 of the Texas Tax Code and for which Sections 321.203 and 323.203 already provide a detailed statutory scheme for determining where a sale of taxable item is “consummated.”

The Court FINDS that 34 TAC § 3.334(a)(18), (b)(5), and (c) contravene specific statutory language set forth in Texas Tax Code sections 321.002(a)(3)(A), 321.203, and 323.203.

The Court FINDS that 34 TAC § 3.334(c) [(c)(1) and (c)(2) inclusive] contravenes the statutory schemes for determining where a sale is consummated, under Sections 321.203 and 323.203.

The Court FURTHER FINDS that the Comptroller did not substantially comply with the notice requirements under the APA.

The Court FURTHER FINDS that Defendant Comptroller did not substantially comply with the “reasoned justification” requirement under the APA.

FINAL JUDGMENT Page 2 of 3 Cause No. D-1-GN-21-003198 (Consolidated) IT IS JUDICIALLY DECLARED that 34 TAC § 3.334 or its threatened application interferes with or impairs, or threatens to interfere with or impair, a legal right or privilege of the Coppell Plaintiffs.

IT IS JUDICIALLY DECLARED that 34 TAC § 3.334 or its threatened application interferes with or impairs, or threatens to interfere with or impair, a legal right or privilege of the Round Rock Plaintiff.

IT IS THEREFORE ORDERED that Defendant Comptroller of Public Accounts of the State of Texas is hereby PERMANENTLY ENJOINED from enforcing 34 TAC § 3.334, subsections (a)(9), (a)(18), (b)(5), and (c), effective July 4, 2024, and those subsections are hereby REMANDED to the Comptroller of Public Accounts of the State of Texas for further consideration not inconsistent with Chapters 151, 321, and 323 of the Texas Tax Code. All other relief not expressly granted herein is DENIED. This judgment finally disposes of all parties and all claims and is appealable.

Signed on this third day of December 2024,

____________________________________ KARIN CRUMP JUDGE PRESIDING 250th DISTRICT COURT

FINAL JUDGMENT Page 3 of 3 Cause No. D-1-GN-21-003198 (Consolidated) APPENDIX B 12/30/2024 04:16:17 PM Velva L. Price District Clerk Travis County D-1-GN-21-003198 CAUSE NO. D-1-GN-21-003198* (Consolidated with D-1-GN-21-003203) CITY OF COPPELL, TEXAS, § IN THE DISTRICT COURT OF CITY OF HUMBLE, TEXAS, § CITY OF DESOTO, TEXAS, § CITY OF CARROLLTON, TEXAS, § CITY OF FARMERS BRANCH, TEXAS, and § CITY OF ROUND ROCK, TEXAS, § § Plaintiffs, § TRAVIS COUNTY, TEXAS v. § § GLENN HEGAR, in his official capacity § as Comptroller of Public Accounts of § the State of Texas, § § Defendant. § 201ST JUDICIAL DISTRICT § Assigned to the 250th District Court

CONCLUSIONS OF LAW On December 3, 2024, the Court issued its Final Judgment for this cause. The Coppell Plaintiffs’ Request for Findings of Fact and Conclusions of Law was filed on December 23, 2024. On December 30, 2024, the Coppell Plaintiffs informed the Court that they have “concluded that findings of fact are unnecessary in this case [and] therefore withdraw that portion of the December 3, 2024 request for findings of fact.” Accordingly, the Court hereby issues the following Conclusions of Law: 1. 34 Texas Administrative Code (TAC) § 3.334(a)(9) contravenes existing statutes by adding a definition at the agency level that the Legislature has not defined in Chapter 151 of the Texas Tax Code and for which Sections 321.203 and 323.203 already provide a detailed statutory scheme for determining where a sale of taxable item is “consummated.”

2. 34 TAC § 3.334(a)(18), (b)(5), and (c) contravene specific statutory language set forth in Texas Tax Code sections 321.002(a)(3)(A), 321.203, and 323.203.

CONCLUSIONS OF LAW Cause No. D-1-GN-21-003198 (Consolidated) 3. 34 TAC § 3.334(c) [(c)(1) and (c)(2) inclusive] contravenes the statutory schemes for determining where a sale is consummated, under Sections 321.203 and 323.203.

4. 34 TAC § 3.334(b)(1)(A), when read in conjunction with its (b)(1)(B), is a descriptive statement of those circumstances when a distribution center, manufacturing plant, storage yard, warehouse, or similar facility “is a place of business of the seller” within the meaning of Texas Tax Code section 321.002(a)(3)(A). As such, 34 TAC § 3.334(b)(1)(A) is a statement of qualification by which such a location may be considered a place of business of the seller under Section 321.002(a)(3)(A).

5. The Comptroller did not substantially comply with the notice requirements under the Administrative Procedure Act (APA).

6. The Comptroller did not substantially comply with the “reasoned justification” requirement under the APA.

7. 34 TAC § 3.334 or its threatened application interferes with or impairs, or threatens to interfere with or impair, a legal right or privilege of the Coppell Plaintiffs.

8. 34 TAC § 3.334 or its threatened application interferes with or impairs, or threatens to interfere with or impair, a legal right or privilege of the Round Rock Plaintiff.

Signed on the 30th day of December 2024.

____________________________________ KARIN CRUMP Judge Presiding, 250th District Court

CONCLUSIONS OF LAW Cause No. D-1-GN-21-003198 (Consolidated) APPENDIX C The department has determined that the rule as proposed will The agency certifies that legal counsel has reviewed the pro- not affect rural communities, as it does not directly regulate any posal and found it to be within the state agency's legal authority rural community. to adopt.

The department has not drafted a local employment impact Filed with the Office of the Secretary of State on April 8, 2024. statement under the Administrative Procedures Act, §2001.022, as the agency has determined that the rule as proposed will not TRD-202401417 impact local economies. James Murphy General Counsel The department has determined that Government Code, §2001.0225 (Regulatory Analysis of Major Environmental Texas Parks and Wildlife Department Rules), does not apply to the proposed rule. Earliest possible date of adoption: May 19, 2024 For further information, please call: (512) 389-4775 The department has determined that there will not be a taking of private real property, as defined by Government Code, Chapter ♦ ♦ ♦ 2007, as a result of the proposed rule.

TITLE 34. PUBLIC FINANCE In compliance with the requirements of Government Code, §2001.0221, the department has prepared the following Govern- PART 1. COMPTROLLER OF PUBLIC ment Growth Impact Statement (GGIS). The rule as proposed, if adopted, will not create a government program; not result in ACCOUNTS an increase or decrease in the number of full-time equivalent employee needs; not result in a need for additional General CHAPTER 3. TAX ADMINISTRATION Revenue funding; not affect the amount of any fee; create a SUBCHAPTER O. STATE AND LOCAL SALES new regulation (to prohibit "canned" hunting of mountain lions and establish trapping rules); not expand an existing regulation; AND USE TAXES neither increase nor decrease the number of individuals subject 34 TAC §3.334 to regulation; and not positively or adversely affect the state's economy. The Comptroller of Public Accounts proposes the repeal of §3.334, concerning local sales and use taxes. The comptroller Comments on the proposed rule may be submitted to Richard repeals existing §3.334 to replace it with new §3.334. The Heilbrun, Texas Parks and Wildlife Department, 4200 Smith repeal of §3.334 will be effective the date the new §3.334 takes School Road, Austin, Texas 78744; (512) 389-8104; email: effect. [email protected] or via the department website at www.tpwd.texas.gov. Brief explanation of the proposed rulemaking.

The new rule is proposed under the authority of Parks and It has been called to the comptroller's attention that the October Wildlife Code, §67.004, which requires the commission by 27, 2023 notice of proposed rulemaking did not contain a state- regulation to establish any limits on the taking, possession, ment of fiscal implications for small businesses or rural commu- propagation, transportation, importation, exportation, sale, or nities as required by Government Code, Chapter 2006. See (48 offering for sale of nongame fish or wildlife that the department TexReg 6340) (October 27, 2023). Therefore, the comptroller is considers necessary to manage the species. proposing to repeal the adopted rule as proposed in the October 27, 2023 notice of proposed rulemaking. The comptroller is si- The proposed new rule affects Parks and Wildlife Code, Chapter multaneously proposing to readopt the text of the rule effective 67. on January 5, 2024, with amendments, under the same num- §65.950. Mountain Lions (Puma concolor). ber and title, with the repeal to be effective as of the date of the adopted rule. (a) In this section "captivity" means the state of being held under control, or kept caged, penned, or trapped. Fiscal note. (b) No person in this state may: Brad Reynolds, Chief Revenue Estimator, has determined that repeal of the current rule is of no consequence apart from facilita- (1) hunt a mountain lion that is in captivity; tion of adoption of a new substitute §3.334 and has no fiscal im- (2) release a mountain lion from captivity for purposes of: plications in and of itself. The fiscal implications of the repeal are the same as the fiscal implication of the proposed new substitute (A) being hunted; §3.334. The statements in this fiscal note are supplemented by (B) training dogs; the additional statements in the preamble to the proposed new §3.334, which the comptroller will propose to adopt concurrently (3) allow a live mountain lion to be captured in a trap or with this proposed repeal. snare for more than 36 hours; or Brad Reynolds has determined the following for each year of the (4) conduct, promote, assist, or advertise an activity pro- first five years that the proposed repeal and the substitute new hibited by this subsection. rule will be in effect. (c) This section does not: The additional estimated cost to the state and to local govern- (1) prohibit a person from humanely dispatching a lawfully ments expected as a result of enforcing or administering the rule. trapped mountain lion; or There will be no additional estimated cost to the state and to local (2) apply to the use of snares designed to break away or governments expected as a result of enforcing or administering disassemble with 285 pounds of force or less. the proposed repeal of the existing rule and concurrent new rule.

49 TexReg 2440 April 19, 2024 Texas Register The proposed amendments explain the manner in which the affect local economic activity or employment would depend on comptroller intends to apply the consummation statutes. The ex- discretionary actions of the governing body or the electorate of planation should lead to greater taxpayer compliance, and less an affected jurisdiction, and cannot be determined. audit resources required to enforce or administer the rule.

Government growth impact statement.

The estimated reductions in costs to the state and to local gov- Brad Reynolds, Chief Revenue Estimator, has determined the ernments as a result of enforcing or administering the rule. following for each year of the first five years that the existing rule There will be no estimated reductions in costs to the state and to will be repealed and the proposed new rule will be in effect: the local governments as a result of enforcing or administering the amendment will not create or eliminate a government program; proposed repeal of the existing rule and the concurrent new rule. will not require the creation or elimination of employee positions; Local governments do not administer the tax, and the comptroller will not require an increase or decrease in future legislative ap- will not be reducing the size of its audit staff as a result of the rule. propriations to the comptroller; will not require an increase or decrease in fees paid to the comptroller; will not create a new The estimated loss or increase in revenue to the state or to local regulation; will increase the number of individuals subject to the governments as a result of enforcing or administering the rule, rule's applicability because sellers without a physical presence and the foreseeable implications relating to cost or revenues of in a local tax jurisdiction will be required to collect local use tax if the state or local governments. they are required to collect state use tax; and will not positively Change in sourcing of transactions subject to local sales taxation or adversely affect this state's economy. could result in net change in sales tax revenue of local taxing en- Economic impact statement and regulatory flexibility analysis. tities generally, which may be significant for some jurisdictions.

Most, but not all, reductions in taxable transactions sourced to A "rural community" is a municipality with a population of less some jurisdictions would be increases in taxable transactions than 25,000. The comptroller estimates that there are 1,098 sourced to other jurisdictions. If the comptroller repeals the exist- such rural communities, of which 1,017 impose a sales tax and ing rule and concurrently adopts the proposed new rule, it is esti- may have revenue affected by compliance with the rule. mated that there could be a $28.5 million reduction in aggregate A "small business" is a legal entity, including a corporation, part- local sales tax levies sourced to unincorporated areas without lo- nership, or sole proprietorship, that: (A) is formed for the pur- cal sales tax or with cumulative local county and special district pose of making a profit; (B) is independently owned and oper- tax rates less than the cumulative local rates that applied at the ated; and (C) has fewer than 100 employees or less than $6 locations where the taxable transactions were formerly sourced. million in annual gross receipts. The Comptroller estimates that A $28.5 million reduction in aggregate local tax levies would re- there are 470,000 businesses with fewer than 100 employees, sult in reduced state service charge revenue of $570,000. and 377,000 businesses with annual gross receipts less than $6 Reliable estimates of net changes in revenue for each of the million; the sum of these two estimates would overstate the num- 1,759 local sales taxing jurisdictions that might stem from compli- ber of small businesses, as many businesses would be expected ance with the proposed repeal of the existing rule and concurrent to have both fewer than 100 employees and less than $6 million adoption of new rule cannot feasibly be produced by the comp- in annual gross receipts. troller.

To the extent that the repeal of the existing rule and the adoption Public benefits and costs. of the proposed new rule leads to greater awareness and compli- ance with the local tax consummation standards, some vendors Brad Reynolds, Chief Revenue Estimator, has determined the may change their reporting methods, which might positively or following for each year of the first five years that the existing rule negatively affect the tax revenue of particular local tax jurisdic- will be repealed and the proposed new rule will be in effect. tions. As previously explained, the comptroller does not have The public will benefit from greater clarity regarding the consum- sufficient data on the business operations of each business to mation standards, making compliance easier. identify and quantify the businesses and transactions that might be affected, and the positive or negative revenue impact on each There may be additional economic costs to a person required to tax jurisdiction. comply with the proposed repeal of the existing rule and adoption of the new rule. The rule may cause some vendors to realize that It is conceivable that repeal of the existing rule and adoption of they are noncompliant. If the vendors come into compliance by the proposed new rule may cause some vendors, small or large, changing from single-location reporting to multiple-location re- to realize that they are noncompliant. If the vendors come into porting, their compliance burden may increase. And if vendors compliance by changing from single-location reporting to multi- change from multiple-location reporting to single-location report- ple-location reporting, their compliance burden may increase. ing, their compliance burden may diminish.

The repeal of the existing rule and the adoption of the proposed Local employment impact statement. new rule will expand the local tax collection obligations of remote sellers - out-of-state sellers that collect state use tax must also For the first five years that the existing rule will be repealed collect local sales tax. The expansion of the remote seller local and the proposed new rule will be in effect, the effect on local tax collection obligation may benefit small businesses in Texas economies and employment, if any, cannot be determined. To by reducing the perception of customers that purchases from the extent that the repeal of the existing rule and the proposed out-of-state sellers are preferable because out-of-state sellers new rule leads to greater awareness and compliance with the charge less sales or use tax than the small businesses in Texas. local tax consummation standards, some vendors may change their reporting methods, which might positively or negatively af- The proposed new rule adds subsection (b)(6): fect the tax revenue of particular local tax jurisdictions. Whether "If a small business or a micro-business operates a single lo- a change in local tax revenue might increase or decrease the cation out of which it conducts all of its business activities, the provision of local government services to an extent that would

PROPOSED RULES April 19, 2024 49 TexReg 2441 comptroller will presume that the location is a place of business 53) (January 5, 2024), (48 TexReg 391) (January 27, 2023), (45 of the seller." TexReg 3499) (May 22, 2020). The amendments implemented House Bill 1525, 86th Legislature, 2019, which placed local sales To the extent that repeal of the existing rule facilitates the adop- and use tax collection responsibilities on marketplace providers. tion of the proposed new rule, the repeal will simplify the collec- The amendments also implemented House Bill 2153, 86th Leg- tion of local sales tax for many small businesses and micro-busi- islature, 2019, which set a single local use tax rate that remote nesses. sellers may elect to use. The amendments also expanded the Public hearing local sales tax collection responsibilities of sellers based on the United States Supreme Court decision in South Dakota v. Way- The comptroller will hold a hearing to take public comments, on fair, Inc., 138 S. Ct. 2080 (June 21, 2018). These amendments May 9, 2024, at 9:00 a.m. in Room 2.034 of the Barbara Jordan have been noncontroversial.

Building, 1601 Congress Avenue, Austin, Texas 78701. Inter- ested persons may sign up to testify beginning at 8:30 a.m. and The rulemaking made other revisions to the text, which are now testimony will be heard on a first come first serve basis begin- the subject of litigation in Cause No. D-1-GN-21-003198, City of ning at 9:00 a.m. All persons will have 10 minutes to present Coppell, Texas, et al. v. Glenn Hegar, in the 201st District Court their testimony and shall also provide their testimony in writing of Travis County Texas. The Plaintiff cities claim that the agency prior to their oral testimony. did not comply with the rulemaking procedures in Government Code, §2001.024 and Government Code, Chapter 2006. The Comments purpose of this rulemaking is to address those claims by propos- You may submit comments on the proposal to Jenny ing the readoption of the rule, with amendments, and a more Burleson, Director, Tax Policy Division, P.O. Box 13528 complete statement of the elements required by Government Austin, Texas 78711 or to the email address: tp.rule.com- Code, §2001.024 and Government Code, Chapter 2006. [email protected]. The comptroller must receive your The comptroller proposes to add the following definitions: comments no later than 30 days from the date of publication of the proposal in the Texas Register. "Micro-business--a legal entity, including a corporation, partner- ship, or sole proprietorship, that: Statement of the statutory or other authority under which the rule- making is proposed. (A) is formed for the purpose of making a profit; The repeal is proposed under Tax Code, §§111.002 (Comp- (B) is independently owned and operated; and troller's Rule; Compliance; Forfeiture), 321.306 (Comptroller's (C) has not more than 20 employees." Rules), 322.203 (Comptroller's Rules), and 323.306 (Comptrol- ler's Rules), which authorize the comptroller to adopt rules to "Small business--a legal entity, including a corporation, partner- implement the tax statutes. ship, or sole proprietorship, that: Sections or articles of the code affected. (A) is formed for the purpose of making a profit; The repeal affects Tax Code, §151.0595 (Single Local Tax Rate (B) is independently owned and operated; and for Remote Sellers); Tax Code, Chapter 321, Subchapters A, B, (C) has fewer than 100 employees or less than $6 million in an- C, D, and F; Tax Code, Chapter 322; and Tax Code, Chapter nual gross receipts." 323.

The definition of "independently owned and operated business" §3.334. Local Sales and Use Taxes. is taken from the Attorney General of Texas' Government Code The agency certifies that legal counsel has reviewed the pro- Chapter 2006 Small Businesses and Rural Communities Impact posal and found it to be within the state agency's legal authority Guidelines updated in December 2017. to adopt.

The definitions of "micro-business" and "small business" are Filed with the Office of the Secretary of State on April 8, 2024. taken from Government Code, Chapter 2006.

TRD-202401426 The comptroller further proposes to add subsection (b)(6): Jenny Burleson "If a small business seller or a micro-business seller operates a Director, Tax Policy Division single location out of which it conducts all of its business activi- Comptroller of Public Accounts ties, the comptroller will presume that the location is a place of Earliest possible date of adoption: May 19, 2024 business of the seller." For further information, please call: (512) 475-2220 Fiscal note. ♦ ♦ ♦ Brad Reynolds, Chief Revenue Estimator, has determined the TAC §3.334 following for each year of the first five years that the rule will be in effect. The fiscal note considers the effect of the prior 2020, The Comptroller of Public Accounts proposes new §3.334, con- 2023, and 2024 amendments to the rule, as well as the amend- cerning local sales and use taxes. The comptroller proposes ments in this proposal. new §3.334 to readopt the text of existing §3.334 proposed for repeal, with the addition of paragraph (b)(6). The additional estimated cost to the state and to local govern- ments expected as a result of enforcing or administering the rule.

Brief explanation of the proposed rule.

There will be no additional estimated cost to the state and to local In January 2020, the comptroller initiated a rulemaking to update governments expected as a result of enforcing or administering its local sales and use tax rule. The comptroller subsequently the proposed rule. The proposed amendments explain the man- adopted amendments in 2020, 2023, and 2024. (49 TexReg

49 TexReg 2442 April 19, 2024 Texas Register ner in which the comptroller intends to apply the consummation The comptroller does not have sufficient data to verify these cal- statutes. The explanation should lead to greater taxpayer com- culations or to make similar estimates for other jurisdictions. The pliance, and less audit resources required to enforce or admin- agency does have data regarding the amount of sales tax re- ister the rule. ceipts that that a vendor reports to local jurisdictions. But, that data does not prove that the vendor is incorrectly reporting, that The estimated reductions in costs to the state and to local gov- the vendor would change its reporting as a result of the rule ernments as a result of enforcing or administering the rule. amendments, or that specific jurisdictions would gain or lose tax There will be no estimated reductions in costs to the state and to revenue as a result of the rule amendments. Those determi- local governments as a result of enforcing or administering the nations would require an understanding of the business opera- rule amendments. Local governments do not administer the tax, tions of the vendor to determine which business locations were and the comptroller will not be reducing the size of its audit staff "places of business" for purposes of local tax sourcing. Then, as a result of the rule. the comptroller would have to examine individual transactions to determine the location where the orders were received, the loca- The estimated loss or increase in revenue to the state or to local tion where the orders were fulfilled, and the location where the governments as a result of enforcing or administering the rule, order was delivered, since all three locations are potential sourc- and the foreseeable implications relating to cost or revenues of ing locations. Then, the comptroller would have to compare that the state or local governments. information with how the vendor has been reporting local tax on Change in sourcing of transactions subject to local sales taxa- each transaction, identify the circumstances, if any, that would tion could result in net change in sales tax revenue of local tax- require the vendor to change its methods of reporting as a result ing entities generally, with the net change quite significant for of the rule, and determine the dollar value for each transaction. some jurisdictions. Most, but not all, reductions in taxable trans- The comptroller does not have sufficient information on the indi- actions sourced to some jurisdictions would be increases in tax- vidual vendors to make this determination. able transactions sourced to other jurisdictions. But to the ex- The consultant's explanation of his methodology confirms that tent that transactions previously sourced within an incorporated the comptroller does not have sufficient data on hand, and that municipality would be sourced to an unincorporated area with- the comptroller could not reasonably acquire the necessary data out a cumulative local tax rate levied by municipal (pursuant to to perform a study for every jurisdiction. The consultant identified a limited purpose annexation agreement), county, and/or special and researched the "top tier" taxpayers for the cities in his study, purpose taxing authorities commensurate with the cumulative lo- and then conducted research to determine who they were selling cal tax rate levied by the municipal, county, and/or special pur- to and whether any sales were made other than through web- pose taxing authorities applicable where the transactions were sites. The research ranged from interviews with local employ- formerly sourced, there would be a reduction in aggregate lo- ees, to passive research on web pages, job postings, certificate cal sales tax levies and consequent reduction in state service of occupancy maps/filings, and in some instances, purchases charge revenues under §§ 321.503, 322.303, and 323.503, Tax were made as well as physical visits to the taxpayer's locations.

Code. From this research, the consultant identified "suspect" taxpay- For reasons further discussed, reliable estimates of net changes ers and estimated the value of their shipment outside of the city. in revenue by individual jurisdictions for the 1,759 local sales tax- In doing this work, the consultant estimated that he spent forty ing jurisdictions that might stem from compliance with the rule hours per jurisdiction. The comptroller does not have the time or cannot feasibly be produced by the comptroller. Even if the req- resources to conduct what is essentially an audit of the tens of uisite audits of potentially affected sales tax permittees in every thousands of permitted taxpayers to identify noncompliant tax- jurisdiction could be timely performed to support such estima- payers and then estimate the extent of their noncompliance. tion, the sales tax permittees are not static entities. It would not With the exception of the City of Round Rock, the Plaintiff cities be plausible to assume that those who currently source local tax have alleged that their jurisdictions have a particular type of tax- to a location that is not a place of business as defined in the payer that is primarily affected - "fulfillment centers" that ship or- rule would not adjust their operations to qualify such locations as ders to customers. According to the cities, the fulfillment cen- places of business and consequently not be obligated to change ters are sourcing local tax to the cities in which they are located, the sourcing of local tax. pursuant to Tax Code, §321.203(c-1)(1), which provides that a Plaintiff cities allege that portions of the proposed rule are invalid, sale is consummated at the place of business of the retailer that the proposed rule "dramatically" or "fundamentally" changes from which the retailer ships or delivers the item. For subsec- the former rule, that compliance with the proposed rule will re- tion (c-1)(1) to apply, a fulfillment center has to be a "place of quire vendors to change to existing reporting methods, and that business of the retailer" for local sales tax sourcing purposes. the changes to existing reporting methods will result in the loss The term "place of business of the retailer" (hereinafter "place of of revenue to the cities. business") is defined by Tax Code, §321.002(a)(3)(A) to include a location at which three or more orders are received during a One consultant estimated that the City of Carrollton would have calendar year. a likely net loss of $1.1 to $2 million; that the City of Coppell would have a likely net loss of $18.8 million of $30.8 million, that The Plaintiff cities contend that the fulfillment centers are prop- the City of DeSoto would have a likely net loss of $5.1 million, erly sourcing local tax to the cities in which they are located be- that the City of Farmers Branch would have a likely net loss of cause every fulfillment center is automatically a "place of busi- $600,000 to $1.8 million, and the City of Humble would have ness." The theory is that a fulfillment center is automatically a a likely net loss of $5.6 million. The consultant did not provide "place of business" because it has to "receive" orders as a nec- the comptroller with data to support these calculations and he essary prerequisite to fulfilling the orders, and a fulfillment center declined to identify the vendors that he predicted would have to can be expected to "receive" three or more orders in a calendar change their reporting methods. year.

PROPOSED RULES April 19, 2024 49 TexReg 2443 Subsection (c)(7) of the proposed rule now explicitly states that "(2) Distribution centers, manufacturing plants, storage yards, the location where an order is "received" for purposes of local warehouses, and similar facilities. sales tax sourcing is the location where the order is initially re- (A) A distribution center, manufacturing plant, storage yard, ceived. Therefore, under the proposed rule, a fulfillment cen- warehouse, or similar facility operated by a seller at which the ter that processes orders forwarded from another location is not seller receives three or more orders for taxable items during the automatically a "place of business" for local tax sourcing. The calendar year is a place of business.

Plaintiff cities contend that if the fulfillment centers in their juris- diction begin sourcing local sales tax to other cities, they will lose (B) If a salesperson who receives three or more orders for tax- millions of dollars in tax revenue. able items within a calendar year is assigned to work from, or to work at, a distribution center, manufacturing plant, storage yard, The merits of the conflicting interpretations are discussed in the warehouse, or similar facility operated by a seller, then the facil- preambles of the previous rulemakings. The issue here is the ity is a place of business. effect on local tax revenue, and whether the comptroller can reli- ably estimate the effect on cities, individually or collectively. The (C) If a location that is a place of business of the seller, such estimates of the Plaintiff cities and the fulfillment centers in those as a sales office, is in the same building as a distribution center, cities cannot be reliably projected to other cities. The comptrol- manufacturing plant, storage yard, warehouse, or similar facility ler does not have data to identify the "fulfillment centers" in any operated by a seller, then the entire facility is a place of business particular jurisdiction or statewide - it is not a characteristic that of the seller." is reported to the agency. (41 TexReg 260, 263) (2016) (former 34 Tex. Admin. Code And, even if agency could identify "fulfillment centers" from its §3.334(e)(2), emphasis added); (39 TexReg 9597, 9605) (2014) data, the agency could not assume that the fulfillment centers (former 34 Tex. Admin. Code §3.334(e)(2), emphasis added). in other cities are sourcing local tax like the Plaintiff cities' ful- If a distribution center were automatically a "place of business" fillment centers purportedly are sourcing. For reasons enumer- for local tax sourcing as the Plaintiff cities contend, subpara- ated to the Revenue Estimating Division by agency counsel, it graphs (B) and (C) would not be required - there would be no is comptroller's opinion that a fulfillment center could reasonably need for a salesperson or a sales office to "then" make the dis- reach a different conclusion, and conclude that it was not auto- tribution center a "place of business" for local tax sourcing pur- matically a "place of business" for local tax sourcing purposes, poses. as claimed by the Plaintiff cities.

Third, in addition to its rule, the comptroller distributed Publica- First, the text of former §3.334(h)(3) indicated that a fulfillment tion 94-105, sometimes called the "Local Sales and Use Tax center is not automatically a "place of business" for local sourcing Bulletin - Guidelines for Collecting Local Sales and Use Tax," (emphasis added): or "Tax Topics - Guidelines of Collecting Local Sales and Use "(3) Consummation of sale. The following rules, taken from Tax Tax" (Guidelines). These Guidelines were posted on the comp- Code, §321.203 and §323.203, apply to all sellers engaged in troller's website and indexed in the comptroller's State Tax Au- business in this state, regardless of whether they have a place tomated Research System. Since at least 2007, the Guidelines of business in Texas or multiple places of business in the state. referred to a "location within the state that is not a place of busi- ness (such as a warehouse or distribution center)." E.g., STAR ...

Accession No. 200902596L (February 2009). The Guidelines (B) Order received at a place of business in Texas, fulfilled at were intended as a general guide and not as a comprehensive a location that is not a place of business. When an order that resource. But, an ordinary reader would not walk away with the is placed over the telephone, through the Internet, or by any impression that a taxpayer's fulfillment center was automatically means other than in person is received by the seller at a place a "place of business" for purposes of local tax sourcing. of business in Texas, and the seller fulfills the order at a loca- Fourth, in 2016, the comptroller rewrote the Guidelines to be tion that is not a place of business of the seller in Texas, such as even more specific regarding fulfillment centers: "The ware- a warehouse or distribution center, the sale is consummated at house from which the person ships those items is not a place of the place of business at which the order for the taxable item is business, unless the warehouse separately qualifies as a place received. of business." STAR Accession No. 201606995L (June 1, 2016). ...

And, fifth, in 2019, a comptroller letter ruling discussed fulfillment (D) Order fulfilled within the state at a location that is not a place centers, referring to the former rule, then in effect: "Scenario of business. When an order is received by a seller at any location One: Taxpayer Retailer operates fulfillment centers in Texas that other than a place of business of the seller in this state, and are not open to the public. ... When an order is received at a lo- cation that is not a place of business and is fulfilled in Texas at the seller fulfills the order at a location in Texas that is not a place a location that is not a place of business, the sale is consum- of business of the seller, then the sale is consummated at the mated at the location in Texas to which the order is shipped. location in Texas to which the order is shipped or delivered, or See §3.334(h)(3)(D). For Scenario One, local sales and use tax the location where it is transferred to the purchaser." is due based on the location where the order is delivered." STAR (41 TexReg 260, 265) (2016) (former 34 Tex. Admin. Code Accession No. 201906015L (June 13, 2019) (emphasis added).

§3.334(h)(3), emphasis added); (39 TexReg 9597, 9606) (2014) If the Plaintiff cities and their consultant's study are right about (former 34 Tex. Admin. Code §3.334(h)(3), emphasis added). how the various fulfillment centers in their cities reported local Second, the consummation rules in former §3.334(h)(3) were tax, those fulfillment centers must have either disregarded the augmented with an explicit provision for fulfillment centers, which comptroller's prior written guidance, overlooked the guidance, the former rule referred to as "distribution centers" (emphasis or interpreted the guidance as being the opposite of what the added): comptroller intended. But, it cannot be assumed that fulfillment

49 TexReg 2444 April 19, 2024 Texas Register centers in other cities have also disregarded, overlooked, or in- The City of Round Rock suggests that a single facility that con- terpreted the prior rulings in such a way that they will have to ducts all transactions through automated shopping cart software change their reporting as a result of the proposed rule. So, even may be affected, since a software application does not consti- if the comptroller could identify the permitted locations that are tute a "place of business." However, the threshold for becoming fulfillment centers, the revenue implications of the proposed rule a "place of business" is very low, including the receipt by sales cannot be reliably extrapolated from the study conducted on be- personnel of three or more orders per year. If a vendor occa- half of the Plaintiff cities. sionally engages with a customer directly, such as by telephone or email, as the final step in receiving an order under subsection Furthermore, the cities' calculations of revenue loss assume the (c)(7), the vendor's location should be a "place of business" for proposed rule would force fulfillment centers to begin sourcing local tax sourcing, even if orders are ordinarily processed by the local tax to other cities, when that is not the case. The Legisla- vendor's automated software. To ease the burden on auditors, ture set a low threshold for a location to be a "place of business" and on small businesses and micro-businesses that operate out for local tax sourcing - the receipt of three or more orders dur- of a single location, proposed subsection (b)(6) presumes that is ing a calendar year. A fulfillment center that is not a "place of the case. business" under the proposed rule could easily become one by directly receiving three or more orders. The Plaintiff cities have Third, sales made by through a marketplace by a seller with a alleged that it is easier to source local tax to one jurisdiction than single place of business will not be affected because those or- to source to many. So, a fulfillment warehouse would have an ders are sourced to destination by Tax Code, §321.203(e-1). incentive to become a "place of business." And, a fulfillment cen- The City of Round Rock claims that Dell Technologies has a sin- ter with a tax sharing agreement with a city would have an even gle place of business in the city and suggests that Dell is sourc- greater incentive to make the minor adjustments required to be- ing all of its local sales tax collections to the City of Round Rock. come a "place of business," so as to maintain the return on its The city further claims that it will lose a significant amount of local revenue sharing agreement. Therefore, even if the potential tax sales tax revenue under the proposed rule. However, when the revenue loss from fulfillment centers could be reliably measured, comptroller served third party discovery on Dell to understand it is unreasonable to assume that no fulfillment center would take how Dell's current business operations would be affected by the remedial efforts to continue its sourcing procedures. proposed rule, both Round Rock and Dell objected. Dell insisted The City of Round Rock has asserted claims that are different that the inquiry should only be "conducted under the applicable from or in addition to the claims of the other Plaintiff cities. The sections of the Texas Tax Code" in Chapter 111 -- in other words, City has suggested that the proposed rule will radically change an audit. the way that Texas retailers with one place of business in This discovery dispute illustrates the impracticability of preparing Texas will source local tax. However, for enumerated reasons, a revenue impact estimate for the City of Round Rock - it would agency counsel advises that it should be assumed that in most require the audit of Dell and any other vendors from whom the instances, the proposed rule will not change the sourcing of city thinks there will be a revenue loss. A local sales tax audit products sold by Texas retailers with one place of business in of Dell would have to examine all the business locations of Dell Texas. to determine which, if any of the locations were a "place of busi- First, the proposed rule does not change the comptroller's previ- ness" for local tax sourcing purposes. And, if the comptroller ous application of the statute, which does not recognize special verified that Dell in fact operated a single "place of business" in treatment for vendors with a "single place of business" for pur- Texas, the comptroller would still have to audit the sourcing of poses of local tax sourcing. Proposed subsection (c) states in Dell's sales to determine which sales were compliant and which relevant part: sales were noncompliant with the proposed rule. For example, Dell purports to have a sales force in Round Rock. Assuming "The following rules, taken from Tax Code, §321.203 and that orders generated by that sales force are received in Round §323.203, apply to all sellers engaged in business in Texas, Rock and not fulfilled from a "place of business" elsewhere in regardless of whether they have no place of business in Texas, a Texas, those sales would still be sourced to Round Rock. And, single place of business in Texas, or multiple places of business any orders fulfilled from Dell's "place of business" in Round Rock in Texas." would still be sourced to Round Rock. And, any orders delivered The language in the proposed rule has the same effect as the in Round Rock would still be sourced to Round Rock. Therefore, language in the prior 2014 and 2016 versions of the rule - no to meaningfully determine the revenue impact of the proposed special treatment for vendors with a single "place of business": rule on the City of Round Rock, the comptroller would have to thoroughly audit Dell and any other vendors from whom Round "The following rules, taken from Tax Code, §321.203 and Rock thinks there will be a revenue loss.

§323.203, apply to all sellers engaged in business in this state, regardless of whether they have a place of business in Texas or Repeating this audit exercise on a jurisdiction-by-jurisdiction ba- multiple places of business in the state." sis across the state is infeasible. Audits are not quick or easy.

Considerable time and effort is required to acquire and analyze (41 TexReg 260, 265) (2016) (former 34 Tex. Admin. Code taxpayer data. Taxpayers are understandably reluctant to furnish §3.334(h)(3); (39 TexReg 9597, 9606) (2014) (former 34 Tex. confidential business data. And, the data varies in degree of ac- Admin. Code §3.334(h)(3)). cessibility. The average duration of an audit in fiscal year 2023 Second, the proposed rule should have little impact on most was 450 days, and the average number auditor hours spent on businesses that are a single place of business in the ordinary an audit was 80.5 hours. sense of the word - i.e., all operations are conducted at a single It is also possible that an audit of Dell or other vendors would location. If orders are received and fulfilled in a single facility, identify noncompliance with sourcing provisions that are not in- local sales tax will continue to be sourced to that location. A typ- volved in the disputed rulemaking. For example, if Dell were ical example would be a retail store. sourcing marketplace sales to the City of Round Rock rather than

PROPOSED RULES April 19, 2024 49 TexReg 2445 to the delivery location specified by statute, Dell would have to 2023 rulemaking, the comptroller explained how the reference change its sourcing methods and the City of Round Rock would to sales personnel is a logical extension of prior comptroller suffer a revenue loss. But, that revenue loss should be attributed statements, including prior statements regarding fulfillment to the marketplace statute enacted by the Legislature, not the warehouses and computer servers. See (48 TexReg 391, 398) proposed comptroller rule. (2023).

This possibility is real. During the 2020 rulemaking, the City Agency counsel has advised that there are several instances in of San Marcos filed comments claiming that the proposed rule which the rule proposed for readoption is substantively different would cause the city to lose $7-8 million in local sales tax rev- than the 2016 version of the rule. Subsection (c)(2)(B)(ii) pro- enue generated by a Best Buy call center, with the net effect of vides that a seller required to collect state use tax must also economic development incentive revenue loss estimated at $3.4 collect local use tax. This provision expands the collection re- million. Best Buy also filed comments stating that it created a sponsibilities of sellers, which, formerly were obligated to collect subsidiary called Best Buy Texas.com LLC and sourced the lo- local use tax only if they were engaged in business in the local cal tax for all of its Internet and telephone sales to the City of San jurisdiction. This provision should have a positive, but indeter- Marcos. This would mean that if a resident of the City of Houston minant revenue effect on all local jurisdictions. placed an online order from Houston and picked up the item at an The proposed rule, as compared with the 2016 version, adds affiliated Best Buy Stores outlet in Houston, Best Buy Texas.com provisions that the sourcing of marketplace sales is based on LLC would collect local sales tax for the City of San Marcos. destination, because the consummation statute was amended However, it appears that the Best Buy website was actually op- in 2019 by House Bill 1525 to require that result. The fiscal note erated by a different Best Buy affiliate, which would make it a for House Bill 1525 estimated a probable revenue gain for local marketplace provider as defined in Tax Code, §151.0242(a)(2). governments. However, because House Bill 1525 was already Under the marketplace statute, local tax is sourced to the loca- in effect, and rulemaking is not required to effectuate the legisla- tion where the item is shipped or delivered or at which posses- tion, the comptroller is assigning no fiscal implication to the rule sion is taken by the purchaser. Thus, any loss to the City of San revision incorporating House Bill 1525, other than a potential in- Marcos of local sales tax revenue from the sale to the Houston crease in compliance with the statute. resident would be the result of compliance with the marketplace statute. And the loss of tax revenue would not be attributable The proposed rule, as compared with the 2016 version, also to the rule. The loss resulting from compliance with the statute adds provisions for remote sellers to apply a single local tax rate, would occur without regard to whether the proposed rule was as authorized by House Bill 2153 in 2019. The fiscal note for adopted. House Bill 2153 stated: The comptroller has considered various other comments of the "There would be no significant fiscal implications for local gov- Plaintiff cities and others to the effect that the proposed rule ernments in the aggregate; there could be some variance in dis- will dramatically change local tax sourcing and concluded that tribution of revenue among jurisdictions compared with the distri- the comments do not accurately apply the proposed rule. The bution that would occur were all remote sellers required to collect comptroller disagrees with the allegation that the proposed rule and remit tax at applicable local combined rates, but the extent of will "dramatically change where a sale is consummated if the such variance cannot be determined and would not be expected Comptroller interprets the change to require destination sourc- to be significant in relation to the total allocations of local sales ing when a sale is made online using a retailer's website, even and use tax revenues." if the retailer has only one place of business." And, the comp- The comptroller is assigning no fiscal implication to the rule re- troller disagrees with the allegation that "sales made by way of vision incorporating House Bill 2153, since the statute went into websites using the Internet are treated as having been consum- effect before the rulemaking, and rulemaking was not required mated where the taxable item is delivered to the buyer instead to implement the statute. of where the order for the item is received and fulfilled by the seller." The consummation hierarchy in subsection (c) does not The proposed rule, as compared with the 2016 version, alters require the alleged results. the treatment of a "traveling salesperson," which was previously defined as: "A seller, or an agent or employee of a seller, who The comptroller has amended the definition of "place of business visits potential purchasers in person to solicit sales, and who of the seller" in subsection (a)(18) to provide that the term does does not carry inventory ready for immediate sale, but who may not include a computer server, Internet protocol address, domain carry samples or perform demonstrations of items for sale." For- name, website, or software application. While the discussion of mer §3.334(h)(4) provided: "Orders taken by traveling sales- computer servers was added to the rule in 2020, the comptroller persons are received by the seller at the administrative office had previously advised taxpayers that the location of the server or other place of business from which the traveling salesperson does not create a "place of business" for purposes of the local tax operates." (41 TexReg 260, 265) (2016) (former 34 Tex. Admin. collection and that orders placed on a website or though applica- Code §3.334(h)(4)). The former rule did not further explain the tions and processed and routed by servers are not "received at" a location from which the traveling salesperson operates. place of business. See STAR Accession Nos. 200510723L (Oc- tober 6, 2005), 200605592L (May 17, 2006), and 201906015L Subsection (b)(4) of the proposed rule replaces the traveling (June 13, 2019). salesperson language with a provision for an order that is re- ceived by a salesperson who is not at a place of business when The comptroller has also amended the definition of "place of the salesperson receives the order. Subsection (b)(4) provides business of the seller" in subsection (a)(18) to provide that that the order is treated as being received at the location from staffing by one or more sales personnel is usually required. which the salesperson operates. Subsection (b)(4) further The statement is not a requirement, but an objective criterion provides that the location from which the salesperson operates that will often be an important factor in determining whether an is the principal fixed location where the salesperson conducts outlet, office, or location is a "place of business." In the January work-related activities.

49 TexReg 2446 April 19, 2024 Texas Register Commenters have reported that the orders from some traveling Public benefits and costs. salespersons have been sourced to the location to which the Brad Reynolds, Chief Revenue Estimator, has determined the traveling salesperson is "assigned," even though the traveling following for each year of the first five years that the rule will be salesperson may conduct principal work-related activities from in effect. another location. In these situations, the proposed rule might result in a change to local tax sourcing. However, the signifi- The public will benefit from greater clarity regarding the consum- cance of this change is indeterminant. The comptroller does not mation standards, making compliance easier. have data to identify traveling salespersons as defined under the There may be additional economic costs to a person required to former rule, and does not have data to identify the instances in comply with the rule. It is conceivable that the rule may cause which a traveling salesperson has been "assigned" to a location some vendors to realize that they are noncompliant. If the ven- from which the salesperson does not conduct principal work-re- dors come into compliance by changing from single-location re- lated activities. And, if the agency could identify those instances, porting to multiple-location reporting, their compliance burden without conducting extensive audits, the agency would still not may increase. And if vendors change from multiple-location re- know which instances would result in a change of sourcing. For porting to single-location reporting, their compliance burden may example, if the order is fulfilled from a "place of business," the diminish. location of the salesperson is irrelevant.

Local employment impact statement.

In summary, due to both to the number of taxing jurisdictions and lack of pertinent, detailed information regarding the specific For the first five years that the rule will be in effect, the effect on circumstances of the myriad businesses reporting local sales local economies and employment, if any, cannot be determined. and use taxes, estimation of fiscal effects of the proposed rule, To the extent that the proposed rule leads to greater awareness whether of dollar amounts or merely sign of change, on an indi- and compliance with the local tax consummation standards, vidual jurisdiction by jurisdiction basis is infeasible of execution. some vendors may change their reporting methods, which might positively or negatively affect the tax revenue of particular The comptroller recognizes that compliance with the proposed local tax jurisdictions. Whether a change in local tax revenue rule could result in changes to the local tax reporting methods might increase or decrease the provision of local government of some vendors. As a result, there could be loss or increase in services to an extent that would affect local economic activity revenue to individual local governments. A revenue loss to one or employment would depend on discretionary actions of the local government will often but not always be a revenue gain to governing body or the electorate of an affected jurisdiction, and others. There will also be revenue gains experienced by all lo- cannot be determined. cal tax jurisdictions from the expansion of the use tax collection obligations of remote, out-of-state sellers. For the reasons pre- Government growth impact statement. viously stated, the aggregate net gain or loss cannot be reliably Brad Reynolds, Chief Revenue Estimator, has determined the estimated by the comptroller from available or reasonably acces- following for each year of the first five years that the rule will be sible data. in effect: the amendment will not create or eliminate a govern- The comptroller has been provided with estimates that some ment program; will not require the creation or elimination of em- cities will experience net revenue losses. However, the comp- ployee positions; will not require an increase or decrease in fu- troller has not been provided with sufficient information to verify ture legislative appropriations to the comptroller; will not require the estimates, and the data from the estimates cannot be extrap- an increase or decrease in fees paid to the comptroller; will not olated to other local tax jurisdictions. That said, the estimates of create a new regulation; will increase the number of individuals anticipated revenue losses provided by Plaintiffs and others in subject to the rule's applicability because sellers without a phys- comments to proposed rulemakings are accepted as valid good ical presence in a local tax jurisdiction will be required to collect faith estimates and may serve as a basis for estimating a min- local use tax if they are required to collect state use tax; and will imum amount of revenue from online sales associated with lo- not positively or adversely affect this state's economy. cations that are not places of business as defined in the rule, Economic impact statement and regulatory flexibility analysis. that will be subject to different sourcing if the affected sales tax permittees cannot or choose not to modify their procedures in or- A statement of fiscal implications for small businesses or rural der to qualify such business locations as places of business for communities under Government Code, Chapter 2006 is normally purposes of local sales tax sourcing. As those estimates were not required for a comptroller rule because the rule is proposed constructed from 2020 data and there has been significant infla- under Tax Code, Title 2. In this instance, the rule is proposed tion as well as real economic growth since then, they are scaled under both Title 2 (State Taxation) and Title 3 (Local Taxation). up by a factor of 1.35 to yield a minimum estimate of $110 million So, the comptroller provides the following statement. on a current annual basis that may be lost to those cities, plus A "rural community" is a municipality with a population of less another $80 million that may be lost to the other local taxing juris- than 25,000. The comptroller estimates that there are 1,098 dictions imposing tax at the affected locations, for a total of $190 such rural communities, of which 1,017 impose a sales tax and million of gross revenue reductions, of which 85% or $161.5 mil- may have revenue affected by compliance with the rule. lion would be estimated gains to other local taxing jurisdiction, and 15% or $28.5 million would be reduction in aggregate local A "small business" is a legal entity, including a corporation, part- sales tax levies sourced to unincorporated areas without local nership, or sole proprietorship, that: (A) is formed for the pur- sales tax or with cumulative local county and special district tax pose of making a profit; (B) is independently owned and oper- rates less than the cumulative local rates that applied at the lo- ated; and (C) has fewer than 100 employees or less than $6 cations where the taxable transactions were formerly sourced. A million in annual gross receipts. The Comptroller estimates that $28.5 million reduction in aggregate local tax levies would result there are 470,000 businesses with fewer than 100 employees, in reduced state service charge revenue of $570,000. and 377,000 businesses with annual gross receipts less than $6 million; the sum of these two estimates would overstate the num-

PROPOSED RULES April 19, 2024 49 TexReg 2447 ber of small businesses, as many businesses would be expected ers charge less sales or use tax than the small businesses in to have both fewer than 100 employees and less than $6 million Texas. in annual gross receipts.

Since the comptroller initiated its rulemaking in 2020, the agency To the extent that the proposed rule leads to greater awareness has considered ways to minimize the potential adverse impact on and compliance with the local tax consummation standards, small businesses. In the fall of 2020, the agency added a multi- some vendors may change their reporting methods, which address search capability to its local sales tax rate locator. And might positively or negatively affect the tax revenue of particular in the spring of 2021, the agency added downloadable address local tax jurisdictions. As previously explained, the comptroller files to determine local tax rates. And, in the winter of 2023, the does not have sufficient data on the business operations of agency added map search and latitude/longitude search options. each business to identify and quantify the businesses and In addition, the comptroller is proposing to add subsection (b)(6): transactions that might be affected, and the positive or negative revenue impact on each tax jurisdiction. "If a small business or a micro-business operates a single lo- cation out of which it conducts all of its business activities, the Although the fiscal implications for local tax jurisdictions can- comptroller will presume that the location is a place of business not be quantified without additional information, several obser- of the seller." vations can be made. First, the cities asserting that the clarifica- tions provided by the rule will result in changes in sourcing and The comptroller cannot make a location a "place of business" reporting of local taxes, with consequent reductions in their rev- by rule if the statute does not allow it. But, the agency can pre- enues, tend to be cities with Local Government Code, Chapter sume that a location is a "place of business" based on indicative agreements involving rebates of local sales and use tax rev- facts, such as a small, independent business that conducts all of enues. And, cities with Government Code, Chapter 380 agree- its business operations out of a single location. If extraordinary ments involving distribution or fulfillment centers tend to be larger facts are presented to the agency, the presumption may be re- than rural communities. Of the 1,017 rural communities impos- butted. ing sales tax, 45 have Chapter 380 agreements involving sales The agency has considered other alternatives to reduce the ad- tax on file with the comptroller. Almost all of those involve re- verse impact on small businesses and micro-businesses, such bates of sales tax to physical shopping centers or restaurants, or as allowing small or micro-businesses to source local sales tax of sales tax paid on equipment or building materials, and would to their principal place of business, or establishing a single lo- unlikely be affected by a change in sourcing of online sales as- cal sales tax rate for small or micro-businesses that would be sociated with locations that are not places of business; two of distributed similar to the distribution of the single local sales tax the 45 communities that are not party to the suit against the collected by remote sellers. However, because these proposals comptroller appear to involve distribution or fulfillment centers would require amendments to the consummation statutes, the and could be affected if the centers will not qualify as places comptroller does not have the regulatory flexibility to implement of business (in Grand Prairie and Waxahachie). Five of the six these proposed methods. cities currently suing the Comptroller have populations greater than 25,000. The comptroller has not verified the assertions of Public hearing revenue shifting. But, if the assertions are correct, the revenue The comptroller will hold a hearing to take public comments, on shifting away from cities with Chapter 380 agreements may re- May 9, 2024, at 9:00 a.m. in Room 2.034 of the Barbara Jordan sult in positive revenues for the smaller rural communities from Building, 1601 Congress Avenue, Austin, Texas 78701. Inter- whom the revenues have been diverted. ested persons may sign up to testify beginning at 8:30 a.m. and Second, although the comptroller does not have sufficient infor- testimony will be heard beginning at 9:00 a.m. on a first come mation to determine the number of small businesses that may first serve basis. All persons will have 10 minutes to present their change their local tax reporting as a result of greater awareness testimony and shall also provide their testimony in writing prior and compliance with the local tax consummation standards, it is to their oral testimony. reasonable to assume that many small businesses will not be Comments affected. A small business that has all of its operations at a sin- gle location in Texas, including sales and fulfillment, is probably You may submit comments on the proposal to Jenny reporting local sales tax to the taxing jurisdiction where it is lo- Burleson, Director, Tax Policy Division, P.O. Box 13528 cated, and it will continue that reporting. Non-marketplace or- Austin, Texas 78711 or to the email address: tp.rule.com- ders fulfilled from that location will continue to be consummated [email protected]. The comptroller must receive your at that location pursuant to §3.334(c)(1) or (c)(2)(A). And, sales comments no later than 30 days from the date of publication of of a small business that are through a marketplace are already the proposal in the Texas Register. subject to destination sourcing performed by the marketplace Statement of the statutory or other authority under which the rule provider. Nevertheless, in some circumstances, it is conceivable is proposed to be adopted. that the rule may cause some vendors, small or large, to realize that they are noncompliant. If the vendors come into compli- Tax Code, §§111.002 (Comptroller's Rule; Compliance; Forfei- ance by changing from single-location reporting to multiple-loca- ture), 321.306 (Comptroller's Rules), 322.203 (Comptroller's tion reporting, their compliance burden may increase. Rules), and 323.306 (Comptroller's Rules) authorize the comp- troller to adopt rules to implement the tax statutes.

Third, the proposed rule expands the local tax collection obliga- tions of remote sellers - out-of-state sellers that collect state use Sections or articles of the code affected. tax must also collect local sales tax. The expansion of the remote Tax Code, §151.0595 (Single Local Tax Rate for Remote Sell- seller local tax collection obligation may benefit small businesses ers); Tax Code, Chapter 321, Subchapters A, B, C, D, and F; Tax in Texas by reducing the perception of customers that purchases Code, Chapter 322; and Tax Code, Chapter 323 are affected. from out-of-state sellers are preferable because out-of-state sell-

49 TexReg 2448 April 19, 2024 Texas Register §3.334. Local Sales and Use Taxes. sells items through vending machines is also an itinerant vendor. A (a) Definitions. The following words and terms, when used salesperson that operates out of a place of business in this state is not in this section, shall have the following meanings, unless the context an itinerant vendor. clearly indicates otherwise. (12) Kiosk--A small stand-alone area or structure: (1) Cable system--The system through which a cable ser- (A) that is used solely to display merchandise or to sub- vice provider delivers cable television or bundled cable service, as mit orders for taxable items from a data entry device, or both; those terms are defined in §3.313 of this title (relating to Cable Televi- sion Service and Bundled Cable Service). (B) that is located entirely within a location that is a place of business of another seller, such as a department store or shop- (2) City--An incorporated city, municipality, town, or vil- ping mall; and lage. (C) at which taxable items are not available for imme- (3) City sales and use tax--The tax authorized under Tax diate delivery to a purchaser.

Code, §321.101(a), including the additional municipal sales and use tax authorized under Tax Code, §321.101(b), the municipal sales and (13) Local taxes--Sales and use taxes imposed by any local use tax for street maintenance authorized under Tax Code, §327.003, taxing jurisdiction. the Type A Development Corporation sales and use tax authorized un- (14) Local taxing jurisdiction--Any of the following: der Local Government Code, §504.251, the Type B Development Cor- poration sales and use tax authorized under Local Government Code, (A) a city that imposes sales and use tax as provided §505.251, a sports and community venue project sales and use tax under paragraph (3) of this subsection; adopted by a city under Local Government Code, §334.081, and a mu- (B) a county that imposes sales and use tax as provided nicipal development corporation sales and use tax adopted by a city un- under paragraph (5) of this subsection; der Local Government Code, §379A.081. The term does not include the fire control, prevention, and emergency medical services district (C) a special purpose district created under the Special sales and use tax authorized under Tax Code, §321.106, or the munic- District Local Laws Code or other provisions of Texas law that is autho- ipal crime control and prevention district sales and use tax authorized rized to impose sales and use tax by the Tax Code or other provisions under Tax Code, §321.108. of Texas law and as governed by the provisions of Tax Code, Chapters or 323 and other provisions of Texas law; or (4) Comptroller's website--The comptroller's website concerning local taxes located at: https://comptrol- (D) a transit authority that imposes sales and use tax as ler.texas.gov/taxes/sales/. authorized by Transportation Code, Chapters, 451, 452, 453, 457, or and governed by the provisions of Tax Code, Chapter, 322. (5) County sales and use tax--The tax authorized under Tax Code, §323.101, including a sports and community venue project (15) Marketplace provider--This term has the meaning sales and use tax adopted by a county under Local Government Code, given in §3.286 of this title.

§334.081. The term does not include the county health services sales (16) Micro-business--A legal entity, including a corpora- and use tax authorized under Tax Code, §324.021, the county landfill tion, partnership, or sole proprietorship, that: and criminal detention center sales and use tax authorized under Tax Code, §325.021, or the crime control and prevention district sales and (A) is formed for the purpose of making a profit; use tax authorized under Tax Code, §323.105. (B) is independently owned and operated; and (6) Drop shipment--A transaction in which an order is re- (C) has not more than 20 employees. ceived by a seller at one location, but the item purchased is shipped by the seller from another location, or is shipped by the seller's third-party (17) Order placed in person--An order placed by a pur- supplier, directly to a location designated by the purchaser. chaser with the seller while physically present at the seller's place of business regardless of how the seller subsequently enters the order. (7) Engaged in business--This term has the meaning given in §3.286 of this title (relating to Seller's and Purchaser's Responsibil- (18) Place of business of the seller - general definition--A ities). place of business of the seller must be an established outlet, office, or location operated by a seller for the purpose of receiving orders for (8) Extraterritorial jurisdiction--An unincorporated area taxable items from persons other than employees, independent con- that is contiguous to the corporate boundaries of a city as defined in tractors, and natural persons affiliated with the seller. An "established Local Government Code, §42.021. outlet, office, or location" usually requires staffing by one or more (9) Fulfill--To complete an order by transferring possession sales personnel. The term does not include a computer server, Inter- of a taxable item to a purchaser, or to ship or deliver a taxable item net protocol address, domain name, website, or software application. to a location designated by the purchaser. The term does not include The "purpose" element of the definition may be established by proof receiving or tracking an order, determining shipping costs, managing that the sales personnel of the seller receive three or more orders for inventory, or other activities that do not involve the transfer, shipment, taxable items at the facility during the calendar year. Additional crite- or delivery of a taxable item to the purchaser or a location designated ria for determining when a location is a place of business of the seller by the purchaser. are provided in subsection (b) of this section for distribution centers, manufacturing plants, storage yards, warehouses and similar facilities; (10) Independently owned and operated business--A self- kiosks; and purchasing offices. An outlet, office, facility, or any loca- controlling entity that is not a subsidiary of another entity or otherwise tion that contracts with a retail or commercial business to process for subject to control by another entity, and that is not publicly traded. that business invoices, purchase orders, bills of lading, or other equiva- (11) Itinerant vendor--A seller who travels to various loca- lent records onto which sales tax is added, including an office operated tions for the purpose of receiving orders and making sales of taxable for the purpose of buying and selling taxable goods to be used or con- items and who has no place of business in this state. A person who sumed by the retail or commercial business, is not a place of business

PROPOSED RULES April 19, 2024 49 TexReg 2449 of the seller if the comptroller determines that the outlet, office, facil- county transit authority (CTA), regional mobility authority (RMA) or ity, or location functions or exists to avoid the tax legally due under Tax coordinated county transportation authority created under Transporta- Code, Chapters 321, 322, and 323 or exists solely to rebate a portion of tion Code, Chapters 370, 451, 452, 453, 457, or 460. the tax imposed by those chapters to the contracting business. An out- (27) Two percent cap--A reference to the general rule that, let, office, facility, or location does not exist to avoid the tax legally due except as otherwise provided by Texas law and as explained in this under Tax Code, Chapters 321, 322, and 323 or solely to rebate a por- section, a seller cannot collect, and a purchaser is not obligated to pay, tion of the tax imposed by those chapters if the outlet, office, facility, more than 2.0% of the sales price of a taxable item in total local sales or location provides significant business services, beyond processing and use taxes for all local taxing jurisdictions. invoices, to the contracting business, including logistics management, purchasing, inventory control, or other vital business services. (28) Use--This term has the meaning given in §3.346 of this title. (19) Purchasing office--An outlet, office, facility, or any lo- cation that contracts with a retail or commercial business to process for (29) Use tax--A tax imposed on the storage, use or other that business invoices, purchase orders, bills of lading, or other equiva- consumption of a taxable item in this state. lent records onto which sales tax is added, including an office operated (b) Determining the place of business of a seller. for the purpose of buying and selling taxable goods to be used or con- sumed by the retail or commercial business. (1) Distribution centers, manufacturing plants, storage yards, warehouses, and similar facilities. (20) Remote Seller--As defined in §3.286 of this title, a re- mote seller is a seller engaged in business in this state whose only ac- (A) A distribution center, manufacturing plant, storage tivity in the state is: yard, warehouse, or similar facility operated by a seller for the purpose of selling taxable items where sales personnel of the seller receive three (A) engaging in regular or systematic solicitation of or more orders for taxable items during the calendar year from persons sales of taxable items in this state by the distribution of catalogs, other than employees, independent contractors, and natural persons af- periodicals, advertising flyers, or other advertising, by means of print, filiated with the seller is a place of business of the seller. Forwarding radio, or television media, or by mail, telegraphy, telephone, computer previously received orders to the facility for fulfilment does not make data base, cable, optic, microwave, or other communication system the facility a place of business. for the purpose of effecting sales of taxable items; or (B) If a location that is a place of business of the seller, (B) soliciting orders for taxable items by mail or such as a sales office, is in the same building as a distribution center, through other media including the Internet or other media that may be manufacturing plant, storage yard, warehouse, or similar facility op- developed in the future. erated by a seller, then the entire facility is a place of business of the (21) Seller--This term has the meaning given in §3.286 of seller. this title and also refers to any agent or employee of the seller. (2) Kiosks. A kiosk is not a place of business of the seller (22) Small business--A legal entity, including a corpora- for the purpose of determining where a sale is consummated for local tion, partnership, or sole proprietorship, that: tax purposes. A seller who owns or operates a kiosk in Texas is, how- ever, engaged in business in this state as provided in §3.286 of this title. (A) is formed for the purpose of making a profit; (3) Purchasing offices. (B) is independently owned and operated; and (A) A purchasing office is not a place of business of the (C) has fewer than 100 employees or less than $6 mil- seller if the purchasing office exists solely to rebate a portion of the lo- lion in annual gross receipts. cal sales and use tax imposed by Tax Code, Chapters 321, 322, or 323 (23) Special purpose district--A local governmental entity to a business with which it contracts; or if the purchasing office func- authorized by the Texas legislature for a specific purpose, such as crime tions or exists to avoid the tax legally due under Tax Code, Chapters control, a local library, emergency services, county health services, or 321, 322, or 323. A purchasing office does not exist solely to rebate a county landfill and criminal detention center. a portion of the local sales and use tax or to avoid the tax legally due under Tax Code, Chapters 321, 322, or 323 if the purchasing office pro- (24) Storage--This term has the meaning given in §3.346 vides significant business services to the contracting business beyond of this title (relating to Use Tax). processing invoices, including logistics management, purchasing, in- (25) Temporary place of business of the seller--A location ventory control, or other vital business services. operated by a seller for a limited period of time for the purpose of sell- (B) In making a determination under subparagraph (A) ing and receiving orders for taxable items and where the seller has in- of this paragraph, as to whether a purchasing office provides signif- ventory available for immediate delivery to a purchaser. For example, icant business services to the contracting business beyond processing a person who rents a booth at a weekend craft fair or art show to sell invoices, the comptroller will compare the total value of the other busi- and take orders for jewelry, or a person who maintains a facility at a ness services to the value of processing invoices. If the total value of job site to rent tools and equipment to a contractor during the construc- the other business services, including logistics management, purchas- tion of real property, has established a temporary place of business. A ing, inventory control, or other vital business services, is less than the temporary place of business of the seller includes a sale outside of a value of the service to process invoices, then the purchasing office will distribution center, manufacturing plant, storage yard, warehouse, or be presumed not to be a place of business of the seller. similar facility of the seller in a parking lot or similar space sharing the same physical address as the facility but not within the walls of the (C) If the comptroller determines that a purchasing of- facility. fice is not a place of business of the seller, the sale of any taxable item is deemed to be consummated at the place of business of the seller from (26) Transit authority--A metropolitan rapid transit author- whom the purchasing office purchased the taxable item for resale and ity (MTA), advanced transportation district (ATD), regional or subre- local sales and use taxes are due according to the following rules. gional transportation authority (RTA), city transit department (CTD),

49 TexReg 2450 April 19, 2024 Texas Register (i) When taxable items are purchased from a Texas (i) Order fulfilled at a place of business of the seller seller, local sales taxes are due based on the location of the seller's place in Texas. When an order is received at a place of business of the seller of business where the sale is deemed to be consummated, as determined in Texas and is fulfilled at a place of business of the seller in Texas, the in accordance with subsection (c) of this section. sale is consummated at the place of business where the order is fulfilled. (ii) When the sale of a taxable item is deemed to be (ii) Order not fulfilled at a place of business of the consummated at a location outside of this state, local use tax is due seller in Texas. When an order is received at a place of business of the based on the location where the items are first stored, used or consumed seller in Texas and is fulfilled at a location that is not a place of business by the entity that contracted with the purchasing office in accordance of the seller in Texas, the sale is consummated at the place of business with subsection (d) of this section. where the order is received. (4) An order that is received by a salesperson who is not (2) Consummation of sale - order not received at a place of at a place of business of the seller when the salesperson receives the business of the seller in Texas. order is treated as being received at the location from which the sales- (A) Order fulfilled at a place of business of the seller person operates. Examples include orders that a salesperson receives in Texas. When an order is received at a location that is not a place by mail, telephone, including Voice over Internet Protocol and cellular of business of the seller in Texas or is received outside of Texas, and phone calls, facsimile, and email while traveling. The location from is fulfilled from a place of business of the seller in Texas, the sale is which the salesperson operates is the principal fixed location where the consummated at the place of business where the order is fulfilled. salesperson conducts work-related activities. The location from which a salesperson operates will be a place of business of the seller only if (B) Order not fulfilled from a place of business of the the location meets the definition of a "place of business of a seller" in seller in Texas. subsection (a)(16) of this section on its own, without regard to the or- (i) Order fulfilled in Texas. When an order is re- ders imputed to that location by this paragraph. ceived at a location that is not a place of business of the seller in Texas (5) A facility without sales personnel is usually not a "place and is fulfilled from a location in Texas that is not a place of business of business of the seller." A vending machine is not "an established of the seller, the sale is consummated at the location in Texas to which outlet, office, or location," and does not constitute a "place of business the order is shipped or delivered, or at which the purchaser of the item of the seller." Instead, a vending machine sale is treated as a sale by takes possession. an itinerant vendor. See subsections (a)(10) and (c)(6) of this section. (ii) Order not fulfilled in Texas. When an order is However, a walk-in retail outlet with a stock of goods available for im- received by a seller at a location that is not a place of business of the mediate purchase through a cashier-less point of sale terminal at the seller in Texas, and is fulfilled from a location outside of Texas, the outlet would be "an established outlet, office, or location" so as to con- sale is not consummated in Texas. However, a use is consummated stitute a "place of business of the seller" even though sales personnel at the first point in Texas where the item is stored, used, or consumed are not required for every sale. A computer that operates an automated after the interstate transit has ceased. A taxable item delivered to a shopping cart software program is not an established outlet, office, or point in Texas is presumed to be for storage, use, or consumption at that location," and does not constitute a "place of business of the seller." point until the contrary is established. Local use tax should be collected A computer that operates an automated telephone ordering system is as provided in subsection (d) of this section. Except as provided in not "an established outlet, office, or location," and does not constitute subsection (i)(3) of this section, a remote seller required to collect state a "place of business of the seller." use tax under §3.286(b)(2) of this title must also collect local use tax. (6) If a small business or a micro-business operates a sin- (3) Exception for qualifying economic development gle location out of which it conducts all of its business activities, the agreements entered into before January 1, 2009, pursuant to Tax Code, comptroller will presume that the location is a place of business of the §321.203(c-4) - (c-5) or §323.203(c-4) - (c-5). This paragraph is seller. effective until September 1, 2024. If applicable, the local sales tax due (c) Local sales tax - Consummation of sale - determining the on the sale of a taxable item is based on the location of the qualifying local taxing jurisdictions to which sales tax is due. Except for the spe- warehouse, which is a place of business of the seller, from which the cial rules applicable to remote sellers in subsection (i)(3) of this section, item is shipped or delivered or at which the purchaser of the item takes direct payment permit purchases in subsection (j) of this section, and possession. certain taxable items, including taxable items sold by a marketplace (4) Local sales taxes are due to each local taxing jurisdic- provider, as provided in subsection (k) of this section, each sale of a tion with sales tax in effect where the sale is consummated. Local use taxable item is consummated at the location indicated by the provisions tax may also be due if the total amount of local sales taxes due does not of this subsection. The following rules, taken from Tax Code, §321.203 reach the two percent cap, and the item purchased is shipped or deliv- and §323.203, apply to all sellers engaged in business in Texas, regard- ered to a location in one or more different local taxing jurisdictions, as less of whether they have no place of business in Texas, a single place provided in subsection (d) of this section. of business in Texas, or multiple places of business in Texas. (5) Multiple special purpose district taxes, multiple transit (1) Consummation of sale - order received at a place of authority sales taxes, or a combination of the two may apply to a single business of the seller in Texas. transaction. If the sale of a taxable item is consummated at a location (A) Order placed in person. Except as provided by within the boundaries of multiple special purpose districts or transit paragraph (3) of this subsection, when an order for a taxable item is authorities, local sales tax is owed to each of the jurisdictions in effect placed in person at a seller's place of business in Texas, including at a at that location. For example, a place of business of the seller located in temporary place of business of the seller in Texas, the sale of that item the city of San Antonio is within the boundaries of both the San Antonio is consummated at that place of business of the seller, regardless of Advanced Transportation District and the San Antonio Metropolitan the location where the order is fulfilled. Transit Authority, and the seller is required to collect sales tax for both transit authorities. Similarly, a place of business of the seller in Flower (B) Order not placed in person.

Mound is located within the boundaries of two special purpose districts,

PROPOSED RULES April 19, 2024 49 TexReg 2451 the Flower Mound Crime Control District and the Flower Mound Fire with the earliest effective date, until the two percent cap is met. The Control District, and the seller is responsible for collecting sales tax for effective dates of all special purpose district taxes are available on the both special purpose districts. comptroller's website. However, if the collection or accrual of use tax for the district with the earliest effective date would exceed the two (6) Itinerant vendors; vending machines. percent cap, the tax for that district is not due and the seller or purchaser (A) Itinerant vendors. Sales made by itinerant vendors should determine, following the criteria in subparagraphs (A) - (C) of are consummated at, and itinerant vendors must collect sales tax based this paragraph, whether use tax is due for the district that next became upon, the location where the item is delivered or at which the purchaser effective. of the item takes possession. Itinerant vendors do not have any respon- (i) If the competing special purpose district taxes be- sibility to collect use tax. came effective on the same date, the special purpose district taxes are (B) Vending machines. Sales of taxable items made due in the order of the earliest date for which the election in which the from a vending machine are consummated at the location of the vend- district residents authorized the imposition of sales and use tax by the ing machine. See §3.293 of this title (relating to Food; Food Prod- district was held. ucts; Meals; Food Service) for more information about vending ma- (ii) If the elections to impose the local taxes were chine sales. held on the same date, the special purpose district taxes are due in the (7) The location where the order is received by or on be- order of the earliest date for which the enabling legislation under which half of the seller means the physical location of a seller or third party each district was created became effective. such as an established outlet, office location, or automated order re- (E) Collection or accrual of use tax for multiple transit ceipt system operated by or on behalf of the seller where an order is authorities. If more than one transit authority use tax is in effect at initially received by or on behalf of the seller and not where the order the location where use of an item occurs, and the two percent cap has may be subsequently accepted, completed or fulfilled. An order is re- not been met, the transit authority taxes are due in the order of their ceived when all of the information from the purchaser necessary to the effective dates, beginning with the earliest effective date, until the two determination whether the order can be accepted has been received by percent cap is met. The effective dates of all transit authority taxes or on behalf of the seller. The location from which a product is shipped are available on the comptroller's website. However, if the collection shall not be used in determining the location where the order is received or accrual of use tax for the authority with the earliest effective date by the seller. would exceed the two percent cap, the tax for that authority is not due (d) Local use tax. The provisions addressing the imposition and the seller or purchaser should determine, following the criteria in of state use tax in §3.346 of this title also apply to the imposition of subparagraphs (A) - (D) of this paragraph, whether use tax is due for local use tax. For example, consistent with §3.346(e) of this title, all the authority that next became effective. taxable items that are shipped or delivered to a location in this state that (i) If the competing transit authorities became effec- is within the boundaries of a local taxing jurisdiction are presumed to tive on the same date, the transit authority taxes are due in the order of have been purchased for use in that local taxing jurisdiction as well as the earliest date for which the election in which the authority residents presumed to have been purchased for use in the state. authorized the imposition of sales and use tax by the authority was held. (1) General rules. (ii) If the elections to impose local taxes were held (A) When local use taxes are due in addition to local on the same date, the transit authority use taxes are due in the order of sales taxes as provided by subsection (c) of this section, all applicable the earliest date for which the enabling legislation under which each use taxes must be collected or accrued in the following order until the authority was created became effective. two percent cap is reached: city, county, special purpose district, and (2) General use tax rules applied to specific situations. The transit authority. If more than one special purpose district use tax is due, following fact patterns explain how local use tax is to be collected or all such taxes are to be collected or accrued before any transit authority accrued and remitted to the comptroller based on, and subject to, the use tax is collected or accrued. See subparagraphs (D) and (E) of this general rules in paragraph (1) of this subsection. paragraph. (A) Sale consummated outside the state, item delivered (B) If a local use tax cannot be collected or accrued at from outside the state or from a location in Texas that is not operated by its full rate without exceeding the two percent cap, the seller cannot the seller - local use tax due. Except as provided in subsection (i)(3) of collect it, or any portion of it, and the purchaser is not responsible for this section, if a sale is consummated outside of this state according to accruing it. the provisions of subsection (c) of this section, and the item purchased (C) If a seller collects a local sales tax on an item, or a is either shipped or delivered to a location in this state as designated purchaser accrues a local sales tax on an item, a use tax for the same by the purchaser from a location outside of the state, or if the order type of jurisdiction is not due on the same item. For example, after a is drop shipped directly to the purchaser from a third-party supplier, city sales tax has been collected or accrued for an item, no use tax is local use tax is owed based upon the location in this state to which due to that same or a different city on that item, but use tax may be due the order is shipped or delivered or at which the purchaser of the item to a county, special purpose district, or transit authority. Similarly, if takes possession. The seller is responsible for collecting the local use one or more special purpose district sales taxes have been collected or tax due on the sale. If the seller does not collect the local use taxes due accrued for an item, no special purpose district use tax is due on that on the sale, the purchaser is responsible for accruing such taxes and item, and if one or more transit authority sales taxes have been collected remitting them directly to the comptroller according to the provisions in or accrued for an item, no transit authority use tax is due on that item. paragraph (1) of this subsection. For example, if an order for a taxable item is received by a seller at a location outside of Texas, and the order (D) Collection or accrual of use tax for multiple special is shipped to the purchaser from a location outside of the state, local purpose districts. If more than one special purpose district use tax is in use tax is due based upon the location to which the order is shipped or effect at the location where use of an item occurs, the special purpose delivered or at which the purchaser of the item takes possession. district taxes are due in the order of their effective dates, beginning

49 TexReg 2452 April 19, 2024 Texas Register (B) Sale consummated in Texas outside a local taxing cal taxes to the comptroller shall also apply to a purchaser if the seller jurisdiction, item delivered into one or more local taxing jurisdictions - does not collect local taxes that are due. The comptroller may proceed local use tax due. If a sale is consummated at a location in Texas that is against the seller or purchaser for the local tax owed by either. outside of the boundaries of any local taxing jurisdiction according to (f) Tax rates. Except as otherwise provided by law, no local the provisions of subsection (c) of this section, and the order is shipped governmental entity may adopt or increase a sales and use tax if, as a or delivered to the purchaser at a location in this state that is within the result of the adoption or increase of the tax, the combined rate of all boundaries of one or more local taxing jurisdictions, local use tax is sales and use taxes imposed by local taxing jurisdictions having terri- due based on the location to which the items are shipped or delivered tory in the local governmental entity would exceed 2.0% at any location or at which the purchaser of the item takes possession. The seller is within the boundaries of the local governmental entity's jurisdiction. responsible for collecting the local use taxes due on the sale, regardless The following are the local tax rates that may be adopted. of the location of the seller in Texas. If the seller fails to collect any local use taxes due, the purchaser is responsible for accruing such taxes (1) Cities. Cities may impose sales and use tax at a rate of and remitting them directly to the comptroller. up to 2.0%. (C) Sale consummated in any local taxing jurisdictions (2) Counties. Counties may impose sales and use tax at imposing less than 2.0% in total local taxes - local sales taxes and use rates ranging from 0.5% to 1.5%. taxes due. If a sale is consummated at a location in Texas where the (3) Special purpose districts. Special purpose districts may total local sales tax rate imposed by the taxing jurisdictions in effect at impose sales and use tax at rates ranging from 0.125% to 2.0%. that location does not equal 2.0% according to the provisions of sub- section (c) of this section, and the item is shipped or delivered to the (4) Transit authorities. Transit authorities may impose purchaser at a location in this state that is inside the boundaries of a sales and use tax at rates ranging from 0.25% to 1.0%. different local taxing jurisdiction, additional local use tax may be due (g) Jurisdictional boundaries, combined areas, and city tax im- based on the location to which the order is shipped or delivered or at posed through strategic partnership agreements. which the purchaser of the item takes possession, subject to the two percent cap. The seller is responsible for collecting any additional lo- (1) Jurisdictional boundaries. cal use taxes due on the sale, regardless of the location of the seller in (A) City boundaries. City taxing jurisdictional bound- Texas. See subsection (i) of this section. If the seller fails to collect the aries cannot overlap one another and a city cannot impose a sales and additional local use taxes due, the purchaser is responsible for accruing use tax in an area that is already within the jurisdiction of another city. such taxes and remitting them directly to the comptroller. (B) County boundaries. County tax applies to all loca- (i) Example one - if an order is received in person at tions within that county. a place of business of the seller, such that the sale is consummated at the location where the order is received as provided under subsection (C) Special purpose district and transit authority bound- (c)(1)(A) of this section, and the local sales tax due on the sale does aries. Special purpose districts and transit authorities may cross or not meet the two percent cap, additional local use taxes are due based share boundaries with other local taxing jurisdictions and may encom- on the location to which the order is shipped or delivered or at which pass, in whole or in part, other local taxing jurisdictions, including the purchaser of the item takes possession, subject to the provisions in cities and counties. A geographic location or address in this state may paragraph (1) of this subsection. lie within the boundaries of more than one special purpose district or more than one transit authority. (ii) Example two - if a seller receives an order for a taxable item at a seller's place of business in Texas, and the seller ships (D) Extraterritorial jurisdictions. Except as otherwise or delivers the item from an out-of-state location to a location in this provided by paragraph (3) of this subsection concerning strategic part- state as designated by the purchaser, local sales tax is due based upon nership agreements and subsection (l)(5) of this section concerning the the location of the place of business of the seller where the order is City of El Paso and Fort Bliss, city sales and use tax does not apply to received. If the local sales tax due on the item does not meet the two taxable sales that are consummated outside the boundaries of the city, percent cap, use taxes, subject to the provisions in paragraph (1) of this including sales made in a city's extraterritorial jurisdiction. However, subsection, are due based upon the location where the items are shipped an extraterritorial jurisdiction may lie within the boundaries of a spe- or delivered or at which the purchaser of the item takes possession. cial purpose district, transit authority, county, or any combination of the three, and the sales and use taxes for those jurisdictions would ap- (e) Effect of other law. ply to those sales. (1) Tax Code, Title 2, Subtitles A (General Provisions) and (2) Combined areas. A combined area is an area where the B (Enforcement and Collection), Tax Code, Chapter 141 (Multistate boundaries of a city overlap the boundaries of one or more other local Tax Compact) and Tax Code, Chapter 151 (Limited Sales, Excise, and taxing jurisdictions as a result of an annexation of additional territory Use Tax) apply to transactions involving local taxes. Related sections by the city, and where, as the result of the imposition of the city tax of this title and comptroller rulings shall also apply with respect to local in the area in addition to the local taxes imposed by the existing tax- taxes. This includes authorities such as court cases and federal law ing jurisdictions, the combined local tax rate would exceed 2.0%. The that affect whether an item is taxable or is excluded or exempt from comptroller shall make accommodations to maintain a 2.0% rate in any taxation. combined area by distributing the 2.0% tax revenue generated in these (2) Permits, exemption certificates, and resale certificates combined areas to the local taxing jurisdictions located in the combined required by Tax Code, Chapter 151, shall also satisfy the requirements areas as provided in Tax Code, §321.102 or Health and Safety Code, for collecting and remitting local taxes, unless otherwise indicated by §775.0754. Combined areas are identified on the comptroller's web- this section or other sections of this title. For example, see subsection site. Sellers engaged in transactions on which local sales or use taxes (n) of this section concerning prior contract exemptions. are due in a combined area, or persons who must self-accrue and re- mit tax directly to the comptroller, must use the combined area local (3) Any provisions in this section or other sections of this code when reporting the tax rather than the codes for the individual title related to a seller's responsibilities for collecting and remitting lo-

PROPOSED RULES April 19, 2024 49 TexReg 2453 city, county, special purpose districts, or transit authorities that make real property repair and remodeling job sites, refer to §3.357 of this up the combined area. title (relating to Nonresidential Real Property Repair, Remodeling, and Restoration; Real Property Maintenance). (3) City tax imposed through strategic partnership agree- ments. (i) Sellers' and purchasers' responsibilities for collecting or ac- cruing local taxes. (A) The governing bodies of a district, as defined in Local Government Code, §43.0751, and a city may enter into a lim- (1) Sale consummated in Texas; seller responsible for col- ited-purpose annexation agreement known as a strategic partnership lecting local sales taxes and applicable local use taxes. When a sale agreement. Under this agreement, the city may impose sales and use of a taxable item is consummated at a location in Texas as provided by tax within all or part of the boundaries of a district. Areas within a dis- subsection (c) of this section, the seller must collect each local sales tax trict that are annexed for this limited purpose are treated as though they in effect at the location. If the total rate of local sales tax due on the sale are within the boundaries of the city for purposes of city sales and use does not reach the two percent cap, and the seller ships or delivers the tax. item into another local taxing jurisdiction, then the seller is required to collect additional local use taxes due, if any, based on the location to (B) Counties, transit authorities, and special purpose which the item is shipped or delivered or at which the purchaser of the districts may not enter into strategic partnership agreements. Sales item takes possession, regardless of the location of the seller in Texas. and use taxes imposed by those taxing jurisdictions do not apply in For more information regarding local use taxes, refer to subsection (d) the limited-purpose annexed area as part of a strategic partnership of this section. agreement between a city and an authorized district. However, a county, special purpose district, or transit authority sales and use tax, or (2) Out-of-state sale; seller engaged in business in Texas. any combination of these three types of taxes, may apply at locations Except as provided in paragraph (3) of this subsection, when a sale is included in a strategic partnership agreement between a city and an not consummated in Texas, a seller who is engaged in business in this authorized district if the tax is imposed in that area by the applicable state is required to collect and remit local use taxes due, if any, on orders jurisdiction as allowed under its own controlling authorities. of taxable items shipped or delivered at the direction of the purchaser into a local taxing jurisdiction in this state based upon the location in (C) Prior to September 1, 2011, the term "district" was this state to which the item is shipped or delivered or at which the defined in Local Government Code, §43.0751 as a municipal utility purchaser of the item takes possession as provided in subsection (d) district or a water control and improvement district. The definition of this section. was amended effective September 1, 2011, to mean a conservation and reclamation district operating under Water Code, Chapter 49. (3) Local use tax rate for remote sellers. (h) Places of business of the seller and job sites crossed by (A) A remote seller required to collect and remit one or local taxing jurisdiction boundaries. more local use taxes in connection with a sale of a taxable item must compute the amount using: (1) Places of business of the seller crossed by local taxing jurisdiction boundaries. If a place of business of the seller is crossed by (i) the combined tax rate of all applicable local use one or more local taxing jurisdiction boundaries so that a portion of the taxes based on the location to which the item is shipped or delivered or place of business of the seller is located within a taxing jurisdiction and at which the purchaser of the item takes possession; or the remainder of the place of business of the seller lies outside of the (ii) at the remote seller's election, the single local use taxing jurisdiction, tax is due to the local taxing jurisdictions in which tax rate published in the Texas Register. the sales office is located. If there is no sales office, sales tax is due to the local taxing jurisdictions in which any cash registers are located. (B) A remote seller that is storing tangible personal property in Texas to be used for fulfillment at a facility of a market- (2) Job sites. place provider that has certified that it will assume the rights and duties (A) Residential repair and remodeling; new construc- of a seller with respect to the tangible personal property, as provided tion of an improvement to realty. When a contractor is improving real for in §3.286 of this title, may elect the single local use tax rate under property under a separated contract, and the job site is crossed by the subparagraph (A)(ii) of this paragraph. boundaries of one or more local taxing jurisdictions, the local taxes due (C) Notice to the comptroller of election and revocation on any separately stated charges for taxable items incorporated into the of election. real property must be allocated to the local taxing jurisdictions based on the total square footage of the real property improvement located within (i) Before using the single local use tax rate, a re- each jurisdiction, including the square footage of any standalone struc- mote seller must notify the comptroller of its election using a form pre- tures that are part of the construction, repair, or remodeling project. scribed by the comptroller. A remote seller may also notify the comp- For more information about tax due on materials used at residential troller of the election on its use tax permit application form. The remote and new construction job sites, refer to §3.291 of this title (relating to seller must use the single local use tax rate for all of its sales of taxable Contractors). items until the election is revoked as provided in clause (ii) of this sub- paragraph. (B) Nonresidential real property repair and improve- ment. When taxable services are performed to repair, remodel, or (ii) A remote seller may revoke its election by filing restore nonresidential real property, including a pipeline, transmission a form prescribed by the comptroller. If the comptroller receives the line, or parking lot, that is crossed by the boundaries of one or more notice by October 1, the revocation will be effective January 1 of the local taxing jurisdictions, the local taxes due on the taxable services, following year. If the comptroller receives the notice after October 1, including materials and any other charges connected to the services the revocation will be effective January 1 of the year after the follow- performed, must be allocated among the local taxing jurisdictions ing year. For example, a remote seller must notify the comptroller by based upon the total mileage or square footage, as appropriate, of the October 1, 2020, for the revocation to be effective January 1, 2021. If repair, remodeling, or restoration project located in each jurisdiction. the comptroller receives the revocation on November 1, 2020, the re- For more information about tax due on materials used at nonresidential vocation will be effective January 1, 2022.

49 TexReg 2454 April 19, 2024 Texas Register (D) Single local use tax rate. (5) Local tax is due on the sales price of a taxable item, as defined in Tax Code, §151.007, in the report period in which the taxable (i) The single local use tax rate in effect for the pe- item is purchased or the period in which the taxable item is first stored, riod beginning October 1, 2019, and ending December 31, 2019, is used, or otherwise consumed in a local taxing jurisdiction.

1.75%. (6) A purchaser is not liable for additional local use tax if (ii) The single local use tax rate in effect for the pe- the purchaser pays local use tax using the rate elected by an eligible re- riod beginning January 1, 2020, and ending December 31, 2020, is mote seller according to paragraph (3) of this subsection. The remote 1.75%. seller must be identified on the comptroller's website as electing to use (E) Annual publication of single local use tax rate. Be- the single local use tax rate. A purchaser must verify that the remote fore the beginning of a calendar year, the comptroller will publish no- seller is listed on the comptroller's website. If the remote seller is not tice of the single local use tax rate in the Texas Register that will be in listed on the comptroller's website, the purchaser will be liable for ad- effect for that calendar year. ditional use tax due in accordance to paragraph (4) of this subsection. (F) Calculating the single local use tax rate. The single (j) Items purchased under a direct payment permit. local use tax rate effective in a calendar year is equal to the estimated (1) When taxable items are purchased under a direct pay- average rate of local sales and use taxes imposed in this state during the ment permit, local use tax is due based upon the location where the preceding state fiscal year. As soon as practicable after the end of a state permit holder first stores the taxable items, except that if the taxable fiscal year, the comptroller must determine the estimated average rate items are not stored, then local use tax is due based upon the location of local sales and use taxes imposed in this state during the preceding where the taxable items are first used or otherwise consumed by the state fiscal year by: permit holder. (i) dividing the total amount of net local sales and (2) If, in a local taxing jurisdiction, storage facilities con- use taxes remitted to the comptroller during the state fiscal year by the tain taxable items purchased under a direct payment exemption certifi- total amount of net state sales and use tax remitted to the comptroller cate and at the time of storage it is not known whether the taxable items during the state fiscal year; will be used in Texas, then the taxpayer may elect to report the use tax (ii) multiplying the amount computed under clause either when the taxable items are first stored in Texas or are first re- (i) of this subparagraph by the rate provided in Tax Code, §151.051; moved from inventory for use in Texas, as long as use tax is reported and in a consistent manner. See also §3.288(i) of this title (relating to Direct Payment Procedures and Qualifications) and §3.346(g) of this title. (iii) rounding the amount computed under clause (ii) of this subparagraph to the nearest .0025. (3) If local use tax is paid on stored items that are subse- quently removed from Texas before they are used, the tax may be re- (G) Direct refund. A purchaser may request a refund covered in accordance with the refund and credit provisions of §3.325 based on local use taxes paid in a calendar year for the difference be- of this title and §3.338 of this title (relating to Multistate Tax Credits tween the single local use tax rate paid by the purchaser and the amount and Allowance of Credit for Tax Paid to Suppliers). the purchaser would have paid based on the combined tax rate for all applicable local use taxes. Notwithstanding the refund requirements (k) Special rules for certain taxable goods and services. Sales under §3.325(a)(1) of this title (relating to Refunds and Payments Un- of the following taxable goods and services are consummated at, and der Protest), a non-permitted purchaser may request a refund directly local tax is due based upon, the location indicated in this subsection. from the comptroller for the tax paid in the previous calendar year, no (1) Amusement services. Local tax is due based upon the earlier than January 1 of the following calendar year within the statute location where the performance or event occurs. For more information of limitation under Tax Code, 111.104 (Refunds). on amusement services, refer to §3.298 of this title (relating to Amuse- (H) Marketplace providers. Notwithstanding subpara- ment Services). graph (A) of this paragraph, marketplace providers may not use the (2) Cable services. When a service provider uses a cable single local use tax rate and must compute the amount of local use tax system to provide cable television or bundled cable services to cus- to collect and remit using the combined tax rate of all applicable local tomers, local tax is due as provided for in §3.313 of this title. When use taxes. a service provider uses a satellite system to provide cable services to (4) Purchaser responsible for accruing and remitting local customers, no local tax is due on the service in accordance with the taxes if seller fails to collect. Telecommunications Act of 1996, §602. (A) If a seller does not collect the state sales tax, any (3) Florists. Local sales tax is due on all taxable items sold applicable local sales taxes, or both, on a sale of a taxable item that by a florist based upon the location where the order is received, regard- is consummated in Texas, then the purchaser is responsible for filing less of where or by whom delivery is made. Local use tax is not due on a return and paying the tax. The local sales taxes due are based on deliveries of taxable items sold by florists. For example, if the place of the location in this state where the sale is consummated as provided in business of the florist where an order is taken is not within the bound- subsection (c) of this section. aries of any local taxing jurisdiction, no local sales tax is due on the item and no local use tax is due regardless of the location of delivery. (B) A purchaser who buys an item for use in Texas from If a Texas florist delivers an order in a local taxing jurisdiction at the a seller who does not collect the state use tax, any applicable local use instruction of an unrelated florist, and if the unrelated florist did not taxes, or both, is responsible for filing a return and paying the tax. The take the order within the boundaries of a local taxing jurisdiction, local local use taxes due are based on the location where the item is first use tax is not due on the delivery. For more information about florists' stored, used, or consumed by the purchaser. sales and use tax obligations, refer to §3.307 of this title (relating to (C) For more information about how to report and pay Florists). use tax directly to the comptroller, see §3.286 of this title.

PROPOSED RULES April 19, 2024 49 TexReg 2455 (4) Landline telecommunications services. Local taxes due §321.105, any city that adopted a local sales and use tax effective Oc- on landline telecommunications services are based upon the location of tober 1, 1979, or later is prohibited from imposing tax on the residential the device from which the call or other transmission originates. If the use of natural gas and electricity. See §3.295 of this title. seller cannot determine where the call or transmission originates, local (B) Imposition of tax allowed in certain cities. Cities taxes due are based on the address to which the service is billed. For that adopted local sales tax prior to October 1, 1979, may, in accor- more information, refer to §3.344 of this title (relating to Telecommu- dance with the provisions in Tax Code, §321.105, choose to repeal the nications Services). exemption for residential use of natural gas and electricity. The comp- (5) Marketplace provider sales. Local taxes are due on troller's website provides a list of cities that impose tax on the residen- sales of taxable items through a marketplace provider based on the lo- tial use of natural gas and electricity, as well as a list of those cities that cation in this state to which the item is shipped or delivered or at which do not currently impose the tax, but are eligible to do so. the purchaser takes possession. For more information, refer to §3.286 (C) Effective January 1, 2010, a fire control, preven- of this title. tion, and emergency medical services district organized under Local (6) Mobile telecommunications services. Local taxes due Government Code, Chapter 344 that imposes sales tax under Tax Code, on mobile telecommunications services are based upon the location of §321.106, or a crime control and prevention district organized under the customer's place of primary use as defined in §3.344(a)(8) of this Local Government Code, Chapter 363 that imposes sales tax under Tax title, and local taxes are to be collected as indicated in §3.344(h) of this Code, §321.108, that is located in all or part of a municipality that im- title. poses a tax on the residential use of natural gas and electricity as pro- vided under Tax Code, §321.105 may impose tax on residential use of (7) Motor vehicle parking and storage. Local taxes are due natural gas and electricity at locations within the district. A list of the based on the location of the space or facility where the vehicle is parked. special purpose districts that impose tax on residential use of natural For more information, refer to §3.315 of this title (relating to Motor gas and electricity and those districts eligible to impose the tax that do Vehicle Parking and Storage). not currently do so is available on the comptroller's website. (8) Natural gas and electricity. Any local city and special (2) Telecommunication services. Telecommunications ser- purpose taxes due are based upon the location where the natural gas vices are exempt from all local sales taxes unless the governing body or electricity is delivered to the purchaser. As explained in subsection of a city, county, transit authority, or special purpose district votes (l)(1) of this section, residential use of natural gas and electricity is to impose sales tax on these services. However, since 1999, under exempt from all county sales and use taxes and all transit authority sales Tax Code, §322.109(d), transit authorities created under Transporta- and use taxes, most special purpose district sales and use taxes, and tion Code, Chapter 451 cannot repeal the exemption unless the repeal many city sales and use taxes. A list of the cities and special purpose is first approved by the governing body of each city that created the districts that do impose, and those that are eligible to impose, local local taxing jurisdiction. The local sales tax is limited to telecommuni- sales and use tax on residential use of natural gas and electricity is cations services occurring between locations within Texas. See §3.344 available on the comptroller's website. For more information, also refer of this title. The comptroller's website provides a list of local taxing to §3.295 of this title (relating to Natural Gas and Electricity). jurisdictions that impose tax on telecommunications services. (9) Nonresidential real property repair and remodeling ser- (3) Emergency services districts. vices. Local taxes are due on services to remodel, repair, or restore nonresidential real property based on the location of the job site where (A) Authority to exclude territory from imposition of the remodeling, repair, or restoration is performed. See also subsection emergency services district sales and use tax. Pursuant to the provi- (h)(2)(B) of this section and §3.357 of this title. sions of Health and Safety Code, §775.0751(c-1), an emergency ser- vices district wishing to enact a sales and use tax may exclude from the (10) Residential real property repair and remodeling and election called to authorize the tax any territory in the district where the new construction of a real property improvement performed under a sales and use tax is then at 2.0%. The tax, if authorized by the voters separated contract. When a contractor constructs a new improvement eligible to vote on the enactment of the tax, then applies only in the to realty pursuant to a separated contract or improves residential real portions of the district included in the election. The tax does not apply property pursuant to a separated contract, the sale is consummated at to sales made in the excluded territories in the district and sellers in the the job site at which the contractor incorporates taxable items into the excluded territories should continue to collect local sales and use taxes customer's real property. See also subsection (h)(2)(A) of this section for the local taxing jurisdictions in effect at the time of the election un- and §3.291 of this title. der which the district sales and use tax was authorized as applicable. (11) Waste collection services. Local taxes are due on (B) Consolidation of districts resulting in sales tax garbage or other solid waste collection or removal services based on sub-districts. Pursuant to the provisions of Health and Safety Code, the location at which the waste is collected or from which the waste is §775.018(f), if the territory of a district proposed under Health and removed. For more information, refer to §3.356 of this title (relating Safety Code, Chapter 775 overlaps with the boundaries of another to Real Property Service). district created under that chapter, the commissioners court of each (l) Special exemptions and provisions applicable to individual county and boards of the counties in which the districts are located may jurisdictions. choose to create a consolidated district in the overlapping territory. If two districts that want to consolidate under Health and Safety Code, (1) Residential use of natural gas and electricity.

§775.024 have different sales and use tax rates, the territory of the (A) Mandatory exemptions from local sales and use tax. former districts located within the consolidated area will be designated Residential use of natural gas and electricity is exempt from most lo- as sub-districts and the sales tax rate within each sub-district will cal sales and use taxes. Counties, transit authorities, and most special continue to be imposed at the rate the tax was imposed by the former purpose districts are not authorized to impose sales and use tax on the district that each sub-district was part of prior to the consolidation. residential use of natural gas and electricity. Pursuant to Tax Code, (4) East Aldine Management District.

49 TexReg 2456 April 19, 2024 Texas Register (A) Special sales and use tax zones within district; (B) pursuant to the obligation of a bid or bids submitted separate sales and use tax rate. As set out in Special District Local prior to the effective date of any local tax if the bid or bids and contract Laws Code, §3817.154(e) and (f), the East Aldine Management entered into pursuant thereto are at a fixed price and not subject to District board may create special sales and use tax zones within the withdrawal, change, or modification because of the tax. boundaries of the District and, with voter approval, enact a special (2) Annexations. Any annexation of territory into an exist- sales and use tax rate in each zone that is different from the sales and ing local taxing jurisdiction is also a basis for claiming the exemption use tax rate imposed in the rest of the district. provided by this subsection. (B) Exemptions from special zone sales and use tax. (3) Local taxing jurisdiction rate increase; partial exemp- The sale, production, distribution, lease, or rental of; and the use, stor- tion for certain contracts and bids. When an existing local taxing ju- age, or other consumption within a special sales and use tax zone of; a risdiction raises its sales and use tax rate, the additional amount of tax taxable item sold, leased, or rented by the entities identified in clauses that would be due as a result of the rate increase is not due on the sale, (i) - (vi) of this subparagraph are exempt from the special zone sales use, storage, or other consumption in this state of taxable items used: and use tax. State and all other applicable local taxes apply unless oth- erwise exempted by law. The special zone sales and use tax exemption (A) for the performance of a written contract executed applies to: prior to the effective date of the tax rate increase if the contract may not be modified because of the tax; or (i) a retail electric provider as defined by Utilities Code, §31.002; (B) pursuant to the obligation of a bid or bids submitted prior to the effective date of the tax rate increase if the bid or bids and (ii) an electric utility or a power generation company contract entered into pursuant thereto are at a fixed price and not subject as defined by Utilities Code, §31.002; to withdrawal, change, or modification because of the tax. (iii) a gas utility as defined by Utilities Code, (4) Three-year statute of limitations.

§101.003 or §121.001, or a person who owns pipelines used for transportation or sale of oil or gas or a product or constituent of oil or (A) The exemption in paragraph (1) of this subsection gas; and the partial exemption in paragraph (3) of this subsection have no effect after three years from the date the adoption or increase of the tax (iv) a person who owns pipelines used for the trans- takes effect in the local taxing jurisdiction. portation or sale of carbon dioxide; (B) The provisions of §3.319 of this title apply to this (v) a telecommunications provider as defined by subsection to the extent they are consistent.

Utilities Code, §51.002; or (C) Leases. Any renewal or exercise of an option to (vi) a cable service provider or video service extend the time of a lease or rental contract under the exemptions pro- provider as defined by Utilities Code, §66.002. vided by this subsection shall be deemed to be a new contract and no (5) Imposition of city sales tax and transit tax on certain exemption will apply. military installations; El Paso and Fort Bliss. Pursuant to Tax Code, (5) Records. Persons claiming the exemption provided by §321.1045 (Imposition of Sales and Use Tax in Certain Federal Military this subsection must maintain records which can be verified by the Installations), for purposes of the local sales and use tax imposed under comptroller or the exemption will be lost.

Tax Code, Chapter 321, the city of El Paso includes the area within the boundaries of Fort Bliss to the extent it is in the city's extraterritorial (6) Exemption certificate. An identification number is re- jurisdiction. However, the El Paso transit authority does not include quired on the prior contract exemption certificates furnished to sellers.

Fort Bliss. See Transportation Code, §453.051 concerning the Creation The identification number should be the person's 11-digit Texas tax- of Transit Departments. payer number or federal employer's identification (FEI) number. (m) Restrictions on local sales tax rebates and other economic The agency certifies that legal counsel has reviewed the pro- incentives. Pursuant to Local Government Code, §501.161, Section 4A posal and found it to be within the state agency's legal authority and 4B development corporations may not offer to provide economic to adopt. incentives, such as local sales tax rebates authorized under Local Gov- ernment Code, Chapters 380 or 381, to persons whose business consists Filed with the Office of the Secretary of State on April 8, 2024. primarily of purchasing taxable items using resale certificates and then TRD-202401427 reselling those same items to a related party. A related party means a Jenny Burleson person or entity which owns at least 80% of the business enterprise to which sales and use taxes would be rebated as part of an economic in- Director, Tax Policy centive. Comptroller of Public Accounts Earliest possible date of adoption: May 19, 2024 (n) Prior contract exemptions. The provisions of §3.319 of this For further information, please call: (512) 475-2220 title (relating to Prior Contracts) concerning definitions and exclusions apply to prior contract exemptions. ♦ ♦ ♦ (1) Certain contracts and bids exempt. No local taxes are TITLE 43. TRANSPORTATION due on the sale, use, storage, or other consumption in this state of tax- able items used: PART 3. MOTOR VEHICLE CRIME (A) for the performance of a written contract executed PREVENTION AUTHORITY prior to the effective date of any local tax if the contract may not be modified because of the tax; or

PROPOSED RULES April 19, 2024 49 TexReg 2457 APPENDIX D TITLE 34. PUBLIC FINANCE Jenny Burleson Director, Tax Policy Division PART 1. COMPTROLLER OF PUBLIC Comptroller of Public Accounts ACCOUNTS Effective date: July 4, 2024 Proposal publication date: April 19, 2024 CHAPTER 3. TAX ADMINISTRATION For further information, please call: (512) 475-2220 SUBCHAPTER O. STATE AND LOCAL SALES ♦ ♦ ♦ AND USE TAXES 34 TAC §3.334 TAC §3.334 The Comptroller of Public Accounts adopts new §3.334, con- The Comptroller of Public Accounts adopts the repeal of §3.334, cerning local sales and use taxes, without changes to the pro- concerning local sales and use taxes, without changes to the posed text as published in the April 19, 2024, issue of the Texas proposed text as published in the April 19, 2024, issue of the Register (49 TexReg 2442). The rule will not be republished. The Texas Register (49 TexReg 2440). The rule will not be repub- comptroller adopts new §3.334 to replace the existing §3.334 lished. The comptroller repeals existing §3.334 to replace it with that the comptroller is repealing. The new §3.334 includes the new §3.334. The repeal of §3.334 will be effective the date the text of existing §3.334, with the addition of subsection (b)(6) and new §3.334 takes effect. supporting definitions.

Brief explanation of the rulemaking. In addition to soliciting written comments, the comptroller held a public hearing on May 9, 2024. The comptroller received oral It has been called to the comptroller's attention that the October and/or written comments regarding adoption of the rule from the 27, 2023, notice of proposed rulemaking did not contain a state- following persons: ment of fiscal implications for small businesses or rural commu- nities as required by Government Code, Chapter 2006. See (48 John Christian, Ryan, LLC, against the rule.

TexReg 6340) (October 27, 2023). Therefore, the comptroller re- TJ Gilmore, Mayor of the City of Lewisville, against the rule. peals the adopted rule as proposed in the October 27, 2023, no- tice of proposed rulemaking. The comptroller is simultaneously Jim Harris, on behalf of the Coalition for Appropriate Sales readopting the text of the rule effective on January 5, 2024, with Tax Law Enactment (CASTLE) and its members, the cities amendments, under the same number and title, with the repeal of Coppell, Farmers Branch, Grand Prairie, Humble, Kilgore, to be effective as of the date the adopted rule. Lancaster, and Lewisville, against the rule.

Comments John Kroll, HMWK, against the rule.

The comptroller received comments from James Harris on behalf Mike Land, City Manager of the City of Coppell, against the rule. of the Coalition for Appropriate Sales Tax Law and its members, Wes Mays, Mayor of the City of Coppell, against the rule. the cities of Coppell, Carrollton, Desoto, Farmers Branch, Hum- ble, Kilgore, Lancaster, and Lewisville, in favor of the repeal of Stephan L. Sheets, Attorney for the City of Round Rock, against all revisions to the rule, starting with the version adopted in May the rule.

2020. The comptroller addresses the criticisms of the revisions Rich Whitehead, Mayor of the City of Helotes, against the rule. in §3.334 in the preamble of the new §3.334, which the comp- troller will adopt to be effective concurrently with this repeal. Summary of the Principal Reasons For and Against Adoption of the Rule Statement of the statutory or other authority under which the rule- making is adopted. The comptroller's principal reason for adoption of the rule is to provide guidance to taxpayers and auditors regarding the appli- The repeal is adopted under Tax Code, §§111.002 (Comp- cation of the local sales and use tax consummation statutes. troller's Rule; Compliance; Forfeiture), 321.306 (Comptroller's Rules), 322.203 (Comptroller's Rules), and 323.306 (Comptrol- The principal reasons alleged against adoption are: that the rule ler's Rules), which authorize the comptroller to adopt rules to is not needed, that the rule will hurt cities and taxpayers, that the implement the tax statutes. rule is a departure from prior comptroller policy, that the stated reasons for adoption have no factual basis, that the rule is incon- Sections or articles of the code affected. sistent with the local sales and use tax consummation statutes, The repeal affects Tax Code, §151.0595 (Single Local Tax Rate and that the notice of rulemaking did not comply with the require- for Remote Sellers); Tax Code, Chapter 321, Subchapters A, B, ments of the Administrative Procedure Act.

C, D, and F; Tax Code, Chapter 322; and Tax Code, Chapter The subsequent discussion provides the reasons for adopting 323. the rule without changes related to the comments received.

The agency certifies that legal counsel has reviewed the adop- Summary of the Factual Bases for the Rule - Background tion and found it to be a valid exercise of the agency's legal au- thority. In January 2020, the comptroller initiated rulemaking to update its local sales and use tax rule. The comptroller subsequently Filed with the Office of the Secretary of State on June 14, 2024. adopted amendments in 2020, 2023, and 2024. (49 TexReg 53) (January 5, 2024), (48 TexReg 391) (January 27, 2023), (45 TRD-202402640 TexReg 3499) (May 22, 2020). The amendments implemented House Bill 1525, 86th Legislature, 2019, which placed local sales and use tax collection responsibilities on marketplace providers.

ADOPTED RULES June 28, 2024 49 TexReg 4797 The amendments also implemented House Bill 2153, 86th Leg- Ultimately, the statutory test is a combination of elements -- islature, 2019, which set a single local use tax rate that remote whether a facility is an established outlet, office, or location op- sellers may elect to use. The amendments also expanded the erated by a seller for the purpose of receiving orders for taxable local sales tax collection responsibilities of sellers based on the items. The statutory references to an "established outlet, office, United States Supreme Court decision in South Dakota v. Way- or location," operation "by the retailer or the retailer's agent or fair, Inc., 138 S. Ct. 2080 (June 21, 2018). These amendments employee," and "receiving orders for taxable items" all suggest have been noncontroversial. that the presence of sales personnel is a reasonable criterion for evaluating whether a facility is a "place of business." The rulemaking made other revisions to the text, which are now the subject of litigation in Cause No. D-1-GN-21-003198, City of Subsection (a)(18) defines "place of business of the seller" as Coppell, Texas, et al. v. Glenn Hegar, in the 201st District Court follows: of Travis County Texas. The Plaintiff cities claim that the agency "(18) Place of business of the seller - general definition--A place did not comply with the rulemaking procedures in Government of business of the seller must be an established outlet, office, or Code, §2001.024 and Government Code, Chapter 2006. The location operated by a seller for the purpose of receiving orders comptroller initiated this rulemaking to address those claims by for taxable items from persons other than employees, indepen- proposing the readoption of the rule, with amendments, along dent contractors, and natural persons affiliated with the seller. An with a more complete statement of the elements required by 'established outlet, office, or location' usually requires staffing by Government Code, §2001.024 and Government Code, Chapter one or more sales personnel. The term does not include a com- 2006. puter server, Internet protocol address, domain name, website, The comptroller is addressing comments received in the current or software application. The 'purpose' element of the definition rulemaking, as well as the prior local tax rulemakings in 2020, may be established by proof that the sales personnel of the seller 2023, and 2024. The orders adopting the prior rulemakings are receive three or more orders for taxable items at the facility dur- available for inspection in the Texas Register, and contain addi- ing the calendar year. Additional criteria for determining when a tional explanations that augment this document. location is a place of business of the seller are provided in sub- section (b) of this section for distribution centers, manufacturing Summary of the Factual Bases for the Rule - Subsection (a)(18) plants, storage yards, warehouses and similar facilities; kiosks; - The definition of "place of business of the seller." and purchasing offices. An outlet, office, facility, or any location Local sales and use taxes are generally sourced to where a sale that contracts with a retail or commercial business to process or use is "consummated." Tax Code, §321.203 and §321.205. for that business invoices, purchase orders, bills of lading, or There are about three dozen sourcing provisions. Id. And, there other equivalent records onto which sales tax is added, including are three potential locations where local sales tax can be soured: an office operated for the purpose of buying and selling taxable the location where the order was received, the location where the goods to be used or consumed by the retail or commercial busi- order was fulfilled, and the location where the order was deliv- ness, is not a place of business of the seller if the comptroller ered to the customer. Id. The sourcing outcome can be affected determines that the outlet, office, facility, or location functions or by whether an order is placed in person at, received at, or ful- exists to avoid the tax legally due under Tax Code, Chapters 321, filled at a seller's "place of business" in Texas. 322, and 323 or exists solely to rebate a portion of the tax im- posed by those chapters to the contracting business. An outlet, Tax Code, §321.002(3)(A) uses 82 words to define "place of busi- office, facility, or location does not exist to avoid the tax legally ness of the retailer": due under Tax Code, Chapters 321, 322, and 323 or solely to "(3)(A) 'Place of business of the retailer' means an established rebate a portion of the tax imposed by those chapters if the out- outlet, office, or location operated by the retailer or the retailer's let, office, facility, or location provides significant business ser- agent or employee for the purpose of receiving orders for taxable vices, beyond processing invoices, to the contracting business, items and includes any location at which three or more orders are including logistics management, purchasing, inventory control, received by the retailer during a calendar year. A warehouse, or other vital business services." storage yard, or manufacturing plant is not a 'place of business The first sentence of subsection (a)(16) states: "A place of busi- of the retailer' unless at least three orders are received by the ness of the seller must be an established outlet, office, or lo- retailer during the calendar year at the warehouse, storage yard, cation operated by a seller for the purpose of receiving orders or manufacturing plant." for taxable items from persons other than employees, indepen- The term "place of business of the retailer" is a term of art be- dent contractors, and natural persons affiliated with the seller." cause the term is more limited than its plain and ordinary mean- This definition tracks the statutory definition but adds a qualifier ing. Many business activities can be conducted at a location from the prior rule that allows a facility to make in-house cour- without that location becoming a "place of business" for local tesy sales without becoming a place of business. tax sourcing. The definition specifically includes the concept of The second sentence of the definition of "place of business of receiving orders for taxable items. For example, the corporate the seller" in subsection (a)(16) states: "An 'established out- headquarters of a company may not be a "place of business" if no let, office, or location' usually requires staffing by one or more orders are received there. Additionally, a location is not a "place sales personnel." The word "usually" clarifies that the presence of business" simply because it receives orders. If that were the of sales personnel is not an absolute requirement, but rather, case, the legislature could have defined the phrase with those an important factor that will often determine whether an outlet, very few words, which can be counted on one hand. And, the office, or location is a "place of business." In subsequent sub- final sentence indicates that business locations such as ware- sections of the rule, the comptroller describes some examples. houses, storage yards, and manufacturing plants may not be "places of business." The comptroller is adding the sales personnel language to pro- vide an objective criterion for buyers, sellers, and auditors to con- sider. Does a facility have sales personnel? If it does, it is likely

49 TexReg 4798 June 28, 2024 Texas Register a "place of business" -- an established outlet, office, or location order. The physical locations of computer servers that receive operated by a seller for the purpose of receiving orders for tax- website orders are often random, variable, and uncertain. The able items. If the facility does not have sales personnel, it is likely best way to treat computer servers consistently and coherently not a "place of business." is to uniformly recognize that they are not "established" places of business of the seller.

The reference to sales personnel is also consistent with the gen- eral objectives of the local tax statute. "It is a fundamental prin- The fourth sentence of the definition of "place of business of the ciple of statutory construction and indeed of language itself that seller" in subsection (a)(16) states: "The 'purpose' element of words' meanings cannot be determined in isolation but must be the definition may be established by proof that sales personnel drawn from the context in which they are used." TGS-NOPEC of the seller received three or more orders for taxable items at the Geophysical Co. v. Combs, 340 S.W.3d 432, 441 (Tex. 2011). facility during the calendar year." This language is consistent with The context for the "place of business" definition is not limited to the statutory language that a "'place of business of the retailer' ... the consummation statutes. It also extends to the sales tax per- includes any location at which three or more orders are received mit requirement. The requirement of a sales tax permit for each by the retailer during a calendar year." "place of business" suggests that presence of sales personnel is The remaining sentences of the definition of "place of business a reasonable factor to consider. of the seller" are noncontroversial.

The third sentence in the definition of "place of business" in Mr. Gilmore, Mr. Kroll, Mr. Land, and Mr. Mays do not be- subsection (a)(16) states: "The term does not include a com- lieve that this definition simplifies local tax sourcing. However, puter server, Internet protocol address, domain name, website, the comptroller is under no illusions that the definition will elim- or software application." This sentence is consistent with the inate all ambiguities. In some instances, the determination will concept that a "place of business" usually requires the presence depend upon the particular facts. But in many instances, it will of personnel to receive the order. Even a broad, every-day us- be clear. And, the rule also makes clear that mere hardware age of the term "place of business" does not include computer installations are not "places of business of the seller." To that ex- servers, Internet protocol addresses, and websites. Many sell- tent, the rule will help taxpayers understand how the comptroller ers house their computer servers at a co-location facility or rent interprets and intends to apply the statute. computer server space at a managed hosting site. An ordinary person would not consider the physical locations of these com- Summary of the Factual Bases for the Rule - Subsection (b)(5) - puter servers to be places of business of the seller. Similarly, A facility without sales personnel is usually not a "place of busi- an ordinary person would not perceive an Internet protocol ad- ness of the seller." dress, a domain name, or a website as an "established outlet, Subsection (b)(5) provides: office, or location" so as to constitute a place of business in or- dinary usage. And, in this statutory context, which is narrower "(5) A facility without sales personnel is usually not a 'place of than ordinary usage, the comptroller has concluded that the leg- business of the seller.' A vending machine is not an 'established islature could not have intended that the receipt of an order by outlet, office, or location,' and does not constitute a 'place of busi- an automated mechanical device would make the device an "es- ness of the seller.' Instead, a vending machine sale is treated as tablished outlet, office or location operated by the retailer." a sale by an itinerant vendor. See subsections (a)(10) and (c)(6) of this section. However, a walk-in retail outlet with a stock of In addition to being a reasonable interpretation of the statute and goods available for immediate purchase through a cashier-less consistent with precedent, the comptroller's interpretation that point of sale terminal at the outlet would be an 'established out- computer servers and the software applications that run on the let, office, or location' so as to constitute a 'place of business of servers are not places of business, is a practical interpretation the seller' even though sales personnel are not required for ev- that will facilitate uniformity and ease of administration for tax- ery sale. A computer that operates an automated shopping cart payers and auditors. Website orders can be received at multiple software program is not an 'established outlet, office, or location,' physical addresses - any locations that have Internet access. A and does not constitute a 'place of business of the seller.' A com- website order is sent to an Internet protocol (IP) address. An puter that operates an automated telephone ordering system is IP address is not a permanent physical address. It is a series of not an 'established outlet, office, or location,' and does not con- numbers assigned to a device, such as a computer server. Web- stitute a 'place of business of the seller.'" sites may use dynamic IP addresses that are assigned by the network upon connection and that change over time. The public Subsection (b)(5) provides examples of the application of the IP address of a website may simply be routing orders to differ- definition of "place of business of the seller," and the factual ent, private IP addresses. Load balancers may change the IP bases for subsection (b)(5) are the same as the for the definition. addresses that communicate with customers. Conversely, mul- In addition, the treatment of vending machines is consistent with tiple websites may be hosted at a single IP address. the treatment of vending machines in prior versions of the rule.

The computer server receiving an order may belong to the seller Reasons Why the Comptroller Disagrees With Commenters' or it may belong to a third party. The computer server may be sit- Submissions and Proposals - Subsections (a)(10) and (b)(5). uated on the seller's premises, it may be situated at a co-location Some commenters asserted that a "place of business" does not facility operated by a third party, or it may be situated at a web have to be operated for the purpose of receiving orders for tax- hosting facility operated by a third party. The computer server able items. According to the comments submitted by CASTLE: may be one of multiple servers that serve the same website from different physical addresses as part of a cloud distribution net- "The statutory definition of 'place of business,' Tax Code, work. The computer server may route the order to multiple other §321.002(3)(A), describes five different place of business cat- servers for load balancing purposes. Conversely, a single com- egories: established outlets; established offices; established puter server may serve multiple websites. Also, the seller may locations operated by the retailer or the retailer's agent or or may not know the physical address of the server receiving the employee for the purpose of receiving orders for taxable items;

ADOPTED RULES June 28, 2024 49 TexReg 4799 any location at which three or more orders are received by the retailer's employee in the definition of "place of business of the retailer during a calendar year; and warehouses, storage yards, retailer." or manufacturing plants that receive three or more orders in As previously stated, the comptroller is adding the sales person- a calendar year. Tax Code, §321.002(a)(3)(A). The first two nel language to provide an objective criterion for buyers, sellers, categories need not have as a purpose receipt of orders and do and auditors to consider. Does a facility have sales personnel? not need to receive orders to be a place of business." If it does, it is likely a "place of business" -- an established outlet, CASTLE further commented that the function of an "established office, or location operated by a seller for the purpose of receiv- office" is "business." This interpretation would mean that any fa- ing orders for taxable items. If the facility does not have sales cility operated by a seller for a business purpose would be a personnel, it is likely not a "place of business." This objective cri- "place of business" -- executive offices, administrative offices, terion is supported by the previously explained legislative history research and development laboratories, maintenance facilities, of the statute. vehicle garages, etc. The comptroller rejects this interpretation Mr. Sheets, citing former §3.334(h)(3)(B), commented that "the as unreasonable. The 1979 legislation, which adopted the def- prior version of Rule 3.334 recognized that an Internet order is inition of "place of business," required each "place of business" received at a place of business while the proposed amendments to have a sales tax permit. See 66th Legislature, 1979, Ch. 624, cause Internet orders to be received nowhere." §3. That requirement is now in Tax Code, §321.303. It is unrea- sonable to think that the legislature intended that a maintenance The comptroller responds that the comment overstates the effect facility would be required to have a sales tax permit. A more of the prior rule and misunderstands the effect of the adopted reasonable interpretation is that a "place of business," whether rule. Prior to the 2020 amendments, §3.334(h)(3)(B) provided: it is an outlet, office, or location, "must be operated by a seller "(B) Order received at a place of business in Texas, fulfilled at for the purpose of receiving orders for taxable items," as the rule a location that is not a place of business. When an order that requires. is placed over the telephone, through the Internet, or by any Mr. Mays and other commenters also alleged that there is no means other than in person is received by the seller at a place reason for the comptroller to amend its rule. But, CASTLE's in- of business in Texas, and the seller fulfills the order at a loca- terpretation of the "purpose" requirement illustrates the need for tion that is not a place of business of the seller in Texas, such as clarification. The CASTLE interpretation may work at cross-pur- a warehouse or distribution center, the sale is consummated at poses with other commenters who claim the right to source all the place of business at which the order for the taxable item is their sales to their "single place of business." If every taxpayer received." facility with a business purpose is in fact a "place of business" as (41 TexReg 260, 265) (2016) (former 34 TAC §3.334(h)(3), em- CASTLE suggests, many of these commenters may have mul- phasis added); (39 TexReg 9597, 9606) (2014) (former 34 TAC tiple places of businesses. The adopted rule states the comp- §3.334(h)(3), emphasis added). troller's interpretation, and sets the stage for a definitive court resolution of the conflict between competing commenters. The former language only meant that a place of business may receive an order through the Internet, or any other method of Mr. Christian commented on the portion of the definition of "place communication except in-person communication. For example, of business" that excludes orders from "employees, independent a sales representative at a place of business in Texas could re- contractors, and natural persons affiliated with the seller." He ceive an order through the Internet in the form of a VOIP call or commented that the language was "extra-statutory." The comp- an email. But, the former language did not mean that every In- troller disagrees. The language has been in the rule since 2014, ternet order is automatically received at a place of business, as when it was adopted without adverse comment. It allows a fa- illustrated by the following comptroller rulings before and after cility to make in-house courtesy sales to workers at the facility the comptroller adopted §3.334 in 2014. without the facility becoming a place of business. Courtesy sales to workers are insufficient to conclude that a facility was estab- Comptroller Letter Ruling (STAR Accession No.) 200510723L lished for the purpose of receiving orders. (2005) stated: Mr. Christian and other commenters observed that the statutory "The location of the server does not create a 'place of business' definition of "place of business" does not mention sales person- for purposes of local tax collection." nel. However, an agency rule need not be limited to parroting the And Comptroller Letter Ruling (STAR Accession No.) words of the statute. The courts have said that a rule may not 200605592L (2006) similarly stated: impose additional burdens, conditions, or restrictions in excess of or inconsistent with the relevant statutory provisions. State "The location of the server does not create a 'place of business' Office of Pub. Util. Counsel v. Pub. Util. Comm'n of Tex., 131 for purposes of local tax collection." S.W.3d 314, 321 (Tex. App.--Austin 2004, pet. denied). The And Comptroller Letter Ruling (STAR Accession No.) implication of that statement is that a rule may impose burdens, 201906015L (2019) similarly stated: conditions, or restrictions that are consistent with the relevant statutory provisions. E.g., id. at 342 (court approved "formulaic "COMPANY operates **************'s online marketplace (Web- means" not specified in the statute). Previous tax cases have ap- site) and various apps used by Texas customers to make online proved comptroller rules that articulated requirements that were orders. ... Orders placed on the Website or through COMPANY's not explicitly stated in the statute. Perry Homes v. Strayhorn, apps and processed and routed by servers are not received at a 108 S.W.3d 444, 448 (Tex. App.--Austin 2003, no pet.); DuPont place of business." Photomasks, Inc. v. Strayhorn, 219 S.W.3d 414, 422 (Tex. Furthermore, the adopted rule does not mean that Internet or- App.--Austin 2006, pet. denied). The reference to sales per- ders are received "nowhere." Internet orders, such and VOIP sonnel in the rule is consistent with the statutory reference to a calls and emails may be received at a place of business. And under subsection (b)(5), an Internet order received by an auto-

49 TexReg 4800 June 28, 2024 Texas Register mated shopping cart is received somewhere - at the computer general standard that is applicable to all situations, as well as to server -- but, that somewhere is not a "place of business of the automated website orders and fulfillment warehouses. seller." The adopted standard comports with the ordinary usage of the Summary of the Factual Bases for the Rule - Subsections (b)(1) terms, as evidenced by the fact that the standard has been and (c)(7) - Distributions centers, manufacturing plants, storage approved by twenty-four states under the Streamlined Sales Tax yards, and warehouses, and when and where an order is "re- Agreement. The adopted standard will also promote uniformity ceived." with those states that have elected or will elect origin-based sourcing.

Subsection (b)(1) provides: Reasons Why the Comptroller Disagrees With Commenters' "(1) Distribution centers, manufacturing plants, storage yards, Submissions and Proposals - Subsections (b)(1) and (c)(7). warehouses, and similar facilities.

Most of the commenters are concerned with the effect of the sub- (A) A distribution center, manufacturing plant, storage yard, sections on fulfillment warehouses and similar facilities. Sub- warehouse, or similar facility operated by a seller for the pur- section (b)(1)(A) provides: "Forwarding previously received or- pose of selling taxable items where sales personnel of the ders to a facility for fulfillment does not make the facility a place seller receive three or more orders for taxable items during the of business." Subsection (c)(7) similarly provides: "The location calendar year from persons other than employees, independent where an order is received ... means the physical location ... contractors, and natural persons affiliated with the seller is a where an order is initially received ... and not where the order place of business of the seller. Forwarding previously received may be subsequently accepted, completed or fulfilled." orders to the facility for fulfilment does not make the facility a place of business. Subsection (c)(7) explicitly limits receipt to the location where the order is initially received, ruling out intermediate and final loca- (B) If a location that is a place of business of the seller, such as tions where an order might be accepted, completed, or fulfilled. a sales office, is in the same building as a distribution center, Subsection (c)(7) also explicitly states the criteria for determining manufacturing plant, storage yard, warehouse, or similar facility when an order is received: "An order is received when all of the operated by a seller, then the entire facility is a place of business information from the purchaser necessary to the determination of the seller." whether the order can be accepted has been received by or on And subsection (c)(7) provides: behalf of the seller." "(7) The location where the order is received by or on behalf of CASTLE commented that the modifier "initially" is not present in the seller means the physical location of a seller or third party the portion of definition of "place of business" that refers to the lo- such as an established outlet, office location, or automated order cation at which orders are "received." CASTLE, and Kyle Kasner receipt system operated by or on behalf of the seller where an in a previous rulemaking proceeding, also commented that the order is initially received by or on behalf of the seller and not consummation statute in Tax Code, §321.203 sometimes refers where the order may be subsequently accepted, completed or to where the retailer "first receives" the order, implying that an fulfilled. An order is received when all of the information from order can be "received" at more than one place. the purchaser necessary to the determination whether the order CASTLE also argued that the dictionary defines "receive" as "to can be accepted has been received by or on behalf of the seller. take into one's possession, to take delivery of a thing, to get, or The location from which a product is shipped shall not be used to come by," and a fulfillment warehouse cannot fulfill an order in determining the location where the order is received by the unless it gets or comes by the order. This argument may seem seller." reasonable in the abstract, but not in context. When the statute The text of subsection (c)(7) is taken from Section and its legislative history are considered as a whole, the proper 3.10.1C5 of the Streamlined Sales and Use Tax Agreement construction is the opposite - a fulfillment warehouse does not re- (SSUTA). See https://www.streamlinedsalestax.org/docs/de- ceive an order for purposes of the local sales tax statutes merely fault-source/agreement/ssuta/ssuta-as-amended-through-05- because fulfillment information has been sent to the warehouse.

24-23-with-hyperlinks-and-compiler-notes-at-end.pdf.

With regard to statutory construction, the Texas Supreme Court In its 2014 rulemaking, the comptroller proposed a definition has stated: "We must analyze statutory language in its context, of "receive," but deleted the proposed definition in response to considering the specific sections at issue as well as the statute concerns stated in oral and written comments. See (39 TexReg as a whole. {Citation omitted}. While 'it is not for courts to un- 4179) (May 30, 2014) (proposed rule amendment) and (39 dertake to make laws "better" by reading language into them,' TexReg 9598) (December 5, 2014) (adopted rule amendment). we must make logical inferences when necessary 'to effect clear legislative intent or avoid an absurd or nonsensical result that In its January 2023 rulemaking, the comptroller again declined the Legislature could not have intended.'" Castleman v. Internet to adopt a definition of "receive" and instead, addressed the two Money Ltd., 546 S.W.3d 684, 688 (Tex. 2018), quoting Cadena circumstances that were most prominently debated - automated Comercial USA Corp. v. Tex. Alcoholic Beverage Comm'n, 518 website orders and fulfillment warehouses. Subsection (b) of S.W.3d 318, 338 (Tex. 2017). the adopted rule articulated the comptroller's interpretation that an automated website "receives" the order and that a fulfillment Considering the local sales tax statute sections as a whole, the warehouse does not "receive" the order when it is forwarded from term "received" must be limited to the location where an order the website to the warehouse. See (48 TexReg 400) (January is initially received. This construction effects the clear legislative 27, 2023). intent and avoids an absurd or nonsensical result that the legis- lature could not have intended.

Since then, it has become apparent that other circumstances also require a clear articulation of the comptroller's interpreta- The legislature did not define "receiving," "received," or "order." tion of the term "received." Thus, the comptroller is adopting a So, the terms must be construed in the context in which they

ADOPTED RULES June 28, 2024 49 TexReg 4801 are used. One context is the definition of "place of business of location where an order is received - the initial location where the retailer" in Tax Code, §321.002(3)(A). A "place of business all the information necessary for acceptance has been received. of a retailer" is a location operated "for the purpose of receiving With this clarification, the consummation statute can be applied orders." One might say, as CASTLE does, that a purpose of a with greater certainty. fulfillment warehouse is to receive the order because receipt is a CASTLE commented: "For all practical purposes an order necessary step in fulfillment. However, one might also reason- placed on a website is typically received at the same time at ably say that while a sales office is operated for the "purpose various locations, including fulfillment centers." However, for of receiving orders," a fulfillment warehouse without sales per- the practical purpose of sourcing local tax, there is a single sonnel is not operated for such a purpose - the purpose is only location where a website order is initially received - the Web fulfillment, which does not require the receipt of the entire order server. According to a report from the group's own expert, Amit containing price and payment terms. The only necessary infor- Basu: "...the Buyer places the online order by communicating mation is delivery information - the product description, quantity, with a Web server that manages the Seller's Web site. ... The and delivery location. Because there are at least two reasonable Web server transmits the order electronically to the Seller's interpretations, the terms in this context are ambiguous. e-Commerce software program." In another context the meaning becomes clearer. That context Mr. Kroll commented that it may be impossible to determine the is the consummation statute in Tax Code, §321.203. Consider location of initial receipt: "Some companies will have multiple Tax Code, §321.203(d): redundant server/data center operations spread across multiple "(d) If the retailer has more than one place of business in this geographic locations." The comptroller agrees. As pointed out state and Subsections (c) and (c-1) do not apply, the sale is con- in the 2020 rulemaking, a computer server may be situated on summated at: the seller's premises, it may be situated at a co-location facility operated by a third party, or it may be situated at a web hosting (1) the place of business of the retailer in this state where the facility operated by a third party. The computer server may be order is received; or one of multiple servers that serve the same website from different (2) if the order is not received at a place of business of the retailer, physical addresses as part of a cloud distribution network. The the place of business from which the retailer's agent or employee computer server may route the order to multiple other servers for who took the order operates." load balancing purposes. Conversely, a single computer server may serve multiple websites. The seller may or may not know Assume a situation in which the retailer has multiple retail stores the physical address of the server receiving the order. If the in Texas (more than one place of business in the state), but a seller does not even know the physical location of the server, customer calls in an order to a Texas sales office and the order an ordinary person would not consider the physical location of is fulfilled from a location outside of Texas, so that Tax Code, the computer server to be a place of business of the seller. So, §321.203(c) and (c-1) indisputably do not apply. Also assume the best way to treat these orders consistently and coherently that information from the order is forwarded to the retailer's ex- is to treat them uniformly as being received at locations that are ecutive office in Texas for approval, to the retailer's Texas credit not places of business of the seller. If a server is not a "place office for a credit check, to the retailer's Texas manufacturing fa- of business" of the seller, then the exact location of the server cility for assembly, to the retailer's Texas storage lot for bundled does not have to be determined because the location will not shipping to a fulfillment center, to the retailer's fulfillment center determine the sourcing of local sales tax. for fulfillment to the customer, to the retailer's Texas accounting office for billing, and to the retailer's Texas controller for collec- The comptroller's application of the statute to fulfillment centers tion on the account. is also supported by statutory history. Prior to 1979, the consum- mation statute had no provision for sourcing to where an "order" In the sense proposed by CASTLE, all these locations "received" was "received," and the statute provided: the "order" to complete their assigned tasks. But this interpre- tation leads to absurd results. If the "order" was "received" at "If the retailer has more than one place of business in the State, multiple locations, so that each location became a "place of busi- the place or places at which retail sales, leases, and rentals are ness," it would be impossible to identify the particular location consummated shall be the retailer's place or places where the where the local tax should be sourced. purchaser or lessee takes possession and removes from the retailer's premises the articles of tangible personal property, or Furthermore, Tax Code, §321.203(d) refers to "the place of busi- if the retailer delivers the tangible personal property to a point ness ... where the order is received," indicating that there is a designated by the purchaser or lessee, then the sales, leases, singular location where the order is received. The most reason- or rentals are consummated at the retailer's place or places of able singular location, and perhaps the only reasonable singular business from which tangible personal property is delivered to location, is where the information necessary to accept the order the purchaser or lessee." Acts 1969, 61st Leg., 2nd C.S., Ch. 1. is initially received as provided in subsection (c)(7). In the ex- Art. 1 §42. ample above, the location where the order is received would be the Texas sales office. In 1979, the Texas Legislature added a definition of "place of business of the retailer," which was previously undefined. The This example regarding Tax Code, §321.203(d) also illustrates definition required that the location be operated "for the purpose the need for additional clarity. Subsection (b)(1)(A) explicitly pro- of receiving orders." Acts 1979, 66th Legislature, Ch. 624, Art. vides that a fulfillment center is not a "place of business" simply 1, §3 (amended Article 1066c(B)(1)). The legislature also added because orders may be forwarded to the facility for fulfillment. a sourcing provision based on where the order is received, com- But subsection (b)(1)(A) does not explicitly eliminate the possibil- parable to current Tax Code, §321.203(d): ity that other locations are "places of business," such as locations where orders are accepted or otherwise completed. Subsection "If neither possession of tangible personal property is taken at (c)(7) explicitly eliminates those possibilities. There is a single nor shipment or delivery of the tangible personal property is

49 TexReg 4802 June 28, 2024 Texas Register made from the retailer's place of business within this State, the facturing plant may not be considered a 'place of business of the sale, lease, or rental is consummated at the retailer's place of retailer' unless three or more orders are received by the retailer business within the State where the order is received or if the in a calendar year at such warehouse, storage yard, or manufac- order is not received at a place of business of the retailer, at the turing plant." Acts 1979, 66th Legislature, Ch. 624, Art. 1, §3. A place of business from which the retailer's salesman who took typical warehouse, storage yard, or manufacturing plant would the order operates." almost certainly process more than three orders in a calendar year. So, this explicit threshold requirement is an additional in- Acts 1979, 66th Legislature, Ch. 624, Art. 1, §3 (amended Ar- dication that the legislature did not intend for these facilities to ticle 1066c(B)(1)(c)). Like current Tax Code, §321.203(d), the automatically be "places of business" simply because they pro- legislature referred to "the place of business ... where the order cessed order information that was previously received at other is received," contemplating a single location, and not multiple lo- locations. Instead, the legislature set a low threshold yet still ex- cations. And like the current statute, the 1979 sourcing statute pected these facilities to engage in at least some sales activities. would be unworkable if an "order" could be "received" at multiple locations where order information might be sent for processing. Mr. Gilmore commented: "This is a major revision to a state practice that has been in place for more than 50 years." CAS- The 1979 amendments were originally set to expire on August TLE commented that the amendment is "inconsistent with his 31, 1981. But, following an October 2, 1980, Interim Report of {the comptroller's} pre-2019 application of the statutory defini- the House Ways and Means Committee, the legislature made tion of 'place of business.'" The comptroller disagrees with these the 1979 amendments permanent. Acts 1981, 67th Legislature, comments.

Ch. 838, §1.

First, the comptroller's treatment of fulfillment warehouses goes Mr. Kroll commented that the comptroller "misremembers as far back as Comptroller's Decision No. 15,654 (1985), which the legislative history." The comptroller disagrees. During the stated (emphasis added): 1979 session of the legislature, a House Study Group analysis stated that the "bill is necessary to protect the state from pos- "But it seems to the administrative law judge that the legislature sible consequences of the pending court suits." The analysis was amending the law if not entirely in reaction to the then-pend- specifically referenced "Dunigan Tool and Supply v. Bullock" as ing case of Bullock v. Dunigan Tool & Supply Co., 588 S.W.2d one of those suits. The analysis is available at the Legislative 633 (Tex. Civ. App.-Texarkana, writ ref'd n.r.e.), at least partly in Reference Library website at https://lrl.texas.gov/scanned/hro- reaction to that case. And if that be so, then the legislature did BillAnalyses/66-0/SB582.pdf. not want warehousing and storage facilities (many of which are outside city limits) to be the places where sales were consum- In the Dunigan litigation, sales personnel took orders that were mated for local sales tax purposes unless orders were actually forwarded to pipe storage facilities where the orders were ful- received there by personnel working there, but wanted the of- filled. At the time of the 1979 legislation, the district court had fice location out of which the salesman operated to be the place ruled that the transactions should be sourced to the pipe stor- where the sales were consummated." age facilities. Bullock v. Dunigan Tool & Supply Co., 588 S.W.2d 633, 635 (Tex. Civ. App. - Austin, Sept. 6, 1979, writ ref'd CASTLE commented: "The Comptroller misreads the decision." n.r.e.). Therefore, when the 1979 House Study Group bill anal- But, the text of the decision speaks for itself: "the legislature ... ysis stated that the bill was intended to protect the state from wanted the office location out of which the salesman operated to the consequences of the Dunnigan litigation, the analysis meant be the place where the sales were consummated." that the legislation was intended to reduce the circumstances in Second, the text of former §3.334(h)(3) indicated that a fulfill- which transactions would be sourced to fulfillment warehouses, ment center is not automatically a "place of business" for local which at the time were often located in rural areas not subject to sourcing (emphasis added): local sales tax. The legislature accomplished this objective by adding a definition of "place of business" that was limited to a "(3) Consummation of sale. The following rules, taken from Tax location operated "for the purpose of receiving orders," and by Code, §321.203 and §323.203, apply to all sellers engaged in adding a provision for sourcing transactions to where the order business in this state, regardless of whether they have a place was received. Acts 1979, 66th Legislature, Ch. 624, Art. 1, §3. of business in Texas or multiple places of business in the state.

Mr. Kasner in a previous rulemaking proceeding commented ... that the proposed rule reverses the effect of the Dunigan de- (B) Order received at a place of business in Texas, fulfilled at cision. He is correct, because the rule attempts to follow the a location that is not a place of business. When an order that subsequent legislation, which was intended to reverse the effect is placed over the telephone, through the Internet, or by any of the Dunigan decision. means other than in person is received by the seller at a place In the subsequent October 2, 1980, Interim Report of the House of business in Texas, and the seller fulfills the order at a loca- Ways and Means Committee, the committee considered whether tion that is not a place of business of the seller in Texas, such as to allow the recently adopted statutory definition of "place of busi- a warehouse or distribution center, the sale is consummated at ness" to expire. The committee described the consequence: the place of business at which the order for the taxable item is "The location of sale would no longer be tied to permitted outlets, received. salesmen's locations, or sales offices." Interim Report at 20. The ... committee understood that the phrase "operated for the purpose of receiving orders" meant sales activities and not ancillary ac- (D) Order fulfilled within the state at a location that is not a place tivities necessary to subsequently effectuate the sale. of business. When an order is received by a seller at any location other than a place of business of the seller in this state, and the To be clear, under the 1979 legislation and today, a fulfillment seller fulfills the order at a location in Texas that is not a place warehouse could be and can be a "place of business." The legis- of business of the seller, then the sale is consummated at the lature set a low threshold: "A warehouse, storage yard, or manu-

ADOPTED RULES June 28, 2024 49 TexReg 4803 location in Texas to which the order is shipped or delivered, or sale is consummated at the location in Texas to which the order the location where it is transferred to the purchaser." is shipped. See §3.334(h)(3)(D). For Scenario One, local sales and use tax is due based on the location where the order is (41 TexReg 260, 265) (2016) (former 34 TAC §3.334(h)(3), em- delivered." STAR Accession No. 201906015L (June 13, 2019) phasis added); (39 TexReg 9597, 9606) (2014) (former 34 TAC (emphasis added).

§3.334(h)(3), emphasis added).

Each of these documents, which predate the rulemaking, and Third, the consummation rules in former §3.334(h)(3) were aug- which the comptroller indexed and made available for public in- mented with an explicit provision for fulfillment centers, which spection on the State Tax Automated Research (STAR) System, the former rule referred to as "distribution centers" (emphasis is consistent with the statement in the rule that the location from added): which a product is shipped shall not be used in determining the "(2) Distribution centers, manufacturing plants, storage yards, location where the order is received by the seller. warehouses, and similar facilities.

Reasons Why the Comptroller Disagrees With Commenters' (A) A distribution center, manufacturing plant, storage yard, Submissions and Proposals - The use of language from the warehouse, or similar facility operated by a seller at which the SSUTA in subsection (c)(7). seller receives three or more orders for taxable items during the In the rulemaking that adopted subsection (c))(7), the comptroller calendar year is a place of business. received comments that are discussed below. (B) If a salesperson who receives three or more orders for tax- Mr. Kroll commented: "The Texas Legislature, (the entity with able items within a calendar year is assigned to work from, or to constitutional responsibility for the state's Tax Policy), has had work at, a distribution center, manufacturing plant, storage yard, nine regular sessions to adopt the SSUTA's preferred origin warehouse, or similar facility operated by a seller, then the facil- sourcing model found in SSUTA 3.10.1. The Legislature has ity is a place of business. not acted, even in 2013 when then Senator Hegar was chairing (C) If a location that is a place of business of the seller, such the Senate Finance, Subcommittee on Fiscal Matters with Tax as a sales office, is in the same building as a distribution center, policy responsibility." manufacturing plant, storage yard, warehouse, or similar facility CASTLE similarly commented: "the Legislature, in general, re- operated by a seller, then the entire facility is a place of business jected the Comptroller's efforts to become a member and be sub- of the seller." ject to the Agreement, and, more specifically, declined to adopt (41 TexReg 260, 263) (2016) (former 34 TAC §3.334(e)(2), em- the language of 3.10.1 and change the definition of what is a phasis added); (39 TexReg 9597, 9605) (2014) (former 34 TAC 'place of business.'" §3.334(e)(2), emphasis added).

Mr. Land commented: "By not adopting the agreement, the If a distribution center were automatically a "place of business" legislature was rejecting the very language the Comptroller pro- for local tax sourcing as the Plaintiff cities contend, subpara- poses to adopt..." graphs (B) and (C) would not be required - there would be no Clyde Hairston, Mayor of the City of Lancaster, commented: need for a salesperson or a sales office to "then" make the dis- "Rule changes refer to the Streamline Sales and Use Tax Agree- tribution center a "place of business" for local tax sourcing pur- ment. States participating in this agreement do not seem to have poses. similar economic issues as the State of Texas. If the intent of the Fourth, in addition to its rule, the comptroller distributed Publi- rule change is to position the state to participate in the Sales and cation 94-105, sometimes called the "Local Sales and Use Tax Use Tax Agreement, further research is needed to better support Bulletin - Guidelines for Collecting Local Sales and Use Tax," the rationale for this action." or "Tax Topics - Guidelines of Collecting Local Sales and Use And, Rolin McPhee, City Manager of the City of Longview, com- Tax" (Guidelines). These Guidelines were posted on the comp- mented: "This sentiment runs counter to the story of Texas. Yes, troller's website and indexed in the comptroller's State Tax Au- we should look to and learn from other states, but Texas should tomated Research System. Since at least 2007, the Guidelines lead and not follow. We should not implement statewide policies referred to a "location within the state that is not a place of busi- because 'everyone else is doing it.'" ness (such as a warehouse or distribution center)." E.g., STAR Accession No. 200902596L (February 2009). The Guidelines David Bristol, Mayor of the City of Prosper, had similar com- were intended as a general guide and not as a comprehensive ments. resource. But, an ordinary reader would not walk away with the Although the legislature declined to adopt the SSUTA, it would impression that a taxpayer's fulfillment center was automatically be an overstatement to suggest that the legislature specifically a "place of business" for purposes of local tax sourcing. rejected the language of a single subsection of the SSUTA. As Fifth, in 2016, the comptroller rewrote the Guidelines to be even CASTLE pointed out: "Therefore, prior to December 31, 2007, more specific regarding fulfillment centers: "The warehouse from the Legislature had to agree to the quoted 3.10.1 language, as a which the person ships those items is not a place of business, step in allowing Texas to be subject to the Agreement. But doing unless the warehouse separately qualifies as a place of busi- so would have required not only that the Legislature radically re- ness." STAR Accession No. 201606995L (June 1, 2016). vise the statutory definition of 'place of business' but make many other changes to the sections of the Tax Code addressing sales And, sixth, in 2019, a comptroller letter ruling discussed ful- and use tax." fillment centers, referring to the former rule, then in effect: "Scenario One: Taxpayer Retailer operates fulfillment centers Texas has a unique, composite consummation statute, in which in Texas that are not open to the public. ... When an order sales are sometimes sourced to where the order is received, is received at a location that is not a place of business and is sometimes sourced to where the order is fulfilled, and sometimes fulfilled in Texas at a location that is not a place of business, the sourced to where the order is delivered. Adoption of the SSUTA

49 TexReg 4804 June 28, 2024 Texas Register would require fundamental changes to this composite consum- Tax Code, §321.203 establishes a hierarchy among places mation statute, which the comptroller is not advocating or pro- of business involved in a transaction, subject to certain ex- moting. However, there is one area of overlap. Both systems ceptions. The hierarchy is described in a summary chart in use the receipt of an order as a factor in sourcing. In this area the Comptroller's Guide for Sellers. See https://comptrol- of overlap, it is entirely appropriate to consider how the SSUTA ler.texas.gov/taxes/publications/94-105.php (Local Sales and does it. Use Tax Collection - A Guide for Sellers). If an order is fulfilled from a place of business of the seller in Texas, the sale is The comptroller has considered the language in the SSUTA and consummated at that location even if the order is received at concluded that it is a reasonable and practical method of deter- another place of business in Texas (except for orders received mining where and when an order is received. And, the SSUTA in person). Conversely, an order is consummated at the place language has the added benefit of being a concept that other of business of the seller in Texas where the order is received states have acknowledged, and a concept with which many tax- only if the order was not fulfilled from a place of business in payers will already be familiar.

Texas (except for orders received in person). Subsection (c) of Summary of the Factual Bases for the Rule - Subsection (c) - the comptroller rule reflects this hierarchy.

Application of the consummation rules.

The statutory provision in Tax Code, §321.203(b), for a seller Subsection (c) states in relevant part: with a single place of business in Texas, is simply a recogni- tion that the hierarchy is not required in those circumstances. "The following rules, taken from Tax Code, §321.203 and The outcome will be the same regardless of whether the order §323.203, apply to all sellers engaged in business in Texas, is received, fulfilled, or received and fulfilled from that place of regardless of whether they have no place of business in Texas, a business, and regardless of whether the order is placed at that single place of business in Texas, or multiple places of business location in person - the sale will be consummated at that place in Texas." of business.

The language of subsection (c) tracks the language in the prior But the place of business must have a discrete connection 2014 and 2016 versions of the rule: to the sale for the sale to be consummated there. Tax Code, "The following rules, taken from Tax Code, §321.203 and §321.203(b) cannot reasonably be interpreted to mean that a §323.203, apply to all sellers engaged in business in this state, sale is consummated at the seller's single place of business in regardless of whether they have a place of business in Texas or Texas, even if that place of business did not receive the order multiple places of business in the state." from the customer, did not fulfill the order to the customer, and was not the location where the order was delivered. (41 TexReg 260, 265) (2016) (former 34 TAC §3.334(h)(3); (39 TexReg 9597, 9606) (2014) (former 34 TAC §3.334(h)(3)). Suppose a reseller has a single place of business, located in City A, that consists only of a sales office. The reseller also has Reasons Why the Comptroller Disagrees With Commenters' a fully-automated shopping website hosted by a server in City Submissions and Proposals - Subsection (c).

B that receives and processes an order from a customer in City Mr. Sheets commented that the rule changes how Internet or- C. The order is then fulfilled from a third-party manufacturer's ders are sourced for retailers with a single place of business in warehouse in City D and shipped to the customer in City C. To Texas. However, the language of subsection (c) has the same make the customer in City C pay local sales tax to City A, a ju- effect as the language in the prior 2014 and 2016 versions of risdiction that had no relation to the customer or the transaction, the rule - no special treatment for vendors with a single "place of would be an unreasonable reading of the statute that the Leg- business." islature could not have intended. See, Castleman v. Internet Money Ltd., 546 S.W.3d 684, 688 (Tex. 2018) (making "logical Mr. Sheets commented that the rule conflicts with Tax Code, inferences" necessary "to avoid an absurd or nonsensical result §321.203(b), which provides: that the Legislature could not have intended."). "(b) If a retailer has only one place of business in this state, all Another rule of statutory construction is that compliance with of the retailer's retail sales of taxable items are consummated at the constitutions of this State and the United States is intended. that place of business except as provided by Subsection (e)." Government Code, §311.021(a). In the tax arena, as elsewhere, Tax Code, §321.203(b) describes the consummation principles the United States Constitution requires due process. In tax for a seller that has only one place of business in the state. In cases, the United States Supreme Court has stated that due the comptroller's view, those principles are consistent with the process "centrally concerns the fundamental fairness of govern- treatment of other sellers and do not require special treatment in mental activity." N. Carolina Dep't of Revenue v. The Kimberley the rule. Rice Kaestner 1992 Family Tr., 139 S. Ct. 2213, 2219, (2019), quoting Quill v. North Dakota, 504 U.S. 298, 312 (1992).

As a matter of statutory construction, Tax Code, §321.203(b) should be viewed in the context of the statute as a whole. Castle- The "due course of law" provision of the Texas constitution man v. Internet Money Ltd., 546 S.W.3d 684, 688 (Tex. 2018). provides protections similar to, and in some instances, greater When the statute is considered as a whole, the only reasonable than the protections in the federal due process clause. Patel interpretation is that all retail sales associated with a single place v. Tex. Dep't of Licensing & Regulation, 469 S.W.3d 69, 86-87 of business are consummated at that single place of business, (Tex. 2015) ("the Texas due course of law protections in Article regardless of whether the order was placed in person there, the I, §19, for the most part, align with the protections found in the order was received there from a purchaser at another location, or Fourteenth Amendment to the United States Constitution. But, the order was fulfilled there. But, the statute cannot reasonably ... Section 19's substantive due course provisions undoubtedly mean that an order with no connection to that place of business were intended to bear at least some burden for protecting indi- would be consummated there. vidual rights that the United States Supreme Court determined were not protected by the federal Constitution.").

ADOPTED RULES June 28, 2024 49 TexReg 4805 A statute violates the Texas due course of law protection if the business of the seller. But if a person performs contract tele- "statute's actual, real-world effect as applied to the challenging marketing from the person's residence, the person will not be party could not arguably be rationally related to, or is so burden- operating out of a place of business of the seller because the some as to be oppressive in light of, the governmental interest." residence is not "operated by the seller," as required by subsec- Id. at 87. tion (a)(16).

The actual, real-world effect of Mr. Sheet's interpretation could Reasons Why the Comptroller Disagrees With Commenters' not arguably be rationally related to, or is so burdensome as to Submissions and Proposals - Subsection (b)(4). be oppressive to taxpayers in light of, the governmental inter- In the rulemaking that adopted subsection (b)(4), Mr. Kroll com- est in local taxation. Specifically, there is no rational connection mented that subsection (b)(4) "no longer imputes the order to or sufficient government interest to make a purchaser in City C the place of business where the employee is assigned, and that pay sales tax to City A simply because the vendor arranged its the new policy does not accurately or easily reflect the mobile business such that it had a single sales office in City A that had workforce of today." And Brian Pannell, North America Tax Di- nothing to do with the transaction. rector for Dell Inc., commented that subsection (b)(4) deviates Mr. Sheets commented that procedural due process require- from Tax Code, §321.203(d)(2) and "effectively changes sourc- ments do not apply because Tax Code, §321.203(b) is the result ing rules for salespersons who are assigned to regional places of legislative action. However, the comptroller's statutory inter- of business but do their principal work-related activities at other pretation is based on substantive due process. See, Patel, 469 locations." S.W.3d at 75.

The comptroller disagrees with these comments. Tax Code, Mr. Sheets also proposes to add a "special" exception for sell- §321.203(d) does not impute an order to the location where a ers with a single place of business in Texas. The comptroller salesperson is "assigned." Instead, the statute provides that in declines to make the proposed revisions for the reasons stated certain circumstances, an order may be imputed to the "place of in the preceding paragraphs. The City of Round Rock is chal- business from which the retailer's agent or employee who took lenging the comptroller's interpretation in the pending litigation. the order operates." And, although an order may be imputed to Again, it is appropriate to state the comptroller's interpretation in a place of business of the retailer if the agent or employee oper- the rule so that those who disagree may challenge the interpre- ates out of that place of business, the statute does not mandate tation in court. that an agent or employee be assigned to, or operate out of, a place of business. If an agent or employee does not operate out Summary of the Factual Bases for the Rule - Subsection (b)(4) of a place of business, Tax Code, §321.203(d) has no applica- - Order received by a salesperson who is not at a place of busi- tion. And, it would be unreasonable to allow a vendor to source ness when the salesperson receives the order. sales to a place of business by merely "assigning" a salesperson Subsection (b)(4) provides: to that location in the absence of any physical connection. "(4) An order that is received by a salesperson who is not at a Summary of the Factual Bases for the Rule - Subsection (b)(6) place of business of the seller when the salesperson receives -small and micro-businesses. the order is treated as being received at the location from which The comptroller adds subsection (b)(6) to the former rule: the salesperson operates. Examples include orders that a sales- person receives by mail, telephone, including Voice over Internet "If a small business or a micro-business operates a single lo- Protocol and cellular phone calls, facsimile, and email while trav- cation out of which it conducts all of its business activities, the eling. The location from which the salesperson operates is the comptroller will presume that the location is a place of business principal fixed location where the salesperson conducts work-re- of the seller." lated activities. The location from which a salesperson operates The comptroller also adds following supporting definitions to sub- will be a place of business of the seller only if the location meets section (a): the definition of a 'place of business of a seller' in subsection (a)(16) of this section on its own, without regard to the orders "Independently owned and operated business--a self-controlling imputed to that location by this paragraph." entity that is not a subsidiary of another entity or otherwise sub- ject to control by another entity, and that is not publicly traded." Tax Code, §321.203(d) provides for consummation of a local sale at the place of business "from which the retailer's agent "Micro-business--a legal entity, including a corporation, partner- or employee who took the order operates." Prior to the 2020 ship, or sole proprietorship, that: amendment, the rule did not define the location from which a (A) is formed for the purpose of making a profit; salesperson operates. The third sentence of subsection (b)(4) now provides in part: "The location from which the salesperson (B) is independently owned and operated; and operates is the principal fixed location from which the salesper- (C) has not more than 20 employees." son conducts work-related activities..." A physical connection be- tween the salesperson and the place of business is a reasonable "Small business--a legal entity, including a corporation, partner- interpretation of the location from which a salesperson operates. ship, or sole proprietorship, that: The final sentence of subsection (b)(4) clarifies that the princi- (A) is formed for the purpose of making a profit; pal fixed location from which the salesperson conducts work-re- (B) is independently owned and operated; and lated activities may or may not be a place of business of the seller, depending upon whether the location meets the defini- (C) has fewer than 100 employees or less than $6 million in an- tional requirements of subsection (a)(16). For example, if an nual gross receipts." entrepreneur conducts sales operations from the entrepreneur's The definition of "independently owned and operated business" residence, the entrepreneur will be operating out of a place of is taken from Government Code, Chapter 2006, Small Busi-

49 TexReg 4806 June 28, 2024 Texas Register nesses and Rural Communities Impact Guidelines, updated in Subsection (i)(3) implements House Bill 2153, 86th Legislature, December 2017. 2019, which sets a single local use tax rate that remote sellers may elect to use.

The definitions of "micro-business" and "small business" are taken from Government Code, Chapter 2006. The comptroller received no negative submissions or proposals regarding this subsection.

The comptroller cannot make a location a "place of business" by rule if the statute does not allow it. But, the agency can presume Summary of the Factual Bases for the Rule - Subsection (k)(5) - that a location is a "place of business" based on indicative facts, Marketplace sales. such as a small, independent business that conducts all of its Subsection (k)(5) implemented House Bill 1525, 86th Legisla- business operations out of a single location. ture, 2019, which places local sales and use tax collection re- Reasons Why the Comptroller Disagrees With Commenters' sponsibilities on marketplace providers.

Submissions and Proposals - Subsection (b)6).

The comptroller received no negative submissions or proposals Mr. Sheets commented that the subsection does nothing to regarding this subsection. reduce the adverse economic effects on small and microbusi- Reasons Why the Comptroller Disagrees With Commenters' nesses. Mr. Land commented that there is no rational policy Submissions and Proposals - Public benefits and costs. reason for treating businesses differently based upon size or revenue, and Mr. Gilmore questioned the reasoning behind the Mr. Christian commented that there will be a significant fiscal im- differentiation. CASTLE commented that the presumption is plication for businesses that must invest in reprogramming soft- contrary to the law and factually unsupported. And, Mr. Chris- ware for enhanced local tax compliance, and the economic cost tian commented that the presumption should be expanded. to the public must be estimated. Mr. Gilmore, Mr. Land, Mr. Sheets, and Mr. Mays also commented that the rule will increase The comptroller responds that the agency routinely uses pre- business compliance costs. sumptions in applying statutes, and the courts have honored them. A word search of the Texas Administrative Code produces The comptroller acknowledges that there may be additional com- over 60 instances in which the comptroller rules use presump- pliance costs, since it is conceivable that the rule may cause tions. For example, the Austin Court of Appeals recognized that some vendors to realize that they are noncompliant. If the ven- "repainting is presumed to be a taxable activity unless the tax- dors come into compliance by changing from single-location re- payer affirmatively shows that the repainting meets the specific porting to multiple-location reporting, their compliance burden requisites of maintenance as set out in the rule." GATX Termi- may increase. And if vendors change from multiple-location re- nals Corp. v. Rylander, 78 S.W.3d 630, 635 (Tex. App. - Austin porting to single-location reporting, their compliance burden may 2002, no pet.); 34 TAC §3.357(b)(8). diminish.

The rational policy reason for special treatment, and the size and The total net economic cost cannot be reliably estimated for revenue requirements have been mandated by the Texas Legis- reasons explained in the preamble to the proposed rule. The lature in Government Code, Chapter 2006. And, the parameters comptroller cannot determine the number of vendors that would are appropriate for the presumption. It is reasonable to assume change from single-location report to multiple-location reporting. that a small business or a micro-business that operates a single Furthermore, the cost of compliance with the statute cannot be location out of which it conducts all of its business activities will a factor in the rulemaking because compliance with the statute receive three or more orders per calendar year at that location, is required with or without the rule. making that location a place of business of the seller. It is less Reasons Why the Comptroller Disagrees With Commenters' reasonable to make that assumption if the business operates Submissions and Proposals - Revenue Effect out of more than one location, or if the business is an affiliate of another, creating the possibility that the order receipt and order The preamble to the proposed rule explained the methodology fulfillment may occur in different locations. that the comptroller used to estimate the revenue effect. Mr. Mays, Mr. Sheets, Mr. Gilmore, Mr. Land, and CASTLE all Summary of the Factual Bases for the Rule - Subsections commented that the analysis of the revenue impact on cities was (c)(2)(B)(ii), (d)(2), and (i) - Seller's obligation to collect local insufficient, but did not identify any errors in the assumptions that use tax. the agency used in the estimate.

Subsection (c)(2)(B)(ii) provides that a remote seller that is re- CASTLE contends that "there must be a dollar amount specific quired to collect state use tax must also collect local use tax. to each local government or a dollar amount that can be easily Subsection (d)(2) and subsection (i) provide that a non-remote calculated from the methodology used by the Comptroller to gen- seller is responsible for collecting local use tax regardless of the erate an estimate." The comptroller responds that Government location of the seller in Texas. Physical presence in the local ju- Code, §2001.024 has never been interpreted by any agency or risdiction is no longer required. These expansions of the local any court to require individual estimates. There are over 1,700 sales tax collection responsibilities of sellers are based on the local governments in Texas with a local sales tax. In all prior United States Supreme Court decision in South Dakota v. Way- rulemakings, the comptroller has never estimated the loss of or fair, Inc., 138 S. Ct. 2080 (June 21, 2018). increase in local sales tax revenue for each local government in The comptroller received no negative submissions or proposals Texas with a local sales tax. And, the comptroller is unaware of regarding these subsections. any other agency that has made individual estimates for each local government.

Summary of the Factual Bases for the Rule - Subsection (i)(3) - Single local tax option for remote sellers. Furthermore, the statute does not require the comptroller to ar- ticulate a methodology for individual estimates that the agency is not required to make. If an individual jurisdiction wants to con-

ADOPTED RULES June 28, 2024 49 TexReg 4807 duct its own investigation, the preamble to the proposed rule ex- applicable where the transactions were formerly sourced, there plained the data that the jurisdiction would have to obtain, and would be a reduction in aggregate local sales tax levies and con- the preamble explained how a consultant used the data in his sequent reduction in state service charge revenues under Tax study. See, (49 TexReg 2440, 2443) (April 19, 2024). Code, §§321.503, 322.303, and 323.503.

CASTLE suggests that the comptroller could develop a sample Statement of the statutory or other authority under which the rule of local governments. The comptroller responds that Govern- is adopted. ment Code, §2001.024 does not require sampling. Furthermore, Tax Code, §§111.002 (Comptroller's Rule; Compliance; Forfei- an aggregate estimate based on sample of individual jurisdic- ture), 321.306 (Comptroller's Rules), 322.203 (Comptroller's tions would do little to tell individual jurisdictions how they would Rules), and 323.306 (Comptroller's Rules) authorize the comp- be affected. troller to adopt rules to implement the tax statutes.

Mr. Sheets suggested that the comptroller could have under- Sections or articles of the code affected. taken alternatives, such as making estimates for the top twenty most populated jurisdictions or making estimates for the cities Tax Code, §151.0595 (Single Local Tax Rate for Remote Sell- involved in the lawsuit. The comptroller responds that Govern- ers); Tax Code, Chapter 321, Subchapters A, B, C, D, and F; Tax ment Code, §2001.024 does not require selective, individual es- Code, Chapter 322; and Tax Code, Chapter 323 are affected. timates.

The agency certifies that legal counsel has reviewed the adop- The Administrative Procedure Act only requires a fiscal note tion and found it to be a valid exercise of the agency's legal au- showing "the estimated loss or increase in revenue to the state thority. or to local governments as a result of enforcing or administering the rule." Government Code, §2001.024(a)(4)(C). The comp- Filed with the Office of the Secretary of State on June 14, 2024. troller has done that. In addition, the rulemaking process has TRD-202402641 disclosed the types of cities and taxpayers that may be most Jenny Burleson affected - cities receiving substantial tax revenues from fulfill- ment centers, such as the CASTLE group, and cities receiving Director, Tax Policy Division substantial tax revenues from taxpayers sourcing all their sales Comptroller of Public Accounts to a single location, such as the City of Round Rock. Effective date: July 4, 2024 Proposal publication date: April 19, 2024 Reasons Why the Comptroller Disagrees With Commenters' For further information, please call: (512) 475-2220 Submissions and Proposals - Local employment impact state- ment. ♦ ♦ ♦ CASTLE commented that the comptroller "fails to provide a non-conclusory explanation of why the impact cannot be deter- CHAPTER 5. FUNDS MANAGEMENT mined." The comptroller disagrees. The explanation is stated in (FISCAL AFFAIRS) the preamble of the proposed rule.

SUBCHAPTER D. CLAIMS PROCESSING-- Reasons Why the Comptroller Disagrees With Commenters' Submissions and Proposals - Government growth impact state- PAYROLL ment. 34 TAC §5.46 CASTLE comments that the preamble to the proposed rule "fails The Comptroller of Public Accounts adopts amendments to to discuss in any meaningful way" the government growth state- §5.46 concerning deductions for paying membership fees to ment required by Government Code, §2001.0221. Comptroller certain state employee organizations, without changes to the Rule 11.1(d) states that an agency shall "reasonably describe" proposed text as published in the May 3, 2024, issue of the the effect on government growth. 34 TAC §11.1(d). Historically, Texas Register (49 TexReg 2985). The rule will not be repub- the reasonable descriptions published by the comptroller, as well lished. as other agencies, consist of statements of no effect without ex- planation, and statements of effect with brief explanations. The The amendments add a definition of CAPPS in new subsection comptroller followed the historical approach in this rulemaking. (a)(1) and renumber the subsequent provisions accordingly.

CASTLE comments that the rule will create or eliminate a gov- The amendments to subsections (b)(1)(C) and (b)(2)(B) add a ernment program if a local government loses significant local second method of establishing, changing or cancelling a pay- sales tax revenue. The comptroller responds that the rule it- roll deduction for state employee organization membership fees. self does not create or eliminate a government program. The These provisions currently allow a state employee to establish, creation or elimination of local government programs is at the change or cancel a payroll deduction by submitting a written au- discretion of local governments. thorization form to the employer's human resource officer or pay- roll officer. The amendments to these provisions also allow a CASTLE also comments that "the Comptroller has already ad- state employee to establish, change or cancel a payroll deduc- mitted that there will be a decrease in the fees he receives." The tion by submitting an electronic authorization through CAPPS. comptroller acknowledges that to the extent that transactions previously sourced within an incorporated municipality would be The amendments to subsection (b)(2)(D) make a conforming sourced to an unincorporated area without a cumulative local tax change to require state agencies to notify the affected eligible rate levied by municipal (pursuant to a limited purpose annexa- organization if a state employee submits an electronic authoriza- tion agreement), county, and/or special purpose taxing authori- tion form through CAPPS cancelling a payroll deduction for state ties commensurate with the cumulative local tax rate levied by employee organization membership fees. the municipal, county, and/or special purpose taxing authorities

49 TexReg 4808 June 28, 2024 Texas Register APPENDIX E TEXAS ADMINISTRATIVE CODE: As in effect on 11/25/2025.

TITLE 34. PUBLIC FINANCE PART 1. COMPTROLLER OF PUBLIC ACCOUNTS CHAPTER 3. TAX ADMINISTRATION SUBCHAPTER O. STATE AND LOCAL SALES AND USE TAXES §3.334. Local Sales and Use Taxes.

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Cable system--The system through which a cable service provider delivers cable television or bundled cable service, as those terms are defined in §3.313 of this title (relating to Cable Television Service and Bundled Cable Service).

(2) City--An incorporated city, municipality, town, or village.

(3) City sales and use tax--The tax authorized under Tax Code, §321.101(a), including the additional municipal sales and use tax authorized under Tax Code, §321.101(b), the municipal sales and use tax for street maintenance authorized under Tax Code, §327.003, the Type A Development Corporation sales and use tax authorized under Local Government Code, §504.251, the Type B Development Corporation sales and use tax authorized under Local Government Code, §505.251, a sports and community venue project sales and use tax adopted by a city under Local Government Code, §334.081, and a municipal development corporation sales and use tax adopted by a city under Local Government Code, §379A.081. The term does not include the fire control, prevention, and emergency medical services district sales and use tax authorized under Tax Code, §321.106, or the municipal crime control and prevention district sales and use tax authorized under Tax Code, §321.108.

(4) Comptroller's website--The comptroller's website concerning local taxes located at: https://comptroller.texas.gov/taxes/sales/.

(5) County sales and use tax--The tax authorized under Tax Code, §323.101, including a sports and community venue project sales and use tax adopted by a county under Local Government Code, §334.081. The term does not include the county health services sales and use tax authorized under Tax Code, §324.021, the county landfill and criminal detention center sales and use tax authorized under Tax Code, §325.021, or the crime control and prevention district sales and use tax authorized under Tax Code, §323.105. (6) Drop shipment--A transaction in which an order is received by a seller at one location, but the item purchased is shipped by the seller from another location, or is shipped by the seller's third-party supplier, directly to a location designated by the purchaser. (7) Engaged in business--This term has the meaning given in §3.286 of this title (relating to Seller's and Purchaser's Responsibilities). (8) Extraterritorial jurisdiction-An unincorporated area that is contiguous to the corporate boundaries of a city as defined in Local Government Code, §42.021. (9) Fulfill--To complete an order by transferring possession of a taxable item to a purchaser, or to ship or deliver a taxable item to a location designated by the purchaser. The term does not include receiving or tracking an order, determining shipping costs, managing inventory, or other activities that do not involve the transfer, shipment, or delivery of a taxable item to the purchaser or a location designated by the purchaser. (10) Independently owned and operated business--A self-controlling entity that is not a subsidiary of another entity or otherwise subject to control by another entity, and that is not publicly traded. (11) Itinerant vendor--A seller who travels to various locations for the purpose of receiving orders and making sales of taxable items and who has no place of business in this state. A person who sells items through vending machines is also an itinerant vendor. A salesperson that operates out of a place of business in this state is not an itinerant vendor. (12) Kiosk--A small stand-alone area or structure: (A) that is used solely to display merchandise or to submit orders for taxable items from a data entry device, or both; (B) that is located entirely within a location that is a place of business of another seller, such as a department store or shopping mall; and (C) at which taxable items are not available for immediate delivery to a purchaser. (13) Local taxes--Sales and use taxes imposed by any local taxing jurisdiction. (14) Local taxing jurisdiction--Any of the following: (A) a city that imposes sales and use tax as provided under paragraph (3) of this subsection; (B) a county that imposes sales and use tax as provided under paragraph (5) of this subsection; (C) a special purpose district created under the Special District Local Laws Code or other provisions of Texas law that is authorized to impose sales and use tax by the Tax Code or other provisions of Texas law and as governed by the provisions of Tax Code, Chapters 321 or 323 and other provisions of Texas law; or (D) a transit authority that imposes sales and use tax as authorized by Transportation Code, Chapters, 451, 452, 453, 457, or 460 and governed by the provisions of Tax Code, Chapter, 322. (15) Marketplace provider--This term has the meaning given in §3.286 of this title. (16) Micro-business--A legal entity, including a corporation, partnership, or sole proprietorship, that: (A) is formed for the purpose of making a profit; (B) is independently owned and operated; and (C) has not more than 20 employees. (17) Order placed in person--An order placed by a purchaser with the seller while physically present at the seller's place of business regardless of how the seller subsequently enters the order. (18) Place of business of the seller - general definition--A place of business of the seller must be an established outlet, office, or location operated by a seller for the purpose of receiving orders for taxable items from persons other than employees, independent contractors, and natural persons affiliated with the seller. An "established outlet, office, or location" usually requires staffing by one or more sales personnel. The term does not include a computer server, Internet protocol address, domain name, website, or software application. The "purpose" element of the definition may be established by proof that the sales personnel of the seller receive three or more orders for taxable items at the facility during the calendar year. Additional criteria for determining when a location is a place of business of the seller are provided in subsection (b) of this section for distribution centers, manufacturing plants, storage yards, warehouses and similar facilities; kiosks; and purchasing offices. An outlet, office, facility, or any location that contracts with a retail or commercial business to process for that business invoices, purchase orders, bills of lading, or other equivalent records onto which sales tax is added, including an office operated for the purpose of buying and selling taxable goods to be used or consumed by the retail or commercial business, is not a place of business of the seller if the comptroller determines that the outlet, office, facility, or location functions or exists to avoid the tax legally due under Tax Code, Chapters 321, 322, and 323 or exists solely to rebate a portion of the tax imposed by those chapters to the contracting business. An outlet, office, facility, or location does not exist to avoid the tax legally due under Tax Code, Chapters 321, 322, and 323 or solely to rebate a portion of the tax imposed by those chapters if the outlet, office, facility, or location provides significant business services, beyond processing invoices, to the contracting business, including logistics management, purchasing, inventory control, or other vital business services. (19) Purchasing office--An outlet, office, facility, or any location that contracts with a retail or commercial business to process for that business invoices, purchase orders, bills of lading, or other equivalent records onto which sales tax is added, including an office operated for the purpose of buying and selling taxable goods to be used or consumed by the retail or commercial business. (20) Remote Seller--As defined in §3.286 of this title, a remote seller is a seller engaged in business in this state whose only activity in the state is: (A) engaging in regular or systematic solicitation of sales of taxable items in this state by the distribution of catalogs, periodicals, advertising flyers, or other advertising, by means of print, radio, or television media, or by mail, telegraphy, telephone, computer data base, cable, optic, microwave, or other communication system for the purpose of effecting sales of taxable items; or (B) soliciting orders for taxable items by mail or through other media including the Internet or other media that may be developed in the future. (21) Seller--This term has the meaning given in §3.286 of this title and also refers to any agent or employee of the seller. (22) Small business--A legal entity, including a corporation, partnership, or sole proprietorship, that: (A) is formed for the purpose of making a profit; (B) is independently owned and operated; and (C) has fewer than 100 employees or less than $6 million in annual gross receipts. (23) Special purpose district--A local governmental entity authorized by the Texas legislature for a specific purpose, such as crime control, a local library, emergency services, county health services, or a county landfill and criminal detention center. (24) Storage--This term has the meaning given in §3.346 of this title (relating to Use Tax).

(25) Temporary place of business of the seller--A location operated by a seller for a limited period of time for the purpose of selling and receiving orders for taxable items and where the seller has inventory available for immediate delivery to a purchaser. For example, a person who rents a booth at a weekend craft fair or art show to sell and take orders for jewelry, or a person who maintains a facility at a job site to rent tools and equipment to a contractor during the construction of real property, has established a temporary place of business. A temporary place of business of the seller includes a sale outside 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 but not within the walls of the facility.

(26) Transit authority--A metropolitan rapid transit authority (MTA), advanced transportation district (ATD), regional or subregional transportation authority (RTA), city transit department (CTD), county transit authority (CTA), regional mobility authority (RMA) or coordinated county transportation authority created under Transportation Code, Chapters 370, 451, 452, 453, 457, or 460.

(27) Two percent cap--A reference to the general rule that, except as otherwise provided by Texas law and as explained in this section, a seller cannot collect, and a purchaser is not obligated to pay, more than 2.0% of the sales price of a taxable item in total local sales and use taxes for all local taxing jurisdictions.

(28) Use--This term has the meaning given in §3.346 of this title.

(29) Use tax--A tax imposed on the storage, use or other consumption of a taxable item in this state. (b) Determining the place of business of a seller.

(1) Distribution centers, manufacturing plants, storage yards, warehouses, and similar facilities.

(A) A distribution center, manufacturing plant, storage yard, warehouse, or similar facility operated by a seller for the purpose of selling taxable items where sales personnel of the seller receive three or more orders for taxable items during the calendar year from persons other than employees, independent contractors, and natural persons affiliated with the seller is a place of business of the seller. Forwarding previously received orders to the facility for fulfilment does not make the facility a place of business.

(B) If a location that is a place of business of the seller, such as a sales office, is in the same building as a distribution center, manufacturing plant, storage yard, warehouse, or similar facility operated by a seller, then the entire facility is a place of business of the seller. (2) Kiosks. A kiosk is not a place of business of the seller for the purpose of determining where a sale is consummated for local tax purposes. A seller who owns or operates a kiosk in Texas is, however, engaged in business in this state as provided in §3.286 of this title. (3) Purchasing offices.

(A) A purchasing office is not a place of business of the seller if the purchasing office exists solely to rebate a portion of the local sales and use tax imposed by Tax Code, Chapters 321, 322, or 323 to a business with which it contracts; or if the purchasing office functions or exists to avoid the tax legally due under Tax Code, Chapters 321, 322, or 323. A purchasing office does not exist solely to rebate a portion of the local sales and use tax or to avoid the tax legally due under Tax Code, Chapters 321, 322, or 323 if the purchasing office provides significant business services to the contracting business beyond processing invoices, including logistics management, purchasing, inventory control, or other vital business services.

(B) In making a determination under subparagraph (A) of this paragraph, as to whether a purchasing office provides significant business services to the contracting business beyond processing invoices, the comptroller will compare the total value of the other business services to the value of processing invoices. If the total value of the other business services, including logistics management, purchasing, inventory control, or other vital business services, is less than the value of the service to process invoices, then the purchasing office will be presumed not to be a place of business of the seller.

(C) If the comptroller determines that a purchasing office is not a place of business of the seller, the sale of any taxable item is deemed to be consummated at the place of business of the seller from whom the purchasing office purchased the taxable item for resale and local sales and use taxes are due according to the following rules.

(i) When taxable items are purchased from a Texas seller, local sales taxes are due based on the location of the seller's place of business where the sale is deemed to be consummated, as determined in accordance with subsection (c) of this section.

(ii) When the sale of a taxable item is deemed to be consummated at a location outside of this state, local use tax is due based on the location where the items are first stored, used or consumed by the entity that contracted with the purchasing office in accordance with subsection (d) of this section. (4) An order that is received by a salesperson who is not at a place of business of the seller when the salesperson receives the order is treated as being received at the location from which the salesperson operates. Examples include orders that a salesperson receives by mail, telephone, including Voice over Internet Protocol and cellular phone calls, facsimile, and email while traveling. The location from which the salesperson operates is the principal fixed location where the salesperson conducts work-related activities. The location from which a salesperson operates will be a place of business of the seller only if the location meets the definition of a "place of business of a seller" in subsection (a)(16) of this section on its own, without regard to the orders imputed to that location by this paragraph.

(5) A facility without sales personnel is usually not a "place of business of the seller." A vending machine is not "an established outlet, office, or location," and does not constitute a "place of business of the seller." Instead, a vending machine sale is treated as a sale by an itinerant vendor. See subsections (a)(10) and (c)(6) of this section. However, a walk-in retail outlet with a stock of goods available for immediate purchase through a cashier-less point of sale terminal at the outlet would be "an established outlet, office, or location" so as to constitute a "place of business of the seller" even though sales personnel are not required for every sale. A computer that operates an automated shopping cart software program is not an established outlet, office, or location," and does not constitute a "place of business of the seller." A computer that operates an automated telephone ordering system is not "an established outlet, office, or location," and does not constitute a "place of business of the seller." (6) If a small business or a micro-business operates a single location out of which it conducts all of its business activities, the comptroller will presume that the location is a place of business of the seller. (c) Local sales tax - Consummation of sale - determining the local taxing jurisdictions to which sales tax is due. Except for the special rules applicable to remote sellers in subsection (i)(3) of this section, direct payment permit purchases in subsection (j) of this section, and certain taxable items, including taxable items sold by a marketplace provider, as provided in subsection (k) of this section, each sale of a taxable item is consummated at the location indicated by the provisions of this subsection. The following rules, taken from Tax Code, §321.203 and §323.203, apply to all sellers engaged in business in Texas, regardless of whether they have no place of business in Texas, a single place of business in Texas, or multiple places of business in Texas.

(1) Consummation of sale - order received at a place of business of the seller in Texas.

(A) Order placed in person. Except as provided by paragraph (3) of this subsection, when an order for a taxable item is placed in person at a seller's place of business in Texas, including at a temporary place of business of the seller in Texas, the sale of that item is consummated at that place of business of the seller, regardless of the location where the order is fulfilled.

(B) Order not placed in person.

(i) Order fulfilled at a place of business of the seller in Texas. When an order is received at a place of business of the seller in Texas and is fulfilled at a place of business of the seller in Texas, the sale is consummated at the place of business where the order is fulfilled.

(ii) Order not fulfilled at a place of business of the seller in Texas. When an order is received at a place of business of the seller in Texas and is fulfilled at a location that is not a place of business of the seller in Texas, the sale is consummated at the place of business where the order is received. (2) Consummation of sale - order not received at a place of business of the seller in Texas.

(A) Order fulfilled at a place of business of the seller in Texas. When an order is received at a location that is not a place of business of the seller in Texas or is received outside of Texas, and is fulfilled from a place of business of the seller in Texas, the sale is consummated at the place of business where the order is fulfilled.

(B) Order not fulfilled from a place of business of the seller in Texas.

(i) Order fulfilled in Texas. When an order is received at a location that is not a place of business of the seller in Texas and is fulfilled from a location in Texas that is not a place of business of the seller, the sale is consummated at the location in Texas to which the order is shipped or delivered, or at which the purchaser of the item takes possession.

(ii) Order not fulfilled in Texas. When an order is received by a seller at a location that is not a place of business of the seller in Texas, and is fulfilled from a location outside of Texas, the sale is not consummated in Texas.

However, a use is consummated at the first point in Texas where the item is stored, used, or consumed after the interstate transit has ceased. A taxable item delivered to a point in Texas is presumed to be for storage, use, or consumption at that point until the contrary is established. Local use tax should be collected as provided in subsection (d) of this section. Except as provided in subsection (i)(3) of this section, a remote seller required to collect state use tax under §3.286(b)(2) of this title must also collect local use tax. (3) 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). This paragraph is effective until September 1, 2024. If applicable, the local sales tax due on the sale of a taxable item is based on the location of the qualifying warehouse, which is a place of business of the seller, from which the item is shipped or delivered or at which the purchaser of the item takes possession. (4) Local sales taxes are due to each local taxing jurisdiction with sales tax in effect where the sale is consummated. Local use tax may also be due if the total amount of local sales taxes due does not reach the two percent cap, and the item purchased is shipped or delivered to a location in one or more different local taxing jurisdictions, as provided in subsection (d) of this section. (5) Multiple special purpose district taxes, multiple transit authority sales taxes, or a combination of the two may apply to a single transaction. If the sale of a taxable item is consummated at a location within the boundaries of multiple special purpose districts or transit authorities, local sales tax is owed to each of the jurisdictions in effect at that location. For example, a place of business of the seller located in the city of San Antonio is within the boundaries of both the San Antonio Advanced Transportation District and the San Antonio Metropolitan Transit Authority, and the seller is required to collect sales tax for both transit authorities.

Similarly, a place of business of the seller in Flower Mound is located within the boundaries of two special purpose districts, the Flower Mound Crime Control District and the Flower Mound Fire Control District, and the seller is responsible for collecting sales tax for both special purpose districts. (6) Itinerant vendors; vending machines.

(A) Itinerant vendors. Sales made by itinerant vendors are consummated at, and itinerant vendors must collect sales tax based upon, the location where the item is delivered or at which the purchaser of the item takes possession.

Itinerant vendors do not have any responsibility to collect use tax.

(B) Vending machines. Sales of taxable items made from a vending machine are consummated at the location of the vending machine. See §3.293 of this title (relating to Food; Food Products; Meals; Food Service) for more information about vending machine sales. (7) The location where the order is received by or on behalf of the seller means the physical location of a seller or third party such as an established outlet, office location, or automated order receipt system operated by or on behalf of the seller where an order is initially received by or on behalf of the seller and not where the order may be subsequently accepted, completed or fulfilled. An order is received when all of the information from the purchaser necessary to the determination whether the order can be accepted has been received by or on behalf of the seller.

The location from which a product is shipped shall not be used in determining the location where the order is received by the seller. (d) Local use tax. The provisions addressing the imposition of state use tax in §3.346 of this title also apply to the imposition of local use tax. For example, consistent with §3.346(e) of this title, all taxable items that are shipped or delivered to a location in this state that is within the boundaries of a local taxing jurisdiction are presumed to have been purchased for use in that local taxing jurisdiction as well as presumed to have been purchased for use in the state.

(1) General rules.

(A) When local use taxes are due in addition to local sales taxes as provided by subsection (c) of this section, all applicable use taxes must be collected or accrued in the following order until the two percent cap is reached: city, county, special purpose district, and transit authority. If more than one special purpose district use tax is due, all such taxes are to be collected or accrued before any transit authority use tax is collected or accrued. See subparagraphs (D) and (E) of this paragraph.

(B) If a local use tax cannot be collected or accrued at its full rate without exceeding the two percent cap, the seller cannot collect it, or any portion of it, and the purchaser is not responsible for accruing it.

(C) If a seller collects a local sales tax on an item, or a purchaser accrues a local sales tax on an item, a use tax for the same type of jurisdiction is not due on the same item. For example, after a city sales tax has been collected or accrued for an item, no use tax is due to that same or a different city on that item, but use tax may be due to a county, special purpose district, or transit authority. Similarly, if one or more special purpose district sales taxes have been collected or accrued for an item, no special purpose district use tax is due on that item, and if one or more transit authority sales taxes have been collected or accrued for an item, no transit authority use tax is due on that item.

(D) Collection or accrual of use tax for multiple special purpose districts. If more than one special purpose district use tax is in effect at the location where use of an item occurs, the special purpose district taxes are due in the order of their effective dates, beginning with the earliest effective date, until the two percent cap is met. The effective dates of all special purpose district taxes are available on the comptroller's website. However, if the collection or accrual of use tax for the district with the earliest effective date would exceed the two percent cap, the tax for that district is not due and the seller or purchaser should determine, following the criteria in subparagraphs (A) - (C) of this paragraph, whether use tax is due for the district that next became effective.

(i) If the competing special purpose district taxes became effective on the same date, the special purpose district taxes are due in the order of the earliest date for which the election in which the district residents authorized the imposition of sales and use tax by the district was held. (ii) If the elections to impose the local taxes were held on the same date, the special purpose district taxes are due in the order of the earliest date for which the enabling legislation under which each district was created became effective.

(E) Collection or accrual of use tax for multiple transit authorities. If more than one transit authority use tax is in effect at the location where use of an item occurs, and the two percent cap has not been met, the transit authority taxes are due in the order of their effective dates, beginning with the earliest effective date, until the two percent cap is met. The effective dates of all transit authority taxes are available on the comptroller's website. However, if the collection or accrual of use tax for the authority with the earliest effective date would exceed the two percent cap, the tax for that authority is not due and the seller or purchaser should determine, following the criteria in subparagraphs (A) - (D) of this paragraph, whether use tax is due for the authority that next became effective.

(i) If the competing transit authorities became effective on the same date, the transit authority taxes are due in the order of the earliest date for which the election in which the authority residents authorized the imposition of sales and use tax by the authority was held.

(ii) If the elections to impose local taxes were held on the same date, the transit authority use taxes are due in the order of the earliest date for which the enabling legislation under which each authority was created became effective. (2) General use tax rules applied to specific situations. The following fact patterns explain how local use tax is to be collected or accrued and remitted to the comptroller based on, and subject to, the general rules in paragraph (1) of this subsection.

(A) Sale consummated outside the state, item delivered from outside the state or from a location in Texas that is not operated by the seller - local use tax due.

Except as provided in subsection (i)(3) of this section, if a sale is consummated outside of this state according to the provisions of subsection (c) of this section, and the item purchased is either shipped or delivered to a location in this state as designated by the purchaser from a location outside of the state, or if the order is drop shipped directly to the purchaser from a third-party supplier, local use tax is owed 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.

The seller is responsible for collecting the local use tax due on the sale. If the seller does not collect the local use taxes due on the sale, the purchaser is responsible for accruing such taxes and remitting them directly to the comptroller according to the provisions in paragraph (1) of this subsection. For example, if an order for a taxable item is received by a seller at a location outside of Texas, and the order is shipped to the purchaser from a location outside of the state, local use tax is due based upon the location to which the order is shipped or delivered or at which the purchaser of the item takes possession. (B) Sale consummated in Texas outside a local taxing jurisdiction, item delivered into one or more local taxing jurisdictions - local use tax due. If a sale is consummated at a location in Texas that is outside of the boundaries of any local taxing jurisdiction according to the provisions of subsection (c) of this section, and the order is shipped or delivered to the purchaser at a location in this state that is within the boundaries of one or more local taxing jurisdictions, local use tax is due based on the location to which the items are shipped or delivered or at which the purchaser of the item takes possession. The seller is responsible for collecting the local use taxes due on the sale, regardless of the location of the seller in Texas. If the seller fails to collect any local use taxes due, the purchaser is responsible for accruing such taxes and remitting them directly to the comptroller. (C) Sale consummated in any local taxing jurisdictions imposing less than 2.0% in total local taxes - local sales taxes and use taxes due. If a sale is consummated at a location in Texas where the total local sales tax rate imposed by the taxing jurisdictions in effect at that location does not equal 2.0% according to the provisions of subsection (c) of this section, and the item is shipped or delivered to the purchaser at a location in this state that is inside the boundaries of a different local taxing jurisdiction, additional local use tax may be due based on the location to which the order is shipped or delivered or at which the purchaser of the item takes possession, subject to the two percent cap. The seller is responsible for collecting any additional local use taxes due on the sale, regardless of the location of the seller in Texas. See subsection (i) of this section. If the seller fails to collect the additional local use taxes due, the purchaser is responsible for accruing such taxes and remitting them directly to the comptroller.

(i) Example one - if an order is received in person at a place of business of the seller, such that the sale is consummated at the location where the order is received as provided under subsection (c)(1)(A) of this section, and the local sales tax due on the sale does not meet the two percent cap, additional local use taxes are due based on the location to which the order is shipped or delivered or at which the purchaser of the item takes possession, subject to the provisions in paragraph (1) of this subsection.

(ii) Example two - if a seller receives an order for a taxable item at a seller's place of business in Texas, and the seller ships or delivers the item from an out-of-state location to a location in this state as designated by the purchaser, local sales tax is due based upon the location of the place of business of the seller where the order is received. If the local sales tax due on the item does not meet the two percent cap, use taxes, subject to the provisions in paragraph (1) of this subsection, are due based upon the location where the items are shipped or delivered or at which the purchaser of the item takes possession. (e) Effect of other law.

(1) Tax Code, Title 2, Subtitles A (General Provisions) and B (Enforcement and Collection), Tax Code, Chapter 141 (Multistate Tax Compact) and Tax Code, Chapter 151 (Limited Sales, Excise, and Use Tax) apply to transactions involving local taxes. Related sections of this title and comptroller rulings shall also apply with respect to local taxes. This includes authorities such as court cases and federal law that affect whether an item is taxable or is excluded or exempt from taxation.

(2) Permits, exemption certificates, and resale certificates required by Tax Code, Chapter 151, shall also satisfy the requirements for collecting and remitting local taxes, unless otherwise indicated by this section or other sections of this title. For example, see subsection (n) of this section concerning prior contract exemptions.

(3) Any provisions in this section or other sections of this title related to a seller's responsibilities for collecting and remitting local taxes to the comptroller shall also apply to a purchaser if the seller does not collect local taxes that are due. The comptroller may proceed against the seller or purchaser for the local tax owed by either. (f) Tax rates. Except as otherwise provided by law, no local governmental entity may adopt or increase a sales and use tax if, as a result of the adoption or increase of the tax, the combined rate of all sales and use taxes imposed by local taxing jurisdictions having territory in the local governmental entity would exceed 2.0% at any location within the boundaries of the local governmental entity's jurisdiction. The following are the local tax rates that may be adopted.

(1) Cities. Cities may impose sales and use tax at a rate of up to 2.0%.

(2) Counties. Counties may impose sales and use tax at rates ranging from 0.5% to 1.5%.

(3) Special purpose districts. Special purpose districts may impose sales and use tax at rates ranging from 0.125% to 2.0%.

(4) Transit authorities. Transit authorities may impose sales and use tax at rates ranging from 0.25% to 1.0%. (g) Jurisdictional boundaries, combined areas, and city tax imposed through strategic partnership agreements.

(1) Jurisdictional boundaries.

(A) City boundaries. City taxing jurisdictional boundaries cannot overlap one another and a city cannot impose a sales and use tax in an area that is already within the jurisdiction of another city.

(B) County boundaries. County tax applies to all locations within that county.

(C) Special purpose district and transit authority boundaries. Special purpose districts and transit authorities may cross or share boundaries with other local taxing jurisdictions and may encompass, in whole or in part, other local taxing jurisdictions, including cities and counties. A geographic location or address in this state may lie within the boundaries of more than one special purpose district or more than one transit authority.

(D) Extraterritorial jurisdictions. Except as otherwise provided by paragraph (3) of this subsection concerning strategic partnership agreements and subsection (l)(5) of this section concerning the City of El Paso and Fort Bliss, city sales and use tax does not apply to taxable sales that are consummated outside the boundaries of the city, including sales made in a city's extraterritorial jurisdiction. However, an extraterritorial jurisdiction may lie within the boundaries of a special purpose district, transit authority, county, or any combination of the three, and the sales and use taxes for those jurisdictions would apply to those sales.

(2) Combined areas. A combined area is an area where the boundaries of a city overlap the boundaries of one or more other local taxing jurisdictions as a result of an annexation of additional territory by the city, and where, as the result of the imposition of the city tax in the area in addition to the local taxes imposed by the existing taxing jurisdictions, the combined local tax rate would exceed 2.0%. The comptroller shall make accommodations to maintain a 2.0% rate in any combined area by distributing the 2.0% tax revenue generated in these combined areas to the local taxing jurisdictions located in the combined areas as provided in Tax Code, §321.102 or Health and Safety Code, §775.0754. Combined areas are identified on the comptroller's website. Sellers engaged in transactions on which local sales or use taxes are due in a combined area, or persons who must self- accrue and remit tax directly to the comptroller, must use the combined area local code when reporting the tax rather than the codes for the individual city, county, special purpose districts, or transit authorities that make up the combined area.

(3) City tax imposed through strategic partnership agreements. (A) The governing bodies of a district, as defined in Local Government Code, §43.0751, and a city may enter into a limited-purpose annexation agreement known as a strategic partnership agreement. Under this agreement, the city may impose sales and use tax within all or part of the boundaries of a district.

Areas within a district that are annexed for this limited purpose are treated as though they are within the boundaries of the city for purposes of city sales and use tax.

(B) Counties, transit authorities, and special purpose districts may not enter into strategic partnership agreements. Sales and use taxes imposed by those taxing jurisdictions do not apply in the limited-purpose annexed area as part of a strategic partnership agreement between a city and an authorized district.

However, a county, special purpose district, or transit authority sales and use tax, or any combination of these three types of taxes, may apply at locations included in a strategic partnership agreement between a city and an authorized district if the tax is imposed in that area by the applicable jurisdiction as allowed under its own controlling authorities.

(C) Prior to September 1, 2011, the term "district" was defined in Local Government Code, §43.0751 as a municipal utility district or a water control and improvement district. The definition was amended effective September 1, 2011, to mean a conservation and reclamation district operating under Water Code, Chapter 49. (h) Places of business of the seller and job sites crossed by local taxing jurisdiction boundaries.

(1) Places of business of the seller crossed by local taxing jurisdiction boundaries.

If a place of business of the seller is crossed by one or more local taxing jurisdiction boundaries so that a portion of the place of business of the seller is located within a taxing jurisdiction and the remainder of the place of business of the seller lies outside of the taxing jurisdiction, tax is due to the local taxing jurisdictions in which the sales office is located. If there is no sales office, sales tax is due to the local taxing jurisdictions in which any cash registers are located.

(2) Job sites.

(A) Residential repair and remodeling; new construction of an improvement to realty. When a contractor is improving real property under a separated contract, and the job site is crossed by the boundaries of one or more local taxing jurisdictions, the local taxes due on any separately stated charges for taxable items incorporated into the real property must be allocated to the local taxing jurisdictions based on the total square footage of the real property improvement located within each jurisdiction, including the square footage of any standalone structures that are part of the construction, repair, or remodeling project. For more information about tax due on materials used at residential and new construction job sites, refer to §3.291 of this title (relating to Contractors).

(B) Nonresidential real property repair and improvement. When taxable services are performed to repair, remodel, or restore nonresidential real property, including a pipeline, transmission line, or parking lot, that is crossed by the boundaries of one or more local taxing jurisdictions, the local taxes due on the taxable services, including materials and any other charges connected to the services performed, must be allocated among the local taxing jurisdictions based upon the total mileage or square footage, as appropriate, of the repair, remodeling, or restoration project located in each jurisdiction. For more information about tax due on materials used at nonresidential real property repair and remodeling job sites, refer to §3.357 of this title (relating to Nonresidential Real Property Repair, Remodeling, and Restoration; Real Property Maintenance). (i) Sellers' and purchasers' responsibilities for collecting or accruing local taxes.

(1) Sale consummated in Texas; seller responsible for collecting local sales taxes and applicable local use taxes. When a sale of a taxable item is consummated at a location in Texas as provided by subsection (c) of this section, the seller must collect each local sales tax in effect at the location. If the total rate of local sales tax due on the sale does not reach the two percent cap, and the seller ships or delivers the item into another local taxing jurisdiction, then the seller is required to collect additional local use taxes due, if any, based on the location to which the item is shipped or delivered or at which the purchaser of the item takes possession, regardless of the location of the seller in Texas. For more information regarding local use taxes, refer to subsection (d) of this section.

(2) Out-of-state sale; seller engaged in business in Texas. Except as provided in paragraph (3) of this subsection, when a sale is not consummated in Texas, a seller who is engaged in business in this state is required to collect and remit local use taxes due, if any, on orders of taxable items shipped or delivered at the direction of the purchaser into a local taxing jurisdiction in this state based upon the location in this state to which the item is shipped or delivered or at which the purchaser of the item takes possession as provided in subsection (d) of this section.

(3) Local use tax rate for remote sellers.

(A) A remote seller required to collect and remit one or more local use taxes in connection with a sale of a taxable item must compute the amount using: (i) the combined tax rate of all applicable local use taxes based on the location to which the item is shipped or delivered or at which the purchaser of the item takes possession; or (ii) at the remote seller's election, the single local use tax rate published in the Texas Register. (B) A remote seller that is storing tangible personal property in Texas to be used for fulfillment at a facility of a marketplace provider that has certified that it will assume the rights and duties of a seller with respect to the tangible personal property, as provided for in §3.286 of this title, may elect the single local use tax rate under subparagraph (A)(ii) of this paragraph. (C) Notice to the comptroller of election and revocation of election.

(i) Before using the single local use tax rate, a remote seller must notify the comptroller of its election using a form prescribed by the comptroller. A remote seller may also notify the comptroller of the election on its use tax permit application form. The remote seller must use the single local use tax rate for all of its sales of taxable items until the election is revoked as provided in clause (ii) of this subparagraph.

(ii) A remote seller may revoke its election by filing a form prescribed by the comptroller. If the comptroller receives the notice by October 1, the revocation will be effective January 1 of the following year. If the comptroller receives the notice after October 1, the revocation will be effective January 1 of the year after the following year. For example, a remote seller must notify the comptroller by October 1, 2020, for the revocation to be effective January 1, 2021. If the comptroller receives the revocation on November 1, 2020, the revocation will be effective January 1, 2022. (D) Single local use tax rate.

(i) The single local use tax rate in effect for the period beginning October 1, 2019, and ending December 31, 2019, is 1.75%.

(ii) The single local use tax rate in effect for the period beginning January 1, 2020, and ending December 31, 2020, is 1.75%. (E) Annual publication of single local use tax rate. Before the beginning of a calendar year, the comptroller will publish notice of the single local use tax rate in the Texas Register that will be in effect for that calendar year. (F) Calculating the single local use tax rate. The single local use tax rate effective in a calendar year is equal to the estimated average rate of local sales and use taxes imposed in this state during the preceding state fiscal year. As soon as practicable after the end of a state fiscal year, the comptroller must determine the estimated average rate of local sales and use taxes imposed in this state during the preceding state fiscal year by: (i) dividing the total amount of net local sales and use taxes remitted to the comptroller during the state fiscal year by the total amount of net state sales and use tax remitted to the comptroller during the state fiscal year; (ii) multiplying the amount computed under clause (i) of this subparagraph by the rate provided in Tax Code, §151.051; and (iii) rounding the amount computed under clause (ii) of this subparagraph to the nearest .0025.

(G) Direct refund. A purchaser may request a refund based on local use taxes paid in a calendar year for the difference between the single local use tax rate paid by the purchaser and the amount the purchaser would have paid based on the combined tax rate for all applicable local use taxes. Notwithstanding the refund requirements under §3.325(a)(1) of this title (relating to Refunds and Payments Under Protest), a non-permitted purchaser may request a refund directly from the comptroller for the tax paid in the previous calendar year, no earlier than January 1 of the following calendar year within the statute of limitation under Tax Code, 111.104 (Refunds).

(H) Marketplace providers. Notwithstanding subparagraph (A) of this paragraph, marketplace providers may not use the single local use tax rate and must compute the amount of local use tax to collect and remit using the combined tax rate of all applicable local use taxes. (4) Purchaser responsible for accruing and remitting local taxes if seller fails to collect.

(A) If a seller does not collect the state sales tax, any applicable local sales taxes, or both, on a sale of a taxable item that is consummated in Texas, then the purchaser is responsible for filing a return and paying the tax. The local sales taxes due are based on the location in this state where the sale is consummated as provided in subsection (c) of this section.

(B) A purchaser who buys an item for use in Texas from a seller who does not collect the state use tax, any applicable local use taxes, or both, is responsible for filing a return and paying the tax. The local use taxes due are based on the location where the item is first stored, used, or consumed by the purchaser.

(C) For more information about how to report and pay use tax directly to the comptroller, see §3.286 of this title. (5) Local tax is due on the sales price of a taxable item, as defined in Tax Code, §151.007, in the report period in which the taxable item is purchased or the period in which the taxable item is first stored, used, or otherwise consumed in a local taxing jurisdiction. (6) A purchaser is not liable for additional local use tax if the purchaser pays local use tax using the rate elected by an eligible remote seller according to paragraph (3) of this subsection. The remote seller must be identified on the comptroller's website as electing to use the single local use tax rate. A purchaser must verify that the remote seller is listed on the comptroller's website. If the remote seller is not listed on the comptroller's website, the purchaser will be liable for additional use tax due in accordance to paragraph (4) of this subsection. (j) Items purchased under a direct payment permit.

(1) When taxable items are purchased under a direct payment permit, local use tax is due based upon the location where the permit holder first stores the taxable items, except that if the taxable items are not stored, then local use tax is due based upon the location where the taxable items are first used or otherwise consumed by the permit holder.

(2) If, in a local taxing jurisdiction, storage facilities contain taxable items purchased under a direct payment exemption certificate and at the time of storage it is not known whether the taxable items will be used in Texas, then the taxpayer may elect to report the use tax either when the taxable items are first stored in Texas or are first removed from inventory for use in Texas, as long as use tax is reported in a consistent manner. See also §3.288(i) of this title (relating to Direct Payment Procedures and Qualifications) and §3.346(g) of this title.

(3) If local use tax is paid on stored items that are subsequently removed from Texas before they are used, the tax may be recovered in accordance with the refund and credit provisions of §3.325 of this title and §3.338 of this title (relating to Multistate Tax Credits and Allowance of Credit for Tax Paid to Suppliers). (k) Special rules for certain taxable goods and services. Sales of the following taxable goods and services are consummated at, and local tax is due based upon, the location indicated in this subsection.

(1) Amusement services. Local tax is due based upon the location where the performance or event occurs. For more information on amusement services, refer to §3.298 of this title (relating to Amusement Services).

(2) Cable services. When a service provider uses a cable system to provide cable television or bundled cable services to customers, local tax is due as provided for in §3.313 of this title. When a service provider uses a satellite system to provide cable services to customers, no local tax is due on the service in accordance with the Telecommunications Act of 1996, §602.

(3) Florists. Local sales tax is due on all taxable items sold by a florist based upon the location where the order is received, regardless of where or by whom delivery is made. Local use tax is not due on deliveries of taxable items sold by florists. For example, if the place of business of the florist where an order is taken is not within the boundaries of any local taxing jurisdiction, no local sales tax is due on the item and no local use tax is due regardless of the location of delivery. If a Texas florist delivers an order in a local taxing jurisdiction at the instruction of an unrelated florist, and if the unrelated florist did not take the order within the boundaries of a local taxing jurisdiction, local use tax is not due on the delivery. For more information about florists' sales and use tax obligations, refer to §3.307 of this title (relating to Florists). (4) Landline telecommunications services. Local taxes due on landline telecommunications services are based upon the location of the device from which the call or other transmission originates. If the seller cannot determine where the call or transmission originates, local taxes due are based on the address to which the service is billed. For more information, refer to §3.344 of this title (relating to Telecommunications Services). (5) Marketplace provider sales. Local taxes are due on sales of taxable items through a marketplace provider based on the location in this state to which the item is shipped or delivered or at which the purchaser takes possession. For more information, refer to §3.286 of this title. (6) Mobile telecommunications services. Local taxes due on mobile telecommunications services are based upon the location of the customer's place of primary use as defined in §3.344(a)(8) of this title, and local taxes are to be collected as indicated in §3.344(h) of this title. (7) Motor vehicle parking and storage. Local taxes are due based on the location of the space or facility where the vehicle is parked. For more information, refer to §3.315 of this title (relating to Motor Vehicle Parking and Storage). (8) Natural gas and electricity. Any local city and special purpose taxes due are based upon the location where the natural gas or electricity is delivered to the purchaser. As explained in subsection (l)(1) of this section, residential use of natural gas and electricity is exempt from all county sales and use taxes and all transit authority sales and use taxes, most special purpose district sales and use taxes, and many city sales and use taxes. A list of the cities and special purpose districts that do impose, and those that are eligible to impose, local sales and use tax on residential use of natural gas and electricity is available on the comptroller's website. For more information, also refer to §3.295 of this title (relating to Natural Gas and Electricity). (9) Nonresidential real property repair and remodeling services. Local taxes are due on services to remodel, repair, or restore nonresidential real property based on the location of the job site where the remodeling, repair, or restoration is performed. See also subsection (h)(2)(B) of this section and §3.357 of this title. (10) Residential real property repair and remodeling and new construction of a real property improvement performed under a separated contract. When a contractor constructs a new improvement to realty pursuant to a separated contract or improves residential real property pursuant to a separated contract, the sale is consummated at the job site at which the contractor incorporates taxable items into the customer's real property. See also subsection (h)(2)(A) of this section and §3.291 of this title.

(11) Waste collection services. Local taxes are due on garbage or other solid waste collection or removal services based on the location at which the waste is collected or from which the waste is removed. For more information, refer to §3.356 of this title (relating to Real Property Service). (l) Special exemptions and provisions applicable to individual jurisdictions.

(1) Residential use of natural gas and electricity.

(A) Mandatory exemptions from local sales and use tax. Residential use of natural gas and electricity is exempt from most local sales and use taxes.

Counties, transit authorities, and most special purpose districts are not authorized to impose sales and use tax on the residential use of natural gas and electricity. Pursuant to Tax Code, §321.105, any city that adopted a local sales and use tax effective October 1, 1979, or later is prohibited from imposing tax on the residential use of natural gas and electricity. See §3.295 of this title.

(B) Imposition of tax allowed in certain cities. Cities that adopted local sales tax prior to October 1, 1979, may, in accordance with the provisions in Tax Code, §321.105, choose to repeal the exemption for residential use of natural gas and electricity. The comptroller's website provides a list of cities that impose tax on the residential use of natural gas and electricity, as well as a list of those cities that do not currently impose the tax, but are eligible to do so.

(C) Effective January 1, 2010, a fire control, prevention, and emergency medical services district organized under Local Government Code, Chapter 344 that imposes sales tax under Tax Code, §321.106, or a crime control and prevention district organized under Local Government Code, Chapter 363 that imposes sales tax under Tax Code, §321.108, that is located in all or part of a municipality that imposes a tax on the residential use of natural gas and electricity as provided under Tax Code, §321.105 may impose tax on residential use of natural gas and electricity at locations within the district. A list of the special purpose districts that impose tax on residential use of natural gas and electricity and those districts eligible to impose the tax that do not currently do so is available on the comptroller's website.

(2) Telecommunication services. Telecommunications services are exempt from all local sales taxes unless the governing body of a city, county, transit authority, or special purpose district votes to impose sales tax on these services. However, since 1999, under Tax Code, §322.109(d), transit authorities created under Transportation Code, Chapter 451 cannot repeal the exemption unless the repeal is first approved by the governing body of each city that created the local taxing jurisdiction. The local sales tax is limited to telecommunications services occurring between locations within Texas. See §3.344 of this title. The comptroller's website provides a list of local taxing jurisdictions that impose tax on telecommunications services. (3) Emergency services districts.

(A) Authority to exclude territory from imposition of emergency services district sales and use tax. Pursuant to the provisions of Health and Safety Code, §775.0751(c-1), an emergency services district wishing to enact a sales and use tax may exclude from the election called to authorize the tax any territory in the district where the sales and use tax is then at 2.0%. The tax, if authorized by the voters eligible to vote on the enactment of the tax, then applies only in the portions of the district included in the election. The tax does not apply to sales made in the excluded territories in the district and sellers in the excluded territories should continue to collect local sales and use taxes for the local taxing jurisdictions in effect at the time of the election under which the district sales and use tax was authorized as applicable.

(B) Consolidation of districts resulting in sales tax sub-districts. Pursuant to the provisions of Health and Safety Code, §775.018(f), if the territory of a district proposed under Health and Safety Code, Chapter 775 overlaps with the boundaries of another district created under that chapter, the commissioners court of each county and boards of the counties in which the districts are located may choose to create a consolidated district in the overlapping territory.

If two districts that want to consolidate under Health and Safety Code, §775.024 have different sales and use tax rates, the territory of the former districts located within the consolidated area will be designated as sub-districts and the sales tax rate within each sub-district will continue to be imposed at the rate the tax was imposed by the former district that each sub-district was part of prior to the consolidation. (4) East Aldine Management District.

(A) Special sales and use tax zones within district; separate sales and use tax rate. As set out in Special District Local Laws Code, §3817.154(e) and (f), the East Aldine Management District board may create special sales and use tax zones within the boundaries of the District and, with voter approval, enact a special sales and use tax rate in each zone that is different from the sales and use tax rate imposed in the rest of the district. (B) Exemptions from special zone sales and use tax. The sale, production, distribution, lease, or rental of; and the use, storage, or other consumption within a special sales and use tax zone of; a taxable item sold, leased, or rented by the entities identified in clauses (i) - (vi) of this subparagraph are exempt from the special zone sales and use tax. State and all other applicable local taxes apply unless otherwise exempted by law. The special zone sales and use tax exemption applies to: (i) a retail electric provider as defined by Utilities Code, §31.002; (ii) an electric utility or a power generation company as defined by Utilities Code, §31.002; (iii) a gas utility as defined by Utilities Code, §101.003 or §121.001, or a person who owns pipelines used for transportation or sale of oil or gas or a product or constituent of oil or gas; (iv) a person who owns pipelines used for the transportation or sale of carbon dioxide; (v) a telecommunications provider as defined by Utilities Code, §51.002; or (vi) a cable service provider or video service provider as defined by Utilities Code, §66.002.

(5) Imposition of city sales tax and transit tax on certain military installations; El Paso and Fort Bliss. Pursuant to Tax Code, §321.1045 (Imposition of Sales and Use Tax in Certain Federal Military Installations), for purposes of the local sales and use tax imposed under Tax Code, Chapter 321, the city of El Paso includes the area within the boundaries of Fort Bliss to the extent it is in the city's extraterritorial jurisdiction. However, the El Paso transit authority does not include Fort Bliss. See Transportation Code, §453.051 concerning the Creation of Transit Departments. (m) Restrictions on local sales tax rebates and other economic incentives. Pursuant to Local Government Code, §501.161, Section 4A and 4B development corporations may not offer to provide economic incentives, such as local sales tax rebates authorized under Local Government Code, Chapters 380 or 381, to persons whose business consists primarily of purchasing taxable items using resale certificates and then reselling those same items to a related party. A related party means a person or entity which owns at least 80% of the business enterprise to which sales and use taxes would be rebated as part of an economic incentive. (n) Prior contract exemptions. The provisions of §3.319 of this title (relating to Prior Contracts) concerning definitions and exclusions apply to prior contract exemptions. (1) Certain contracts and bids exempt. No local taxes are due on the sale, use, storage, or other consumption in this state of taxable items used: (A) for the performance of a written contract executed prior to the effective date of any local tax if the contract may not be modified because of the tax; or (B) pursuant to the obligation of a bid or bids submitted prior to the effective date of any local tax if the bid or bids and contract entered into pursuant thereto are at a fixed price and not subject to withdrawal, change, or modification because of the tax. (2) Annexations. Any annexation of territory into an existing local taxing jurisdiction is also a basis for claiming the exemption provided by this subsection. (3) Local taxing jurisdiction rate increase; partial exemption for certain contracts and bids. When an existing local taxing jurisdiction raises its sales and use tax rate, the additional amount of tax that would be due as a result of the rate increase is not due on the sale, use, storage, or other consumption in this state of taxable items used: (A) for the performance of a written contract executed prior to the effective date of the tax rate increase if the contract may not be modified because of the tax; or (B) pursuant to the obligation of a bid or bids submitted prior to the effective date of the tax rate increase if the bid or bids and contract entered into pursuant thereto are at a fixed price and not subject to withdrawal, change, or modification because of the tax. (4) Three-year statute of limitations.

(A) The exemption in paragraph (1) of this subsection and the partial exemption in paragraph (3) of this subsection have no effect after three years from the date the adoption or increase of the tax takes effect in the local taxing jurisdiction.

(B) The provisions of §3.319 of this title apply to this subsection to the extent they are consistent.

(C) Leases. Any renewal or exercise of an option to extend the time of a lease or rental contract under the exemptions provided by this subsection shall be deemed to be a new contract and no exemption will apply. (5) Records. Persons claiming the exemption provided by this subsection must maintain records which can be verified by the comptroller or the exemption will be lost. (6) Exemption certificate. An identification number is required on the prior contract exemption certificates furnished to sellers. The identification number should be the person's 11-digit Texas taxpayer number or federal employer's identification (FEI) number.

APPENDIX F D 3618

An agency may adopt a proposed rule no earlier than 30 (C) Failure to file a claim within the limitation days after publication in the Register, and the adoption may prescribed by subsection (a)(2)(8) constitutes a waiver of any go into effect no sooner than 20 days after tiling, except demand against the state on account of overpayment. where a federal statute or regulation requires implementa (b) Refund of gross rental receipts tax paid in error. tion of a rule on shorter notice. ( lJ Tax paid to the comptroller. Any person may re An agency, on request, shall provide a statement of the quest a refund of gross rental receipts tax which he has reasons for and against adoption of a rule. Any interested remitted to the comptroller in error. person may request this statement before adoption or within (A> All requests for refunds must be made in writ• days afterward. Thn statement shall include the principal ing, and must state the specific grounds upon which the claim reasons for overruling considerations urged against the is founded. The comptroller may require additional verifica agency's decision. tion, including proof of tax paid, affidavits supporting the grounds for refund or other documentation necessary to vali Num b e ring System-Each r ule is design at e d b y a date the claim. unique 10-digit number which is divided into four units by (8) A request for refund of motor vehicle gross ren decimal points. The first unit (three digits) indicates the tal receipts tax must be made within seven years of the last agency which promulgates the rule. The second unit (two day of the m onth following the close of the quarterly or digits) indicates the chapter of rules to which the rule monthly period for which the overpayment was made, or belongs. The third unit (two digits) indicates the subchapter within six m o nths after any deficiency determination of rules, if any, within the chapter. The fourth unit (three becomes final, or within six months from the date of any digits) indicates the individual rule. �·: overpayment made to satisfy such deficiency determination. (C> Failure to file a claim within the limitation prescribed by subsection (bH I HB> constitutes a waiver of any demand against the state on account of overpayment. (2) Tax paid to a rental agency. Any person who Comptroller of Public Accounts. remits gross rental receipts tax to a rental agency (or to any other person collecting the tax in the fashion of a rental agen Tax Administration cy) rather than directly to the comptroller, may not request Motor Vehicle Division 026.02.06 from the comptroller a refund of any tax he has paid in error.

Such tax must be recovered from the rental agency.

Under the authority of Texas Taxation-General Annotated, (Al A written request for refund must be directed Article 6.09 (Vernon 1969), the comptroller of public ac• to the rental agency and must be accompanied by verification counts has adopted Rule 026.02.06.026 to read as follows: that tax was paid in error. The request and certification . 026. Refunds. must be retained by the rental agency to document the (a) Refund of motor vehicle sales or use tax paid in er• reason he refunded the tax. ror. (8) After the rental agency has refunded or cre l I) Refund from county tax assessor-collector. Any dited the tax to the account of the purchaser, he may s, iek person may request from the county tax assessor-collector a reimbursement from the state in accordance with the provi• refund of motor vehicle sales or use tax ,.,hich he paid io the sions of suhsection (bl( 1), above, or may file an amended tax assessor-collector in error. motor vehicle gross rental receipts tax return for the period (Al If the tax assessor-collector has not yet remit• in which the error was made. He may take credit on his next ted the tax to the comptroller, he must void all five copies of gross rental �ec eipts tax return for the amount refunde.d or the Form 31 tax receipt showing the tax that had been paid, credited to the account of the purchaser. then refund the portion of the tax which was paid in error. A �c> Payments under protest. second Form :1 l tax receipt must then be prepared document ( 1) Payment morle to county tax assessor-collector or ing the correct amount of tax collected. rental agency. If, pursuant to the authority of either Texas B> If the tax assessor-collector has already remit- Taxation-General Annotated, Article 1.05, or Texas Revised ted the tax to the comptroller, the taxpayer must apply Civil Statutes A nnotated, Article 7057b, motor vehicle sales directly to the comptroller for a refund. See subsection (a) (2) r and use tax or motor vehicle grosi; rental receipts tax is paid below. under protest to a county tax assessor-col!ect.or or a rental (2) Refund from the comptroller. Any person may re agency, the comptroller will place the amount protested in a quest from the comptroller a refund of motor vehicle sales or suspense account pending resolution of the matter in issue. use tax which has been remitwd to the comptroller in error. A written letter o f protest which sets out in detail each and IAI All requests for refunds must be made in writ every ground or r eason why it is contended that the assess ing, and must state the specific grounds upon which the claim ment is unlawful or unauthorized must be sent to the com· is founded. The comptroller may require additional verifica ptroller immediately upon payment of the tax to the tax tion, including proof of tax paid. affidavits supporting the assessor-collector or rental agency. The letter of protest must grounds for refund or other documentation necessary to vali be accompanied by a copy of the tax receipt or rental receipt date the claim. showing the tax was paid. If the letter of protest is not sub· I B, A request for refund of motor vehicle sales or mitted immediately upon payment of the tax, the paym,mt use tax must be made within seven years of the date of pay· will not be p laced in a suspense account and it will not be ment of the tax, or within six months after any deficiency deemed to have been made under protest. determination becomes final. or within six months from the (2> Payment made to the comptroller. If motor 11• date of any overpayment made to satisfy such deficiency cle sales and use tax or motor vehicle gross rental receiptb LuX determination. is paid directly to the comptroller under protest pursuant to Volume 4, Number 75, Octobtr 5, 1979 APPENDIX G loss audit computing the utility's system water loss during the preced- (3) For a retail public utility with a population of 10,000 ing calendar year, unless a different 12-month period is allowed by the or fewer and a service connection density less than 32 connections per executive administrator. The water loss audit may be submitted elec- mile: tronically. (A) Apparent loss expressed as gallons per connection (1) Audit required annually. The utility must file the water per day must be less than the utility's allowed apparent loss. loss audit with the executive administrator annually by May 1st if the (B) Real loss expressed as gallons per mile per day must utility: be less than 1,600 gallons per mile per day. (A) has more than 3,300 connections; or (4) For a utility that has a volume of wholesale water sales (B) is receiving financial assistance from the board, re- that flow through the retail water distribution system: gardless of the number of connections. A retail public utility is receiv- (A) Apparent loss expressed as gallons per connection ing financial assistance from the board if it has an outstanding loan, per day, determined using a modified calculation that includes the loan forgiveness agreement, or grant agreement from the board. wholesale volume, must be less than the utility's allowed apparent loss. (2) Audit required every five years. The utility must file the (B) Real loss, expressed as gallons per connection per water loss audit with the executive administrator by May 1, 2016, and day and including a wholesale factor that takes into account the whole- every five years thereafter by May 1st if the utility has 3,300 or fewer sale water volume, must be less than three times the utility's unavoid- connections and is not receiving financial assistance from the board. able annual real loss. (3) The water loss audit shall be performed in accordance (f) If a retail public utility's total water loss meets or exceeds with methodologies developed by the executive administrator based on the threshold for that utility, the retail public utility must use a portion the population served by the utility and taking into consideration the of any financial assistance received from the board for a water supply financial feasibility of performing the water loss audit, population den- project to mitigate the utility's water loss. Mitigation will be in a man- sity in the service area, the retail public utility's source of water supply, ner determined by the retail public utility and the executive administra- the mean income of the service population, and any other factors de- tor in conjunction with the project proposed by the utility and funded termined by the executive administrator. The executive administrator by the board. will provide the necessary forms and methodologies to the retail public utility. (g) Subsection (f) of this section shall apply to applications for financial assistance received by the board after January 1, 2015. (c) The executive administrator shall determine if the water loss audit is administratively complete. A water loss audit is adminis- The agency certifies that legal counsel has reviewed the adop- tratively complete if all required responses are provided. In the event tion and found it to be a valid exercise of the agency's legal au- the executive administrator determines that a retail public utility's wa- thority. ter loss audit is incomplete, the executive administrator shall notify the utility. Filed with the Office of the Secretary of State on November 20, (d) A retail public utility that provides potable water that fails 2014. to submit a water loss audit or that fails to correct a water loss audit that TRD-201405565 is not administratively complete within the timeframe provided by the Les Trobman executive administrator is ineligible for financial assistance for water supply projects under Texas Water Code, Chapter 15, Subchapters C, General Counsel D, E, F, G, H, J, O, Q, and R; Chapter 16, Subchapters E and F; and Texas Water Development Board Chapter 17, Subchapters D, I, K, and L. The retail public utility will Effective date: December 10, 2014 remain ineligible for financial assistance until a complete water loss Proposal publication date: August 8, 2014 audit has been filed with and accepted by the executive administrator. For further information, please call: (512) 463-8061 (e) The following thresholds shall apply to the indicated cate- ♦ ♦ ♦ gories of retail public utility: TITLE 34. PUBLIC FINANCE (1) For a retail public utility with a population of more than 10,000: PART 1. COMPTROLLER OF PUBLIC (A) Apparent loss expressed as gallons per connection per day must be less than the utility's allowed apparent loss.

ACCOUNTS (B) Real loss expressed as gallons per connection per CHAPTER 3. TAX ADMINISTRATION day must be less than three times the utility's unavoidable annual real SUBCHAPTER N. COUNTY SALES AND USE loss.

TAX (2) For a retail public utility with a population of 10,000 or fewer and a service connection density more than or equal to 32 34 TAC §§3.251 - 3.253 connections per mile: The Comptroller of Public Accounts adopts the repeal of Sub- (A) Apparent loss expressed as gallons per connection chapter N, concerning County Sales and Use Tax, without per day must be less than the utility's allowed apparent loss. changes to the proposed text as published in the May 30, 2014, issue of the Texas Register (39 TexReg 4174). The content of (B) Real loss expressed as gallons per connection per §3.251 (Adopting or Abolishing County Tax) is being repealed day must be less than 50 gallons per connection per day. entirely and will not be included in another section of this or another subchapter. The content of §3.252 (Collection and

39 TexReg 9596 December 5, 2014 Texas Register Allocation of County Tax) and §3.253 (Use Tax) will be included At a public hearing on the proposed section held on October and updated in new §3.334 of this title, Local Sales and Use 15, 2014, Mr. Darrell Boeske, speaking on behalf of the City Taxes. of Humble, noted the substantial impact this section would have for communities like Humble, where more than 90% of the mu- No comments were received regarding adoption of the repeals. nicipal budget comes from local sales and use taxes. Mr. Kyle These repeals are adopted under Tax Code, §111.002, which Kasner requested that the comptroller clarify which policies in the provides the comptroller with the authority to prescribe, adopt, section are longstanding and which will be applied prospectively. and enforce rules relating to the administration and enforcement The legislature has delegated to the comptroller the responsi- of the provisions of Tax Code, Title 2. These repeals implement bility for administering, collecting, and enforcing the local sales Tax Code, Chapter 323, County Sales and Use Tax Act. and use taxes, and the comptroller appreciates the importance of these tasks. In order to provide certainty to taxpayers and lo- The agency certifies that legal counsel has reviewed the adop- calities alike, the comptroller will apply subsection (h)(5) of this tion and found it to be a valid exercise of the agency's legal au- section, concerning drop shipments, and subsection (n) of this thority. section, concerning prior contract exemptions, on a prospective basis as of the effective date of this section, January 1, 2015, in Filed with the Office of the Secretary of State on November 18, accordance with Tax Code, §151.022.

2014.

Subsection (a) contains definitions of key terms and phrases.

TRD-201405490 The statutory sources for some of the defined terms and phrases Ashley Harden are provided in the definitions themselves. In other cases the de- General Counsel fined terms are deemed clear without the need for further expla- Comptroller of Public Accounts nation. The sources for certain terms and phrases are explained Effective date: January 1, 2015 as follows.

Proposal publication date: May 30, 2014 The term "cable system" is used in Tax Code, §321.203(j) and For further information, please call: (512) 475-0387 §323.203(j) but is not defined in those statutory provisions. Sub- section (a)(1) explains the comptroller's determination that the ♦ ♦ ♦ term "cable system" means a system that is used to provide ca- ble television or bundle cable service, as those terms are defined SUBCHAPTER O. STATE AND LOCAL SALES in §3.313 of this title (concerning Cable Television Service and AND USE TAXES Bundle Cable Service).

34 TAC §3.334 Subsection (a)(6) provides a definition for the term "drop ship- ment," which is a commonly used term that appeared in sections The Comptroller of Public Accounts adopts new §3.334, con- of this title that are repealed. See, for example, §3.252(e) of this cerning local sales and use taxes, with changes to the proposed title (concerning Collection and Allocation of County Tax). This text as published in the May 30, 2014, issue of the Texas Reg- section defines the term according to longstanding comptroller ister (39 TexReg 4175). The new section is located in Title 34, policy.

Chapter 3, Subchapter O, which is retitled State and Local Sales and Use Taxes. New subsection (a)(7), which defines the term "engaged in busi- ness" by reference to §3.286 of this title (relating to Seller's and As of October 2013, there were a total of 1,510 local sales and Purchaser's Responsibilities, including Nexus, Permits, Returns use taxing jurisdictions in Texas - 1,147 cities, 123 counties, 10 and Reporting Periods, and Collection and Exemption Rules), is transit authorities, and 230 special purpose districts. Existing added to the version of this section that was proposed for public sections of this title that address how to collect, accrue, and remit comment. Subsequent paragraphs are renumbered accordingly. taxes to these jurisdictions and other jurisdictions that are cur- rently authorized, or may be authorized by the legislature in the Subsection (a)(8) provides a definition of the term "extraterritorial future, are out of date and not conveniently organized. The new jurisdiction" that is based on Local Government Code, §42.021. section replaces Subchapters N (County Sales and Use Tax), P The term "itinerant vendor" was defined in sections of Subchap- (Municipal Sales and Use Tax), and R (Transit Sales and Use ters N, P, and R of this title, which are repealed. The definition Tax) of Title 34, which are repealed. Relevant content from the provided in new subsection (a)(10) expands on the existing def- sections in Subchapters N, P, and R is included and updated inition to provide additional guidance and clarity consistent with in this new section, which also incorporates applicable law and current comptroller policy as reflected in Tax Publication 94-105, policy changes and policy clarifications and provides information "Guidelines for Collecting Local Sales and Use Tax" (February about the rules that apply to the collection and accrual of local 2009). sales and use taxes by sellers and purchasers.

The definition for the term "kiosk" in subsection (a)(11) comes In addition, information about the collection, accrual, and remit- directly from Tax Code, §321.002(a)(3). tance of local taxes is currently found in other sections of this title concerning specific taxable items - as noted, for example, The general definition for the term "place of business" provided in in subsection (k) of this section - and the comptroller intends for subsection (a)(14) is based on Tax Code, §321.002(a)(3). Addi- the information in this new section to be consistent with the lo- tional information explaining agency policy as to how the term is cal sales and use tax information in those other sections. To the defined for administrative offices; distribution centers, manufac- extent the information in this section differs from the information turing plants, storage yards, warehouses, and similar facilities; concerning local sales and use tax contained in other sections job sites; kiosks; and purchasing offices, is provided in subsec- of this title, it is the comptroller's intent that this section control. tion (e).

ADOPTED RULES December 5, 2014 39 TexReg 9597 Written comments regarding the proposed definition of the term The term "purchasing office" in subsection (a)(15) is based on "place of business" were provided by: Mr. Bill Hammond, on be- the statutory language in Tax Code, §321.002(a)(3). Written half of the Texas Association of Business; Mr. Ronnie Volkening, comments received by the comptroller from Mr. Volkening on behalf of the Texas Retailers Association; and Mr. Eric Can- expressed concern that the proposed definition exceeded the non, on behalf of the City of Addison, Ms. Julie M. Robinson, on comptroller's statutory authority. At a public hearing held on behalf of the City of Dickinson, Mr. Darrell Boeske, on behalf of October 15, 2014, the comptroller also received oral comments the City of Humble, Ms. Sandra Yarbrough, on behalf of the City from Mr. Volkening, Mr. Kroll, and Mr. Ned Munoz, on behalf of Kerrville, Mr. Corby D. Alexander, on behalf of the City Man- of the Texas Association of Builders, expressing concern that ager's Office of the City of La Porte, Ms. Pam Moon, on behalf the proposed definition deviated from the statutory language. In of the City of Lubbock, Mr. Alan Guard, on behalf of the City of response to these concerns, the definition of the term is revised Rowlett, Mr. Steve Smith, on behalf of the Town of Cross Roads, to follow the wording of Tax Code, §321.002(a)(3)(B) as closely Mr. Robert D. Harmon, on behalf of the Fort Worth Transporta- as possible. tion Authority, and Mr. Chris Yeary, on behalf of MuniServices The word "receive" is widely used in the controlling local tax (hereinafter "local governments"). Each of these commenters statutes, along with the modifiers "first" and "initially," but is not expressed concern about the statement in the proposed defini- defined in those statutes. Compare, for example, Tax Code, tion that a place of business is a location operated by a seller for §321.203(c) and (e)(2). A definition was included in subsection the purpose of making sales "to members of the general public (a)(15) of the version of this section that was proposed for public or to specific segments of the public." comment. The comptroller received written comments from Mr. The comptroller also received written comments from Mr. Wayne Volkening expressing concern that the proposed definition was J. Sabo, on behalf of the City of Webster, expressing concern too vague. At a public hearing on the proposed section held on that the proposed section would inadvertently result in private October 15, 2014, the comptroller received oral comments from clubs, such as Sam's Club, no longer being treated as places Mr. Kasner, representing unspecified north Texas cities, stating of business. Mr. Sabo recommended amending the language that the proposed definition was consistent with the definitions of the section to state: "An established outlet, office, or location of the term adopted in other states with an origin-based sales operated by a seller for the purpose of selling taxable items to tax. At the hearing, the comptroller also received oral comments those other than employees, contractors, and individuals affili- from Mr. Volkening and Ms. Susan Bittick, on behalf of Ryan, ated with the seller..." LLC, stating that they did not understand the language used in the proposed definition. In response to the concerns identified in In addition, at a public hearing held on October 15, 2014, the these oral and written comments, the definition of the term "re- comptroller received oral comments on the proposed definition ceive" is deleted from the section. Subsequent paragraphs are from: Mr. Boeske, Mr. Volkening, and Mr. John Kroll, on behalf renumbered accordingly. The comptroller intends to define the of Michael's, Inc. Mr. Boeske echoed Mr. Sabo's concerns and term in a future version of this section, however, and anticipates voiced support for Mr. Sabo's recommended language. Mr. Kroll holding public discussions to solicit input on this topic. noted that the proposed definition could inadvertently result in purchasing offices no longer being places of business, as they A definition for the term "temporary place of business" provided often make sales only to related entities. in subsection (a)(19) memorializes policies that the comptroller has developed over time clarifying that locations such as a booth The comptroller has determined that the definition of the term at a flea market, weekend trade show, or craft fair are places "place of business of the retailer" in Tax Code, §321.002(a)(3) of business of the seller as the term is defined in Tax Code, is subject to multiple interpretations. Consequently, additional §321.002(a)(3) because such locations are established for the guidance on the application of the term is necessary. purpose of selling taxable items to the public.

The comptroller's proposal that a place of business must sell The comptroller has developed local tax guidelines relating to taxable items to members of the general public, or specific seg- "traveling salespersons." The definition included in subsection ments of the public, was intended to give weight and meaning to (a)(21) memorializes those policy guidelines. the statutory language requiring that the location be established for the purpose of receiving orders. The comptroller appreciates Subsection (a)(22) provides a definition for the term "two per- that the proposed definition could have created confusion be- cent cap," which is the comptroller's longstanding terminology cause the phrases "general public" and "segment of the public" for describing the statutory requirement found in Tax Code, do not have a single, clear meaning. In response to the concerns §321.101(f), that, as a general rule, local sales and use taxes raised in the oral and written comments, the definition is revised due on a single transaction may total no more than 2.0% of the from the version published for public comment. The revised def- sales price. inition states that a place of business must be operated for the Subsection (b), concerning the effect of other laws and comptrol- purpose of selling taxable items "to those other than employees, ler policy, is included to explain that the laws and rules that apply contractors, and individual persons affiliated with the seller." It to the collection of state sales and use taxes, such as the laws is the comptroller's intent that locations operated by warehouse and rules governing the use of resale and exemption certificates membership clubs, such as Costco and Sam's Club, be treated and the determination of which items are taxable and which are as places of business. In addition, the comptroller intends for exempt, also apply to local sales and use taxes, unless the law purchasing offices that make sales to related entities be treated provides otherwise. as places of business, subject to the requirements of subsection (e)(4) concerning valid purchasing offices. Finally, in response Subsection (c) addresses local tax rates, specifically identifying to the concerns identified in the comments, the comptroller has the range of tax rates that the four different types of local taxing revised the definition of "place of business" from the version that jurisdictions authorized by the legislature may adopt. was proposed for public comment to delete the phrase "with reg- Subsection (d) concerns the physical boundaries of the author- ular hours of operation." ity of local taxing jurisdictions. The subsection is titled, "Jurisdic-

39 TexReg 9598 December 5, 2014 Texas Register tional boundaries, combined areas, and city tax imposed through and superseding the guidance provided in STAR Accession No. strategic partnership agreements." Paragraph (1) explains how 200704372L. jurisdictional boundaries are established for the four different The written comments also expressed concern about proposed types of local taxing jurisdictions as determined by Local Govern- subsection (e)(4)(D), which was included to explain the comp- ment Code, Chapters 41, 42, and 43, Tax Code, Chapters 321, troller's interpretation of the ambiguous term "significant busi- 322, and 323, and those entities identified in the Special District ness services." In addition to the written comments, at a public Local Laws Code and other provisions of other Texas Codes. hearing held on October 15, 2014, the comptroller received oral Paragraph (2) explains how state and local taxes are to be col- comments on this issue from: Mr. Volkening, Mr. Kroll, and lected in what are referred to as "combined areas" that have Mr. Munoz. The comptroller declines to delete all of subsec- been authorized by the legislature through Tax Code, §321.102, tion (e)(4)(D), as an explanation of the statutory term "significant and the responsibility the comptroller has to provide for the shar- business services" is necessary to provide guidance to taxpay- ing of those revenues. In combined areas where the total sales ers and to administer the statute consistently. In response to and use tax imposed would otherwise exceed 2.0%, the Tax the concerns raised, however, the subsection is revised to more Code provides direction for how the rates of the jurisdictions in closely follow the language of Tax Code, §321.002(a)(3)(B). the combined area are to be adjusted in order to maintain the two percent cap. Paragraph (2) also implements House Bill 3159, Subsection (e) also states, in paragraph (4)(E) of the section that 83rd Legislature, 2013, which enacted Health and Safety Code, was proposed for public comment, that the special exclusion un- §775.0754. This new section provides, in certain circumstances, der Special District Local Laws Code, §3853.202(d), concerning an alternate method for maintaining the two percent cap. Para- the Dickinson Management District, for purchasing offices from graph (3) discusses how local city sales tax is to be collected the application of Tax Code, §321.203(m), formerly Tax Code, under strategic partnership agreements that are authorized by §321.203(l), to the administration of a sales and use tax im- Local Government Code, §43.0751. posed by the Dickinson Management District is invalid and the comptroller will not adopt or implement that exclusion. Written Subsection (e) provides guidance on how the term "place of busi- comments on this subsection were received from Ms. Robin- ness" is applied in specific situations that are outside the scope of son. In addition, at a public hearing held on October 15, 2014, the general definition. These rules, which have been developed the comptroller received oral comments on this subsection from over time, address administrative offices that support a travel- the following individuals: Mr. Loren Smith, on behalf of the City ing salesperson (see, e.g., STAR Accession No. 200805376L of Dickinson; Mr. Renn Neilson of Baker Botts, LLP, on behalf of (May 19, 2008) and STAR Accession No. 200904406H (April Exterran; and Mr. Ralph Parman of Exterran. Mr. Neilson also 29, 2009)); distribution centers, manufacturing plants, storage provided additional written comments. These oral and written yards, warehouses, or similar facilities (see, e.g., §3.374(a) of comments requested that subsection (e)(4)(E) be deleted from this title (concerning Collection and Allocation of the City Sales the section.

Tax)); construction job sites concerning both residential and non- residential real property according to longstanding agency pol- The comptroller's position on the Dickinson Management Dis- icy and as passed into law in House Bill 3319, 80th Legislature, trict exemption is longstanding. As explained in correspondence 2007; and kiosks (Tax Code, §321.002(a)(3)). to Senator Mike Jackson and Representative Larry Taylor on September 8, 2011, it is the comptroller's view that Special Dis- Written comments regarding proposed subsection (e)(2)(D), ad- trict Local Laws Code, §3853.202(d) violates Article III, Sec- dressing when a distribution center, manufacturing plant, ware- tion 56 of the Texas Constitution, concerning Local and Spe- house, or similar facility is not a place of business, were received cial Laws, because it attempts to relieve the comptroller's office from Mr. Hammond and Mr. Volkening. In addition, at a public of the duties delegated to it by Tax Code, Chapter 321. Fur- hearing held on October 15, 2014, the comptroller received oral ther, the comptroller believes that the general law codified as Tax comments on this subsection from Mr. Volkening. The proposed Code, §321.002(a)(3) and §321.203(m) is a later-amended gen- subsection memorialized guidance previously provided in STAR eral provision that applies in place of the preexisting local law.

Accession No. 200508201L (August 3, 2005). In response to In fact, the legality of the exclusion created under Special Dis- the comments received, the comptroller is deleting subsection trict Local Laws Code, §3853.202(d) was the subject of litigation. (e)(2)(D), revising subsection (e)(2)(C) to state that a retail lo- See City of Dickinson v. Combs, No. D-1-GV-12-000094 (353rd cation and an attached warehouse or distribution center will be Dist. Ct., Travis County, Tex. filed Feb. 2, 2012). The City treated as a single place of business, and superseding the guid- of Dickinson and the Intervenors (CIL Procurement LLC, EES ance provided in STAR Accession No. 200508201L.

Leasing LLC, EXLP Leasing LLC, and T.A.S. Proco LLC) filed Subsection (e)(4), concerning valid purchasing offices, imple- a Joint Notice of Nonsuit on March 13, 2014. The comptroller ments House Bill 590, 82nd Legislature, 2011 and Senate Bill declines to make the requested change.

1533, 83rd Legislature, 2013. Written comments regarding pro- Subsection (f) explains which local taxes are due when a place of posed subsection (e)(4) were received from: Mr. Volkening; Mr. business is bisected or otherwise crossed by multiple local tax- Kroll; Mr. Munoz; Ms. Robinson; Mr. Boeske; and Mr. John ing jurisdiction boundaries. Over the years, the comptroller has Hawkins, on behalf of the Texas Hospital Association. These received requests for guidance when, for example, the bound- comments expressed concern that the list of factors provided in aries of a local taxing jurisdiction cross a construction job site subsection (e)(4)(C), which the comptroller proposed to consider or a seller's brick and mortar store such that only part of the job in making a determination as to whether a purchasing office was site or store is located within the jurisdiction. The Tax Code is a place of business, exceeded the comptroller's authority under silent as to what local taxes are due in these types of situations.

Tax Code, §321.002(a)(3)(B). This provision was proposed to The comptroller has issued guidance over the years to address memorialize guidance previously provided in STAR Accession these situations. See, e.g. STAR Accession No. 9009L1044E01 No. 200704372L (April 12, 2007). In response to these con- (September 14, 1990) (explaining that the location of a store's cerns, the comptroller is deleting proposed subsection (e)(4)(C) cash register determines the local jurisdiction that is entitled to

ADOPTED RULES December 5, 2014 39 TexReg 9599 any local tax that is due). This subsection memorializes that Subsection (g)(3) reflects existing law and policy that if a seller guidance. Minor revisions are made to paragraph (2)(A) and (B) does not collect sales or use tax that is due, the purchaser is from the version of this section that was proposed for adoption. liable for, and must accrue and pay, the tax directly to the comp- These revisions are intended to improve the readability of this troller. Minor revisions are made to the version of subsection subsection. (g)(3) proposed for public comment. Subparagraphs (A) and (B) are amended to use similar phrasing. In addition, the last sen- Subsection (g) concerns sellers' and purchasers' responsibilities tence of subsection (g)(3)(B) is adopted as subsection (g)(2)(C). for collecting or accruing and remitting local sales and use taxes.

Subsection (g)(1) and (2) of the version of the section that was Written comments on this subsection were also received from proposed for public comment reflected a proposed change in the local governments requesting that subsection (g) be revised comptroller policy with respect to the local taxing jurisdictions to state that the failure by a seller or purchaser to properly for which a seller must collect local use taxes. Under current charge, collect, report, or pay local tax to the proper local policy, a seller's collection responsibilities are limited to those tax authority will result in delinquent local taxes for which the local taxing jurisdictions in which the seller is "engaged in busi- comptroller will issue a deficiency determination under Tax ness." See, for example, §3.253(c) and (d) of this title (concern- Code, §111.008. After carefully considering this request, the ing County Use Tax), which is repealed. This local use tax policy comptroller has determined that the change requested would reflects the nexus requirement established by the United States duplicate language already present in this section. Subsection Supreme Court's analysis of the Due Process and Commerce (b)(1) of this section provides that Tax Code, Title 2, Subtitles A Clauses of the United States Constitution and enacted in Tax (General Provisions) and B (Enforcement and Collection) apply Code, §151.103 and §151.107. The comptroller determined that to transactions involving local taxes. Tax Code, Chapter 111, the plain language of the controlling statutes does not support concerning collection procedures, falls within Subtitle B. The the application of federal nexus requirements to intrastate sales comptroller therefore declines to make the requested change. of taxable items. Local use tax is due to the local taxing jurisdic- Subsection (h) explains how to determine the local taxing juris- tions in which a taxable item is first used, stored or consumed. diction in which sales taxes are due. Paragraph (1) explains the See Tax Code, §§321.205, 322.105, and 323.205. The comp- consummation of sale concept. The place where a sale is con- troller therefore proposed ending the "engaged in business" lim- summated per Texas laws and agency policy determines which itation on sellers' obligation for collecting use tax and instead re- local sales taxes are due, not the location where a purchaser quiring all sellers with nexus in the state to collect all local taxes acquires title to a taxable item. See Tax Code, §321.203(a) and that are due.

§323.203(a).

Written comments regarding proposed subsection (g)(1) and (2) Subsection (h)(2) addresses the situation, which is not ad- were received from: Mr. Doug Duffie, on behalf of the Texas So- dressed by statute, in which a sale is consummated at a location ciety of Certified Public Accountants; Mr. Hammond; Mr. Volken- that is within the boundaries of multiple special purpose taxing ing; and local governments. These comments raised a variety jurisdictions and/or multiple transit authority taxing jurisdictions. of conflicting concerns. In their written comments, Mr. Duffie, This paragraph reflects longstanding agency policy.

Mr. Hammond, and Mr. Volkening expressed concern that sell- ers would be unable to comply with the proposed requirements. Subsection (h)(3) sets forth five general rules for determining In contrast, the local governments requested that the proposed where the sale of a taxable item is consummated for local sales policy be implemented retrospectively. At a public hearing held tax purposes. These rules are taken from Tax Code, §321.203 on October 15, 2014, the comptroller received additional oral and §323.203, and apply to all sellers engaged in business in comments on the proposed change from: Mr. John Kennedy, on this state, regardless of whether they have one or more places of behalf of the Texas Taxpayers and Research Association; Ms. business in Texas. Subsection (h)(3)(A) states that a sale made Eleanor Kim of DuCharme, McMillen & Associates, Inc.; and Mr. in person at a place of business in Texas is consummated at Volkening. These commenters expressed concern that the dele- that place of business. This is based on Tax Code, §321.203(b) tion of the "engaged in business" requirement would violate the and (c) and §323.203(b) and (c). Subsection (h)(3)(B) states due process and commerce clauses of the U.S. Constitution. that if an order is (1) not placed in person, (2) is received at a place of business of the seller in Texas, and (3) is fulfilled at a In response to the written and oral comments provided, the location that is not a place of business in Texas, then the sale comptroller has decided not to change sellers' local use tax is consummated at the place of business where the order is re- collection obligations at this time. The section is amended from ceived. This is based on Tax Code, §321.203(b) and (d) and the version that was proposed for public comment to incorporate §323.203(b) and (d). Subsection (h)(3)(C) states that if an or- existing policy from §§3.253(c) and (d), 3.375(c) and (d), and der is placed by any means other than in person at a place of 3.425(c) and (d) of this title, which are repealed. Going forward, business in Texas, including the situation in which an order is the comptroller intends to continue to evaluate sellers' local placed in person at a kiosk, and the order is fulfilled at a place of tax collection responsibilities, including holding discussions business in Texas, then the sale is consummated at the place of with representatives from industry, local government, and the business where the order is fulfilled. This is based on Tax Code, public at large, in order to develop a policy that better follows §321.203(b) and (c-1) and §323.203(b) and (c-1). Subsection the statutory language while addressing retailers' concerns and (h)(3)(D) states that if an order is received by a seller at any lo- protecting the interests of local governments. cation other than a place of business of the seller in Texas, and The comptroller also received oral comments from Ms. Kim rec- the order is fulfilled at a location in Texas that is not a place of ommending that the provisions of subsection (g)(2) regarding business of the seller, then the sale is consummated at the loca- trailing nexus be revised to mirror proposed changes to §3.286 tion in Texas to which the order is shipped or delivered. This is of this title. The comptroller agrees and has made the requested based on Tax Code, §321.203(e)(2) and §323.203(e)(2). Finally, change. subsection (h)(3)(E) states that if an order is received outside of Texas, and is fulfilled outside of Texas, the sale is not consum-

39 TexReg 9600 December 5, 2014 Texas Register mated in Texas. If the order is shipped or delivered to a location tion of a drop-shipment scenario to subsection (h)(5). The comp- in Texas, however, local use tax is due based upon the location troller agrees with Mr. Torigian's suggestion. The subsection is in Texas to which the order is shipped or delivered. This is based amended to add: "When an order for a taxable item is received on Tax Code, §321.205 and §323.205. by a seller at one location, but shipped by the seller to the pur- chaser from a different location, the sale is consummated at, and Written comments on this subsection were received from local local sales tax is due based upon, the location designated in governments requesting that subsection (h)(3) of this section be paragraph (3) of this subsection." amended to add the following language: "Order received at a place of business within the state, order fulfilled outside of the Subsection (h)(5)(B) concerning drop shipments of orders that state. When an order is received by a seller at a place of busi- are placed outside Texas reflects current law and longstanding ness of the seller in this state, and the seller fulfills the order at agency policy that if an item is shipped to the purchaser from the a location outside of the state, the sale is consummated at the third-party supplier, local use taxes are due based on the point Texas place of business where the order is received." The sce- of delivery. This is consistent with §§3.253, 3.375, and 3.425 of nario identified by the local governments is already addressed this title (concerning County Use Tax, City Use Tax, and Transit in subsection (h)(3)(A) and (B), which states that if an order is Use Tax, respectively), which are repealed, but which provided placed in person at a place of business of the seller in this state, that use tax based on point of delivery is due whenever an item is or otherwise received at a place of business of the seller in this shipped to a location in Texas for storage, use, or consumption. state and shipped or delivered from a location that is not a place Subsection (h)(6) provides guidance for itinerant vendors and of business of the seller, then the sale is consummated at the persons operating vending machines or temporary places of place of business at which the order is received. The comptrol- business. Subsection (h)(6)(A) states longstanding policy as to ler declines to make the requested revision. how itinerant vendors are to collect sales tax, and only sales tax.

Subsection (h)(3)(F) addresses the exception to the general Subsection (h)(6)(B) reflects longstanding policy that persons rules for certain economic development agreements established who operate vending machines in the state are treated as itiner- by Tax Code, §321.203(c-4) - (c-5) and §323.203(c-2) - (c-5). ant vendors. See, e.g., STAR Accession Nos. 8312H0552B06 This subsection implements Senate Bill 997, 83rd Legislature, (December 29, 1983) and 200111617L (November 15, 2001).

2013. This subsection is revised from the version of the section Subsection (h)(6)(C) explains how tax is to be collected when proposed for public comment to follow the language of the a seller establishes a temporary place of business in the state, statute more closely by stating that a qualifying warehouse must both under the law in effect prior to June 19, 2009, when there be a place of business of the seller. In addition, references to was a change in statute as noted in the paragraph, and the law Tax Code, §321.203(c-2) - (c-3) and §321.203(c-2) - (c-3) are in effect after that date. This paragraph implements Senate Bill deleted as those provisions expired September 1, 2014. 636, 81st Legislature, 2009.

Subsection (h)(4) explains where sales are consummated when Subsection (i) explains how sellers and purchasers determine made by traveling salespersons. the local tax jurisdiction in which use tax is due, if any. This subsection notes that the provisions of §3.346 of this title, con- Subsection (h)(5) explains how a seller is to collect local sales cerning state use tax, apply to the local use tax. and use taxes when the transaction involves a drop shipment.

The provisions of this subsection will be applied on a prospec- Subsection (i) is revised from the version of the section pro- tive basis as of the effective date of this section, January 1, 2015, posed for public comment to reflect changes made to subsection in accordance with Tax Code, §151.022. Prior policy on drop (g). Subsection (i)(1) explains longstanding agency policy as to shipments, as expressed in STAR Accession No. 200501993L which local use taxes are due when all local sales taxes have (January 13, 2005), provided that when an item is shipped di- been collected and the two percent cap has not been reached. rectly to the purchaser from a third-party supplier, local sales Subsection (i)(1)(A) restates the well-established rule that appli- taxes are due based on the location of the place of business cable use taxes are due in the following order: city, county, spe- of the seller where the order is received. Subsection (h)(5)(A) cial purpose district, and transit authority. Subsection (i)(1)(D) supersedes this sourcing rule, as well as the exclusive applica- and (E) specifically addresses how local use tax is determined tion of use tax to all items shipped from out of state that is cur- when tax is due to multiple special purpose districts or transit au- rently found in the local tax rules. Subsection (h)(5)(A) provides thorities. These paragraphs explain longstanding agency policy that when an order is received at a seller's place of business in for determining the order in which such jurisdictions are to re- Texas, the sale is consummated at that location and local sales ceive local use tax. taxes apply, as provided under Tax Code, §321.203, rather than Subsection (i)(2) illustrates the application of the general use subjecting the order to use tax only under Tax Code, §321.205. tax rules in four specific fact situations. Subsection (i)(2)(A) is This change in policy is intended to give weight to Tax Code, amended to correct a misstatement in the version of the section §151.051 (sales tax imposed on each sale of a taxable item in that was proposed for public comment. If an order is received at this state) and §321.203 (sale is consummated as provided by any location that is not a place of business of the seller in Texas, this section). In addition, the policy change will ease the admin- including an out of state location, and the item is delivered to istrative burden for sellers since drop shipments will be sourced the purchaser in Texas from a location in this state that is not a in the same manner as all other sales consummated in this state, place of business of the seller, then the sale is consummated at which, generally, is to the place of business where the order is the location to which it is delivered. See subsection (h)(3)(D) of received. This provision of the new section will be applied on a this section. In addition, minor revisions are made to subsec- prospective basis to give affected sellers time to change their tax tion (i)(2)(B) and (C) to reflect the changes made to subsection collection systems and practices. (g)(1) and (2) to limit a seller's local use tax collection obligations The comptroller received written comments on this subsection to those local taxing jurisdictions in which the seller is engaged from Mr. John Torigian of Krell & Torigian suggesting the addi- in business.

ADOPTED RULES December 5, 2014 39 TexReg 9601 In addition, the comptroller received written comments on this In this subsection, for purposes of administrative convenience subsection from Mr. Mark Vane of Gardere Wynne Sewell LLP and on a prospective basis from the effective date of this sec- on behalf of two Texas caterpillar dealers, Holt Cat and Mustang tion, in accordance with Tax Code, §151.022, prior contract ex- Cat. Mr. Vane expressed concerns about the ability of sellers to emptions will be allowed when there is a new tax adopted by, or comply with the provisions of subsection (i) of this section. The a tax increase in, any local taxing jurisdiction. The only place in comptroller appreciates the concerns Mr. Vane has identified; the statutes that says a prior contract exemption applies to a tax however, subsection (i) simply implements the Local Tax Code, increase is with regards to the additional city sales and use tax. which imposes a local use tax on any taxable item that is sold in See Tax Code, §321.101(b) and §321.2091. In addition, many this state within a local taxing jurisdiction that has not adopted a STAR documents have allowed a prior contract exemption for local tax and is shipped or delivered directly into a local taxing city tax rate increases. However, taxpayers usually do not have jurisdiction that has adopted a local tax. For example, Local Tax the resources necessary to determine whether an increase in a Code, §321.205(b) states: "If a sale of a taxable item is consum- city sales tax is tied to the imposition of the regular city sales mated in this state but not within a municipality that has adopted tax, the imposition or increase of the additional city tax, or the the taxes authorized by this chapter and the item is shipped di- imposition or increase of a street maintenance, Type A/B Devel- rectly, or brought by the purchaser or lessee directly, into a mu- opment Corporation, or a sports and community venue project nicipality that has adopted the taxes authorized by this chapter, sales and use tax, which are also categorized by the comptroller the item is subject to the municipality's use tax." See also Local as city taxes.

Tax Code, §321.105(b) and §323.205(b).

In addition, while the legislature has tied the administration of Subsection (j) provides guidance to persons who make pur- many special purpose districts to Tax Code, Chapter 321 con- chases under a direct payment permit, which is based on Tax cerning city sales and use taxes, some districts have been au- Code, §§321.205(c) and (d), 322.105(c), and 323.205(c) and thorized with a specific exclusion from the statutes authorizing (d). Subsection (j)(2) makes clear that a direct payment permit a prior contract exemption. Therefore, the legislature's intent is holder may make an irrevocable election to pay local use tax on not clear whether to allow a prior contract exemption for an in- purchases at the time the purchased items are first stored or crease in a special purpose district tax rate when the district is when the items are first removed from storage for use in Texas. administered under Tax Code, Chapter 321.

Local tax is due to the jurisdictions where the item is first stored Other provisions of this subsection are not changed from what regardless of which election is chosen. See §3.346(g) of this exists in §3.376 (concerning Prior Contract Exemptions for title.

Cities) and §3.426 of this title (concerning Prior Contract Ex- Subsection (k) contains special rules for determining the appli- emptions for Transit Authorities), which are repealed, with the cation of local sales and use taxes to certain taxable goods and exception of the attached graphics, which identify a special ex- services. The paragraphs of this subsection reflect agency poli- emption certificate to be used to claim prior contract exemptions. cies and statutory mandates for determining where the sales of These graphics are also being repealed, but the comptroller items such as natural gas and electricity, amusement services, intends to develop a new exemption form to be used for local tax and cable television services are consummated, and they also prior contract exemptions that will be available on the agency's provide cross-references to relevant sections in this title that pro- website. Until the new exemption form is promulgated, taxpay- vide additional information about these taxable items. ers may use Texas Sales and Use Tax Exemption Certificate, Form 01-339, or any form promulgated by the comptroller that Subsection (l) identifies the special exemptions and provisions succeeds such form, to claim the exemption. applicable to individual jurisdictions, or types of jurisdictions, mandated by the legislature - specifically, emergency services The comptroller received additional comments, both oral and districts; jurisdictions that impose tax on residential sales of written, from Mr. Volkening requesting that a small business im- natural gas and electricity; jurisdictions that impose tax on sales pact study be performed in accordance with Government Code, of telecommunications services; the East Aldine Management §2006.002. The comptroller has considered Mr. Volkening's re- District; and the Fort Bliss military installation. quest, but has determined that because this section is proposed under Tax Code, Title 2, a statement of fiscal implications for Subsection (m) explains the restrictions that apply to local sales small businesses is not required. Tax Code, §321.003 states: tax rebates and other economic incentives that may be autho- "Subtitles A and B, Title 2, and Chapters 142 and 151 apply to rized by certain local development corporations. The subsection the taxes and to the administration and enforcement of the taxes implements Local Government Code, §501.161, and is also con- imposed by this chapter in the same manner that those laws ap- sistent with direction provided by the Attorney General of Texas ply to state taxes, unless modified by this chapter." See also Tax in his publication: Economic Development Handbook for Texas Code, §323.002. Nothing in Tax Code, Chapters 321 or 323 Cities (2013). modifies the application of Tax Code, Title 2, or otherwise re- Subsection (n) addresses the special rules that exist for prior quires the comptroller to perform a small business impact study. contract exemptions that may apply when local taxing jurisdic- The comptroller has also received both written and oral com- tions are authorized and voted into existence, tax rates are in- ments from Mr. Volkening, and oral comments from Ms. Bittick creased over time, or areas of existing local taxing jurisdictions and Mr. Kroll, expressing concerns about the transparency are expanded through annexations. These provisions imple- of the rulemaking process. In promulgating this section, the ment Tax Code, §§321.209 (Transition Exemption: General Pur- comptroller has closely followed the requirements of the Admin- pose Sales and Use Tax), 321.2091 (Transition Exemption: Ad- istrative Procedures Act (Government Code, Chapter 2001), ditional Municipal Sales and Use Tax), 321.303(b) (Sales Tax and has, in fact, gone beyond them. The comptroller first Permits and Exemption Resale Certificates), 322.108(a)(6) - (7) circulated a draft version of the section to the Taxpayer Advisory (Certain Provisions of Municipal Sales and Use Tax Applicable), Group, including Mr. Volkening and representatives of Ryan, 323.209 (Transition Exemption), and 323.303(c) (Sales Tax Per- LLC, on November 15, 2013. The Texas Society of Certified mits and Exemption and Resale Certificates).

39 TexReg 9602 December 5, 2014 Texas Register Public Accountants (TSCPA) provided comments, and changes (4) Comptroller's website--The agency's website concern- were made to the section in response to their concerns. Neither ing local taxes located at: http://www.window.state.tx.us/taxinfo/lo- the Texas Retailers Association nor Ryan, LLC provided any cal/index.html. response to the draft section - no comments were made, no (5) County sales and use tax--The tax authorized under concerns were raised, and no meetings were requested. The Tax Code, §323.101, including a sports and community venue project section, as amended based on the comments received from sales and use tax adopted by a county under Local Government Code, TSCPA, was proposed in the Texas Register for public comment §334.081. The term does not include the county health services sales on May 30, 2014. The comptroller considered and responded and use tax authorized under Tax Code, §324.021, the county landfill to all written comments received in the 30-day comment period, and criminal detention center sales and use tax authorized under Tax as well as all written comments received thereafter. In response Code, §325.021, or the crime control and prevention district sales and to Mr. Volkening's request, the comptroller held a public hearing use tax authorized under Tax Code, §323.105. on the proposed section on October 15, 2014. In the Notice of Hearing published on September 26, 2014, the comptroller (6) Drop shipment--A transaction in which an order is re- provided a detailed description of those areas of the section that ceived by a seller at one location, but the item purchased is shipped by would be revised based on the written comments received. In the seller from another location, or is shipped by the seller's third-party short, the comptroller has provided several forums for all parties supplier, directly to a location designated by the purchaser. impacted by local tax issues to provide suggestions and raise (7) Engaged in business--This term has the meaning given concerns. in §3.286 of this title (relating to Seller's and Purchaser's Responsibil- The new section is adopted under Tax Code, §111.002, which ities, including Nexus, Permits, Returns and Reporting Periods, and provides the comptroller with the authority to prescribe, adopt, Collection and Exemption Rules). and enforce rules relating to the administration and enforcement (8) Extraterritorial jurisdiction--An unincorporated area of the provisions of Tax Code, Title 2, and Tax Code, §§321.306, that is contiguous to the corporate boundaries of a city as defined in 322.203, and 323.306, which all provide that the comptroller may Local Government Code, §42.021 adopt reasonable rules and prescribe forms that are consistent with the provisions of those chapters regarding the administra- (9) Fulfill--To complete an order by transferring a taxable tion of local sales and use taxes. item directly to a purchaser at a Texas location, or to ship or deliver a taxable item to a location in Texas designated by the purchaser.

The new section implements Tax Code, Chapters 321 (Munici- pal Sales and Use Tax Act), 322 (Sales and Use tax for Special (10) Itinerant vendor--A person who travels to various lo- Purpose Taxing Authorities), and 323 (County Sales and Use cations for the purpose of receiving orders and making sales of taxable Tax Act). However, other Texas code provisions determine what items and who does not operate a place of business. For example, a local taxing jurisdictions have authority to impose local sales person who sells rugs from the back of a truck that the person drives and use taxes and some, but not all, of these code provisions to a different location each day is an itinerant vendor. A person who are identified in the preamble of, or throughout, the section. sells items through vending machines is also an itinerant vendor. A Throughout the new section are other references to authorities salesperson that operates out of an office, place of business, or other and code provisions that are implemented by the provisions in location that provides administrative support to the salesperson is not the section. an itinerant vendor.

§3.334. Local Sales and Use Taxes. (11) Kiosk--A small stand-alone area or structure: (a) Definitions. The following words and terms, when used (A) that is used solely to display merchandise or to sub- in this section, shall have the following meanings, unless the context mit orders for taxable items from a data entry device, or both; clearly indicates otherwise. (B) that is located entirely within a location that is a (1) Cable system--The system through which a cable ser- place of business of another seller, such as a department store or shop- vice provider delivers cable television or bundled cable service, as ping mall; and those terms are defined in §3.313 of this title (relating to Cable Televi- (C) at which taxable items are not available for imme- sion Service and Bundled Cable Service). diate delivery to a purchaser. (2) City--An incorporated city, municipality, town, or vil- (12) Local taxes--Sales and use taxes imposed by any local lage. taxing jurisdiction. (3) City sales and use tax--The tax authorized under Tax (13) Local taxing jurisdiction--Any of the following: Code, §321.101(a), including the additional municipal sales and use tax authorized under Tax Code, §321.101(b), the municipal sales and (A) a city that imposes sales and use tax as provided use tax for street maintenance authorized under Tax Code, §327.003, under paragraph (3) of this subsection; the Type A Development Corporation sales and use tax authorized un- (B) a county that imposes sales and use tax as provided der Local Government Code, §504.251, the Type B Development Cor- under paragraph (5) of this subsection; poration sales and use tax authorized under Local Government Code, §505.251, a sports and community venue project sales and use tax (C) a special purpose district created under the Special adopted by a city under Local Government Code, §334.081, and a mu- District Local Laws Code or other provisions of Texas law that is autho- nicipal development corporation sales and use tax adopted by a city un- rized to impose sales and use tax by the Tax Code or other provisions der Local Government Code, §379A.081. The term does not include of Texas law and as governed by the provisions of Tax Code, Chapters the fire control, prevention, and emergency medical services district 321 or 323 and other provisions of Texas law; or sales and use tax authorized under Tax Code, §321.106, or the munic- ipal crime control and prevention district sales and use tax authorized under Tax Code, §321.108.

ADOPTED RULES December 5, 2014 39 TexReg 9603 (D) a transit authority that imposes sales and use tax as (1) Tax Code, Title 2, Subtitles A (General Provisions) and authorized by Transportation Code, Chapters, 451, 452, 453, 457, or B (Enforcement and Collection), Tax Code, Chapter 141 (Multistate and governed by the provisions of Tax Code, Chapter, 322. Tax Compact) and Tax Code, Chapter 151 (Limited Sales, Excise, and Use Tax) apply to transactions involving local taxes. Related sections (14) Place of business - general definition--An established of this title and comptroller rulings shall also apply with respect to local outlet, office, or location operated by a seller for the purpose of sell- taxes. This includes authorities such as court cases and federal law ing taxable items to those other than employees, contractors, and in- that affect whether an item is taxable or is excluded or exempt from dividual persons affiliated with the seller. Places of business include, taxation. but are not limited to, call centers, showrooms, and clearance centers.

The term also includes any location operated by a seller at which the (2) Permits, exemption certificates, and resale certificates seller receives three or more orders for taxable items during a calen- required by Tax Code, Chapter 151, shall also satisfy the requirements dar year. For example, a home office at which three or more items are for collecting and remitting local taxes, unless otherwise indicated by sold through an online auction website is a place of business. Addi- this section or other sections of this title. For example, see subsection tional criteria for determining when a location is a place of business (n) of this section concerning prior contract exemptions. are provided in subsection (e) of this section for administrative offices; (3) Any provisions in this section or other sections of this distribution centers, manufacturing plants, storage yards, warehouses title related to a seller's responsibilities for collecting and remitting lo- and similar facilities; kiosks; and purchasing offices. cal taxes to the comptroller shall also apply to a purchaser if the seller (15) Purchasing office--An outlet, office, facility, or any lo- does not collect local taxes that are due. The comptroller may proceed cation that contracts with a retail or commercial business to process for against the seller or purchaser for the local tax owed by either. that business invoices, purchase orders, bills of lading, or other equiva- (c) Tax rates. Except as otherwise provided by law, no local lent records onto which sales tax is added, including an office operated governmental entity may adopt or increase a sales and use tax if, as a re- for the purpose of buying and selling taxable goods to be used or con- sult of the adoption or increase of the tax, the combined rate of all sales sumed by the retail or commercial business. and use taxes imposed by local taxing jurisdictions having territory in (16) Seller--This term has the meaning given in §3.286 of the local governmental entity would exceed 2.0% at any location within this title and also refers to any agent or employee of the seller. the boundaries of the local governmental entity's jurisdiction. The fol- lowing are the local tax rates that may be adopted. (17) Special purpose district--A local governmental entity authorized by the Texas legislature for a specific purpose, such as crime (1) Cities. Cities may impose sales and use tax at a rate of control, a local library, emergency services, county health services, or up to 2.0%. a county landfill and criminal detention center. (2) Counties. Counties may impose sales and use tax at (18) Storage--This term has the meaning given in §3.346 rates ranging from 0.5% to 1.5%. of this title (relating to Use Tax). (3) Special purpose districts. Special purpose districts may (19) Temporary place of business--A location operated by impose sales and use tax at rates ranging from 0.125% to 2.0%. a seller for a limited period of time for the purpose of selling and receiv- (4) Transit authorities. Transit authorities may impose ing orders for taxable items and where the seller has inventory available sales and use tax at rates ranging from 0.25% to 1.0%. for immediate delivery to a purchaser. For example, a person who rents a booth at a weekend craft fair or art show to sell and take orders for (d) Jurisdictional boundaries, combined areas, and city tax im- jewelry, or a person who maintains a facility at a job site to rent tools posed through strategic partnership agreements. and equipment to a contractor during the construction of real property, (1) Jurisdictional boundaries. has established a temporary place of business. (A) City boundaries. City taxing jurisdictional bound- (20) Transit authority--A metropolitan rapid transit author- aries cannot overlap one another and a city cannot impose a sales and ity (MTA), advanced transportation district (ATD), regional or subre- use tax in an area that is already within the jurisdiction of another city. gional transportation authority (RTA), city transit department (CTD), county transit authority (CTA), regional mobility authority (RMA) or (B) County boundaries. County tax applies to all loca- coordinated county transportation authority created under Transporta- tions within that county. tion Code, Chapters 370, 451, 452, 453, 457, or 460. (C) Special purpose district and transit authority bound- (21) Traveling salesperson--A seller, or an agent or em- aries. Special purpose districts and transit authorities may cross or ployee of a seller, who visits potential purchasers in person to solicit share boundaries with other local taxing jurisdictions and may encom- sales, and who does not carry inventory ready for immediate sale, but pass, in whole or in part, other local taxing jurisdictions, including who may carry samples or perform demonstrations of items for sale. cities and counties. A geographic location or address in this state may lie within the boundaries of more than one special purpose district or (22) Two percent cap--A reference to the general rule that, more than one transit authority. except as otherwise provided by Texas law and as explained in this section, a seller cannot collect, and a purchaser is not obligated to pay, (D) Extraterritorial jurisdictions. Except as otherwise more than 2.0% of the sales price of a taxable item in total local sales provided by paragraph (3) of this subsection concerning strategic part- and use taxes for all local taxing jurisdictions nership agreements and subsection (l)(5) of this section concerning the City of El Paso and Fort Bliss, city sales and use tax does not apply to (23) Use--This term has the meaning given in §3.346 of taxable sales that are consummated outside the boundaries of the city, this title. including sales made in a city's extraterritorial jurisdiction. However, (24) Use tax--A tax imposed on the storage, use or other an extraterritorial jurisdiction may lie within the boundaries of a spe- consumption of a taxable item in this state. cial purpose district, transit authority, county, or any combination of the three, and the sales and use taxes for those jurisdictions would ap- (b) Effect of other law. ply to those sales.

39 TexReg 9604 December 5, 2014 Texas Register (2) Combined areas. A combined area is an area where the (C) If a location that is a place of business of the seller, boundaries of a city overlap the boundaries of one or more other local such as a sales office, is in the same building as a distribution center, taxing jurisdictions as a result of an annexation of additional territory manufacturing plant, storage yard, warehouse, or similar facility op- by the city, and where, as the result of the imposition of the city tax erated by a seller, then the entire facility is a place of business of the in the area in addition to the local taxes imposed by the existing tax- seller. ing jurisdictions, the combined local tax rate would exceed 2.0%. The (3) Kiosks. A kiosk is not a place of business for the pur- comptroller shall make accommodations to maintain a 2.0% rate in any pose of determining where a sale is consummated for local tax pur- combined area. Sellers engaged in transactions on which local sales or poses. A seller who owns or operates a kiosk in Texas is, however, use taxes are due in a combined area, or persons who must self-accrue engaged in business in this state as provided in §3.286 of this title. and remit tax directly to the comptroller, must use the combined area local code when reporting the tax rather than the codes for the indi- (4) Purchasing offices vidual city, county, special purpose districts, or transit authorities that (A) A purchasing office is not a place of business if the make up the combined area. The comptroller shall distribute the tax purchasing office exists solely to rebate a portion of the local sales revenue generated in these combined areas to the local taxing jurisdic- and use tax imposed by Tax Code, Chapter 321 or 323 to a business tions located in the combined areas as provided in Tax Code, §321.102 with which it contracts; or if the purchasing office functions or exists or Health and Safety Code, §775.0754. Combined areas are identified to avoid the tax legally due under Tax Code, Chapter 321 or 323. A on the comptroller's website. purchasing office does not exist solely to rebate a portion of the local (3) City tax imposed through strategic partnership agree- sales and use tax or to avoid the tax legally due under Tax Code, Chap- ments. ter 321 or 323 if the purchasing office provides significant business services, beyond processing invoices, to the contracting business, in- (A) The governing bodies of a district, as defined in cluding logistics management, purchasing, inventory control, or other Local Government Code, §43.0751, and a city may enter into a lim- vital business services. ited-purpose annexation agreement known as a strategic partnership agreement. Under this agreement, the city may impose sales and use (B) When the comptroller determines that a purchasing tax within all or part of the boundaries of a district. Areas within a dis- office is not a place of business, the sale of any taxable item is deemed trict that are annexed for this limited purpose are treated as though they to be consummated at the place of business of the seller from whom the are within the boundaries of the city for purposes of city sales and use purchasing office purchased the taxable item for resale and local sales tax. and use taxes are due according to the following rules. (B) Counties, transit authorities, and special purpose (i) When taxable items are purchased from a Texas districts may not enter into strategic partnership agreements. Sales seller, local sales taxes are due based on the location of the seller's place and use taxes imposed by those taxing jurisdictions do not apply in of business where the sale is deemed to be consummated, as determined the limited-purpose annexed area as part of a strategic partnership in accordance with subsection (h) of this section. agreement between a city and an authorized district. However, a (ii) When the sale of a taxable item is deemed to be county, special purpose district, or transit authority sales and use tax, or consummated at a location outside of this state, local use tax is due any combination of these three types of taxes, may apply at locations based on the location where the items are first stored, used or consumed included in a strategic partnership agreement between a city and an by the entity that contracted with the purchasing office in accordance authorized district if the tax is imposed in that area by the applicable with subsection (i) of this section. jurisdiction as allowed under its own controlling authorities. (C) In making a determination under subparagraph (A) (C) Prior to September 1, 2011, the term "district" was of this paragraph, as to whether a purchasing office provides significant defined in Local Government Code, §43.0751 as a municipal utility business services to the contracting business, the comptroller will look district or a water control and improvement district. The definition to the books and records of the purchasing office to determine whether was amended effective September 1, 2011, to mean a conservation and the total value of the business services provided to the contracting busi- reclamation district operating under Water Code, Chapter 49. ness equals or exceeds the total value of processing invoices. If the total (e) Place of business - special definitions. In addition to the value of the business services provided, including logistics manage- general definition of the term "place of business" in subsection (a)(13) ment, purchasing, inventory control, or other vital business services, of this section, the following rules apply. is less than the total value of the service to process invoices, then the purchasing office will be presumed not to be a place of business of the (1) Administrative offices supporting traveling salesper- seller. sons. Any outlet, office, or location operated by a seller that serves as a base of operations for a traveling salesperson or that provides (D) Dickinson Management District; purchasing office administrative support to a traveling salesperson is a place of business. exclusion invalid. Special District Local Laws Code, §3853.202(d) is invalid to the extent that it attempts to exclude the Dickinson Man- (2) Distribution centers, manufacturing plants, storage agement District from the application of Tax Code, §321.203(m), for- yards, warehouses, and similar facilities. merly Tax Code, §321.203(l). Any purchasing office operated within (A) A distribution center, manufacturing plant, storage the Dickinson Management District is subject to this paragraph. yard, warehouse, or similar facility operated by a seller at which the (f) Places of business and job sites crossed by local taxing ju- seller receives three or more orders for taxable items during the calen- risdiction boundaries. dar year is a place of business. (1) Places of business crossed by local taxing jurisdiction (B) If a salesperson who receives three or more orders boundaries. If a place of business is crossed by one or more local tax- for taxable items within a calendar year is assigned to work from, or ing jurisdiction boundaries so that a portion of the place of business is to work at, a distribution center, manufacturing plant, storage yard, located within a taxing jurisdiction and the remainder of the place of warehouse, or similar facility operated by a seller, then the facility is a business lies outside of the taxing jurisdiction, tax is due to the local place of business.

ADOPTED RULES December 5, 2014 39 TexReg 9605 taxing jurisdictions in which the sales office is located. If there is no (C) For more information about how to report and pay sales office, sales tax is due to the local taxing jurisdictions in which use tax directly to the comptroller, see §3.286 of this title. any cash registers are located. (4) Local tax is due on the sales price of a taxable item, as (2) Job sites. defined in Tax Code, §151.007, in the report period in which the taxable item is purchased or the period in which the taxable item is first stored, (A) Residential repair and remodeling; new construc- used, or otherwise consumed in a local taxing jurisdiction. tion of an improvement to realty. When a contractor is improving real property under a separated contract, and the job site is crossed by the (h) Local sales tax. Determining the local taxing jurisdictions boundaries of one or more local taxing jurisdictions, the local taxes due to which sales tax is due; consummation of sale. on any separately stated charges for taxable items incorporated into the (1) General rule. Except for the special rules applicable to real property must be allocated to the local taxing jurisdictions based on direct payment permit purchases and certain taxable items as provided the total square footage of the real property improvement located within in subsections (j) and (k) of this section, each sale of a taxable item is each jurisdiction, including the square footage of any standalone struc- consummated at the location indicated by the provisions of this sub- tures that are part of the construction, repair, or remodeling project. section. Local sales taxes must be collected for all local taxing juris- For more information about tax due on materials used at residential dictions in effect at the location where the sale is consummated. Local and new construction job sites, refer to §3.291 of this title (relating to use tax may also be due if the total amount of local sales taxes due does Contractors). not reach the two percent cap, and the item purchased is shipped or de- (B) Nonresidential real property repair and improve- livered to a location in one or more different local taxing jurisdictions, ment. When taxable services are performed to repair, remodel, or as provided in subsection (i) of this section. restore nonresidential real property, including a pipeline, transmission (2) Multiple special purpose district taxes, multiple tran- line, or parking lot, that is crossed by the boundaries of one or more sit authority sales taxes, or a combination of the two may apply to a local taxing jurisdictions, the local taxes due on the taxable services, single transaction. If the sale of a taxable item is consummated at a including materials and any other charges connected to the services location within the boundaries of multiple special purpose districts or performed, must be allocated among the local taxing jurisdictions transit authorities, local sales tax is owed to each of the jurisdictions in based upon the total mileage or square footage, as appropriate, of the effect at that location. For example, a place of business located in the repair, remodeling, or restoration project located in each jurisdiction. city of San Antonio is within the boundaries of both the San Antonio For more information about tax due on materials used at nonresidential Advanced Transportation District and the San Antonio Metropolitan real property repair and remodeling job sites, refer to §3.357 of this Transit Authority, and the seller is required to collect sales tax for both title (relating to Nonresidential Real Property Repair, Remodeling, transit authorities. Similarly, a place of business in Flower Mound is lo- and Restoration; Real Property Maintenance). cated within the boundaries of two special purpose districts, the Flower (g) Sellers' and purchasers' responsibilities for collecting or ac- Mound Crime Control District and the Flower Mound Fire Control Dis- cruing local taxes. trict, and the seller is responsible for collecting sales tax for both special purpose districts. (1) Sale consummated in Texas; seller responsible for col- lecting local sales taxes and applicable local use taxes. When a sale of (3) Consummation of sale. The following rules, taken from a taxable item is consummated at a location in Texas as provided by Tax Code, §321.203 and §323.203, apply to all sellers engaged in busi- subsection (h) of this section, the seller must collect each local sales ness in this state, regardless of whether they have a place of business tax in effect at the location. If the total rate of local sales tax due on in Texas or multiple places of business in the state. the sale does not reach the two percent cap, and the seller ships or de- (A) Order placed in person at a seller's place of busi- livers the item into another local taxing jurisdiction in which the seller ness in Texas. When a purchaser places an order for a taxable item in is engaged in business, then the seller is required to collect additional person at a seller's place of business in Texas, the sale of that item is local use taxes due, if any, based on the location to which the item is consummated at that place of business, regardless of the location where shipped or delivered. For more information regarding local use taxes, the order is fulfilled, except in the limited circumstances described in refer to subsection (i) of this section. subparagraph (F) of this paragraph, concerning qualifying economic (2) Out-of-state sale; seller engaged in business in Texas. development agreements.

A seller who is engaged in business in this state is required to collect (B) Order received at a place of business in Texas, ful- and remit local use taxes due, if any, on orders of taxable items shipped filled at a location that is not a place of business. When an order that is or delivered at the direction of the purchaser into a local taxing juris- placed over the telephone, through the Internet, or by any means other diction in this state in which the seller is engaged in business. than in person is received by the seller at a place of business in Texas, (3) Purchaser responsible for accruing and remitting local and the seller fulfills the order at a location that is not a place of busi- taxes if seller fails to collect. ness of the seller in Texas, such as a warehouse or distribution center, the sale is consummated at the place of business at which the order for (A) If a seller does not collect the state sales tax, any the taxable item is received. applicable local sales taxes, or both on a sale of a taxable item that is consummated in Texas, then the purchaser is responsible for filing (C) Order fulfilled at a place of business in Texas. a return and paying the tax. The local sales taxes due are based on When an order is placed in person at a location that is not a place of the location in this state where the sale is consummated as provided in business of the seller in this state, such as a kiosk, or when an order subsection (h) of this section. is placed over the telephone, through the Internet, or by any means other than in person, and the seller fulfills the order at a location that (B) A purchaser who buys an item for use in Texas from is a place of business in Texas, the sale is consummated at the place of a seller who does not collect the state use tax, any applicable local use business where the order is fulfilled. taxes, or both, is responsible for filing a return and paying the tax. The local use taxes due are based on the location where the item is first (D) Order fulfilled within the state at a location that is stored, used, or consumed by the purchaser. not a place of business. When an order is received by a seller at any

39 TexReg 9606 December 5, 2014 Texas Register location other than a place of business of the seller in this state, and (A) Itinerant vendors. Sales made by itinerant vendors the seller fulfills the order at a location in Texas that is not a place of are consummated at, and itinerant vendors must collect sales tax based business of the seller, then the sale is consummated at the location in upon, the location where the item is delivered or where the purchaser Texas to which the order is shipped or delivered, or the location where takes possession of the item. Itinerant vendors do not have any respon- it is transferred to the purchaser. sibility to collect use tax. (E) Order received outside of the state, fulfilled outside (B) Vending machines. Sales of taxable items made of the state. When an order is received by a seller at a location out- from a vending machine are consummated at the location of the vend- side of Texas, and the order is shipped or delivered into a local taxing ing machine. See §3.293 of this title (relating to Food; Food Prod- jurisdiction from a location outside of the state, the sale is not consum- ucts; Meals; Food Service) for more information about vending ma- mated at a location in Texas. However, local use tax is due based upon chine sales. the location in this state to which the item is shipped or delivered or at (C) Temporary places of business. which possession of the item is taken by the purchaser as provided in subsection (i) of this section. (i) Item transferred to purchaser at time of sale.

When a seller operates a temporary place of business, and items (F) Exception for qualifying economic development purchased are transferred to the purchasers at the time of sale, the agreements entered into before January 1, 2009, pursuant to Tax Code, sales are consummated at, and local sales tax is due based upon, the §321.203(c-4) - (c-5) or §323.203(c-4) - (c-5). This subparagraph is location of the temporary place of business. effective until September 1, 2024. If applicable, the local sales tax due on the sale of a taxable item is based on the location of the qualifying (ii) Order accepted at temporary place of business warehouse, which is a place of business of the seller, from which the prior to June 19, 2009. If a seller received an order at a temporary place item is shipped or delivered or at which the purchaser takes possession of business prior to June 19, 2009, and the order was fulfilled at another of the item. place of business of the seller in this state, the sale was consummated at, and local sales taxes are due based upon, the location of the place of (4) Orders received by traveling salespersons. Orders business where the order was fulfilled and not the temporary location taken by traveling salespersons are received by the seller at the where the order was received. administrative office or other place of business from which the trav- eling salesperson operates, and such sales are consummated at the (iii) Order accepted at temporary place of business location indicated in paragraph (3) of this subsection. For example, on or after June 19, 2009. When a seller receives an order at a tem- if a traveling salesperson who operates out of a place of business of porary place of business and the order is fulfilled at another location, a seller in Texas takes an order for a taxable item, and the order is the sale is consummated at, and local sales taxes are due based upon, fulfilled at a location that is not a place of business of the seller in this the location of the temporary place of business where the order was state, the sale is consummated at the place of business from which received. the salesperson operates, in accordance with paragraph (3)(B) of this (i) Use tax. The provisions addressing the imposition of state subsection. Similarly, if a traveling salesperson takes an order for a use tax in §3.346 of this title also apply to the imposition of local use taxable item, and the order is fulfilled at a place of business of the tax. For example, consistent with §3.346(e) of this title, all taxable seller in this state, the sale is consummated at the location of the place items that are shipped or delivered to a location in this state that is of business where the order is fulfilled, in accordance with paragraph within the boundaries of a local taxing jurisdiction are presumed to (3)(C) of this subsection. have been purchased for use in that local taxing jurisdiction as well as (5) Drop shipments. presumed to have been purchased for use in the state. (A) When an order for a taxable item is received at a (1) General rules. seller's place of business in Texas, or by a traveling salesperson operat- (A) When local use taxes are due in addition to local ing out of a place of business in this state, and the item is drop-shipped sales taxes as provided by subsection (h) of this section, all applicable directly to the purchaser from a third-party supplier, the sale is consum- use taxes must be collected or accrued in the following order until the mated at, and local sales tax is due based upon, the location of the place two percent cap is reached: city, county, special purpose district, and of business where the order is received. When an order for a taxable transit authority. If more than one special purpose district use tax is due, item is received by a seller at one location, but shipped by the seller to all such taxes are to be collected or accrued before any transit authority the purchaser from a different location, the sale is consummated at, and use tax is collected or accrued. See subparagraphs (D) and (E) of this local sales tax is due based upon, the location designated in paragraph paragraph. (3) of this subsection. If the local sales taxes due based on the location of the seller's place of business at which the sale is consummated equal (B) If a local use tax cannot be collected or accrued at less than 2.0%, additional local use tax may be due based upon the lo- its full rate without exceeding the two percent cap, the seller cannot cation in this state to which the purchased item is shipped or delivered collect it, or any portion of it, and the purchaser is not responsible for or at which possession of the item is taken by the purchaser as provided accruing it. in subsection (i) of this section. (C) If a seller collects a local sales tax on an item, or a (B) When an order for a taxable item is received by the purchaser accrues a local sales tax on an item, a use tax for the same seller at a location outside of Texas, or by a traveling salesperson oper- type of jurisdiction is not due on the same item. For example, once a ating from a location outside of this state, and the item is drop-shipped city sales tax has been collected or accrued for an item, no use tax is directly to the purchaser from a third-party supplier, the item is subject due to that same or a different city on that item, but use tax may be due to use tax. See subsection (i) of this section concerning use tax. to a county, special purpose district, or transit authority. Similarly, if one or more special purpose district sales taxes have been collected or (6) Itinerant vendors; vending machines; temporary places accrued for an item, no special purpose district use tax is due on that of business. item, and if one or more transit authority sales taxes have been collected or accrued for an item, no transit authority use tax is due on that item.

ADOPTED RULES December 5, 2014 39 TexReg 9607 (D) Collection or accrual of use tax for multiple special is shipped to the purchaser from a location outside of the state, local purpose districts. If more than one special purpose district use tax is in use tax is due based upon the location to which the order is shipped or effect at the location where use of an item occurs, the special purpose delivered. district taxes are due in the order of their effective dates, beginning (B) Sale consummated in Texas outside a local taxing with the earliest effective date, until the two percent cap is met. The jurisdiction, item delivered into one or more local taxing jurisdictions - effective dates of all special purpose district taxes are available on the local use tax due. If a sale is consummated at a location in Texas that is comptroller's website. However, if the collection or accrual of use tax outside of the boundaries of any local taxing jurisdiction according to for the district with the earliest effective date would exceed the two the provisions of subsection (h) of this section, and the order is shipped percent cap, the tax for that district is not due and the seller or purchaser or delivered to the purchaser at a location in this state that is within the should determine, following the criteria in subparagraphs (A) - (C) of boundaries of one or more local taxing jurisdictions, local use tax is due this paragraph, whether use tax is due for the district that next became based on the location to which the items are shipped or delivered. If the effective. seller is engaged in business in the local taxing jurisdiction where the (i) If the competing special purpose districts became items are shipped or delivered, the seller is responsible for collecting effective on the same date, the special purpose district taxes are due in the local use taxes due. If the seller fails to collect any local use taxes the order of the earliest date for which the election in which the district due, the purchaser is responsible for accruing such taxes and remitting residents authorized the imposition of sales and use tax by the district them directly to the comptroller. For example, if a seller uses its own was held. delivery vehicle to transport a taxable item from a place of business that is outside the boundaries of a local taxing jurisdiction to a delivery (ii) If the elections to impose the local taxes were location designated by a purchaser that is inside the boundaries of a held on the same date, the special purpose district taxes are due in the local taxing jurisdiction, the seller is responsible for collecting the local order of the earliest date for which the enabling legislation under which use taxes due based on the location to which the items are delivered. each district was created became effective. (C) Sale consummated in any local taxing jurisdictions (E) Collection or accrual of use tax for multiple transit imposing less than 2.0% in total local taxes - local sales taxes, and authorities. If more than one transit authority use tax is in effect at possibly use taxes, due. If a sale is consummated at a location in Texas the location where use of an item occurs, and the two percent cap has where the total local sales tax rate imposed by the taxing jurisdictions not been met, the transit authority taxes are due in the order of their in effect at that location does not equal or exceed 2.0% according to effective dates, beginning with the earliest effective date, until the two the provisions of subsection (h) of this section, and the item is shipped percent cap is met. The effective dates of all transit authority taxes or delivered to the purchaser at a location in this state that is inside the are available on the comptroller's website. However, if the collection boundaries of a different local taxing jurisdiction, additional local use or accrual of use tax for the authority with the earliest effective date tax may be due based on the location to which the order is shipped or would exceed the two percent cap, the tax for that authority is not due delivered, subject to the two percent cap. If the seller is engaged in and the seller or purchaser should determine, following the criteria in business in the local taxing jurisdiction into which the order is shipped subparagraphs (A) - (D) of this paragraph, whether use tax is due for or delivered, the seller is responsible for collecting any additional local the authority that next became effective. use taxes due. See subsection (g) of this section. If the seller fails to (i) If the competing transit authorities became effec- collect the additional local use taxes due, the purchaser is responsible tive on the same date, the transit authority taxes are due in the order of for accruing such taxes and remitting them directly to the comptroller. the earliest date for which the election in which the authority residents For example, if an order is received in person at a place of business of authorized the imposition of sales and use tax by the authority was held. the seller, such that the sale is consummated at the location where the order is received as provided under subsection (h)(3)(A) of this section, (ii) If the elections to impose local taxes were held and the local sales tax due on the sale does not meet the two percent on the same date, the transit authority use taxes are due in the order of cap, additional local use taxes may be due based on the location to the earliest date for which the enabling legislation under which each which the order is shipped or delivered, subject to the provisions in authority was created became effective. paragraph (1) of this subsection. Or, if a purchaser places an order for (2) General use tax rules applied to specific situations. The a taxable item at a seller's place of business in Texas, and the seller following fact patterns explain how local use tax is to be collected or ships or delivers the item from an out-of-state location to a location in accrued and remitted to the comptroller based on, and subject to, the this state as designated by the purchaser, local sales tax is due based general rules in paragraph (1) of this subsection. upon the location of the place of business where the order is received.

If the local sales tax due on the item does not meet the two percent cap, (A) Sale consummated outside the state, item delivered use tax, subject to the provisions in paragraph (1) of this subsection, is from outside the state or from a location in Texas that is not operated due based upon the location where the items are shipped or delivered. by the seller - local use tax due. If a sale is consummated outside of this state according to the provisions of subsection (h) of this section, (j) Items purchased under a direct payment permit. and the item purchased is either shipped or delivered to a location in (1) When taxable items are purchased under a direct pay- this state as designated by the purchaser from a location outside of the ment permit, local use tax is due based upon the location where the state, or if the order is drop shipped directly to the purchaser from a permit holder first stores the taxable items, except that if the taxable third-party supplier, local use tax is owed based upon the location in items are not stored, then local use tax is due based upon the location this state to which the order is shipped or delivered. If the seller is where the taxable items are first used or otherwise consumed by the engaged in business in the local taxing jurisdiction into which the order permit holder. is shipped or delivered, the seller is responsible for collecting the local use tax due on the sale. If the seller does not collect the local use taxes (2) If, in a local taxing jurisdiction, storage facilities con- due on the sale, the purchaser is responsible for accruing such taxes and tain taxable items purchased under a direct payment exemption certifi- remitting them directly to the comptroller according to the provisions in cate and at the time of storage it is not known whether the taxable items paragraph (1) of this subsection. For example, if an order for a taxable will be used in Texas, then the taxpayer may elect to report the use tax item is received by a seller at a location outside of Texas, and the order either when the taxable items are first stored in Texas or are first re-

39 TexReg 9608 December 5, 2014 Texas Register moved from inventory for use in Texas, as long as use tax is reported available on the comptroller's website. For more information, also refer in a consistent manner. See also §3.288(i) of this title (relating to Direct to §3.295 of this title (relating to Natural Gas and Electricity).

Payment Procedures and Qualifications) and §3.346(g) of this title. (8) Nonresidential real property repair and remodeling ser- (3) If local use tax is paid on stored items that are subse- vices. Local taxes are due on services to remodel, repair, or restore quently removed from Texas before they are used, the tax may be recov- nonresidential real property based on the location of the job site where ered in accordance with the refund and credit provisions of §3.325 of the remodeling, repair, or restoration is performed. See also subsection this title (relating to Refunds and Payments Under Protest) and §3.338 (f)(2)(B) of this section and §3.357 of this title. of this title (relating to Multistate Tax Credits and Allowance of Credit (9) Residential real property repair and remodeling and for Tax Paid to Suppliers). new construction of a real property improvement performed under a (k) Special rules for certain taxable goods and services. Sales separated contract. When a contractor constructs a new improvement of the following taxable goods and services are consummated at, and to realty pursuant to a separated contract or improves residential real local tax is due based upon, the location indicated in this subsection. property pursuant to a separated contract, the sale is consummated at the job site at which the contractor incorporates taxable items into the (1) Amusement services. Local tax is due based upon the customer's real property. See also subsection (f)(2)(A) of this section location where the performance or event occurs. For more information and §3.291 of this title. on amusement services, refer to §3.298 of this title (relating to Amuse- ment Services). (10) Waste collection services. Local taxes are due on garbage or other solid waste collection or removal services based on (2) Cable services. When a service provider uses a cable the location at which the waste is collected or from which the waste is system to provide cable television or bundled cable services to cus- removed. For more information, refer to §3.356 of this title (relating tomers, local tax is due as provided for in §3.313 of this title. When to Real Property Service). a service provider uses a satellite system to provide cable services to customers, no local tax is due on the service in accordance with the (l) Special exemptions and provisions applicable to individual Telecommunications Act of 1996, §602. jurisdictions. (3) Florists. Local sales tax is due on all taxable items sold (1) Residential use of natural gas and electricity. by a florist based upon the location where the order is received, regard- (A) Mandatory exemptions from local sales and use tax. less of where or by whom delivery is made. Local use tax is not due on Residential use of natural gas and electricity is exempt from most lo- deliveries of taxable items sold by florists. For example, if the place of cal sales and use taxes. Counties, transit authorities, and most special business of the florist where an order is taken is not within the bound- purpose districts are not authorized to impose sales and use tax on the aries of any local taxing jurisdiction, no local sales tax is due on the residential use of natural gas and electricity. Pursuant to Tax Code, item and no local use tax is due regardless of the location of delivery.

§321.105, any city that adopted a local sales and use tax effective Oc- If a Texas florist delivers an order in a local taxing jurisdiction at the tober 1, 1979, or later is prohibited from imposing tax on the residential instruction of an unrelated florist, and if the unrelated florist did not use of natural gas and electricity. See §3.295 of this title. take the order within the boundaries of a local taxing jurisdiction, local use tax is not due on the delivery. For more information about florists' (B) Imposition of tax allowed in certain cities. Cities sales and use tax obligations, refer to §3.307 of this title (relating to that adopted local sales tax prior to October 1, 1979, may, in accor- Florists). dance with the provisions in Tax Code, §321.105, choose to repeal the exemption for residential use of natural gas and electricity. The comp- (4) Landline telecommunications services. Local taxes due troller's website provides a list of cities that impose tax on the residen- on landline telecommunications services are based upon the location of tial use of natural gas and electricity, as well as a list of those cities that the device from which the call or other transmission originates. If the do not currently impose the tax, but are eligible to do so. seller cannot determine where the call or transmission originates, local taxes due are based on the address to which the service is billed. For (C) Effective January 1, 2010, a fire control, preven- more information, refer to §3.344 of this title (relating to Telecommu- tion, and emergency medical services district organized under Local nications Services). Government Code, Chapter 344 that imposes sales tax under Tax Code, §321.106, or a crime control and prevention district organized under (5) Mobile telecommunications services. Local taxes due Local Government Code, Chapter 363 that imposes sales tax under Tax on mobile telecommunications services are based upon the location of Code, §321.108, that is located in all or part of a municipality that im- the customer's place of primary use as defined in §3.344(a)(8) of this poses a tax on the residential use of natural gas and electricity as pro- title, and local taxes are to be collected as indicated in §3.344(h) of this vided under Tax Code, §321.105 may impose tax on residential use of title. natural gas and electricity at locations within the district. A list of the (6) Motor vehicle parking and storage. Local taxes are due special purpose districts that impose tax on residential use of natural based on the location of the space or facility where the vehicle is parked. gas and electricity and those districts eligible to impose the tax that do For more information, refer to §3.315 of this title (relating to Motor not currently do so is available on the comptroller's website.

Vehicle Parking and Storage). (2) Telecommunication services. Telecommunications ser- (7) Natural gas and electricity. Any local city and special vices are exempt from all local sales taxes unless the governing body purpose taxes due are based upon the location where the natural gas of a city, county, transit authority, or special purpose district votes or electricity is delivered to the purchaser. As explained in subsection to impose sales tax on these services. However, since 1999, under (l)(1) of this section, residential use of natural gas and electricity is Tax Code, §322.109(d), transit authorities created under Transporta- exempt from all county sales and use taxes and all transit authority sales tion Code, Chapter 451 cannot repeal the exemption unless the repeal and use taxes, most special purpose district sales and use taxes, and is first approved by the governing body of each city that created the many city sales and use taxes. A list of the cities and special purpose local taxing jurisdiction. The local sales tax is limited to telecommuni- districts that do impose, and those that are eligible to impose, local cations services occurring between locations within Texas. See §3.344 sales and use tax on residential use of natural gas and electricity is

ADOPTED RULES December 5, 2014 39 TexReg 9609 of this title. The comptroller's website provides a list of local taxing (5) Imposition of city sales tax and transit tax on certain jurisdictions that impose tax on telecommunications services. military installations; El Paso and Fort Bliss. Pursuant to Tax Code, §321.1045 (Imposition of Sales and Use Tax in Certain Federal Military (3) Emergency services districts.

Installations), for purposes of the local sales and use tax imposed under (A) Authority to exclude territory from imposition of Tax Code, Chapter 321, the city of El Paso includes the area within the emergency services district sales and use tax. Pursuant to the provi- boundaries of Fort Bliss to the extent it is in the city's extraterritorial sions of Health and Safety Code, §775.0751(c-1), an emergency ser- jurisdiction. However, the El Paso transit authority does not include vices district wishing to enact a sales and use tax may exclude from the Fort Bliss. See Transportation Code, §453.051 concerning the Creation election called to authorize the tax any territory in the district where the of Transit Departments. sales and use tax is then at 2.0%. The tax, if authorized by the voters (m) Restrictions on local sales tax rebates and other economic eligible to vote on the enactment of the tax, then applies only in the incentives. Pursuant to Local Government Code, §501.161, Section 4A portions of the district included in the election. The tax does not apply and 4B development corporations may not offer to provide economic to sales made in the excluded territories in the district and sellers in the incentives, such as local sales tax rebates authorized under Local Gov- excluded territories should continue to collect local sales and use taxes ernment Code, Chapters 380 or 381, to persons whose business consists for the local taxing jurisdictions in effect at the time of the election un- primarily of purchasing taxable items using resale certificates and then der which the district sales and use tax was authorized as applicable. reselling those same items to a related party. A related party means a (B) Consolidation of districts resulting in sales tax person or entity which owns at least 80% of the business enterprise to sub-districts. Pursuant to the provisions of Health and Safety Code, which sales and use taxes would be rebated as part of an economic in- §775.018(f), if the territory of a district proposed under Health and centive.

Safety Code, Chapter 775 overlaps with the boundaries of another (n) Prior contract exemptions. The provisions of §3.319 of this district created under that chapter, the commissioners court of each title (relating to Prior Contracts) concerning definitions and exclusions county and boards of the counties in which the districts are located may apply to prior contract exemptions. choose to create a consolidated district in the overlapping territory. If two districts that want to consolidate under Health and Safety Code, (1) Certain contracts and bids exempt. No local taxes are §775.024 have different sales and use tax rates, the territory of the due on the sale, use, storage, or other consumption in this state of tax- former districts located within the consolidated area will be designated able items used: as sub-districts and the sales tax rate within each sub-district will (A) for the performance of a written contract executed continue to be imposed at the rate the tax was imposed by the former prior to the effective date of any local tax if the contract may not be district that each sub-district was part of prior to the consolidation. modified because of the tax; or (4) East Aldine Management District. (B) pursuant to the obligation of a bid or bids submitted (A) Special sales and use tax zones within district; prior to the effective date of any local tax if the bid or bids and contract separate sales and use tax rate. As set out in Special District Local entered into pursuant thereto are at a fixed price and not subject to Laws Code, §3817.154(e) and (f), the East Aldine Management withdrawal, change, or modification because of the tax.

District board may create special sales and use tax zones within the (2) Annexations. Any annexation of territory into an exist- boundaries of the District and, with voter approval, enact a special ing local taxing jurisdiction is also a basis for claiming the exemption sales and use tax rate in each zone that is different from the sales and provided by this subsection. use tax rate imposed in the rest of the district. (3) Local taxing jurisdiction rate increase; partial exemp- (B) Exemptions from special zone sales and use tax. tion for certain contracts and bids. When an existing local taxing ju- The sale, production, distribution, lease, or rental of; and the use, stor- risdiction raises its sales and use tax rate, the additional amount of tax age, or other consumption within a special sales and use tax zone of; a that would be due as a result of the rate increase is not due on the sale, taxable item sold, leased, or rented by the entities identified in clauses use, storage, or other consumption in this state of taxable items used: (i) - (vi) of this subparagraph are exempt from the special zone sales and use tax. State and all other applicable local taxes apply unless oth- (A) for the performance of a written contract executed erwise exempted by law. The special zone sales and use tax exemption prior to the effective date of the tax rate increase if the contract may applies to: not be modified because of the tax; or (i) a retail electric provider as defined by Utilities (B) pursuant to the obligation of a bid or bids submitted Code, §31.002; prior to the effective date of the tax rate increase if the bid or bids and contract entered into pursuant thereto are at a fixed price and not subject (ii) an electric utility or a power generation company to withdrawal, change, or modification because of the tax. as defined by Utilities Code, §31.002; (4) Three-year statute of limitations. (iii) a gas utility as defined by Utilities Code, §101.003 or §121.001, or a person who owns pipelines used for (A) The exemption in paragraph (1) of this subsection transportation or sale of oil or gas or a product or constituent of oil or and the partial exemption in paragraph (3) of this subsection have no gas; effect after three years from the date the adoption or increase of the tax takes effect in the local taxing jurisdiction. (iv) a person who owns pipelines used for the trans- portation or sale of carbon dioxide; (B) The provisions of §3.319 of this title apply to this subsection to the extent they are consistent. (v) a telecommunications provider as defined by Utilities Code, §51.002; or (C) Leases. Any renewal or exercise of an option to extend the time of a lease or rental contract under the exemptions pro- (vi) a cable service provider or video service vided by this subsection shall be deemed to be a new contract and no provider as defined by Utilities Code, §66.002. exemption will apply.

39 TexReg 9610 December 5, 2014 Texas Register (5) Records. Persons claiming the exemption provided by TRD-201405491 this subsection must maintain records which can be verified by the Ashley Harden comptroller or the exemption will be lost. General Counsel (6) Exemption certificate. An identification number is re- Comptroller of Public Accounts quired on the prior contract exemption certificates furnished to sellers. Effective date: January 1, 2015 The identification number should be the person's 11-digit Texas tax- Proposal publication date: May 30, 2014 payer number or federal employer's identification (FEI) number. For further information, please call: (512) 475-0387 The agency certifies that legal counsel has reviewed the adop- ♦ ♦ ♦ tion and found it to be a valid exercise of the agency's legal au- thority. SUBCHAPTER R. TRANSIT SALES AND USE Filed with the Office of the Secretary of State on November 18, TAX 2014. 34 TAC §§3.421 - 3.429 TRD-201405493 The Comptroller of Public Accounts adopts the repeal of Sub- Ashley Harden chapter R, concerning Transit Sales and Use Tax, without General Counsel changes to the proposed text as published in the May 30, 2014, issue of the Texas Register (39 TexReg 4191). The content of Comptroller of Public Accounts §3.422 (Adopting, Increasing, Decreasing, or Abolishing Transit Effective date: January 1, 2015 (MTA) Tax) and §3.423 (Change or Alteration of Authority Proposal publication date: May 30, 2014 Boundaries; Withdrawal from Authority; Notification Required) For further information, please call: (512) 475-0387 is being repealed entirely and will not be included in another ♦ ♦ ♦ section of this or another subchapter. The content of §3.424 (Collection and Allocation of Transit Sales Tax), §3.429 (Con- SUBCHAPTER P. MUNICIPAL SALES AND tractors), §3.427 (Divergent Use of a Direct Payment, Resale, or Exemption Certificate), §3.421 (Effect of Rules; Permits and USE TAX Certificates; Exclusion of Certain Sales of Qualified Retailers), TAC §§3.371 - 3.379 §3.428 (Natural Gas and Electricity), §3.426 (Prior Contract Ex- emptions), and §3.425 (Use Tax) will be included as appropriate The Comptroller of Public Accounts adopts the repeal of Sub- and updated in new §3.334 of this title, Local Sales and Use chapter P, concerning Municipal Sales and Use Tax, without Taxes. changes to the proposed text as published in the May 30, 2014, issue of the Texas Register (39 TexReg 4190). The content of No comments were received regarding adoption of the repeals.

§3.372 (Adopting, Increasing, Decreasing, or Abolishing City These repeals are adopted under Tax Code, §111.002, which Tax) and §3.373 (Change or Alteration of City Boundaries) provides the comptroller with the authority to prescribe, adopt, is being repealed entirely and will not be included in another and enforce rules relating to the administration and enforcement section of this or another subchapter. The content of §3.374 of the provisions of Tax Code, Title 2. These repeals implement (Collection and Allocation of the City Sales Tax), §3.379 (Con- Tax Code, Chapter 322, Sales and Use Tax for Special Purpose tractors), §3.377 (Divergent Use of a Direct Payment, Resale Taxing Authorities. or Exemption Certificate), §3.371 (Effect of Rules; Permits and Certificates; Exclusion of Certain Sales), §3.378 (Natural Gas The agency certifies that legal counsel has reviewed the adop- and Electricity), §3.376 (Prior Contract Exemptions), and §3.375 tion and found it to be a valid exercise of the agency's legal au- (Use Tax) will be included as appropriate and updated in new thority.

§3.334 of this title, Local Sales and Use Taxes.

Filed with the Office of the Secretary of State on November 18, No comments were received regarding adoption of the repeals.

2014.

These repeals are adopted under Tax Code, §111.002, which TRD-201405492 provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement Ashley Harden of the provisions of Tax Code, Title 2. These repeals implement General Counsel Tax Code, Chapter 321, Municipal Sales and Use Tax Act. Comptroller of Public Accounts Effective date: January 1, 2015 The agency certifies that legal counsel has reviewed the adop- Proposal publication date: May 30, 2014 tion and found it to be a valid exercise of the agency's legal au- thority. For further information, please call: (512) 475-0387 ♦ ♦ ♦ Filed with the Office of the Secretary of State on November 18, 2014.

ADOPTED RULES December 5, 2014 39 TexReg 9611 APPENDIX H requirement of a delegation agreement or contract between the CHAPTER 3. TAX ADMINISTRATION state and an agency or representative of the federal government to implement a state and federal program; and 4) is not proposed SUBCHAPTER F. MOTOR VEHICLE SALES solely under the general powers of the agency, but rather it is also TAX proposed under authority of Texas Water Code §6.104. There- fore, this adopted rule does not fall under any of the applicability 34 TAC §3.68 criteria in Texas Government Code §2001.0225. The Comptroller of Public Accounts adopts an amendment to TAKINGS IMPACT ASSESSMENT §3.68, United States and foreign military personnel stationed in Texas, without changes to the proposed text as published in The board evaluated this adopted rule and performed an anal- the November 6, 2015, issue of the Texas Register (40 TexReg ysis of whether it constitutes a taking under Texas Government 7795). The citation to the Transportation Code in subsection Code, Chapter 2007. The specific purpose of this rule is to adopt (c)(1) is amended to reflect the redesignation of Transportation by rule the MOU between TDA and the TWDB as required by Code, §520.031 to §501.145 by House Bill 2357, 82nd Legisla- Texas Water Code §6.104. ture, 2011.

The board's analysis indicates that Texas Government Code, No comments were received regarding adoption of the amend- Chapter 2007 does not apply to this adopted rule because this ment. is an action that is reasonably taken to fulfill an obligation man- dated by state law, which is exempt under Texas Government This amendment is adopted under Tax Code, §111.002, which Code §2007.003(b)(4). Nevertheless, the board further evalu- provides the comptroller with the authority to prescribe, adopt, ated this adopted rule and performed an assessment of whether and enforce rules relating to the administration and enforcement it constitutes a taking under Texas Government Code, Chapter of the provisions of Tax Code, Title 2.

2007. Promulgation and enforcement of this adopted rule would The amendment implements Transportation Code, §501.145 be neither a statutory nor a constitutional taking of private real (Filing by Purchaser; Application for Transfer of Title). property. Specifically, the subject adopted regulation does not affect a landowner's rights in private real property because this The agency certifies that legal counsel has reviewed the adop- rulemaking does not burden nor restrict or limit the owner's right tion and found it to be a valid exercise of the agency's legal au- to property and reduce its value by 25% or more beyond that thority. which would otherwise exist in the absence of the regulation.

Therefore, the adopted rule does not constitute a taking under Filed with the Office of the Secretary of State on December 18, Texas Government Code, Chapter 2007. 2015.

PUBLIC COMMENT TRD-201505833 No comments were received. Lita Gonzalez General Counsel STATUTORY AUTHORITY. Comptroller of Public Accounts These amendments are adopted under Texas Water Code Effective date: January 7, 2016 §6.104, which requires the TWDB to adopt by rule any mem- Proposal publication date: November 6, 2015 orandum of understanding between the TWDB and any other For further information, please call: (512) 475-0387 state agency and General Appropriations Act, SB 1, 83rd Leg., R.S., Rider 8, page VI-56 of the TWDB budget. ♦ ♦ ♦ This adoption affects Texas Water Code §6.104. SUBCHAPTER O. STATE AND LOCAL SALES The agency certifies that legal counsel has reviewed the adop- AND USE TAXES tion and found it to be a valid exercise of the agency's legal au- thority. 34 TAC §3.334 The Comptroller of Public Accounts adopts amendments to Filed with the Office of the Secretary of State on December 15, §3.334, concerning local sales and use taxes, with changes to 2015. the proposed text as published in the June 19, 2015, issue of the Texas Register (40 TexReg 3745). This section is amended TRD-201505649 to make nonsubstantive changes to definitions and to clarify Les Trobman longstanding comptroller practice regarding a seller's tax collec- General Counsel tion responsibilities when the seller is not engaged in business Texas Water Development Board in a local jurisdiction.

Effective date: January 4, 2016 The definition of the term "Comptroller's website" in subsection Proposal publication date: September 11, 2015 (a)(4) is amended to update the agency web address which was For further information, please call: (512) 463-8061 changed based on the Internet and Email Domain Name Man- ♦ ♦ ♦ agement Policy from the Texas Department of Information Re- sources.

TITLE 34. PUBLIC FINANCE The definition of "place of business" in subsection (a)(14) is amended to clarify that the term "contractors" within that defi- PART 1. COMPTROLLER OF PUBLIC nition refers to a natural person who is contracted to perform ACCOUNTS work or services for another. As used in this subsection, the

41 TexReg 260 January 1, 2016 Texas Register term does not have the meaning assigned by §3.291 of this and enforce rules relating to the administration and enforcement title (relating to Contractors). The definition is also amended of the provisions of Tax Code, Title 2. to change the term "individual persons" to "natural persons" in The amendment implements Tax Code, Chapters 321 (Municipal order to clarify that the term refers to single persons and does Sales and Use Tax Act), 322 (Sales and Use tax for Special Pur- not refer to entities recognized as having legal rights as persons. pose Taxing Authorities), and 323 (County Sales and Use Tax Subsection (e) is amended to correct the subsection cited in a Act). cross-reference to the term "place of business." The citation is §3.334. Local Sales and Use Taxes. changed from subsection (a)(13) to subsection (a)(14).

The comptroller received written comments from Renn Neilson (a) Definitions. The following words and terms, when used of Baker Botts LLP. The comments expressed concern that in this section, shall have the following meanings, unless the context §3.334(e)(4)(D) relating to the Dickinson Management District clearly indicates otherwise. conflicts with Special District Local Laws Code, §3853.202(d). (1) Cable system--The system through which a cable ser- The comptroller's position on the Dickinson Management Dis- vice provider delivers cable television or bundled cable service, as trict has not changed. It is the comptroller's view that Special those terms are defined in §3.313 of this title (relating to Cable Televi- District Local Laws Code, §3853.202(d) violates Article III, Sec- sion Service and Bundled Cable Service). tion 56 of the Texas Constitution, concerning Local and Special (2) City--An incorporated city, municipality, town, or vil- Laws, because it attempts to relieve the comptroller's office of lage. the duties delegated to it by Tax Code, Chapter 321. Further, the comptroller believes that the general law codified as Tax (3) City sales and use tax--The tax authorized under Tax Code, §321.002(a)(3) and §321.203(m) is a later-amended gen- Code, §321.101(a), including the additional municipal sales and use eral provision that applies in place of the preexisting local law. tax authorized under Tax Code, §321.101(b), the municipal sales and However, the comptroller agrees the agency may not invalidate use tax for street maintenance authorized under Tax Code, §327.003, a statute through the adoption of an administrative rule, and sub- the Type A Development Corporation sales and use tax authorized un- section (e)(4)(D) is therefore deleted. der Local Government Code, §504.251, the Type B Development Cor- poration sales and use tax authorized under Local Government Code, Subsection (g) is amended to clarify a seller's local sales tax col- §505.251, a sports and community venue project sales and use tax lection responsibilities. New paragraph (3) is added to specify adopted by a city under Local Government Code, §334.081, and a mu- that a seller is only required to collect local sales or use taxes nicipal development corporation sales and use tax adopted by a city un- imposed by a local taxing jurisdiction in which the seller is en- der Local Government Code, §379A.081. The term does not include gaged in business. Existing paragraphs (3) and (4) are renum- the fire control, prevention, and emergency medical services district bered as paragraphs (4) and (5) respectively and delete repeti- sales and use tax authorized under Tax Code, §321.106, or the munic- tive language in subsection (h)(1). ipal crime control and prevention district sales and use tax authorized The comptroller received written comments from John Kroll under Tax Code, §321.108. representing HMWK, LLC. These comments expressed con- (4) Comptroller's website--The agency's website concern- cern that the amendment to subsection (g) regarding a seller's ing local taxes located at: http://comptroller.texas.gov/taxinfo/local/. tax collection responsibilities are not supported by the plain language of Tax Code, Chapter 321. (5) County sales and use tax--The tax authorized under Tax Code, §323.101, including a sports and community venue project Under current policy, a seller's collection responsibilities are lim- sales and use tax adopted by a county under Local Government Code, ited to those local taxing jurisdictions in which the seller is "en- §334.081. The term does not include the county health services sales gaged in business." In the May 30, 2014, issue of the Texas and use tax authorized under Tax Code, §324.021, the county landfill Register (39 TexReg 4175), the comptroller proposed ending the and criminal detention center sales and use tax authorized under Tax "engaged in business" limitation on sellers' obligation for collect- Code, §325.021, or the crime control and prevention district sales and ing local tax and instead requiring all sellers with nexus in the use tax authorized under Tax Code, §323.105. state to collect all local taxes that are due. Comments received on this proposal expressed concern that the deletion of the "en- (6) Drop shipment--A transaction in which an order is re- gaged in business" requirement would violate the due process ceived by a seller at one location, but the item purchased is shipped by and commerce clauses of the U.S. Constitution. In response to the seller from another location, or is shipped by the seller's third-party the comments provided, the comptroller decided not to change supplier, directly to a location designated by the purchaser. sellers' local tax collection obligations when §3.334 was adopted (7) Engaged in business--This term has the meaning given in the December 5, 2014, issue of the Texas Register (39 TexReg in §3.286 of this title (relating to Seller's and Purchaser's Responsibil- 9597). The amendment to subsection (g) is a nonsubstantive ities, including Nexus, Permits, Returns and Reporting Periods, and change that clarifies longstanding comptroller practice. The pro- Collection and Exemption Rules). posed amendment is adopted without further change. (8) Extraterritorial jurisdiction--An unincorporated area Subsection (h)(1) is also amended to clarify that a seller must that is contiguous to the corporate boundaries of a city as defined in only collect local sales taxes for those local taxing jurisdictions Local Government Code, §42.021 in which the seller is engaged in business. Paragraph (6)(C)(iii) is amended to add the phrase "in person," as orders are placed (9) Fulfill--To complete an order by transferring a taxable in person at temporary places of business. item directly to a purchaser at a Texas location, or to ship or deliver a taxable item to a location in Texas designated by the purchaser.

This amendment is adopted under Tax Code, §111.002, which provides the comptroller with the authority to prescribe, adopt, (10) Itinerant vendor--A person who travels to various lo- cations for the purpose of receiving orders and making sales of taxable items and who does not operate a place of business. For example, a

ADOPTED RULES January 1, 2016 41 TexReg 261 person who sells rugs from the back of a truck that the person drives (19) Temporary place of business--A location operated by to a different location each day is an itinerant vendor. A person who a seller for a limited period of time for the purpose of selling and receiv- sells items through vending machines is also an itinerant vendor. A ing orders for taxable items and where the seller has inventory available salesperson that operates out of an office, place of business, or other for immediate delivery to a purchaser. For example, a person who rents location that provides administrative support to the salesperson is not a booth at a weekend craft fair or art show to sell and take orders for an itinerant vendor. jewelry, or a person who maintains a facility at a job site to rent tools and equipment to a contractor during the construction of real property, (11) Kiosk--A small stand-alone area or structure: has established a temporary place of business. (A) that is used solely to display merchandise or to sub- (20) Transit authority--A metropolitan rapid transit author- mit orders for taxable items from a data entry device, or both; ity (MTA), advanced transportation district (ATD), regional or subre- (B) that is located entirely within a location that is a gional transportation authority (RTA), city transit department (CTD), place of business of another seller, such as a department store or shop- county transit authority (CTA), regional mobility authority (RMA) or ping mall; and coordinated county transportation authority created under Transporta- tion Code, Chapters 370, 451, 452, 453, 457, or 460. (C) at which taxable items are not available for imme- diate delivery to a purchaser. (21) Traveling salesperson--A seller, or an agent or em- ployee of a seller, who visits potential purchasers in person to solicit (12) Local taxes--Sales and use taxes imposed by any local sales, and who does not carry inventory ready for immediate sale, but taxing jurisdiction. who may carry samples or perform demonstrations of items for sale. (13) Local taxing jurisdiction--Any of the following: (22) Two percent cap--A reference to the general rule that, (A) a city that imposes sales and use tax as provided except as otherwise provided by Texas law and as explained in this under paragraph (3) of this subsection; section, a seller cannot collect, and a purchaser is not obligated to pay, more than 2.0% of the sales price of a taxable item in total local sales (B) a county that imposes sales and use tax as provided and use taxes for all local taxing jurisdictions under paragraph (5) of this subsection; (23) Use--This term has the meaning given in §3.346 of (C) a special purpose district created under the Special this title.

District Local Laws Code or other provisions of Texas law that is autho- rized to impose sales and use tax by the Tax Code or other provisions (24) Use tax--A tax imposed on the storage, use or other of Texas law and as governed by the provisions of Tax Code, Chapters consumption of a taxable item in this state.

321 or 323 and other provisions of Texas law; or (b) Effect of other law. (D) a transit authority that imposes sales and use tax as (1) Tax Code, Title 2, Subtitles A (General Provisions) and authorized by Transportation Code, Chapters, 451, 452, 453, 457, or B (Enforcement and Collection), Tax Code, Chapter 141 (Multistate and governed by the provisions of Tax Code, Chapter, 322.

Tax Compact) and Tax Code, Chapter 151 (Limited Sales, Excise, and (14) Place of business - general definition--An established Use Tax) apply to transactions involving local taxes. Related sections outlet, office, or location operated by a seller for the purpose of selling of this title and comptroller rulings shall also apply with respect to local taxable items to those other than employees, independent contractors, taxes. This includes authorities such as court cases and federal law and natural persons affiliated with the seller. Places of business include, that affect whether an item is taxable or is excluded or exempt from but are not limited to, call centers, showrooms, and clearance centers. taxation.

41 TexReg 262 January 1, 2016 Texas Register (3) Special purpose districts. Special purpose districts may the limited-purpose annexed area as part of a strategic partnership impose sales and use tax at rates ranging from 0.125% to 2.0%. agreement between a city and an authorized district. However, a county, special purpose district, or transit authority sales and use tax, or (4) Transit authorities. Transit authorities may impose any combination of these three types of taxes, may apply at locations sales and use tax at rates ranging from 0.25% to 1.0%. included in a strategic partnership agreement between a city and an (d) Jurisdictional boundaries, combined areas, and city tax im- authorized district if the tax is imposed in that area by the applicable posed through strategic partnership agreements. jurisdiction as allowed under its own controlling authorities. (1) Jurisdictional boundaries. (C) Prior to September 1, 2011, the term "district" was defined in Local Government Code, §43.0751 as a municipal utility (A) City boundaries. City taxing jurisdictional bound- district or a water control and improvement district. The definition aries cannot overlap one another and a city cannot impose a sales and was amended effective September 1, 2011, to mean a conservation and use tax in an area that is already within the jurisdiction of another city. reclamation district operating under Water Code, Chapter 49. (B) County boundaries. County tax applies to all loca- (e) Place of business - special definitions. In addition to the tions within that county. general definition of the term "place of business" in subsection (a)(14) (C) Special purpose district and transit authority bound- of this section, the following rules apply. aries. Special purpose districts and transit authorities may cross or (1) Administrative offices supporting traveling salesper- share boundaries with other local taxing jurisdictions and may encom- sons. Any outlet, office, or location operated by a seller that serves pass, in whole or in part, other local taxing jurisdictions, including as a base of operations for a traveling salesperson or that provides cities and counties. A geographic location or address in this state may administrative support to a traveling salesperson is a place of business. lie within the boundaries of more than one special purpose district or more than one transit authority. (2) Distribution centers, manufacturing plants, storage yards, warehouses, and similar facilities. (D) Extraterritorial jurisdictions. Except as otherwise provided by paragraph (3) of this subsection concerning strategic part- (A) A distribution center, manufacturing plant, storage nership agreements and subsection (l)(5) of this section concerning the yard, warehouse, or similar facility operated by a seller at which the City of El Paso and Fort Bliss, city sales and use tax does not apply to seller receives three or more orders for taxable items during the calen- taxable sales that are consummated outside the boundaries of the city, dar year is a place of business. including sales made in a city's extraterritorial jurisdiction. However, (B) If a salesperson who receives three or more orders an extraterritorial jurisdiction may lie within the boundaries of a spe- for taxable items within a calendar year is assigned to work from, or cial purpose district, transit authority, county, or any combination of to work at, a distribution center, manufacturing plant, storage yard, the three, and the sales and use taxes for those jurisdictions would ap- warehouse, or similar facility operated by a seller, then the facility is a ply to those sales. place of business. (2) Combined areas. A combined area is an area where the (C) If a location that is a place of business of the seller, boundaries of a city overlap the boundaries of one or more other local such as a sales office, is in the same building as a distribution center, taxing jurisdictions as a result of an annexation of additional territory manufacturing plant, storage yard, warehouse, or similar facility op- by the city, and where, as the result of the imposition of the city tax erated by a seller, then the entire facility is a place of business of the in the area in addition to the local taxes imposed by the existing tax- seller. ing jurisdictions, the combined local tax rate would exceed 2.0%. The comptroller shall make accommodations to maintain a 2.0% rate in any (3) Kiosks. A kiosk is not a place of business for the pur- combined area. Sellers engaged in transactions on which local sales or pose of determining where a sale is consummated for local tax pur- use taxes are due in a combined area, or persons who must self-accrue poses. A seller who owns or operates a kiosk in Texas is, however, and remit tax directly to the comptroller, must use the combined area engaged in business in this state as provided in §3.286 of this title. local code when reporting the tax rather than the codes for the indi- (4) Purchasing offices. vidual city, county, special purpose districts, or transit authorities that make up the combined area. The comptroller shall distribute the tax (A) A purchasing office is not a place of business if the revenue generated in these combined areas to the local taxing jurisdic- purchasing office exists solely to rebate a portion of the local sales tions located in the combined areas as provided in Tax Code, §321.102 and use tax imposed by Tax Code, Chapter 321 or 323 to a business or Health and Safety Code, §775.0754. Combined areas are identified with which it contracts; or if the purchasing office functions or exists on the comptroller's website. to avoid the tax legally due under Tax Code, Chapter 321 or 323. A purchasing office does not exist solely to rebate a portion of the local (3) City tax imposed through strategic partnership agree- sales and use tax or to avoid the tax legally due under Tax Code, Chap- ments. ter 321 or 323 if the purchasing office provides significant business (A) The governing bodies of a district, as defined in services, beyond processing invoices, to the contracting business, in- Local Government Code, §43.0751, and a city may enter into a lim- cluding logistics management, purchasing, inventory control, or other ited-purpose annexation agreement known as a strategic partnership vital business services. agreement. Under this agreement, the city may impose sales and use (B) When the comptroller determines that a purchasing tax within all or part of the boundaries of a district. Areas within a dis- office is not a place of business, the sale of any taxable item is deemed trict that are annexed for this limited purpose are treated as though they to be consummated at the place of business of the seller from whom the are within the boundaries of the city for purposes of city sales and use purchasing office purchased the taxable item for resale and local sales tax. and use taxes are due according to the following rules. (B) Counties, transit authorities, and special purpose (i) When taxable items are purchased from a Texas districts may not enter into strategic partnership agreements. Sales seller, local sales taxes are due based on the location of the seller's place and use taxes imposed by those taxing jurisdictions do not apply in

ADOPTED RULES January 1, 2016 41 TexReg 263 of business where the sale is deemed to be consummated, as determined tax in effect at the location except as provided in paragraph (3) of this in accordance with subsection (h) of this section. subsection. If the total rate of local sales tax due on the sale does not reach the two percent cap, and the seller ships or delivers the item into (ii) When the sale of a taxable item is deemed to be another local taxing jurisdiction in which the seller is engaged in busi- consummated at a location outside of this state, local use tax is due ness, then the seller is required to collect additional local use taxes due, based on the location where the items are first stored, used or consumed if any, based on the location to which the item is shipped or delivered. by the entity that contracted with the purchasing office in accordance For more information regarding local use taxes, refer to subsection (i) with subsection (i) of this section. of this section. (C) In making a determination under subparagraph (A) (2) Out-of-state sale; seller engaged in business in Texas. of this paragraph, as to whether a purchasing office provides significant A seller who is engaged in business in this state is required to collect business services to the contracting business, the comptroller will look and remit local use taxes due, if any, on orders of taxable items shipped to the books and records of the purchasing office to determine whether or delivered at the direction of the purchaser into a local taxing juris- the total value of the business services provided to the contracting busi- diction in this state in which the seller is engaged in business. ness equals or exceeds the total value of processing invoices. If the total value of the business services provided, including logistics manage- (3) A seller is only required to collect local sales or use ment, purchasing, inventory control, or other vital business services, taxes for a local taxing jurisdiction in which the seller is engaged in is less than the total value of the service to process invoices, then the business. purchasing office will be presumed not to be a place of business of the (4) Purchaser responsible for accruing and remitting local seller. taxes if seller fails to collect. (f) Places of business and job sites crossed by local taxing ju- (A) If a seller does not collect the state sales tax, any risdiction boundaries. applicable local sales taxes, or both on a sale of a taxable item that (1) Places of business crossed by local taxing jurisdiction is consummated in Texas, then the purchaser is responsible for filing boundaries. If a place of business is crossed by one or more local tax- a return and paying the tax. The local sales taxes due are based on ing jurisdiction boundaries so that a portion of the place of business is the location in this state where the sale is consummated as provided in located within a taxing jurisdiction and the remainder of the place of subsection (h) of this section. business lies outside of the taxing jurisdiction, tax is due to the local (B) A purchaser who buys an item for use in Texas from taxing jurisdictions in which the sales office is located. If there is no a seller who does not collect the state use tax, any applicable local use sales office, sales tax is due to the local taxing jurisdictions in which taxes, or both, is responsible for filing a return and paying the tax. The any cash registers are located. local use taxes due are based on the location where the item is first (2) Job sites. stored, used, or consumed by the purchaser. (A) Residential repair and remodeling; new construc- (C) For more information about how to report and pay tion of an improvement to realty. When a contractor is improving real use tax directly to the comptroller, see §3.286 of this title. property under a separated contract, and the job site is crossed by the (5) Local tax is due on the sales price of a taxable item, as boundaries of one or more local taxing jurisdictions, the local taxes due defined in Tax Code, §151.007, in the report period in which the taxable on any separately stated charges for taxable items incorporated into the item is purchased or the period in which the taxable item is first stored, real property must be allocated to the local taxing jurisdictions based on used, or otherwise consumed in a local taxing jurisdiction. the total square footage of the real property improvement located within each jurisdiction, including the square footage of any standalone struc- (h) Local sales tax. Determining the local taxing jurisdictions tures that are part of the construction, repair, or remodeling project. to which sales tax is due; consummation of sale.

For more information about tax due on materials used at residential (1) General rule. Except for the special rules applicable to and new construction job sites, refer to §3.291 of this title (relating to direct payment permit purchases and certain taxable items as provided Contractors). in subsections (j) and (k) of this section, each sale of a taxable item is (B) Nonresidential real property repair and improve- consummated at the location indicated by the provisions of this subsec- ment. When taxable services are performed to repair, remodel, or tion. Local sales taxes are due to each local taxing jurisdiction in effect restore nonresidential real property, including a pipeline, transmission at the location where the sale is consummated. Local use tax may also line, or parking lot, that is crossed by the boundaries of one or more be due if the total amount of local sales taxes due does not reach the local taxing jurisdictions, the local taxes due on the taxable services, two percent cap, and the item purchased is shipped or delivered to a including materials and any other charges connected to the services location in one or more different local taxing jurisdictions, as provided performed, must be allocated among the local taxing jurisdictions in subsection (i) of this section. based upon the total mileage or square footage, as appropriate, of the (2) Multiple special purpose district taxes, multiple tran- repair, remodeling, or restoration project located in each jurisdiction. sit authority sales taxes, or a combination of the two may apply to a For more information about tax due on materials used at nonresidential single transaction. If the sale of a taxable item is consummated at a real property repair and remodeling job sites, refer to §3.357 of this location within the boundaries of multiple special purpose districts or title (relating to Nonresidential Real Property Repair, Remodeling, transit authorities, local sales tax is owed to each of the jurisdictions in and Restoration; Real Property Maintenance). effect at that location. For example, a place of business located in the (g) Sellers' and purchasers' responsibilities for collecting or ac- city of San Antonio is within the boundaries of both the San Antonio cruing local taxes. Advanced Transportation District and the San Antonio Metropolitan Transit Authority, and the seller is required to collect sales tax for both (1) Sale consummated in Texas; seller responsible for col- transit authorities. Similarly, a place of business in Flower Mound is lo- lecting local sales taxes and applicable local use taxes. When a sale of cated within the boundaries of two special purpose districts, the Flower a taxable item is consummated at a location in Texas as provided by Mound Crime Control District and the Flower Mound Fire Control Dis- subsection (h) of this section, the seller must collect each local sales

41 TexReg 264 January 1, 2016 Texas Register trict, and the seller is responsible for collecting sales tax for both special the salesperson operates, in accordance with paragraph (3)(B) of this purpose districts. subsection. Similarly, if a traveling salesperson takes an order for a taxable item, and the order is fulfilled at a place of business of the (3) Consummation of sale. The following rules, taken from seller in this state, the sale is consummated at the location of the place Tax Code, §321.203 and §323.203, apply to all sellers engaged in busi- of business where the order is fulfilled, in accordance with paragraph ness in this state, regardless of whether they have a place of business (3)(C) of this subsection. in Texas or multiple places of business in the state. (5) Drop shipments. (A) Order placed in person at a seller's place of busi- ness in Texas. When a purchaser places an order for a taxable item in (A) When an order for a taxable item is received at a person at a seller's place of business in Texas, the sale of that item is seller's place of business in Texas, or by a traveling salesperson operat- consummated at that place of business, regardless of the location where ing out of a place of business in this state, and the item is drop-shipped the order is fulfilled, except in the limited circumstances described in directly to the purchaser from a third-party supplier, the sale is consum- subparagraph (F) of this paragraph, concerning qualifying economic mated at, and local sales tax is due based upon, the location of the place development agreements. of business where the order is received. When an order for a taxable item is received by a seller at one location, but shipped by the seller to (B) Order received at a place of business in Texas, ful- the purchaser from a different location, the sale is consummated at, and filled at a location that is not a place of business. When an order that is local sales tax is due based upon, the location designated in paragraph placed over the telephone, through the Internet, or by any means other (3) of this subsection. If the local sales taxes due based on the location than in person is received by the seller at a place of business in Texas, of the seller's place of business at which the sale is consummated equal and the seller fulfills the order at a location that is not a place of busi- less than 2.0%, additional local use tax may be due based upon the lo- ness of the seller in Texas, such as a warehouse or distribution center, cation in this state to which the purchased item is shipped or delivered the sale is consummated at the place of business at which the order for or at which possession of the item is taken by the purchaser as provided the taxable item is received. in subsection (i) of this section. (C) Order fulfilled at a place of business in Texas. (B) When an order for a taxable item is received by the When an order is placed in person at a location that is not a place of seller at a location outside of Texas, or by a traveling salesperson oper- business of the seller in this state, such as a kiosk, or when an order ating from a location outside of this state, and the item is drop-shipped is placed over the telephone, through the Internet, or by any means directly to the purchaser from a third-party supplier, the item is subject other than in person, and the seller fulfills the order at a location that to use tax. See subsection (i) of this section concerning use tax. is a place of business in Texas, the sale is consummated at the place of business where the order is fulfilled. (6) Itinerant vendors; vending machines; temporary places of business. (D) Order fulfilled within the state at a location that is not a place of business. When an order is received by a seller at any (A) Itinerant vendors. Sales made by itinerant vendors location other than a place of business of the seller in this state, and are consummated at, and itinerant vendors must collect sales tax based the seller fulfills the order at a location in Texas that is not a place of upon, the location where the item is delivered or where the purchaser business of the seller, then the sale is consummated at the location in takes possession of the item. Itinerant vendors do not have any respon- Texas to which the order is shipped or delivered, or the location where sibility to collect use tax. it is transferred to the purchaser. (B) Vending machines. Sales of taxable items made (E) Order received outside of the state, fulfilled outside from a vending machine are consummated at the location of the vend- of the state. When an order is received by a seller at a location out- ing machine. See §3.293 of this title (relating to Food; Food Prod- side of Texas, and the order is shipped or delivered into a local taxing ucts; Meals; Food Service) for more information about vending ma- jurisdiction from a location outside of the state, the sale is not consum- chine sales. mated at a location in Texas. However, local use tax is due based upon (C) Temporary places of business. the location in this state to which the item is shipped or delivered or at which possession of the item is taken by the purchaser as provided in (i) Item transferred to purchaser at time of sale. subsection (i) of this section. When a seller operates a temporary place of business, and items purchased are transferred to the purchasers at the time of sale, the (F) Exception for qualifying economic development sales are consummated at, and local sales tax is due based upon, the agreements entered into before January 1, 2009, pursuant to Tax Code, location of the temporary place of business.

§321.203(c-4) - (c-5) or §323.203(c-4) - (c-5). This subparagraph is effective until September 1, 2024. If applicable, the local sales tax due (ii) Order accepted at temporary place of business on the sale of a taxable item is based on the location of the qualifying prior to June 19, 2009. If a seller received an order at a temporary place warehouse, which is a place of business of the seller, from which the of business prior to June 19, 2009, and the order was fulfilled at another item is shipped or delivered or at which the purchaser takes possession place of business of the seller in this state, the sale was consummated of the item. at, and local sales taxes are due based upon, the location of the place of business where the order was fulfilled and not the temporary location (4) Orders received by traveling salespersons. Orders where the order was received. taken by traveling salespersons are received by the seller at the administrative office or other place of business from which the trav- (iii) Order accepted at temporary place of business eling salesperson operates, and such sales are consummated at the on or after June 19, 2009. When a seller receives an order in person location indicated in paragraph (3) of this subsection. For example, at a temporary place of business and the order is fulfilled at another if a traveling salesperson who operates out of a place of business of location, the sale is consummated at, and local sales taxes are due based a seller in Texas takes an order for a taxable item, and the order is upon, the location of the temporary place of business where the order fulfilled at a location that is not a place of business of the seller in this was received. state, the sale is consummated at the place of business from which

ADOPTED RULES January 1, 2016 41 TexReg 265 (i) Use tax. The provisions addressing the imposition of state and the seller or purchaser should determine, following the criteria in use tax in §3.346 of this title also apply to the imposition of local use subparagraphs (A) - (D) of this paragraph, whether use tax is due for tax. For example, consistent with §3.346(e) of this title, all taxable the authority that next became effective. items that are shipped or delivered to a location in this state that is (i) If the competing transit authorities became effec- within the boundaries of a local taxing jurisdiction are presumed to tive on the same date, the transit authority taxes are due in the order of have been purchased for use in that local taxing jurisdiction as well as the earliest date for which the election in which the authority residents presumed to have been purchased for use in the state. authorized the imposition of sales and use tax by the authority was held. (1) General rules. (ii) If the elections to impose local taxes were held (A) When local use taxes are due in addition to local on the same date, the transit authority use taxes are due in the order of sales taxes as provided by subsection (h) of this section, all applicable the earliest date for which the enabling legislation under which each use taxes must be collected or accrued in the following order until the authority was created became effective. two percent cap is reached: city, county, special purpose district, and (2) General use tax rules applied to specific situations. The transit authority. If more than one special purpose district use tax is due, following fact patterns explain how local use tax is to be collected or all such taxes are to be collected or accrued before any transit authority accrued and remitted to the comptroller based on, and subject to, the use tax is collected or accrued. See subparagraphs (D) and (E) of this general rules in paragraph (1) of this subsection. paragraph. (A) Sale consummated outside the state, item delivered (B) If a local use tax cannot be collected or accrued at from outside the state or from a location in Texas that is not operated its full rate without exceeding the two percent cap, the seller cannot by the seller - local use tax due. If a sale is consummated outside of collect it, or any portion of it, and the purchaser is not responsible for this state according to the provisions of subsection (h) of this section, accruing it. and the item purchased is either shipped or delivered to a location in (C) If a seller collects a local sales tax on an item, or a this state as designated by the purchaser from a location outside of the purchaser accrues a local sales tax on an item, a use tax for the same state, or if the order is drop shipped directly to the purchaser from a type of jurisdiction is not due on the same item. For example, once a third-party supplier, local use tax is owed based upon the location in city sales tax has been collected or accrued for an item, no use tax is this state to which the order is shipped or delivered. If the seller is due to that same or a different city on that item, but use tax may be due engaged in business in the local taxing jurisdiction into which the order to a county, special purpose district, or transit authority. Similarly, if is shipped or delivered, the seller is responsible for collecting the local one or more special purpose district sales taxes have been collected or use tax due on the sale. If the seller does not collect the local use taxes accrued for an item, no special purpose district use tax is due on that due on the sale, the purchaser is responsible for accruing such taxes and item, and if one or more transit authority sales taxes have been collected remitting them directly to the comptroller according to the provisions in or accrued for an item, no transit authority use tax is due on that item. paragraph (1) of this subsection. For example, if an order for a taxable item is received by a seller at a location outside of Texas, and the order (D) Collection or accrual of use tax for multiple special is shipped to the purchaser from a location outside of the state, local purpose districts. If more than one special purpose district use tax is in use tax is due based upon the location to which the order is shipped or effect at the location where use of an item occurs, the special purpose delivered. district taxes are due in the order of their effective dates, beginning with the earliest effective date, until the two percent cap is met. The (B) Sale consummated in Texas outside a local taxing effective dates of all special purpose district taxes are available on the jurisdiction, item delivered into one or more local taxing jurisdictions - comptroller's website. However, if the collection or accrual of use tax local use tax due. If a sale is consummated at a location in Texas that is for the district with the earliest effective date would exceed the two outside of the boundaries of any local taxing jurisdiction according to percent cap, the tax for that district is not due and the seller or purchaser the provisions of subsection (h) of this section, and the order is shipped should determine, following the criteria in subparagraphs (A) - (C) of or delivered to the purchaser at a location in this state that is within the this paragraph, whether use tax is due for the district that next became boundaries of one or more local taxing jurisdictions, local use tax is due effective. based on the location to which the items are shipped or delivered. If the seller is engaged in business in the local taxing jurisdiction where the (i) If the competing special purpose districts became items are shipped or delivered, the seller is responsible for collecting effective on the same date, the special purpose district taxes are due in the local use taxes due. If the seller fails to collect any local use taxes the order of the earliest date for which the election in which the district due, the purchaser is responsible for accruing such taxes and remitting residents authorized the imposition of sales and use tax by the district them directly to the comptroller. For example, if a seller uses its own was held. delivery vehicle to transport a taxable item from a place of business (ii) If the elections to impose the local taxes were that is outside the boundaries of a local taxing jurisdiction to a delivery held on the same date, the special purpose district taxes are due in the location designated by a purchaser that is inside the boundaries of a order of the earliest date for which the enabling legislation under which local taxing jurisdiction, the seller is responsible for collecting the local each district was created became effective. use taxes due based on the location to which the items are delivered. (E) Collection or accrual of use tax for multiple transit (C) Sale consummated in any local taxing jurisdictions authorities. If more than one transit authority use tax is in effect at imposing less than 2.0% in total local taxes - local sales taxes, and the location where use of an item occurs, and the two percent cap has possibly use taxes, due. If a sale is consummated at a location in Texas not been met, the transit authority taxes are due in the order of their where the total local sales tax rate imposed by the taxing jurisdictions effective dates, beginning with the earliest effective date, until the two in effect at that location does not equal or exceed 2.0% according to percent cap is met. The effective dates of all transit authority taxes the provisions of subsection (h) of this section, and the item is shipped are available on the comptroller's website. However, if the collection or delivered to the purchaser at a location in this state that is inside the or accrual of use tax for the authority with the earliest effective date boundaries of a different local taxing jurisdiction, additional local use would exceed the two percent cap, the tax for that authority is not due tax may be due based on the location to which the order is shipped or

41 TexReg 266 January 1, 2016 Texas Register delivered, subject to the two percent cap. If the seller is engaged in item and no local use tax is due regardless of the location of delivery. business in the local taxing jurisdiction into which the order is shipped If a Texas florist delivers an order in a local taxing jurisdiction at the or delivered, the seller is responsible for collecting any additional local instruction of an unrelated florist, and if the unrelated florist did not use taxes due. See subsection (g) of this section. If the seller fails to take the order within the boundaries of a local taxing jurisdiction, local collect the additional local use taxes due, the purchaser is responsible use tax is not due on the delivery. For more information about florists' for accruing such taxes and remitting them directly to the comptroller. sales and use tax obligations, refer to §3.307 of this title (relating to For example, if an order is received in person at a place of business of Florists). the seller, such that the sale is consummated at the location where the (4) Landline telecommunications services. Local taxes due order is received as provided under subsection (h)(3)(A) of this section, on landline telecommunications services are based upon the location of and the local sales tax due on the sale does not meet the two percent the device from which the call or other transmission originates. If the cap, additional local use taxes may be due based on the location to seller cannot determine where the call or transmission originates, local which the order is shipped or delivered, subject to the provisions in taxes due are based on the address to which the service is billed. For paragraph (1) of this subsection. Or, if a purchaser places an order for more information, refer to §3.344 of this title (relating to Telecommu- a taxable item at a seller's place of business in Texas, and the seller nications Services). ships or delivers the item from an out-of-state location to a location in this state as designated by the purchaser, local sales tax is due based (5) Mobile telecommunications services. Local taxes due upon the location of the place of business where the order is received. on mobile telecommunications services are based upon the location of If the local sales tax due on the item does not meet the two percent cap, the customer's place of primary use as defined in §3.344(a)(8) of this use tax, subject to the provisions in paragraph (1) of this subsection, is title, and local taxes are to be collected as indicated in §3.344(h) of this due based upon the location where the items are shipped or delivered. title. (j) Items purchased under a direct payment permit. (6) Motor vehicle parking and storage. Local taxes are due based on the location of the space or facility where the vehicle is parked. (1) When taxable items are purchased under a direct pay- For more information, refer to §3.315 of this title (relating to Motor ment permit, local use tax is due based upon the location where the Vehicle Parking and Storage). permit holder first stores the taxable items, except that if the taxable items are not stored, then local use tax is due based upon the location (7) Natural gas and electricity. Any local city and special where the taxable items are first used or otherwise consumed by the purpose taxes due are based upon the location where the natural gas permit holder. or electricity is delivered to the purchaser. As explained in subsection (l)(1) of this section, residential use of natural gas and electricity is (2) If, in a local taxing jurisdiction, storage facilities con- exempt from all county sales and use taxes and all transit authority sales tain taxable items purchased under a direct payment exemption certifi- and use taxes, most special purpose district sales and use taxes, and cate and at the time of storage it is not known whether the taxable items many city sales and use taxes. A list of the cities and special purpose will be used in Texas, then the taxpayer may elect to report the use tax districts that do impose, and those that are eligible to impose, local either when the taxable items are first stored in Texas or are first re- sales and use tax on residential use of natural gas and electricity is moved from inventory for use in Texas, as long as use tax is reported available on the comptroller's website. For more information, also refer in a consistent manner. See also §3.288(i) of this title (relating to Direct to §3.295 of this title (relating to Natural Gas and Electricity).

Payment Procedures and Qualifications) and §3.346(g) of this title. (8) Nonresidential real property repair and remodeling ser- (3) If local use tax is paid on stored items that are subse- vices. Local taxes are due on services to remodel, repair, or restore quently removed from Texas before they are used, the tax may be recov- nonresidential real property based on the location of the job site where ered in accordance with the refund and credit provisions of §3.325 of the remodeling, repair, or restoration is performed. See also subsection this title (relating to Refunds and Payments Under Protest) and §3.338 (f)(2)(B) of this section and §3.357 of this title. of this title (relating to Multistate Tax Credits and Allowance of Credit for Tax Paid to Suppliers). (9) Residential real property repair and remodeling and new construction of a real property improvement performed under a (k) Special rules for certain taxable goods and services. Sales separated contract. When a contractor constructs a new improvement of the following taxable goods and services are consummated at, and to realty pursuant to a separated contract or improves residential real local tax is due based upon, the location indicated in this subsection. property pursuant to a separated contract, the sale is consummated at (1) Amusement services. Local tax is due based upon the the job site at which the contractor incorporates taxable items into the location where the performance or event occurs. For more information customer's real property. See also subsection (f)(2)(A) of this section on amusement services, refer to §3.298 of this title (relating to Amuse- and §3.291 of this title. ment Services). (10) Waste collection services. Local taxes are due on (2) Cable services. When a service provider uses a cable garbage or other solid waste collection or removal services based on system to provide cable television or bundled cable services to cus- the location at which the waste is collected or from which the waste is tomers, local tax is due as provided for in §3.313 of this title. When removed. For more information, refer to §3.356 of this title (relating a service provider uses a satellite system to provide cable services to to Real Property Service). customers, no local tax is due on the service in accordance with the (l) Special exemptions and provisions applicable to individual Telecommunications Act of 1996, §602. jurisdictions. (3) Florists. Local sales tax is due on all taxable items sold (1) Residential use of natural gas and electricity. by a florist based upon the location where the order is received, regard- less of where or by whom delivery is made. Local use tax is not due on (A) Mandatory exemptions from local sales and use tax. deliveries of taxable items sold by florists. For example, if the place of Residential use of natural gas and electricity is exempt from most lo- business of the florist where an order is taken is not within the bound- cal sales and use taxes. Counties, transit authorities, and most special aries of any local taxing jurisdiction, no local sales tax is due on the purpose districts are not authorized to impose sales and use tax on the

ADOPTED RULES January 1, 2016 41 TexReg 267 residential use of natural gas and electricity. Pursuant to Tax Code, (A) Special sales and use tax zones within district; §321.105, any city that adopted a local sales and use tax effective Oc- separate sales and use tax rate. As set out in Special District Local tober 1, 1979, or later is prohibited from imposing tax on the residential Laws Code, §3817.154(e) and (f), the East Aldine Management use of natural gas and electricity. See §3.295 of this title. District board may create special sales and use tax zones within the boundaries of the District and, with voter approval, enact a special (B) Imposition of tax allowed in certain cities. Cities sales and use tax rate in each zone that is different from the sales and that adopted local sales tax prior to October 1, 1979, may, in accor- use tax rate imposed in the rest of the district. dance with the provisions in Tax Code, §321.105, choose to repeal the exemption for residential use of natural gas and electricity. The comp- (B) Exemptions from special zone sales and use tax. troller's website provides a list of cities that impose tax on the residen- The sale, production, distribution, lease, or rental of; and the use, stor- tial use of natural gas and electricity, as well as a list of those cities that age, or other consumption within a special sales and use tax zone of; a do not currently impose the tax, but are eligible to do so. taxable item sold, leased, or rented by the entities identified in clauses (i) - (vi) of this subparagraph are exempt from the special zone sales (C) Effective January 1, 2010, a fire control, preven- and use tax. State and all other applicable local taxes apply unless oth- tion, and emergency medical services district organized under Local erwise exempted by law. The special zone sales and use tax exemption Government Code, Chapter 344 that imposes sales tax under Tax Code, applies to: §321.106, or a crime control and prevention district organized under Local Government Code, Chapter 363 that imposes sales tax under Tax (i) a retail electric provider as defined by Utilities Code, §321.108, that is located in all or part of a municipality that im- Code, §31.002; poses a tax on the residential use of natural gas and electricity as pro- (ii) an electric utility or a power generation company vided under Tax Code, §321.105 may impose tax on residential use of as defined by Utilities Code, §31.002; natural gas and electricity at locations within the district. A list of the special purpose districts that impose tax on residential use of natural (iii) a gas utility as defined by Utilities Code, gas and electricity and those districts eligible to impose the tax that do §101.003 or §121.001, or a person who owns pipelines used for not currently do so is available on the comptroller's website. transportation or sale of oil or gas or a product or constituent of oil or gas; (2) Telecommunication services. Telecommunications ser- vices are exempt from all local sales taxes unless the governing body (iv) a person who owns pipelines used for the trans- of a city, county, transit authority, or special purpose district votes portation or sale of carbon dioxide; to impose sales tax on these services. However, since 1999, under (v) a telecommunications provider as defined by Tax Code, §322.109(d), transit authorities created under Transporta- Utilities Code, §51.002; or tion Code, Chapter 451 cannot repeal the exemption unless the repeal is first approved by the governing body of each city that created the (vi) a cable service provider or video service local taxing jurisdiction. The local sales tax is limited to telecommuni- provider as defined by Utilities Code, §66.002. cations services occurring between locations within Texas. See §3.344 (5) Imposition of city sales tax and transit tax on certain of this title. The comptroller's website provides a list of local taxing military installations; El Paso and Fort Bliss. Pursuant to Tax Code, jurisdictions that impose tax on telecommunications services.

§321.1045 (Imposition of Sales and Use Tax in Certain Federal Military (3) Emergency services districts. Installations), for purposes of the local sales and use tax imposed under Tax Code, Chapter 321, the city of El Paso includes the area within the (A) Authority to exclude territory from imposition of boundaries of Fort Bliss to the extent it is in the city's extraterritorial emergency services district sales and use tax. Pursuant to the provi- jurisdiction. However, the El Paso transit authority does not include sions of Health and Safety Code, §775.0751(c-1), an emergency ser- Fort Bliss. See Transportation Code, §453.051 concerning the Creation vices district wishing to enact a sales and use tax may exclude from the of Transit Departments. election called to authorize the tax any territory in the district where the sales and use tax is then at 2.0%. The tax, if authorized by the voters (m) Restrictions on local sales tax rebates and other economic eligible to vote on the enactment of the tax, then applies only in the incentives. Pursuant to Local Government Code, §501.161, Section 4A portions of the district included in the election. The tax does not apply and 4B development corporations may not offer to provide economic to sales made in the excluded territories in the district and sellers in the incentives, such as local sales tax rebates authorized under Local Gov- excluded territories should continue to collect local sales and use taxes ernment Code, Chapters 380 or 381, to persons whose business consists for the local taxing jurisdictions in effect at the time of the election un- primarily of purchasing taxable items using resale certificates and then der which the district sales and use tax was authorized as applicable. reselling those same items to a related party. A related party means a person or entity which owns at least 80% of the business enterprise to (B) Consolidation of districts resulting in sales tax which sales and use taxes would be rebated as part of an economic in- sub-districts. Pursuant to the provisions of Health and Safety Code, centive.

§775.018(f), if the territory of a district proposed under Health and Safety Code, Chapter 775 overlaps with the boundaries of another (n) Prior contract exemptions. The provisions of §3.319 of this district created under that chapter, the commissioners court of each title (relating to Prior Contracts) concerning definitions and exclusions county and boards of the counties in which the districts are located may apply to prior contract exemptions. choose to create a consolidated district in the overlapping territory. If (1) Certain contracts and bids exempt. No local taxes are two districts that want to consolidate under Health and Safety Code, due on the sale, use, storage, or other consumption in this state of tax- §775.024 have different sales and use tax rates, the territory of the able items used: former districts located within the consolidated area will be designated as sub-districts and the sales tax rate within each sub-district will (A) for the performance of a written contract executed continue to be imposed at the rate the tax was imposed by the former prior to the effective date of any local tax if the contract may not be district that each sub-district was part of prior to the consolidation. modified because of the tax; or (4) East Aldine Management District.

41 TexReg 268 January 1, 2016 Texas Register (B) pursuant to the obligation of a bid or bids submitted SUBCHAPTER E. TEXAS BUILDING prior to the effective date of any local tax if the bid or bids and contract entered into pursuant thereto are at a fixed price and not subject to ENERGY PERFORMANCE STANDARDS withdrawal, change, or modification because of the tax. 34 TAC §19.52, §19.53 (2) Annexations. Any annexation of territory into an exist- The Comptroller of Public Accounts adopts amendments to ing local taxing jurisdiction is also a basis for claiming the exemption §19.52, concerning public comment on building energy effi- provided by this subsection. ciency performance standards, without changes to the proposed (3) Local taxing jurisdiction rate increase; partial exemp- text as published in the October 2, 2015, issue of the Texas tion for certain contracts and bids. When an existing local taxing ju- Register (40 TexReg 6881) and §19.53, concerning building risdiction raises its sales and use tax rate, the additional amount of tax energy efficiency performance standards, with changes to the that would be due as a result of the rate increase is not due on the sale, proposed text as published in the October 2, 2015, issue of the use, storage, or other consumption in this state of taxable items used: Texas Register (40 TexReg 6881).

(A) for the performance of a written contract executed The amendment to §19.52 updates the public comment period prior to the effective date of the tax rate increase if the contract may and process to implement the changes made to Health and not be modified because of the tax; or Safety Code, §388.003 by House Bill 1736, 84th Legislature, 2015. (B) pursuant to the obligation of a bid or bids submitted prior to the effective date of the tax rate increase if the bid or bids and The amendment to §19.53 updates the energy codes for residen- contract entered into pursuant thereto are at a fixed price and not subject tial and commercial construction in accordance with the changes to withdrawal, change, or modification because of the tax. made to Health and Safety Code, §388.003 in House Bill 1736, 84th Legislature, 2015. The energy efficiency chapter of the In- (4) Three-year statute of limitations. ternational Residential Code, as it existed on May 1, 2015, was (A) The exemption in paragraph (1) of this subsection specifically designated by the legislature in House Bill 1736 as and the partial exemption in paragraph (3) of this subsection have no the state energy code for single-family residential construction, effect after three years from the date the adoption or increase of the tax effective September 1, 2016. The International Energy Conser- takes effect in the local taxing jurisdiction. vation Code, as it existed on May 1, 2015, is adopted as the state energy code for all other residential, commercial, and industrial (B) The provisions of §3.319 of this title apply to this construction, effective November 1, 2016, based on public com- subsection to the extent they are consistent. ment and stringency findings of the Energy Systems Laboratory, (C) Leases. Any renewal or exercise of an option to as required by Health and Safety Code, Chapter 388. extend the time of a lease or rental contract under the exemptions pro- Ten comments were received regarding these amendments. vided by this subsection shall be deemed to be a new contract and no exemption will apply. Mr. Ned Muñoz with the Texas Association of Builders requested clarification "be made to the proposed rules to reflect the En- (5) Records. Persons claiming the exemption provided by ergy Rating Index Compliance Alternative (or subsequent alter- this subsection must maintain records which can be verified by the native compliance path) scores as added to state statutes by comptroller or the exemption will be lost. §388.003(i) and (j) under HB 1736." The comptroller agrees with (6) Exemption certificate. An identification number is re- this comment. In response, the phrase, "and as supplemented quired on the prior contract exemption certificates furnished to sellers. by Health and Safety Code, §388.003(i) and (j)," has been added The identification number should be the person's 11-digit Texas tax- to §19.53(a) to make the rule more consistent with the provisions payer number or federal employer's identification (FEI) number. of House Bill 1736.

The agency certifies that legal counsel has reviewed the adop- Mr. Cyrus Reed with the Sierra Club, Lone Star Chapter, tion and found it to be a valid exercise of the agency's legal au- expressed support for the proposed rules and forwarded a thority. petition signed by 1,011 people who support the adoption of the 2015 energy codes in Texas. He asked that the State En- Filed with the Office of the Secretary of State on December 16, ergy Conservation Office (SECO) provide training for builders, inspectors, architects and city officials regarding the proposed 2015. rules, and provide guidance on its website about alternative TRD-201505688 compliance paths and potential local amendments, including Lita Gonzalez solar-ready provisions. In response to Mr. Reed's comment, SECO will provide training on the new standards and guidance General Counsel to local jurisdictions regarding alternative compliance paths and Comptroller of Public Accounts optional amendments. SECO training will focus first on the long Effective date: January 5, 2016 term, durable benefits of energy efficient construction, which Proposal publication date: June 19, 2015 can then be supplemented by any on-site power production.

For further information, please call: (512) 475-0387 Ms. Deborah Bliss, Mr. Raymond T. Mudehwe, Mr. Richard ♦ ♦ ♦ Howe and Mr. Chadd Jones provided substantially similar comments, requesting the inclusion of the 2015 International CHAPTER 19. STATE ENERGY Residential Code (IRC) Appendix U Solar Ready Provisions in CONSERVATION OFFICE §19.53. In response to these comments, the comptroller states that, for single family construction, SECO's authority to adopt building energy performance standards, as established in the Health and Safety Code, §388.003, is limited to the energy

ADOPTED RULES January 1, 2016 41 TexReg 269 APPENDIX I (a) The commission adopts by reference 40 Code of Federal solid waste and municipal hazardous waste and to adopt rules Regulations §257.107 (Publicly accessible Internet site requirements) consistent with the general intent and purposes of the THSC; as amended through the April 17, 2015, issue of the Federal Register and THSC, §361.090, which allows the commission to adopt (80 FR 21301), subject to the additions and modifications in this sec- rules to control the collection, handling, storage, processing, tion. and disposal of industrial solid waste to protect the property of others, public property and rights-of-way, groundwater, and (b) The website required by subsection (a) of this section must other rights requiring protection. be a publicly accessible website.

The adopted new rules implement THSC, §§361.017, 361.024, (c) The owner or operator shall post on the publicly accessible and 361.090. website, upon submittal to or receipt from the executive director or the chief clerk for the active life of the coal combustion residuals unit The agency certifies that legal counsel has reviewed the adop- through the completion of the post-closure care period: tion and found it to be a valid exercise of the agency's legal au- thority. (1) a complete copy of the current issued effective registra- tion; Filed with the Office of the Secretary of State on May 8, 2020. (2) a complete copy of all applications submitted under this TRD-202001826 chapter, including any revisions; Robert Martinez (3) a copy of public notice the owner or operator is required Director, Environmental Law Division to publish under this chapter; Texas Commission on Environmental Quality (4) a copy of a draft registration prepared by the executive Effective date: May 28, 2020 director; Proposal publication date: December 13, 2019 For further information, please call: (512) 239-6087 (5) a copy of the compliance summary prepared by the ex- ecutive director; and ♦ ♦ ♦ (6) a copy of any other document regarding and/or summa- TITLE 34. PUBLIC FINANCE rizing the executive director's review of or initial decision on an appli- cation submitted under this chapter. PART 1. COMPTROLLER OF PUBLIC (d) The owner or operator must notify the United States Envi- ACCOUNTS ronmental Protection Agency and the executive director, in a manner prescribed by each agency, within 14 days of any changes to the URL CHAPTER 3. TAX ADMINISTRATION for the publicly accessible website.

SUBCHAPTER O. STATE AND LOCAL SALES The agency certifies that legal counsel has reviewed the adop- tion and found it to be a valid exercise of the agency's legal au- AND USE TAXES thority. 34 TAC §3.334 Filed with the Office of the Secretary of State on May 8, 2020. The Comptroller of Public Accounts adopts amendments to §3.334, concerning local sales and use taxes, with changes to TRD-202001825 the proposed text as published in the January 3, 2020, issue of Robert Martinez the Texas Register (45 TexReg 98). The rule will be republished.

Director, Environmental Law Division Texas Commission on Environmental Quality In the wake of South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 Effective date: May 28, 2020 (June 21, 2018), the amendments provide that remote sellers that are required to collect Texas use tax under §3.286 of this title Proposal publication date: December 13, 2019 (relating to Seller's and Purchaser's Responsibilities) should col- For further information, please call: (512) 239-6087 lect local use tax based on the destination location. The amend- ♦ ♦ ♦ ments also implement the requirement that a seller located in Texas collects local use tax when the seller ships or delivers a SUBCHAPTER L. APPENDICES taxable item into a local jurisdiction where those use taxes ex- ceed the local sales tax where the sale is consummated.

30 TAC §352.1421, §352.1431 The comptroller also implements House Bill 1525 and House Bill Statutory Authority 2153, 86th Legislature, 2019. House Bill 1525 establishes lo- The new rules are adopted under Texas Water Code (TWC), cal sales and use tax collection responsibilities on marketplace §5.102, which provides the commission the power to perform providers. House Bill 2153 establishes a single local use tax rate any acts necessary and convenient to the exercise of its juris- that remote sellers may elect to use. diction and powers as provided by the TWC and other laws; The amendments also provide additional guidance on determin- TWC, §5.103, which provides the commission with the authority ing whether an order is received at a place of business of the to adopt any rules necessary to carry out its powers and duties seller, and clarify the rules for determining the consummation of under the TWC and other laws of this state; TWC, §5.105, sales. which authorizes the commission to establish and approve all general policy of the commission by rule; Texas Health and Throughout the section, the comptroller makes non-substantive Safety Code (THSC), Solid Waste Disposal Act, §361.017 and changes by adding or amending rule titles and cross-references.

§361.024, which authorize the commission to regulate industrial

ADOPTED RULES May 22, 2020 45 TexReg 3499 The comptroller also reorganizes this section for clarity and read- The commenters were: Cathy Bennett, on behalf of the City of ability. Ivanhoe; Steve Presley, on behalf of the City of Palestine; D.

Dale Fowler, on behalf of the Victoria Economic Development The comptroller received requests to extend the comment pe- Corporation; Scott Cain, on behalf of the City of Cleburne; Texas riod from the Round Rock Chamber of Commerce; the City of State Representative Travis Clardy; Texas State Representa- Coppell; the City of San Marcos; the City of Humble; the City of tive Oscar Longoria; Texas State Representative Ken King; Polo Frisco; the City of Irving; Jennifer May, on behalf of the City of Narvaez, on behalf of the City of Los Fresnos; Bob F. Brown Sugar Land; James Harris, on behalf of members of the Coalition and Keith Wright, on behalf of the City of Lufkin; Keith Patridge, for Appropriate Sales Tax Law Enactment ("CASTLE") (the cities on behalf of the McAllen Economic Development Corporation; of Coppell, Farmers Branch, Humble, Grand Prairie, Lancaster, Texas State Representative Keith Bell; Jerry Phillips and Frankie San Marcos, Kilgore, and Lewisville); Robert Camareno, on be- Davis, on behalf of the City of Kermit; Jose G. Solis, Rick Sali- half of the City of New Braunfels; Chuck Bailey; Texas State Sen- nas, Tony Chavez, Albert Cavazos, Maggie Quilantan, and Ave- ators Charles Schwertner, MD, Donna Campbell, MD, Nathan lardo Mireles, on behalf of the City of Lyford; Jeff Underwood, on Johnson, Kirk Watson, Larry Taylor, and Brandon Creighton; and behalf of the City of Alton; Steve PeÃ±a, on behalf of the City of Texas State Representatives James Talarico and John H. Bucy, Alton Development Corporation; Robert Salinas, on behalf of the III.

City of Alamo; Texas State Senator Charles Perry; Texas State The comptroller extended the 30-day public comment period an- Senator Eddie Lucio, Jr.; Texas State Representative Armando other 60 days, for a total of 90 days. "Mando" Martinez; Patrick McNulty, on behalf of the City of South Padre Island; Marie McDermott, on behalf of the Economic De- The comptroller also received requests to hold a public hearing velopment Corporation of Weslaco; Texas State Representative under Government Code, §2001.029(b)(2) (Public Comment), Sergio MuÃ±oz, Jr.; Brenda Enriquez, on behalf of the Greater from Senators Schwertner, MD, Campbell, MD, Johnson, Wat- Mission Chamber of Commerce; David Suarez, on behalf of the son, Taylor, and Creighton; Representatives Talarico and Bucy; City of Weslaco; Texas State Representative Trent Ashby; Rox- and the cities of Sugar Land, San Marcos, Humble, New Braun- anne M. Ray, on behalf of the South Padre Island Chamber of fels, Round Rock, and Coppell. The comptroller held a public Commerce; Darla Lapeyre, on behalf of the South Padre Is- hearing on February 4, 2020. Additionally, the City of Coppell, land Economic Development Corporation; Texas State Senator the City of Round Rock, Ms. May and Mr. Camareno also re- Robert L. Nichols; Texas State Senator Peter Flores; Texas State quested a second public hearing, which the comptroller denied Senator Lois Kolkhorst; Texas State Representative Kyle Kacal; because all parties received additional time until April 3, 2020, Texas State Senator Juan "Chuy" Hinojosa; Mario Lozoya and to review and provide comments on the amendments.

Graham Sevier-Shultz, on behalf of the Greater Brownsville In- The cities of Sugar Land and Grand Prairie inquired about ad- centives Corporation; Texas State Representative Geanie Mor- ditional time to comment because of the COVID-19 pandemic. rison; Texas State Representative Ernest J. Bailes, IV; Texas John Kroll, HMWK, LLC; Stephen Sheets, on behalf of the City State Senator Dawn Buckingham; Texas State Representative of Round Rock; Mr. Harris; and Jeff Moseley commented that Cody Harris; Richard Newton, on behalf of the City of Colleyville; the timing of the implementation of the rule will exacerbate the Texas State Representative Ben Leman; Andrew Smith, on be- cities' fiscal and budgetary issues due to the current COVID-19 half of the City of Hillsboro; Brad Pingel, on behalf of the City pandemic. The comptroller denied this request because inter- of Pampa; Michael Dyson, on behalf of the City of Rollingwood; ested parties had notice of these amendments prior to the pan- City Council for the City of Rowlett; Noe Ronnie Larralde, on be- demic, and the comptroller had already granted an extension to half of the Edinburg Chamber of Commerce; Sergio Contreras, provide comments. Interested parties also had additional op- on behalf of the Rio Grande Valley Partnership; Susette McNeel, portunities to provide comments during the public hearing and on behalf of GeoInvoice, Inc.; Eddie TreviÃ±o, Jr., on behalf of an interim hearing before the Texas House of Representatives, the Texas Border Coalition; Benjamin Gomez, on behalf of the Committee on Ways and Means on February 5, 2020 (the Ways City of San Benito; Texas State Representative Eddie Lucio, III; and Means hearing). Texas State Representative R.D. "Bobby" Guerra; Daniel Silva, on behalf of the Mission Economic Development Corporation; During the public comment period, the comptroller received com- Kenneth Jones, Jr., on behalf of the Lower Rio Grande Valley ments in writing and orally.

Development Council; Rose Benavidez, on behalf of the Starr The City of San Marcos commented that it did not have time County Industrial Foundation; Dalinda Guillen, on behalf of the to conduct a thorough review of the businesses that will be im- Rio Grande City Economic Development Corporation; and Tina pacted by the proposed changes, and requested the comptroller O'Jibway, on behalf of Texas State Senator Robert Nichols. postpone adopting the changes at least for two years, if not in- John Kennedy commented on behalf of the Texas Taxpayers and definitely. The comptroller denies this request.

Research Association that the association has some members The comptroller received support from multiple city mayors, local who support the amendment as proposed; however, it also has economic development corporations, and state legislators. Gen- members for which the amendment creates additional confusion erally, the commenters supported the provisions concerning the and compliance costs. sourcing of sales of Internet orders, which will ensure that cities The comptroller amends the definition of "Comptroller's website" receive their fair share of local sales and use tax revenues. The in subsection (a)(4) to provide the correct website address. commenters stated that a large majority of Texas cities and rural communities are losing revenue they need to provide services to The comptroller amends the definition of "engaged in business" their taxpayers that make Internet purchases. Commenters also in subsection (a)(7) to conform the reference to §3.286 of this stated that the proposed rule as a whole reflects the legislature's title. intent in passing House Bill 1525.

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

45 TexReg 3500 May 22, 2020 Texas Register Sheets and Cindy Olson Bourland, on behalf of the City of Round David Edmonson, on behalf of TechNet, and Mr. Pannell com- Rock, commented that change to the definition is not a clarifica- mented that rather than choosing specific points in the sales tion because the words "fulfill" and "fulfillment" do not appear in process and giving them more weight than others (thus creating Chapter 321 and that sales are taxed where they are "consum- loopholes for sellers and purchasers to use to their advantage), mated," not "fulfilled." Mr. Sheets proposed to add a new sen- an alternative approach might be the creation of a composite of tence to the definition stating that "except for sales under sec- selling activities test similar to the one used by the state of Illinois tion (b)(1)(C), where a sale is consummated does not depend to help identify the local sales tax that is most appropriate. on where a sale is fulfilled." The comptroller declines to make this revision because the cre- Ms. May commented that the definition of "fulfill" is clear for ation of a composite of selling activities test is not within the tangible personal property, but it is unclear how it applies to in- comptroller's rulemaking authority. A composite of selling ac- tangible items such as access to research on online platforms. tivities test would require a legislative change because it is not She requested further clarification in the section for how services supported by Tax Code, Chapters 321 and 323. such as information services are fulfilled.

Additionally, in response to these comments, the comptroller is The comptroller declines to make the suggested changes. The deleting the proposed definition of "Internet order" and the pro- definition gives effect to Tax Code, §321.203 (Consummation of visions for consummation of sales for Internet orders.

Sale) and the comptroller will consider addressing consumma- The comptroller amends the definition of "itinerant vendor" in tion of certain services at a later date. subsection (a)(10) to clarify that an itinerant vendor is a seller The proposed rule added a definition for "Internet order" in who does not have a place of business in the state as provided in new subsection (a)(10) to distinguish between an order placed Tax Code, §321.203(e)(1). The comptroller also removes the ex- through the Internet as opposed to an order placed in person ample of an itinerant vendor concerning a person who sells rugs at a seller's location as contemplated in Tax Code, §321.203(c) because it is no longer necessary. The comptroller also clarifies and §323.203(c). The comptroller received comments regarding that a salesperson operating out of a place of business is not this definition. Commenters stated that the definition of "Internet an itinerant vendor. The comptroller deletes from the definition order" will create confusion and requested that the comptroller's "office" or "other location that provides administrative support to office make revisions to clearly define what constitutes an the salesperson" because those do not meet the definition of a "Internet order." place of business of the seller in Tax Code, §321.002(a)(3)(A) (Definitions).

During the Ways and Means hearing, Texas State Represen- tative Erin Zwiener requested clarification regarding orders re- The comptroller adds a definition for "marketplace provider" in ceived over cellular phones. Mr. Kennedy made similar com- new subsection (a)(14) as defined in §3.286 of this title. ments and requested clarification on the treatment of email or- The comptroller adds a definition for "order placed in person" ders. Ms. Olson Bourland and Bob Scott requested clarifications in new subsection (a)(15). Orders placed in person are those on Voice over Internet Protocol (VoIP) and whether that consti- orders placed with the seller while the purchaser is physically tutes an Internet order. present at a seller's place of business, regardless of how the Mr. Kennedy also requested that the comptroller define the term seller subsequently enters the order. Subsequent paragraphs "order" to clarify when an order is received. Brian Pannell, on are renumbered. behalf of Dell Technologies, made similar comments and also Mr. Kroll proposed defining the term as "an order placed by a requested clarification concerning purchase orders. purchaser with the seller while physically present at the seller's Mr. Sheets commented that the comptroller should define the place of business." The comptroller agrees to make the revision word "Internet" as found in Tax Code, §151.00393 (Internet), for clarity. which provides that the Internet is used to "communicate infor- The comptroller amends the definition of "place of business of mation." He commented that the concept of an "Internet order" the seller - general definition" in renumbered subsection (a)(16). does not appear in Chapter 321 of the Tax Code and that it is Tax Code, §321.002(a)(3)(A) defines "place of business of the nothing more than one of many tools for communicating infor- retailer" as "an established outlet, office, or location operated by mation, no different than the US Postal Service and telephone the retailer or the retailer's agent or employee for the purpose land lines. Mr. Kroll and Mr. Harris echoed these comments. of receiving orders for taxable items and includes any location Mr. Sheets proposed a revised Internet order definition. at which three or more orders are received by the retailer during Both, Mr. Camareno and Mr. Kroll, commented that the amend- a calendar year." The reference to the retailer's "agent or em- ment is unclear whether an Internet order can cease to be an ployee" indicates that sales personnel must be at the site, and Internet order. Mr. Camareno commented that there are times this requirement has been added to the definition. when an Internet order involves human interaction to fulfill an In addition, the amended definition clarifies that the term does order, and other times when it is automated. Additionally, Mr. not include a computer server, an Internet protocol address, a Kroll; Craig Morgan, on behalf of the City of Round Rock; Mr. domain name, a website, or a software application. Many sell- Camareno; Mr. Kennedy; Kyle Kasner; and Karen Hunt, on be- ers house their computer servers at a co-location facility or rent half of the City of Coppell, requested that the amendment be re- computer server space at a managed hosting site. But an ordi- vised to adequately address business-to-business transactions nary person would not consider the physical locations of these through the Internet because those orders are fundamentally dif- computer servers to be places of business of the seller. Simi- ferent from business-to-consumer transactions. Mr. Kroll stated larly, an ordinary person would not perceive an Internet protocol that the definition also causes issues when businesses lease address, a domain name, or a website as an "established outlet, computers from a seller because under the property tax rules, office, or location" so as to constitute a place of business. The the seller retains ownership of the leased computer. comptroller reflects these changes throughout the section.

ADOPTED RULES May 22, 2020 45 TexReg 3501 The comptroller also deletes the reference to call centers, show- Former subsection (e)(1) addressed administrative offices sup- rooms, and clearance centers because those facilities are places porting traveling salespersons, and former subsection (e)(2) ad- of business of the seller only if sales personnel of the seller re- dressed distribution centers, manufacturing plants, and other fa- ceive three or more orders during a calendar year at those fa- cilities. In new subsection (b), the comptroller no longer includes cilities. The amendment deletes the former example regarding administrative offices supporting a traveling salesperson, and a home office at which items are sold through an online auction distribution centers, manufacturing plants, storage yards, ware- website because the example is addressed by new language re- houses, or similar facilities operated by a seller at which sales- garding orders received through a shopping website. The comp- persons are assigned to work in the determination of "place of troller also amends the definition to delete repetitive language. business of the seller." A seller does not receive orders at ad- The comptroller deletes a reference to "administrative offices" ministrative offices that solely serve as the base of operations because the comptroller determines that an administrative office for a salesperson, or that provide administrative support to a does not meet the definition of a place of business of the seller salesperson. Moreover, the mere fact that a salesperson is as- under Tax Code, §321.002(a)(3)(A). signed to work from, or work at, a distribution center, manufac- turing plant, storage yard, warehouse, or similar facility oper- The comptroller also adds to the definition of "place of busi- ated by a seller does not mean that a seller receives orders at ness of the seller - general definition" that an outlet, office, fa- these locations. These locations by themselves do not meet the cility, or any similar location that contracts with a business to definition of a place of business of the retailer under Tax Code, process certain orders or invoices is not a place of business of §321.002(a)(3)(A). The comptroller amends the section to reflect the seller if the comptroller determines that these certain loca- these changes throughout. tions are for the sole purpose of avoiding tax due or of rebating tax to the contracting location. This change is made pursuant to Brady Olsen, Tom Hart, and Andrew Fortune, on behalf of the the definition of "place of business of the retailer" in Tax Code, City of Grand Prairie, and Mr. Voelker commented that their §321.002(a)(3)(B). cities anticipate losses of sales tax revenues. Mr. Olsen, Mr. Hart, and Mr. Fortune commented the amendment will nega- Paul Voelker, on behalf of the City of Richardson; George Kele- tively impact their city's Local Government Code, Chapter 380 men, on behalf of the Texas Retailers Association; and Mr. Har- agreements (Chapter 380 agreements) due to removing travel- ris expressed concerns with the definition of a place of business. ing salesperson from 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, Mr. Kasner commented that business-to-business warehouses 311 S.W.3d 85 (Tex. App. Austin 2009, pet. denied). He also and distribution centers often rely heavily on traveling salesper- stated that it contradicts the statutory definition. Mr. Harris and sons who are based at those locations. Mr. Kasner requested Mr. Kelemen requested that the comptroller revise the definition that the comptroller define "sales office" and contrast it to an to restate the statutory language. Mr. Voelker requested that "administrative office" that supports traveling salespersons. Mr. no revisions be made to the current definition. Rudy Durham, on Kroll made a similar request. behalf of the City of Lewisville, commented that the place of busi- The comptroller declines to reinsert the omitted provisions be- ness definition needs to be updated to keep up with changes in cause subsection (b) gives effect to Tax Code, §321.002(a)(3)(A) technology. The comptroller declines to make the requested re- that requires administrative offices and sales offices to indepen- visions because the amended definition gives effect to the statu- dently meet the statutory definition of a place of business. How- tory language. ever, new paragraph (4), discussed below, will allow a transition The comptroller adds a definition for "remote seller" in new sub- period for these facilities until September 30, 2021. section (a)(18) as defined in §3.286 of this title. Subsequent In new paragraph (1)(A), the comptroller clarifies that locations paragraphs are renumbered. must be operated by a seller for the purpose of receiving orders The comptroller amends the definition of "temporary place of and receive three or more orders in a calendar year from per- business of the seller" in renumbered subsection (a)(22) to clarify sons other than employees, independent contractors, and natu- that a temporary place of business of the seller includes a sale ral persons affiliated with the seller to be considered a place of outside the walls of a distribution center, manufacturing plant, business of the seller in Texas. In new paragraph (3), the comp- storage yard, warehouse, or similar facility of the seller in a park- troller restates the provisions from former subsection (e) relating ing lot or similar space sharing the same physical address as the to purchasing offices with minor changes for ease of readability. facility. Sellers may hold sales to the public outside the walls of Mr. Kroll commented that the language "other than employees, their facilities on a temporary basis. The comptroller clarifies that independent contractors, and natural persons affiliated with the these sales constitute temporary places of business of the seller. seller" contradicts the language in Senate Bill 1533, 83rd Leg- The comptroller makes these changes throughout the section. islature, 2013, as that statute did not impose a related persons Subsequent paragraphs are renumbered. test and that bill does not support the new language regarding The comptroller deletes the definition of "traveling salesperson" purchasing offices in paragraph (3). Ms. May requested clarity in subsection (a)(21) because the comptroller will treat traveling related to a traveling salesperson working on a campus (group of salespersons as seller's agents or employees as referenced business buildings that house sales persons, call centers, fulfill- in Tax Code, §321.002(a)(3)(A). Subsequent paragraphs are ment warehouses, and administrative offices) but not in the same renumbered. building as a place of business. She recommended changing the word "building" to "campus" to avoid confusion. The comp- The comptroller adds new subsection (b), determining the place troller declines to make these suggested changes because the of business of a seller. Subsection (b) revises and expands the clarification gives effect to the statute's definition of a place of provisions of former subsection (e) concerning place of business business. - special definitions.

45 TexReg 3502 May 22, 2020 Texas Register The comptroller adds new paragraph (4) for orders received by Websites may use dynamic IP addresses that are assigned by sales personnel who are not at a place of business of the seller, the network upon connection and that change over time. The and new paragraph (5) for orders not received by sales person- public IP address of a website may simply be routing orders to nel. The comptroller makes these changes in response to com- different, private IP addresses. Load balancers may change the menters' requests for guidance on how to treat orders received IP addresses that communicate with customers. Conversely, by telephone, including VoIP and cellular phone, facsimile, and multiple web sites may be hosted at a single IP address. email.

The computer server receiving an order placed through a In the past, orders were typically received at fixed locations, such shopping website may belong to the seller or it may belong to a as orders received in person at the seller's facility, orders re- third party. The computer server may be situated on the seller's ceived by mail order to the seller's facility, and orders received premises, it may be situated at a co-location facility operated through landline telephone calls to the seller's facility. Some or- by a third party, or it may be situated at a web hosting facility ders were received by traveling salespersons, and former para- operated by a third party. The computer server may be one graph (4) applied Tax Code, §321.203(d)(2) to these orders so of multiple servers that serve the same website from different that the orders were consummated "at the place of business from physical addresses as part of a cloud distribution network. The which the retailer's agent or employee who took the order oper- computer server may route the order to multiple other servers ates," even though the order may have been actually received by for load balancing purposes. Conversely, a single computer the traveling salesperson at a different location. With the expan- server may serve multiple websites. Also, the seller may or may sion of modern telecommunication techniques, it has become not know the physical address of the server receiving the order. more commonplace for sales personnel who are not traveling The best way to treat these orders consistently and coherently salespersons to receive orders when they are not at the seller's is to treat them uniformly as being received at locations that are place of business, such as orders received by cellular telephone not places of business of the seller. and by email. Accordingly, new paragraph (4) expands the ap- Because the former rule did not explicitly address orders not re- plication of Tax Code, §321.203(d)(2) to these orders so that an ceived by sales personnel, the comptroller is applying paragraph order received by a salesperson who is not at a place of business (5) prospectively to orders received after September 30, 2021. of the seller in Texas will be treated as being received at the loca- tion from which the salesperson operates. This treatment will re- The comptroller adds new subsection (c) to incorporate and re- sult in a more uniform application of the consummation statutes organize many of the provisions of former subsection (h) con- and will facilitate the ability of taxpayers and auditors to deter- cerning consummation of a sale. It reorganizes the general con- mine the location where an order is received. summation rules stated in former paragraph (3) and applies the general consummation rules to specific situations that were pre- Paragraph (4) clarifies that the order will be treated as being re- viously addressed in other paragraphs of former subsection (h). ceived at a place of business only if the location out of which the salesperson operates independently meets the requirement for Subsection (c), like former paragraph (3) that it replaces, does being a place of business of the seller. In addition, to transition not differentiate based on the number of places of business of from the former rule to the current rule, the comptroller will tem- the seller in the state. Subsection (c) states that the consumma- porarily expand the definition of "place of business of the seller" tion principles of the subsection apply to all sellers, regardless of for these orders to include an outlet, office, or location operated whether they have no place of business, a single place of busi- by the seller that serves as a base of operations or that provides ness, or multiple places of businesses in the state. administrative support to the salesperson, until September 30, Mr. Sheets commented that the rule should include a special pro- 2021. vision for sellers with a single place of business in Texas based New paragraph (5) addresses orders not received by sales per- on Tax Code, §321.203(b). The comment stated that "all taxable sonnel, such as orders received through a shopping website or sales of the retailer are consummated at the one place of busi- shopping software application. The comptroller cannot apply the ness." consummation principals of Tax Code, §321.203(d)(2) to these Tax Code, §321.203(b) describes the consummation principles types of orders because that provision is limited to orders re- for a seller that has only one place of business in the state. But ceived by an "agent or employee." those principles are consistent with the treatment of other sellers Instead, these orders will be treated as being received at loca- and do not require special treatment in the rule. tions that are not places of business of the seller. This treat- Tax Code, §321.203 as a whole establishes a hierarchy among ment is consistent with the concept that a "place of business" places of business involved in a transaction. If an order is ful- requires the presence of personnel to receive the order. Com- filled from a place of business of the seller in Texas, the sale puter servers, Internet protocol addresses, and automated tele- is consummated at that location even if the order is received at phone ordering systems would not ordinarily be called "places of another place of business in Texas (except for orders received business" of the seller. The comptroller has concluded that the in person). Conversely, an order is consummated at the place legislature could not have intended that the receipt of an order of business of the seller in Texas where it is received only if the by an automated mechanical device would make the device an order was not fulfilled from a place of business in Texas (except "established outlet, office or location operated by the retailer." for orders received in person). Adopted subsection (c) reflects Also, this treatment of orders not received by sales personnel is this hierarchy. required to promote uniformity and ease of administration for tax- The statutory provision in Tax Code, §321.203(b), for a seller payers and auditors. Website orders can be received at multiple with a single place of business in Texas, is a recognition that the physical addresses -- any locations that have Internet access. A hierarchy is not required in that circumstance. The outcome will website order is sent to an Internet protocol ("IP") address. An be the same regardless of whether the order is received, fulfilled, IP address is the address of the device receiving the order, such or received and fulfilled from that place of business, and regard- as a computer server. An IP address is not a physical address.

ADOPTED RULES May 22, 2020 45 TexReg 3503 less of whether the order is placed at that location in person - the The comptroller declines to make this revision because para- sale will be consummated at that place of business. graph (3) merely restates the language in former subsection (h)(3)(F), which was adopted in 2014. This subsection im- Tax Code, §321.203(b) cannot be interpreted to mean that all plements Senate Bill 997, 83rd Legislature, 2013 (codified at sales are consummated at the seller's single place of business Tax Code, §321.203(c-4) and (c-5)). Moreover, Tax Code, in Texas, even if that place of business did not receive the order, §321.203(c-5) explicitly provides an expiration date of Septem- did not fulfill the order, and did not serve as the location where ber 1, 2024. the order was delivered to the customer. To consummate a sale and to impose local sales tax in a jurisdiction that had nothing to The comptroller deletes former subsection (h)(4) concerning do with a transaction would be an absurd and possibly unconsti- traveling salespersons. The place of business of a traveling tutional reading of the statute. salesperson is determined under subsection (b)(4) - orders received by sales personnel who are not at a place of business Mr. Harris commented that the proposed subsection (c)(1) was of the seller when they receive the order. inconsistent with Chapter 321 because Chapter 321 explicitly ties consummation of sales to the place of business where or- The comptroller adds new paragraph (4) and includes the lan- ders are "received," not where they are "placed." He commented guage in former subsection (h)(1) concerning local sales taxes that to the extent that the amendment relies on placement to de- due and local use taxes due without any changes. The comptrol- termine where a sale is consummated, the section contradicts ler restates the language in former subsection (h)(2) concerning Chapter 321. He requests that any reference to placement of multiple special purpose district taxes and multiple transit author- orders, other than orders placed in person or orders placed with ity taxes in paragraph (5) without changes to the language. a retailer's supplier, should be deleted.

The comptroller deletes the language found in former subsec- The comptroller agrees that other than orders placed in person, tion (h)(5) concerning drop shipments because these provisions the consummation of sales is tied to the place of business where are redundant and the general consummation rules cover these the order is received, if not fulfilled by a place of business of the types of orders. seller in Texas. The comptroller makes revisions to clarify and The comptroller adds new paragraph (6) to add the language clear up any confusion by the use of the term "placed." found in former subsection (h)(6) concerning itinerant vendors New paragraph (1) provides the consummation of sale rules for and vending machines without changes to the language. orders received at a place of business of the seller in Texas.

The proposed rule contained a special provision in subsection New subparagraph (A) provides the consummation of sale rules (c)(6) for Internet orders. The adopted rule deletes this provi- for orders placed in person, and includes a reference to orders sion. However, the comments regarding the proposed rule for placed at a temporary place of business of the seller, in lieu of Internet orders may have some relevance to subsection (b)(5), the provision found in former subparagraph (h)(6)(C) regarding discussed above, regarding orders not received by sales per- temporary places of business. Subparagraph (B) provides the sonnel. Accordingly, the comptroller has considered these com- consummation of sale rules for orders not placed in person. ments and summarizes them below.

New paragraph (2) provides the consummation of sale rules for The comptroller received comments concerning Internet orders orders not received at a place of business of the seller in Texas. from Mr. Camareno; the Board of Directors for the Coppell New subparagraph (A) provides the consummation rule for an Chamber of Commerce; Mr. Edmonson; Steven Taplits, on order fulfilled at a place of the seller in Texas. New subparagraph behalf of Bed Bath & Beyond; Mr. Voelker; Mr. Kasner; Mr. (B) provides the consummation rule for an order not fulfilled from Olsen; Mr. Hart; Mr. Morgan; Mr. Sheets; Ms. Olson Bourland; a place of business of the seller in Texas. Jerry Stratton; Jenna Armstrong, on behalf of the Lake Houston Area Chamber of Commerce; Jack Roberts; G. Brint Ryan, In light of the Wayfair decision, the comptroller provides in clause on behalf of Ryan LLC; Doug Duffie, Doug Duffie, LLC; Adina (ii) that a remote seller that is required to collect Texas use tax Christian, on behalf of her client; Mr. Kelemen; Mr. Moseley; under §3.286(b)(2) must also collect local use tax based on the Ms. May; Jane Hughson, on behalf of the City of San Marcos; location to which the item is shipped or delivered or at which the David Howard; Linda Howard; Mr. Moore; Mr. Harris; Mr. Kroll; purchaser of the item takes possession unless the remote seller Mr. Pannell; Dan Butcher, Clark Hill Strasburger; Ms. Hunt; Ja- elects to collect the single local use tax rate enacted in House son Ball, on behalf of the Round Rock Chamber of Commerce; Bill 2153. See Tax Code, §321.205(c) (Use Tax: Municipality in Michael Rollins, on behalf of the Austin Chamber of Commerce; which Use Occurs) and §323.205(c) (Use Tax: County in which Chris Hillman, on behalf of the City of Irving; Gary Thomas, Use Occurs). on behalf of the Dallas Area Rapid Transit; the Honorable US New paragraph (3) restates the provision in former subsection Representative John Carter, on behalf of Round Rock and many (h)(3)(F) concerning an exception for qualifying economic devel- other communities; Mr. Durham; Joshua Selleck, on behalf of opment agreements entered into before January 1, 2009, pur- the City of Kilgore; Kristi Carlson, on behalf of Best Buy Co., suant to Tax Code, §321.203(c-4) - (c-5) or §323.203(c-4) - (c-5) Inc.; John Torigian, on behalf of HD Supply; TJ Gilmore and (Consummation of Sale). David Erb, on behalf of the City of Lewisville; Michael Land, on behalf of the City of Coppell; Michael Meek, on behalf of the Jeffrey Moore, Brown & Hofmeister L.L.P, commented that para- Greater New Braunfels Chamber of Commerce; Mr. Kennedy; graph (3) runs afoul of Article I, Section 16 of the Constitution of John Christian, on behalf of Ryan LLC; Mr. Harris; Heather the State of Texas (Bills of Attainder; Ex Post Facto or Retroac- Hurlbert, on behalf of the City of San Marcos; Mr. Scott; Jared tive Laws; Impairing Obligation of Contracts). Mr. Moore sug- Werner, on behalf of the City of New Braunfels; Mr. Fortune; gests that the comptroller revise the effective date of the provi- and Kenneth Welch. sion until the end of the existing term of the agreement.

Mr. Kelemen; Ms. Hunt; Mr. Land; the Board of Directors for the Coppell Chamber of Commerce; Mr. Camareno; Representa-

45 TexReg 3504 May 22, 2020 Texas Register tive Zwiener; Representative Talarico; Mr. Morgan; Mr. Sheets; Mr. Kroll, Mr. Scott, Ms. Hurlbert, and Representative Murphy Ms. Olson Bourland; Mr. Voelker; Mr. Durham; Mr. Gilmore; Mr. commented that cities without Chapter 380 agreements will have Ball; Mr. Olsen; Mr. Hart; Mr. Fortune; Ms. Hurlbert; Ms. Hugh- to source sales from Internet orders immediately and feel the son; Ms. Armstrong; Mr. Hillman; Mr. Ryan; Ms. Christian; Mr. impact. However, cities with Chapter 380 agreements will benefit Duffie; Mr. Howard; Ms. Howard; US Representative Carter; because of the delayed implementation.

Mr. Scott; Ms. Carlson; Mr. Torigian; and Mr. Kasner stated Texas State Representative Drew Springer commented that rural that the proposed provision regarding Internet orders will have Texas is specifically hit hard because the cities are losing local a negative impact on city sales and use tax revenues which will tax revenue, which are hit harder as more cities execute Chapter force many of the cities to increase property taxes, reduce core agreements. He further commented that the definition of services, and curtail economic development. Mr. Sheets, Mr. a place of business as it relates to three or more orders is too Fortune, Mr. Olsen, Mr. Hart, Mr. Morgan, Ms. Hunt, Mr. Harris, broad, which can cause gamesmanship in the context of 380 and Mr. Durham commented that the amendment will cause a agreements. Mr. Presley also does not think it is appropriate downgrade to city bond ratings. that cities need to support businesses in other cities.

Ms. Hurlbert stated that the proposed provisions related to Inter- Representative Springer also commented that Chapter 380 net orders will narrow what qualifies for rebates under Chapter agreements were established long before the proliferation agreements. She is also concerned about the revenue loss of Internet sales and the Wayfair decision and since these from businesses that do not have Chapter 380 agreements that changes, he thinks it necessary to address Internet orders with will be grandfathered under the amendment. the amendment.

At the Ways and Means hearing, Ms. Hunt expressed concern In response to the comments, the comptroller is delaying the im- that under the comptroller's definition many businesses in the plementation of subsection (b)(5), regarding orders not received City of Coppell will no longer be considered places of business by sales personnel until October 1, 2021, giving interested par- under the amended provisions. ties an opportunity to seek a legislative change.

Mr. Selleck commented that the City of Kilgore has a large num- Additionally, Representative Springer commented that the lack ber of business-to-business transactions that are sourced to the of a detailed list of all Chapter 380 agreements kept in a cen- city; but will, in the future, automate their ordering systems. He tral location creates a challenge for obtaining information on the is concerned that the city will lose those revenues. agreements because a lot of agreements are very protected.

Mr. Fortune, Mr. Olsen, and Mr. Hart commented that the Commenters requested data and an analysis to determine the proposed provisions related to Internet orders will impact busi- impact the amendment will have on their communities, and ness-to-business transactions. Mr. Gilmore commented that the information on Chapter 380 agreements. The commenters amendment will redistribute sales tax from less prosperous com- were: Texas State Representative Sheryl Cole, Representative munities to their more prosperous neighbors. Mr. Voelker com- Zweiner, Mr. Fortune, Mr. Olsen, Mr. Hart, Ms. May, Mr. Land, mented that the City of Richardson is concerned about losing Ms. Hunt, Mr. Voelker, Mr. Scott, and Mr. Hillman. Mr. Fortune sales tax because companies have sourced all of their sales to asked that the House Ways and Means committee request the city as it is where their employee base, sales force, and call additional analysis on the amendment's provisions. center staff are located, and it is where their product orders are received and processed. Mr. Voelker and Mr. Scott requested that the comptroller gather information across the state regarding Chapter 380 and Chap- Representative Talarico, Mr. Morgan, Mr. Sheets, Ms. Hurlbert, ter 381 agreements to fully understand how the agreements are Mr. Gilmore, Mr. Durham, Mr. Meek, the Board of Directors for being used. Mr. Voelker also requested that the comptroller per- the Coppell Chamber of Commerce, Mr. Ball, Ms. Armstrong, form an impact analysis to determine how the changes will affect Mr. Rollins, Mr. Moseley, US Representative Carter, Ms. Carl- local sales tax collections and existing businesses. Mr. Scott son, Ms. Olson Bourland, Mr. Howard, Ms. Howard, Mr. Taplits, made similar requests.

Mr. Torigian, Mr. Harris, Mr. Scott, and Mr. Camareno made comments on the impact that the proposed provisions on Inter- Mr. Ryan commented that he does not believe the amendment net orders will have on Chapter 380 agreements. complies with Texas Government Code, §2001.024 (Content of Notice), which requires specific content in the notice of a pro- Commenters believe the proposed grandfather provisions vio- posed rule, relating to the fiscal impact of such amendment. Mr. late the Constitution of the State of Texas because they impair Ryan believes that a fiscal note detailing the fiscal implication existing contracts. Specifically, Mr. Moore commented that the for small business in reprogramming software, the shifting of lo- proposed subparagraph (F) runs afoul of Article I, Section 16 of cal tax among jurisdictions, the upending of pre-existing Chapter the Constitution of the State of Texas. Texas State Represen- or 381 agreements, and the economic cost to the public is tative Jim Murphy and Ms. Olson Bourland made similar com- required. Mr. Christian and Mr. Harris agreed. Mr. Harris, addi- ments. tionally, stated that the comptroller did not give adequate notice Mr. Moore suggests that the comptroller revise the provision to when reversing a policy as required under federal case law. Mr. grandfather existing agreements entered into before September Morgan commented that the fiscal impact statement contradicts 1, 2019, to the end of their existing term. Mr. Roberts, Mr. Bai- the known impact to the City of Round Rock. Mr. Sheets and ley, Mr. Taplits, Ms. Carlson, Mr. Durham, Mr. Kelemen, Mr. Ms. Olson Bourland made similar comments. Ms. Hunt made Butcher, Mr. Torigian and Mr. Rollins made a similar request. similar comments relating to the City of Coppell.

Mr. Roberts, Mr. Bailey, Mr. Duffie, Mr. Camareno, Mr. Scott, Mr. Morgan; Ms. Hunt; Mr. Land; Mr. Sheets; Representative Mr. Taplits, Mr. Torigian, and Mr. Butcher also support extending Talarico; Representative Zwiener; US Representative Carter; the grandfather clause from a range of five to 20 years.

Mr. Voelker; Mr. Morgan; the Board of Directors for the Coppell Chamber of Commerce; Mr. Christian; Mr. Ryan; Ms. Christian;

ADOPTED RULES May 22, 2020 45 TexReg 3505 Mr. Scott; Mr. Camareno; Mr. Gilmore; Mr. Erb; Mr. Meek; the Mr. Kelemen, Mr. Morgan, Mr. Sheets, Ms. Olson Bourland, Mr. Board of Directors for the Round Rock Chamber of Commerce; Ryan, Mr. Christian, Mr. Harris, Mr. Camareno, Mr. Pannell, Ms. Mr. Kasner; Mr. Torigian; Mr. Kroll; Mr. Moore; and Mr. Harris Carlson, and Mr. Kroll stated that the amendment conflicts with requested that the comptroller solely implement the provisions the statute or is not supported by law. Also, Mr. Morgan, Mr. in House Bills 1525 and 2153 and the Wayfair decision. Mr. Sheets, and Ms. Olson Bourland commented that the statute Kroll and Mr. Harris provided draft amendments to accomplish and the legislative intent require origin-based sourcing. Mr. Mor- the objective. gan commented that the legislature has always concluded that origin-based sourcing is the most effective method to allocate Ms. Hunt requested that the comptroller withdraw the amend- resources. ment as proposed and republish only the language required to implement House Bill 1525 and House Bill 2153 based on the Mr. Ryan, Mr. Christian, Mr. Harris, Mr. Kroll, Mr. Camareno, staggering effects of the COVID-19 pandemic on public health and Mr. Pannell commented that Chapter 321 makes no distinc- and the economy. Ms. Olson Bourland and the Board of Di- tion based on the technology used by the customer to commu- rectors for the Coppell Chamber of Commerce had similar com- nicate an order except when made in person. ments.

Mr. Harris commented that concluding that Internet orders are Mr. Butcher, Mr. Ball, Ms. Armstrong, US Representative Carter, not received anywhere is at odds with the comptroller's long- Ms. Christian, Mr. Harris, Mr. Erb, Mr. Kroll, Mr. Camareno, Ms. standing position that Internet orders are received at a location Olson Bourland, Mr. Durham, Mr. Kelemen, Ms. Carlson, Mr. in Texas.

Harris, Mr. Sheets, and Mr. Pannell stated that the amendment He commented that treating Internet orders for taxable is improper because it goes beyond the scope of the Wayfair items differently from non-Internet orders violates Tax Code, decision, House Bill 1525, and House Bill 2153, and beyond the §321.002(a)(3) and §321.203. He commented that in the City comptroller's authority. of Webster, the comptroller stated that Internet orders can be Ms. Hunt, Mr. Land, the Board of Directors for the Coppell received at a place of business. He further stated that Chapter Chamber of Commerce, Mr. Sheets, Representative Talarico, 321 already provides the rules for Internet orders. Mr. Sheets Mr. Gilmore, Mr. Erb, Representative Zwiener, Representative and Ms. Olson Bourland made similar remarks.

Murphy, Mr. Meek, Mr. Camareno, Mr. Pannell, Mr. Taplits, Mr. Ms. Olson Bourland stated numerous reasons that she believes Harris, Mr. Hillman, Mr. Ball, and Mr. Selleck further requested the amendment is contrary to law, including that the amendment that the comptroller leave the remaining issues for the legisla- is unconstitutional and contradicts comptroller's guidelines and ture to decide in future sessions. Ms. Hunt and Mr. Land asked letter rulings. She also commented that the comptroller is judi- that the Ways and Means Committee request that the comptrol- cially estopped from asserting that pertinent portions of the Tax ler only implement House Bills 1525 and 2153.

Code are ambiguous.

Mr. Ryan, Mr. Christian, Mr. Harris, and Mr. Torigian opined that She commented that the term "fulfillment" does not appear in the legislature has accepted the comptroller's long-standing ad- the statute, but instead contains the term "consummate," which ministration of local sales taxes without regard to the technology means offer, acceptance, and payment of an item. Mr. Sheets used by the customer to submit an order and that the comptrol- proposed to revise the rule to provide that Internet orders are ler cannot make changes without a statutory change. Mr. Harris treated the same as orders submitted and received by other commented that in Combs v. City of Webster, the Court stated means of communication. He also proposed that when making that "whether {a} result involves 'fair' tax policy is a question for orders through the Internet or by any other means of commu- the legislature." nication, the sale is consummated where the order is received, Mr. Presley commented that the way the comptroller has pro- regardless of where the order is fulfilled. Mr. Kelemen made a posed changes has given the legislature adequate time to ad- similar request for revision. dress the issue. Representative Leman commented that it is a In response to these comments, the comptroller deleted the pro- part of the comptroller's function to provide clarifications when posed language regarding Internet orders. needed in a timely manner so that we can have a successful economy. Representative Talarico, Representative Zwiener, Mr. Sheets, Mr. Morgan, Ms. Olson Bourland, Mr. Ryan, and Mr. Ball stated The comptroller declines to make revisions based on these com- that origin-based sales tax has been applied across the board ments. The comptroller has broad rulemaking authority under to all transactions. Ms. Olson Bourland further stated that the Tax Code, §§111.002 (Comptroller's Rules; Compliance; Forfei- amendment completely upends the framework by making Inter- ture); 321.306 (Comptroller's Rules); and 323.306 (Comptroller's net orders destination-sourced for purposes of local sales tax.

Rules). There is ambiguity in the consummation rule as evi- denced by the questions that the comptroller received. There are Mr. Ryan commented that local taxes default to the place of situations in which the same fact pattern results in sourcing by delivery to the customer only when there is no place of business companies in different manners. The comptroller's changes pro- of the seller to which taxes should be allocated. vide clear guidance to address these situations. The comptroller Mr. Sheets commented that Tax Code, §321.203(b) states that if conducted a statewide fiscal impact analysis as required under a retailer has only one place of business, all of a retailer's sales of the Administrative Procedures Act. The comptroller declines to taxable items are consummated at that place of business, except only implement House Bills 1525 and 2153 and the Wayfair de- as provided in subsection (e). Mr. Sheets proposed language to cision. The comptroller delays the implementation of subsection that effect. Mr. Sheets commented that if the comptroller applies (b)(5), regarding orders not received by sales personnel, until the Internet order rule to a seller with a single place of business in October 1, 2021, giving interested parties time to seek a legisla- the state, the amendment is illegal. Ms. Carlson and Mr. Butcher tive change. had similar requests.

45 TexReg 3506 May 22, 2020 Texas Register Representative Talarico commented that sales tax is based on The comptroller adds new subsection (d) to include the provi- the business, not on the consumer, and thus, it should apply to sions in former subsection (i), relating to use tax. The comp- purchases over the phone or online. Mr. Stratton commented troller adds new paragraph (1), which includes the language in that he supports an origin-based sales tax system because it is former subsection (i)(1) concerning general local use tax rules "simpler to calculate, harder to pass the buck on, and more pro- with non-substantive changes for ease of readability. tective of our privacy." However, Mr. Presley commented that all The comptroller adds new paragraph (2) to include the provisions transactions other than the customer showing up at the business in former subsection (i)(2) concerning general use tax rules ap- should be based on destination. plied to specific situations with changes.

The comptroller declines to make revisions based on these com- In light of the Wayfair decision, the comptroller gives effect to the ments. For the reasons previously stated, the comptroller is Tax Code's requirement that sellers engaged in business in the deleting the provisions regarding Internet orders, and is adopt- state collect local use tax for sales consummated in Texas and ing provisions regarding orders placed in person, and those not for sales consummated outside Texas based on the local tax- placed in person. ing jurisdictions in which a taxable item is first used, stored, or Mr. Kelemen, Mr. Kennedy, Mr. Kroll, Mr. Pannell, Mr. Land, consumed, regardless of the specific local jurisdiction in which Ms. Hurlbert, Mr. Edmonson, Mr. Ryan, Ms. Christian, Mr. a seller is engaged in business. See Tax Code, §§321.205, Duffie, Mr. Harris, Ms. Olson Bourland, the Board of Directors 322.105 (Use Tax: Where Use Occurs), and 323.205. for the Coppell Chamber of Commerce, and the Round Rock When a sale is consummated in Texas, a seller is engaged in Chamber of Commerce commented that the proposed provision business in this state through the presence of property or em- for Internet orders will place additional administrative compliance ployees in the state. See Tax Code, §§151.107 (Retailer En- burdens on sellers which will force them to update their software gaged in Business in this State), 321.203, and 323.203. There- within a short timeframe. fore, the language that a seller be engaged in business in a Mr. Pannell commented that the amendment will create an un- local jurisdiction for sales consummated in Texas is superflu- due burden on Texas retailers as they will be required to calculate ous. Moreover, an engaged in business standard for local use and collect tax based on the method of communication through tax does not give effect to the Tax Code's requirement that a which their customers choose to submit orders. Mr. Edmonson, seller collect local use tax that is due and creates an opportu- Mr. Kroll, Mr. Land, Mr. Torigian, Mr. Ryan, Ms. Christian, Mr. nity for sellers to avoid collecting local use tax due. See Tax Duffie, Mr. Harris, and the Board of Directors for the Coppell Code §§151.103(Collection by Retailer; Purchaser's Receipt), Chamber of Commerce made similar comments. 321.003 (Other Portions of Tax Applicable), 321.205, 322.108 (Certain Provisions of Municipal Sales and Use Tax Applicable), The comptroller declines to make revisions based on these com- 323.003(Other Portions of Tax Applicable), and 323.205. There- ments because taxpayers already must keep records of sales, fore, the comptroller deletes the "engaged in business" require- and such a burden is inherent in the consummation statutes (like ment for local use tax throughout the section. the burden of identifying a particular place of business that re- ceives an order when a business has multiple places of busi- In new paragraph (2), the comptroller implements the Wayfair ness). Taxpayers will also have time to update their systems decision by clarifying that the seller is responsible for collecting under the extended implementation date. 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 Mr. Ryan, Mr. Christian, Ms. Olson Bourland, Mr. Butcher, Mr. purchaser of the item takes possession.

Harris, and Mr. Kroll commented that the proposed provisions regarding Internet orders violate the Internet Tax Freedom Act In new subparagraphs (B) and (C), the comptroller also explic- because they discriminate against the Internet. itly states that the location of the seller in Texas does not affect the determination of whether the seller is required to collect addi- The provisions do not impose a tax on or discriminate against the tional local use tax due. In new clauses (i) and (ii), the comptrol- Internet, and therefore, do not violate the Internet Tax Freedom ler provides two examples to illustrate when a seller is required Act. to collect additional local use taxes.

Mr. Ryan commented that sellers are at risk of class action law- The comptroller adds new subsection (e) to include the provi- suits for failing to notify their customers that they may pay a sions in former subsection (b), relating to the effects of other law, higher amount of tax depending on the method the customer with minor non-substantive changes to the provisions as they ap- uses to place the order. Mr. Ryan adds that sellers are also at peared in former subsection (b). risk if they are unable to distinguish between Internet orders and other orders when calculating local taxes. The comptroller adds new subsection (f), to include the pro- visions of former subsection (c), relating to tax rates without Mr. Kelemen; Mr. Hillman; Mr. Olsen; Mr. Land; Ms. Hurlbert; changing the provisions as they appeared in former subsection Mr. Camareno; Mr. Voelker; Ms. May; Mr. Scott; Mr. Kennedy; (c).

Ms. Olson Bourland; Mr. Durham; Mr. Harris; and Teresa Wiley, on behalf of Sysco, Inc., requested that the comptroller delay The comptroller adds new subsection (g) to include the provi- the implementation date to provide additional time for entities sions of former subsection (d), relating to jurisdictional bound- to comply with the provisions on Internet orders and traveling aries, combined areas, and city tax imposed through strategic salespersons. In response to these comments, the comptroller partnership agreements, with non-substantive changes made to has deleted the proposed provision regarding Internet orders, the language on combined areas for ease of readability. and delayed the implementation of subsections (b)(4) and (b)(5) The comptroller adds new subsection (h) to include the provi- regarding orders received by sales personnel when they are not sions in former subsection (f) concerning places of business and at a place of business of the seller and orders not received by job sites crossed by local taxing jurisdiction boundaries with a sales personnel to October 1, 2021.

ADOPTED RULES May 22, 2020 45 TexReg 3507 change to the title of the subsection to read places of business local use tax rate that will be in effect for that calendar year in of the seller. No other changes were made to those provisions. the Texas Register.

The comptroller adds new subsection (i). Throughout new sub- New subparagraph (F) provides the calculation for the single lo- section (i), the comptroller implements the Wayfair decision for cal use tax rate. local use tax to address sales consummated in Texas and sales New subparagraph (G) provides that a purchaser may request consummated outside of Texas, including sales by remote sell- a refund based on local use taxes paid in a calendar year. The ers. refund is for the difference between the single local use tax rate In new paragraph (1), the comptroller adds the language found in paid by the purchaser and the amount the purchaser would have former subsection (g)(1) with changes. The comptroller explicitly paid based on the combined tax rate for all applicable local use states in paragraph (1) that the location of the seller in Texas taxes. Non-permitted purchasers may request a refund directly does not affect the determination of whether the seller is required from the comptroller on an annual basis without having to meet to collect additional local use tax due. the requirements in §3.325(a)(1) of this title (relating to Refunds and Payments Under Protest) and the statute of limitation under In new paragraph (2), the comptroller includes the language in Tax Code, §111.104 (Refunds). former subsection (g)(2) with changes. The comptroller makes a cross-reference to new subsection (i)(3) of the amendment, New subparagraph (H) addresses marketplace providers and which implements House Bill 2153. The comptroller also clarifies states that a marketplace provider may only use the combined that new subsection (i)(2) applies to sales not consummated in tax rate of all applicable local use taxes when computing the Texas. The amendment provides that local use tax is based upon amount of local use tax to collect and remit. the location in this state to which the item is shipped or delivered In new paragraph (4), the comptroller restates the language in or at which the purchaser takes possession. deleted subsection (g)(4) concerning purchasers responsible for In new paragraph (3), the amendment addresses local use tax accruing and remitting local taxes if the seller fails to collect with- for remote sellers and implements the single local use tax rate out any changes. for remote sellers enacted in House Bill 2153.

In new paragraph (5), the comptroller restates the language in New subparagraph (A)(i) provides that a remote seller is required deleted subsection (g)(5) concerning local tax due on the sales to collect and remit using the combined rate of all applicable local price of a taxable item without any changes. use taxes based on the location to which the item is shipped The comptroller adds new paragraph (6) to relieve a purchaser or delivered or at which the purchaser takes possession. New of liability for additional use tax if the purchaser pays local use subparagraph (A)(ii) provides that at the remote seller's election, tax using the single local use tax rate to an eligible remote seller the remote seller may elect to use the single local use tax rate electing to use the single local use tax rate. Paragraph (6) also published in the Texas Register. requires the purchaser to verify on the comptroller's website that New subparagraph (B) addresses the single local use tax rate a remote seller has elected to use the single local use tax rate. when a remote seller stores tangible personal property in Texas Moreover, paragraph (6) provides that if a remote seller is not to be sold on a marketplace. The comptroller recognizes that a listed on the comptroller's website, the purchaser will be liable remote seller selling tangible personal property on a marketplace for additional use tax due. may not have control of where their tangible personal property Mr. Edmonson commented that TechNet believes that para- is stored. Therefore, to ease the burden on a remote seller, this graph (6) will create an undue burden on the buyer to verify if the provision allows the remote seller to elect the single local use tax remote seller is registered with the comptroller. He commented rate. that the state should pursue the seller, not the buyer. The comp- New subparagraph (C) addresses notice requirements a remote troller declines to make a revision based on this comment. seller sends to the comptroller of its election and revocation of The comptroller deletes existing subsection (b), relating to the election to use the single local use tax rate. New clause (i) pro- effect of other law, as this information is contained in new sub- vides that a remote seller must notify the comptroller of its elec- section (e) with minor, non-substantive changes. tion to use the single local use tax rate on a form prescribed by the comptroller or may notify the comptroller of the election on its The comptroller deletes existing subsection (c) relating to tax use tax permit application form before being able to use the sin- rates, as that information is contained in new subsection (f) with- gle local use tax rate. New clause (i) also requires that a remote out change. seller use the single local use tax rate for all its sales of taxable The comptroller deletes existing subsection (d) relating to ju- items until the remote seller revokes the election in writing to the risdictional boundaries, combined areas, and city tax imposed comptroller. New clause (ii) addresses the requirements for a through strategic partnership agreements, as this information is remote seller to revoke its election to collect the single local use contained in new subsection (g) with non-substantive changes tax rate by filing a form prescribed by the comptroller by October made to the provisions on combined areas for ease of readabil- of the calendar year. ity.

New subparagraph (D)(i) provides the initial single local use tax The comptroller deletes existing subsection (e) relating to place rate of 1.75%, which is in effect for the period beginning October of business - special definitions, as this information is contained 1, 2019, and ending December 31, 2019. Subparagraph (D)(ii) in new subsection (b) with changes. provides the initial single local use tax rate of 1.75%, which is in effect for the period beginning January 1, 2020, and ending The comptroller deletes existing subsection (f) concerning December 31, 2020. places of business and job sites crossed by local taxing ju- risdiction boundaries, as this information is contained in new New subparagraph (E) provides that before the beginning of a calendar year, the comptroller will publish notice of the single

45 TexReg 3508 May 22, 2020 Texas Register subsection (h) with a change only to the title of the subsection §3.334. Local Sales and Use Taxes. to read places of business of the seller. (a) Definitions. The following words and terms, when used The comptroller deletes subsection (g) concerning sellers' and in this section, shall have the following meanings, unless the context purchasers' responsibilities for collecting or accruing local taxes, clearly indicates otherwise. as those provisions, except for subsection (g)(3), which was (1) Cable system--The system through which a cable ser- deleted in its entirety, are contained in new subsection (i) with vice provider delivers cable television or bundled cable service, as changes. those terms are defined in §3.313 of this title (relating to Cable Televi- The comptroller deletes existing subsection (h) concerning local sion Service and Bundled Cable Service). sales tax, as this information is contained in new subsection (c) (2) City--An incorporated city, municipality, town, or vil- with changes. lage.

The comptroller deletes existing subsection (i) concerning use (3) City sales and use tax--The tax authorized under Tax tax, as this information is contained in new subsection (d) with Code, §321.101(a), including the additional municipal sales and use changes. tax authorized under Tax Code, §321.101(b), the municipal sales and The comptroller adds new subsection (k)(5) to implement House use tax for street maintenance authorized under Tax Code, §327.003, Bill 1525, to address sales of taxable items through marketplace the Type A Development Corporation sales and use tax authorized un- providers. Subsequent paragraphs are renumbered. der Local Government Code, §504.251, the Type B Development Cor- poration sales and use tax authorized under Local Government Code, Mr. Kroll commented that House Bill 1525 could be interpreted §505.251, a sports and community venue project sales and use tax to only source third-party marketplace seller transactions to des- adopted by a city under Local Government Code, §334.081, and a mu- tination. He commented that the provision should be amended nicipal development corporation sales and use tax adopted by a city un- to ensure that all taxable sales made via a marketplace, either der Local Government Code, §379A.081. The term does not include by the marketplace provider itself or on behalf of a marketplace the fire control, prevention, and emergency medical services district seller, should be sourced to destination. He suggested language sales and use tax authorized under Tax Code, §321.106, or the munic- to that effect. The comptroller declines to make this revision be- ipal crime control and prevention district sales and use tax authorized cause House Bill 1525 is specific to the sales made by market- under Tax Code, §321.108. place providers on behalf of marketplace sellers. It does not provide for sourcing on the marketplace provider's own sales. (4) Comptroller's website--The agency's website concern- Additionally, amending §3.286 of this title in this section is not ing local taxes located at: https://comptroller.texas.gov/taxes/sales/. appropriate. (5) County sales and use tax--The tax authorized under The provisions related to remote sellers, the single local use tax Tax Code, §323.101, including a sports and community venue project rate, and marketplace providers took effect October 1, 2019. sales and use tax adopted by a county under Local Government Code, §334.081. The term does not include the county health services sales Joe Strong, on behalf of Microsoft, made comments pertaining and use tax authorized under Tax Code, §324.021, the county landfill to marketplace providers and marketplace sellers, registration, and criminal detention center sales and use tax authorized under Tax good faith, and information requirements, which are addressed Code, §325.021, or the crime control and prevention district sales and in §3.286 of this title and not this amendment. Mr. Howard and use tax authorized under Tax Code, §323.105.

Ms. Howard commented that they strongly disagree with the amendment. (6) Drop shipment--A transaction in which an order is re- ceived by a seller at one location, but the item purchased is shipped by Mr. Pannell requested guidance on the information that will be the seller from another location, or is shipped by the seller's third-party audited by the comptroller and the penalties for incorrect appli- supplier, directly to a location designated by the purchaser. cation of local tax. Mr. Kroll commented that the comptroller does not have any training or audit materials for this rule, so it (7) Engaged in business--This term has the meaning given appears businesses will not face compliance scrutiny under au- in §3.286 of this title (relating to Seller's and Purchaser's Responsibil- dit. The comptroller declines to make revisions based on this ities). comment because this section addresses local sales and use (8) Extraterritorial jurisdiction--An unincorporated area tax administration. The comptroller will provide audit guidelines that is contiguous to the corporate boundaries of a city as defined in regarding this section in the appropriate audit materials. Local Government Code, §42.021.

Ms. May urged that the amendment continue to designate pur- (9) Fulfill--To complete an order by transferring a taxable chasing offices as places of business if it is deemed that they item directly to a purchaser at a Texas location, or to ship or deliver a do not exist solely to avoid or rebate sales tax. The comptroller taxable item to a location in Texas designated by the purchaser. The did not make any amendments to the definition of purchasing of- term does not include tracking an order, determining shipping costs, fices. managing inventory, or other activities that do not involve the transfer, The comptroller adopts this amendment under Tax Code, shipment, or delivery of a taxable item to the purchaser or a location §111.002 (Comptroller's Rules; Compliance; Forfeiture), which designated by the purchaser. provides the comptroller with the authority to amend rules to (10) Itinerant vendor--A seller who travels to various loca- reflect changes in the constitution or laws of the United States tions for the purpose of receiving orders and making sales of taxable and judicial interpretations thereof. items and who has no place of business in this state. A person who The amendments implement Tax Code, §§151.0595 (Single Lo- sells items through vending machines is also an itinerant vendor. A cal Tax Rate for Remote Sellers), 321.203, and 323.203, and salesperson that operates out of a place of business in this state is not South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (June 21, 2018). an itinerant vendor. (11) Kiosk--A small stand-alone area or structure:

ADOPTED RULES May 22, 2020 45 TexReg 3509 (A) that is used solely to display merchandise or to sub- for the purpose of buying and selling taxable goods to be used or con- mit orders for taxable items from a data entry device, or both; sumed by the retail or commercial business. (B) that is located entirely within a location that is a (18) Remote Seller--As defined in §3.286 of this title, a re- place of business of another seller, such as a department store or shop- mote seller is a seller engaged in business in this state whose only ac- ping mall; and tivity in the state is: (C) at which taxable items are not available for imme- (A) engaging in regular or systematic solicitation of diate delivery to a purchaser. sales of taxable items in this state by the distribution of catalogs, periodicals, advertising flyers, or other advertising, by means of print, (12) Local taxes--Sales and use taxes imposed by any local radio, or television media, or by mail, telegraphy, telephone, computer taxing jurisdiction. data base, cable, optic, microwave, or other communication system (13) Local taxing jurisdiction--Any of the following: for the purpose of effecting sales of taxable items; or (A) a city that imposes sales and use tax as provided (B) soliciting orders for taxable items by mail or under paragraph (3) of this subsection; through other media including the Internet or other media that may be developed in the future. (B) a county that imposes sales and use tax as provided under paragraph (5) of this subsection; (19) Seller--This term has the meaning given in §3.286 of this title and also refers to any agent or employee of the seller. (C) a special purpose district created under the Special District Local Laws Code or other provisions of Texas law that is autho- (20) Special purpose district--A local governmental entity rized to impose sales and use tax by the Tax Code or other provisions authorized by the Texas legislature for a specific purpose, such as crime of Texas law and as governed by the provisions of Tax Code, Chapters control, a local library, emergency services, county health services, or or 323 and other provisions of Texas law; or a county landfill and criminal detention center. (D) a transit authority that imposes sales and use tax as (21) Storage--This term has the meaning given in §3.346 authorized by Transportation Code, Chapters, 451, 452, 453, 457, or of this title (relating to Use Tax).

460 and governed by the provisions of Tax Code, Chapter, 322. (22) Temporary place of business of the seller--A location (14) Marketplace provider--This term has the meaning operated by a seller for a limited period of time for the purpose of sell- given in §3.286 of this title. ing and receiving orders for taxable items and where the seller has in- ventory available for immediate delivery to a purchaser. For example, (15) Order placed in person--An order placed by a pur- a person who rents a booth at a weekend craft fair or art show to sell chaser with the seller while physically present at the seller's place of and take orders for jewelry, or a person who maintains a facility at a business regardless of how the seller subsequently enters the order. job site to rent tools and equipment to a contractor during the construc- (16) Place of business of the seller - general definition--An tion of real property, has established a temporary place of business. A established outlet, office, or location operated by a seller for the purpose temporary place of business of the seller includes a sale outside of a of selling taxable items to those other than employees, independent distribution center, manufacturing plant, storage yard, warehouse, or contractors, and natural persons affiliated with the seller, where sales similar facility of the seller in a parking lot or similar space sharing personnel of the seller receive three or more orders for taxable items the same physical address as the facility but not within the walls of the during the calendar year. The term does not include a computer server, facility.

Internet protocol address, domain name, website, or software applica- (23) Transit authority--A metropolitan rapid transit author- tion. Additional criteria for determining when a location is a place of ity (MTA), advanced transportation district (ATD), regional or subre- business of the seller are provided in subsection (b) of this section for gional transportation authority (RTA), city transit department (CTD), distribution centers, manufacturing plants, storage yards, warehouses county transit authority (CTA), regional mobility authority (RMA) or and similar facilities; kiosks; and purchasing offices. An outlet, of- coordinated county transportation authority created under Transporta- fice, facility, or any location that contracts with a retail or commercial tion Code, Chapters 370, 451, 452, 453, 457, or 460. business to process for that business invoices, purchase orders, bills of lading, or other equivalent records onto which sales tax is added, in- (24) Two percent cap--A reference to the general rule that, cluding an office operated for the purpose of buying and selling taxable except as otherwise provided by Texas law and as explained in this goods to be used or consumed by the retail or commercial business, is section, a seller cannot collect, and a purchaser is not obligated to pay, not a place of business of the seller if the comptroller determines that more than 2.0% of the sales price of a taxable item in total local sales the outlet, office, facility, or location functions or exists to avoid the and use taxes for all local taxing jurisdictions. tax legally due under Tax Code, Chapters 321, 322, and 323 or exists (25) Use--This term has the meaning given in §3.346 of solely to rebate a portion of the tax imposed by those chapters to the this title. contracting business. An outlet, office, facility, or location does not ex- ist to avoid the tax legally due under Tax Code, Chapters 321, 322, and (26) Use tax--A tax imposed on the storage, use or other or solely to rebate a portion of the tax imposed by those chapters consumption of a taxable item in this state. if the outlet, office, facility, or location provides significant business (b) Determining the place of business of a seller. services, beyond processing invoices, to the contracting business, in- cluding logistics management, purchasing, inventory control, or other (1) Distribution centers, manufacturing plants, storage vital business services. yards, warehouses, and similar facilities. (17) Purchasing office--An outlet, office, facility, or any lo- (A) A distribution center, manufacturing plant, storage cation that contracts with a retail or commercial business to process for yard, warehouse, or similar facility operated by a seller for the purpose that business invoices, purchase orders, bills of lading, or other equiva- of selling taxable items where sales personnel of the seller receive three lent records onto which sales tax is added, including an office operated or more orders for taxable items during the calendar year from persons

45 TexReg 3510 May 22, 2020 Texas Register other than employees, independent contractors, and natural persons af- and these locations will be treated as places of business of the seller for filiated with the seller is a place of business of the seller. purposes of subsection (c) of this section. (B) If a location that is a place of business of the seller, (5) Orders not received by sales personnel, including or- such as a sales office, is in the same building as a distribution center, ders received by a shopping website or shopping software application. manufacturing plant, storage yard, warehouse, or similar facility op- Effective October 1, 2021, these orders are received at locations that erated by a seller, then the entire facility is a place of business of the are not places of business of the seller. seller. (c) Local sales tax - Consummation of sale - determining the (2) Kiosks. A kiosk is not a place of business of the seller local taxing jurisdictions to which sales tax is due. Except for the spe- for the purpose of determining where a sale is consummated for local cial rules applicable to remote sellers in subsection (i)(3) of this sec- tax purposes. A seller who owns or operates a kiosk in Texas is, how- tion, direct payment permit purchases in subsection (j) of this section, ever, engaged in business in this state as provided in §3.286 of this title. and certain taxable items, including taxable items sold by a market- place provider, as provided in subsection (k) of this section, each sale (3) Purchasing offices. of a taxable item is consummated at the location indicated by the pro- (A) A purchasing office is not a place of business of the visions of this subsection. The following rules, taken from Tax Code, seller if the purchasing office exists solely to rebate a portion of the lo- §321.203 and §323.203, apply to all sellers engaged in business in this cal sales and use tax imposed by Tax Code, Chapters 321, 322, or 323 state, regardless of whether they have no place of business in Texas, a to a business with which it contracts; or if the purchasing office func- single place of business in Texas, or multiple places of business in the tions or exists to avoid the tax legally due under Tax Code, Chapters state.

321, 322, or 323. A purchasing office does not exist solely to rebate (1) Consummation of sale - order received at a place of a portion of the local sales and use tax or to avoid the tax legally due business of the seller in Texas. under Tax Code, Chapters 321, 322, or 323 if the purchasing office pro- vides significant business services to the contracting business beyond (A) Order placed in person. Except as provided by processing invoices, including logistics management, purchasing, in- paragraph (3) of this subsection, when an order for a taxable item is ventory control, or other vital business services. placed in person at a seller's place of business in Texas, including at a temporary place of business of the seller in Texas, the sale of that item (B) In making a determination under subparagraph (A) is consummated at that place of business of the seller, regardless of of this paragraph, as to whether a purchasing office provides signif- the location where the order is fulfilled. icant business services to the contracting business beyond processing invoices, the comptroller will compare the total value of the other busi- (B) Order not placed in person. ness services to the value of processing invoices. If the total value of (i) Order fulfilled at a place of business of the seller the other business services, including logistics management, purchas- in Texas. When an order is received at a place of business of the seller ing, inventory control, or other vital business services, is less than the in Texas and is fulfilled at a place of business of the seller in Texas, the value of the service to process invoices, then the purchasing office will sale is consummated at the place of business where the order is fulfilled. be presumed not to be a place of business of the seller. (ii) Order not fulfilled at a place of business of the (C) If the comptroller determines that a purchasing of- seller in Texas. When an order is received at a place of business of the fice is not a place of business of the seller, the sale of any taxable item seller in Texas and is fulfilled at a location that is not a place of business is deemed to be consummated at the place of business of the seller from of the seller in Texas, the sale is consummated at the place of business whom the purchasing office purchased the taxable item for resale and where the order is received. local sales and use taxes are due according to the following rules. (2) Consummation of sale - order not received at a place of (i) When taxable items are purchased from a Texas business of the seller in Texas. seller, local sales taxes are due based on the location of the seller's place of business where the sale is deemed to be consummated, as determined (A) Order fulfilled at a place of business of the seller in accordance with subsection (c) of this section. in Texas. When an order is received at a location that is not a place of business of the seller in Texas or is received outside of Texas, and (ii) When the sale of a taxable item is deemed to be is fulfilled from a place of business of the seller in Texas, the sale is consummated at a location outside of this state, local use tax is due consummated at the place of business where the order is fulfilled. based on the location where the items are first stored, used or consumed by the entity that contracted with the purchasing office in accordance (B) Order not fulfilled from a place of business of the with subsection (d) of this section. seller in Texas. (4) Orders received by sales personnel who are not at a (i) Order fulfilled in Texas. When an order is re- place of business of the seller in Texas when they receive the order, ceived at a location that is not a place of business of the seller in Texas including orders received by mail, telephone, including Voice over In- and is fulfilled from a location in Texas that is not a place of business ternet Protocol and cellular phone calls, facsimile, and email. This of the seller, the sale is consummated at the location in Texas to which type of order is treated as being received at the location from which the order is shipped or delivered, or at which the purchaser of the item the salesperson operates, that is, the principal fixed location where the takes possession. salesperson conducts work-related activities. The location from which (ii) Order not fulfilled in Texas. When an order is a salesperson operates will be a place of business of the seller only if received by a seller at a location outside of Texas or by a remote seller, the location meets the definition of a "place of business of a seller" in and is fulfilled from a location outside of Texas, the sale is not consum- subsection (a)(16) of this section on its own, without regard to the or- mated in Texas. However, local use tax is due based upon the location ders imputed to that location by this paragraph. Orders received prior in this state to which the item is shipped or delivered or at which the to October 1, 2021, may also be treated as being received at the out- purchaser of the item takes possession as provided in subsection (d) of let, office, or location operated by the seller that serves as a base of this section. Except as provided in subsection (i)(3) of this section, a operations or that provides administrative support to the salesperson,

ADOPTED RULES May 22, 2020 45 TexReg 3511 remote seller required to collect state use tax under §3.286(b)(2) of this (B) If a local use tax cannot be collected or accrued at title must also collect local use tax based on the location to which the its full rate without exceeding the two percent cap, the seller cannot item is shipped or delivered or at which the purchaser of the item takes collect it, or any portion of it, and the purchaser is not responsible for possession. accruing it. (3) Exception for qualifying economic development (C) If a seller collects a local sales tax on an item, or a agreements entered into before January 1, 2009, pursuant to Tax Code, purchaser accrues a local sales tax on an item, a use tax for the same §321.203(c-4) - (c-5) or §323.203(c-4) - (c-5). This paragraph is type of jurisdiction is not due on the same item. For example, after a effective until September 1, 2024. If applicable, the local sales tax due city sales tax has been collected or accrued for an item, no use tax is on the sale of a taxable item is based on the location of the qualifying due to that same or a different city on that item, but use tax may be due warehouse, which is a place of business of the seller, from which the to a county, special purpose district, or transit authority. Similarly, if item is shipped or delivered or at which the purchaser of the item takes one or more special purpose district sales taxes have been collected or possession. accrued for an item, no special purpose district use tax is due on that item, and if one or more transit authority sales taxes have been collected (4) Local sales taxes are due to each local taxing jurisdic- or accrued for an item, no transit authority use tax is due on that item. tion with sales tax in effect where the sale is consummated. Local use tax may also be due if the total amount of local sales taxes due does not (D) Collection or accrual of use tax for multiple special reach the two percent cap, and the item purchased is shipped or deliv- purpose districts. If more than one special purpose district use tax is in ered to a location in one or more different local taxing jurisdictions, as effect at the location where use of an item occurs, the special purpose provided in subsection (d) of this section. district taxes are due in the order of their effective dates, beginning with the earliest effective date, until the two percent cap is met. The (5) Multiple special purpose district taxes, multiple transit effective dates of all special purpose district taxes are available on the authority sales taxes, or a combination of the two may apply to a single comptroller's website. However, if the collection or accrual of use tax transaction. If the sale of a taxable item is consummated at a location for the district with the earliest effective date would exceed the two within the boundaries of multiple special purpose districts or transit percent cap, the tax for that district is not due and the seller or purchaser authorities, local sales tax is owed to each of the jurisdictions in effect should determine, following the criteria in subparagraphs (A) - (C) of at that location. For example, a place of business of the seller located in this paragraph, whether use tax is due for the district that next became the city of San Antonio is within the boundaries of both the San Antonio effective.

Advanced Transportation District and the San Antonio Metropolitan Transit Authority, and the seller is required to collect sales tax for both (i) If the competing special purpose district taxes be- transit authorities. Similarly, a place of business of the seller in Flower came effective on the same date, the special purpose district taxes are Mound is located within the boundaries of two special purpose districts, due in the order of the earliest date for which the election in which the the Flower Mound Crime Control District and the Flower Mound Fire district residents authorized the imposition of sales and use tax by the Control District, and the seller is responsible for collecting sales tax for district was held. both special purpose districts. (ii) If the elections to impose the local taxes were (6) Itinerant vendors; vending machines. held on the same date, the special purpose district taxes are due in the order of the earliest date for which the enabling legislation under which (A) Itinerant vendors. Sales made by itinerant vendors each district was created became effective. are consummated at, and itinerant vendors must collect sales tax based upon, the location where the item is delivered or at which the purchaser (E) Collection or accrual of use tax for multiple transit of the item takes possession. Itinerant vendors do not have any respon- authorities. If more than one transit authority use tax is in effect at sibility to collect use tax. the location where use of an item occurs, and the two percent cap has not been met, the transit authority taxes are due in the order of their (B) Vending machines. Sales of taxable items made effective dates, beginning with the earliest effective date, until the two from a vending machine are consummated at the location of the vend- percent cap is met. The effective dates of all transit authority taxes ing machine. See §3.293 of this title (relating to Food; Food Prod- are available on the comptroller's website. However, if the collection ucts; Meals; Food Service) for more information about vending ma- or accrual of use tax for the authority with the earliest effective date chine sales. would exceed the two percent cap, the tax for that authority is not due (d) Local use tax. The provisions addressing the imposition and the seller or purchaser should determine, following the criteria in of state use tax in §3.346 of this title also apply to the imposition of subparagraphs (A) - (D) of this paragraph, whether use tax is due for local use tax. For example, consistent with §3.346(e) of this title, all the authority that next became effective. taxable items that are shipped or delivered to a location in this state that (i) If the competing transit authorities became effec- is within the boundaries of a local taxing jurisdiction are presumed to tive on the same date, the transit authority taxes are due in the order of have been purchased for use in that local taxing jurisdiction as well as the earliest date for which the election in which the authority residents presumed to have been purchased for use in the state. authorized the imposition of sales and use tax by the authority was held. (1) General rules. (ii) If the elections to impose local taxes were held (A) When local use taxes are due in addition to local on the same date, the transit authority use taxes are due in the order of sales taxes as provided by subsection (c) of this section, all applicable the earliest date for which the enabling legislation under which each use taxes must be collected or accrued in the following order until the authority was created became effective. two percent cap is reached: city, county, special purpose district, and (2) General use tax rules applied to specific situations. The transit authority. If more than one special purpose district use tax is due, following fact patterns explain how local use tax is to be collected or all such taxes are to be collected or accrued before any transit authority accrued and remitted to the comptroller based on, and subject to, the use tax is collected or accrued. See subparagraphs (D) and (E) of this general rules in paragraph (1) of this subsection. paragraph.

45 TexReg 3512 May 22, 2020 Texas Register (A) Sale consummated outside the state, item delivered subsection, are due based upon the location where the items are shipped from outside the state or from a location in Texas that is not operated by or delivered or at which the purchaser of the item takes possession. the seller - local use tax due. Except as provided in subsection (i)(3) of (e) Effect of other law. this section, if a sale is consummated outside of this state according to the provisions of subsection (c) of this section, and the item purchased (1) Tax Code, Title 2, Subtitles A (General Provisions) and is either shipped or delivered to a location in this state as designated B (Enforcement and Collection), Tax Code, Chapter 141 (Multistate by the purchaser from a location outside of the state, or if the order Tax Compact) and Tax Code, Chapter 151 (Limited Sales, Excise, and is drop shipped directly to the purchaser from a third-party supplier, Use Tax) apply to transactions involving local taxes. Related sections local use tax is owed based upon the location in this state to which of this title and comptroller rulings shall also apply with respect to local the order is shipped or delivered or at which the purchaser of the item taxes. This includes authorities such as court cases and federal law takes possession. The seller is responsible for collecting the local use that affect whether an item is taxable or is excluded or exempt from tax due on the sale. If the seller does not collect the local use taxes due taxation. on the sale, the purchaser is responsible for accruing such taxes and (2) Permits, exemption certificates, and resale certificates remitting them directly to the comptroller according to the provisions in required by Tax Code, Chapter 151, shall also satisfy the requirements paragraph (1) of this subsection. For example, if an order for a taxable for collecting and remitting local taxes, unless otherwise indicated by item is received by a seller at a location outside of Texas, and the order this section or other sections of this title. For example, see subsection is shipped to the purchaser from a location outside of the state, local (n) of this section concerning prior contract exemptions. use tax is due based upon the location to which the order is shipped or delivered or at which the purchaser of the item takes possession. (3) Any provisions in this section or other sections of this title related to a seller's responsibilities for collecting and remitting lo- (B) Sale consummated in Texas outside a local taxing cal taxes to the comptroller shall also apply to a purchaser if the seller jurisdiction, item delivered into one or more local taxing jurisdictions - does not collect local taxes that are due. The comptroller may proceed local use tax due. If a sale is consummated at a location in Texas that is against the seller or purchaser for the local tax owed by either. outside of the boundaries of any local taxing jurisdiction according to the provisions of subsection (c) of this section, and the order is shipped (f) Tax rates. Except as otherwise provided by law, no local or delivered to the purchaser at a location in this state that is within the governmental entity may adopt or increase a sales and use tax if, as a boundaries of one or more local taxing jurisdictions, local use tax is result of the adoption or increase of the tax, the combined rate of all due based on the location to which the items are shipped or delivered sales and use taxes imposed by local taxing jurisdictions having terri- or at which the purchaser of the item takes possession. The seller is tory in the local governmental entity would exceed 2.0% at any location responsible for collecting the local use taxes due on the sale, regardless within the boundaries of the local governmental entity's jurisdiction. of the location of the seller in Texas. If the seller fails to collect any The following are the local tax rates that may be adopted. local use taxes due, the purchaser is responsible for accruing such taxes (1) Cities. Cities may impose sales and use tax at a rate of and remitting them directly to the comptroller. up to 2.0%. (C) Sale consummated in any local taxing jurisdictions (2) Counties. Counties may impose sales and use tax at imposing less than 2.0% in total local taxes - local sales taxes and use rates ranging from 0.5% to 1.5%. taxes due. If a sale is consummated at a location in Texas where the total local sales tax rate imposed by the taxing jurisdictions in effect at (3) Special purpose districts. Special purpose districts may that location does not equal 2.0% according to the provisions of sub- impose sales and use tax at rates ranging from 0.125% to 2.0%. section (c) of this section, and the item is shipped or delivered to the (4) Transit authorities. Transit authorities may impose purchaser at a location in this state that is inside the boundaries of a sales and use tax at rates ranging from 0.25% to 1.0%. different local taxing jurisdiction, additional local use tax may be due based on the location to which the order is shipped or delivered or at (g) Jurisdictional boundaries, combined areas, and city tax im- which the purchaser of the item takes possession, subject to the two posed through strategic partnership agreements. percent cap. The seller is responsible for collecting any additional lo- (1) Jurisdictional boundaries. cal use taxes due on the sale, regardless of the location of the seller in Texas. See subsection (i) of this section. If the seller fails to collect the (A) City boundaries. City taxing jurisdictional bound- additional local use taxes due, the purchaser is responsible for accruing aries cannot overlap one another and a city cannot impose a sales and such taxes and remitting them directly to the comptroller. use tax in an area that is already within the jurisdiction of another city. (i) Example one - if an order is received in person at (B) County boundaries. County tax applies to all loca- a place of business of the seller, such that the sale is consummated at tions within that county. the location where the order is received as provided under subsection (C) Special purpose district and transit authority bound- (c)(1)(A) of this section, and the local sales tax due on the sale does aries. Special purpose districts and transit authorities may cross or not meet the two percent cap, additional local use taxes are due based share boundaries with other local taxing jurisdictions and may encom- on the location to which the order is shipped or delivered or at which pass, in whole or in part, other local taxing jurisdictions, including the purchaser of the item takes possession, subject to the provisions in cities and counties. A geographic location or address in this state may paragraph (1) of this subsection. lie within the boundaries of more than one special purpose district or (ii) Example two - if a seller receives an order for a more than one transit authority. taxable item at a seller's place of business in Texas, and the seller ships (D) Extraterritorial jurisdictions. Except as otherwise or delivers the item from an out-of-state location to a location in this provided by paragraph (3) of this subsection concerning strategic part- state as designated by the purchaser, local sales tax is due based upon nership agreements and subsection (l)(5) of this section concerning the the location of the place of business of the seller where the order is City of El Paso and Fort Bliss, city sales and use tax does not apply to received. If the local sales tax due on the item does not meet the two taxable sales that are consummated outside the boundaries of the city, percent cap, use taxes, subject to the provisions in paragraph (1) of this including sales made in a city's extraterritorial jurisdiction. However,

ADOPTED RULES May 22, 2020 45 TexReg 3513 an extraterritorial jurisdiction may lie within the boundaries of a spe- boundaries of one or more local taxing jurisdictions, the local taxes due cial purpose district, transit authority, county, or any combination of on any separately stated charges for taxable items incorporated into the the three, and the sales and use taxes for those jurisdictions would ap- real property must be allocated to the local taxing jurisdictions based on ply to those sales. the total square footage of the real property improvement located within each jurisdiction, including the square footage of any standalone struc- (2) Combined areas. A combined area is an area where the tures that are part of the construction, repair, or remodeling project. boundaries of a city overlap the boundaries of one or more other local For more information about tax due on materials used at residential taxing jurisdictions as a result of an annexation of additional territory and new construction job sites, refer to §3.291 of this title (relating to by the city, and where, as the result of the imposition of the city tax Contractors). in the area in addition to the local taxes imposed by the existing tax- ing jurisdictions, the combined local tax rate would exceed 2.0%. The (B) Nonresidential real property repair and improve- comptroller shall make accommodations to maintain a 2.0% rate in any ment. When taxable services are performed to repair, remodel, or combined area by distributing the 2.0% tax revenue generated in these restore nonresidential real property, including a pipeline, transmission combined areas to the local taxing jurisdictions located in the combined line, or parking lot, that is crossed by the boundaries of one or more areas as provided in Tax Code, §321.102 or Health and Safety Code, local taxing jurisdictions, the local taxes due on the taxable services, §775.0754. Combined areas are identified on the comptroller's web- including materials and any other charges connected to the services site. Sellers engaged in transactions on which local sales or use taxes performed, must be allocated among the local taxing jurisdictions are due in a combined area, or persons who must self-accrue and re- based upon the total mileage or square footage, as appropriate, of the mit tax directly to the comptroller, must use the combined area local repair, remodeling, or restoration project located in each jurisdiction. code when reporting the tax rather than the codes for the individual For more information about tax due on materials used at nonresidential city, county, special purpose districts, or transit authorities that make real property repair and remodeling job sites, refer to §3.357 of this up the combined area. title (relating to Nonresidential Real Property Repair, Remodeling, and Restoration; Real Property Maintenance). (3) City tax imposed through strategic partnership agree- ments. (i) Sellers' and purchasers' responsibilities for collecting or ac- cruing local taxes. (A) The governing bodies of a district, as defined in Local Government Code, §43.0751, and a city may enter into a lim- (1) Sale consummated in Texas; seller responsible for col- ited-purpose annexation agreement known as a strategic partnership lecting local sales taxes and applicable local use taxes. When a sale agreement. Under this agreement, the city may impose sales and use of a taxable item is consummated at a location in Texas as provided by tax within all or part of the boundaries of a district. Areas within a dis- subsection (c) of this section, the seller must collect each local sales tax trict that are annexed for this limited purpose are treated as though they in effect at the location. If the total rate of local sales tax due on the sale are within the boundaries of the city for purposes of city sales and use does not reach the two percent cap, and the seller ships or delivers the tax. item into another local taxing jurisdiction, then the seller is required to collect additional local use taxes due, if any, based on the location to (B) Counties, transit authorities, and special purpose which the item is shipped or delivered or at which the purchaser of the districts may not enter into strategic partnership agreements. Sales item takes possession, regardless of the location of the seller in Texas. and use taxes imposed by those taxing jurisdictions do not apply in For more information regarding local use taxes, refer to subsection (d) the limited-purpose annexed area as part of a strategic partnership of this section. agreement between a city and an authorized district. However, a county, special purpose district, or transit authority sales and use tax, or (2) Out-of-state sale; seller engaged in business in Texas. any combination of these three types of taxes, may apply at locations Except as provided in paragraph (3) of this subsection, when a sale is included in a strategic partnership agreement between a city and an not consummated in Texas, a seller who is engaged in business in this authorized district if the tax is imposed in that area by the applicable state is required to collect and remit local use taxes due, if any, on orders jurisdiction as allowed under its own controlling authorities. of taxable items shipped or delivered at the direction of the purchaser into a local taxing jurisdiction in this state based upon the location in (C) Prior to September 1, 2011, the term "district" was this state to which the item is shipped or delivered or at which the defined in Local Government Code, §43.0751 as a municipal utility purchaser of the item takes possession as provided in subsection (d) district or a water control and improvement district. The definition of this section. was amended effective September 1, 2011, to mean a conservation and reclamation district operating under Water Code, Chapter 49. (3) Local use tax rate for remote sellers. (h) Places of business of the seller and job sites crossed by (A) A remote seller required to collect and remit one or local taxing jurisdiction boundaries. more local use taxes in connection with a sale of a taxable item must compute the amount using: (1) Places of business of the seller crossed by local taxing jurisdiction boundaries. If a place of business of the seller is crossed by (i) the combined tax rate of all applicable local use one or more local taxing jurisdiction boundaries so that a portion of the taxes based on the location to which the item is shipped or delivered or place of business of the seller is located within a taxing jurisdiction and at which the purchaser of the item takes possession; or the remainder of the place of business of the seller lies outside of the (ii) at the remote seller's election, the single local use taxing jurisdiction, tax is due to the local taxing jurisdictions in which tax rate published in the Texas Register. the sales office is located. If there is no sales office, sales tax is due to the local taxing jurisdictions in which any cash registers are located. (B) A remote seller that is storing tangible personal property in Texas to be used for fulfillment at a facility of a market- (2) Job sites. place provider that has certified that it will assume the rights and duties (A) Residential repair and remodeling; new construc- of a seller with respect to the tangible personal property, as provided tion of an improvement to realty. When a contractor is improving real for in §3.286 of this title, may elect the single local use tax rate under property under a separated contract, and the job site is crossed by the subparagraph (A)(ii) of this paragraph.

45 TexReg 3514 May 22, 2020 Texas Register (C) Notice to the comptroller of election and revocation to collect and remit using the combined tax rate of all applicable local of election. use taxes. (i) Before using the single local use tax rate, a re- (4) Purchaser responsible for accruing and remitting local mote seller must notify the comptroller of its election using a form pre- taxes if seller fails to collect. scribed by the comptroller. A remote seller may also notify the comp- (A) If a seller does not collect the state sales tax, any troller of the election on its use tax permit application form. The remote applicable local sales taxes, or both, on a sale of a taxable item that seller must use the single local use tax rate for all of its sales of taxable is consummated in Texas, then the purchaser is responsible for filing items until the election is revoked as provided in clause (ii) of this sub- a return and paying the tax. The local sales taxes due are based on paragraph. the location in this state where the sale is consummated as provided in (ii) A remote seller may revoke its election by filing subsection (c) of this section. a form prescribed by the comptroller. If the comptroller receives the (B) A purchaser who buys an item for use in Texas from notice by October 1, the revocation will be effective January 1 of the a seller who does not collect the state use tax, any applicable local use following year. If the comptroller receives the notice after October 1, taxes, or both, is responsible for filing a return and paying the tax. The the revocation will be effective January 1 of the year after the follow- local use taxes due are based on the location where the item is first ing year. For example, a remote seller must notify the comptroller by stored, used, or consumed by the purchaser.

October 1, 2020, for the revocation to be effective January 1, 2021. If the comptroller receives the revocation on November 1, 2020, the re- (C) For more information about how to report and pay vocation will be effective January 1, 2022. use tax directly to the comptroller, see §3.286 of this title. (D) Single local use tax rate. (5) Local tax is due on the sales price of a taxable item, as defined in Tax Code, §151.007, in the report period in which the taxable (i) The single local use tax rate in effect for the pe- item is purchased or the period in which the taxable item is first stored, riod beginning October 1, 2019, and ending December 31, 2019, is used, or otherwise consumed in a local taxing jurisdiction.

ADOPTED RULES May 22, 2020 45 TexReg 3515 tomers, local tax is due as provided for in §3.313 of this title. When customer's real property. See also subsection (h)(2)(A) of this section a service provider uses a satellite system to provide cable services to and §3.291 of this title. customers, no local tax is due on the service in accordance with the (11) Waste collection services. Local taxes are due on Telecommunications Act of 1996, §602. garbage or other solid waste collection or removal services based on (3) Florists. Local sales tax is due on all taxable items sold the location at which the waste is collected or from which the waste is by a florist based upon the location where the order is received, regard- removed. For more information, refer to §3.356 of this title (relating less of where or by whom delivery is made. Local use tax is not due on to Real Property Service). deliveries of taxable items sold by florists. For example, if the place of (l) Special exemptions and provisions applicable to individual business of the florist where an order is taken is not within the bound- jurisdictions. aries of any local taxing jurisdiction, no local sales tax is due on the item and no local use tax is due regardless of the location of delivery. (1) Residential use of natural gas and electricity.

If a Texas florist delivers an order in a local taxing jurisdiction at the (A) Mandatory exemptions from local sales and use tax. instruction of an unrelated florist, and if the unrelated florist did not Residential use of natural gas and electricity is exempt from most lo- take the order within the boundaries of a local taxing jurisdiction, local cal sales and use taxes. Counties, transit authorities, and most special use tax is not due on the delivery. For more information about florists' purpose districts are not authorized to impose sales and use tax on the sales and use tax obligations, refer to §3.307 of this title (relating to residential use of natural gas and electricity. Pursuant to Tax Code, Florists).

§321.105, any city that adopted a local sales and use tax effective Oc- (4) Landline telecommunications services. Local taxes due tober 1, 1979, or later is prohibited from imposing tax on the residential on landline telecommunications services are based upon the location of use of natural gas and electricity. See §3.295 of this title. the device from which the call or other transmission originates. If the (B) Imposition of tax allowed in certain cities. Cities seller cannot determine where the call or transmission originates, local that adopted local sales tax prior to October 1, 1979, may, in accor- taxes due are based on the address to which the service is billed. For dance with the provisions in Tax Code, §321.105, choose to repeal the more information, refer to §3.344 of this title (relating to Telecommu- exemption for residential use of natural gas and electricity. The comp- nications Services). troller's website provides a list of cities that impose tax on the residen- (5) Marketplace provider sales. Local taxes are due on tial use of natural gas and electricity, as well as a list of those cities that sales of taxable items through a marketplace provider based on the lo- do not currently impose the tax, but are eligible to do so. cation in this state to which the item is shipped or delivered or at which (C) Effective January 1, 2010, a fire control, preven- the purchaser takes possession. For more information, refer to §3.286 tion, and emergency medical services district organized under Local of this title.

Government Code, Chapter 344 that imposes sales tax under Tax Code, (6) Mobile telecommunications services. Local taxes due §321.106, or a crime control and prevention district organized under on mobile telecommunications services are based upon the location of Local Government Code, Chapter 363 that imposes sales tax under Tax the customer's place of primary use as defined in §3.344(a)(8) of this Code, §321.108, that is located in all or part of a municipality that im- title, and local taxes are to be collected as indicated in §3.344(h) of this poses a tax on the residential use of natural gas and electricity as pro- title. vided under Tax Code, §321.105 may impose tax on residential use of natural gas and electricity at locations within the district. A list of the (7) Motor vehicle parking and storage. Local taxes are due special purpose districts that impose tax on residential use of natural based on the location of the space or facility where the vehicle is parked. gas and electricity and those districts eligible to impose the tax that do For more information, refer to §3.315 of this title (relating to Motor not currently do so is available on the comptroller's website.

Vehicle Parking and Storage). (2) Telecommunication services. Telecommunications ser- (8) Natural gas and electricity. Any local city and special vices are exempt from all local sales taxes unless the governing body purpose taxes due are based upon the location where the natural gas of a city, county, transit authority, or special purpose district votes or electricity is delivered to the purchaser. As explained in subsection to impose sales tax on these services. However, since 1999, under (l)(1) of this section, residential use of natural gas and electricity is Tax Code, §322.109(d), transit authorities created under Transporta- exempt from all county sales and use taxes and all transit authority sales tion Code, Chapter 451 cannot repeal the exemption unless the repeal and use taxes, most special purpose district sales and use taxes, and is first approved by the governing body of each city that created the many city sales and use taxes. A list of the cities and special purpose local taxing jurisdiction. The local sales tax is limited to telecommuni- districts that do impose, and those that are eligible to impose, local cations services occurring between locations within Texas. See §3.344 sales and use tax on residential use of natural gas and electricity is of this title. The comptroller's website provides a list of local taxing available on the comptroller's website. For more information, also refer jurisdictions that impose tax on telecommunications services. to §3.295 of this title (relating to Natural Gas and Electricity). (3) Emergency services districts. (9) Nonresidential real property repair and remodeling ser- vices. Local taxes are due on services to remodel, repair, or restore (A) Authority to exclude territory from imposition of nonresidential real property based on the location of the job site where emergency services district sales and use tax. Pursuant to the provi- the remodeling, repair, or restoration is performed. See also subsection sions of Health and Safety Code, §775.0751(c-1), an emergency ser- (h)(2)(B) of this section and §3.357 of this title. vices district wishing to enact a sales and use tax may exclude from the election called to authorize the tax any territory in the district where the (10) Residential real property repair and remodeling and sales and use tax is then at 2.0%. The tax, if authorized by the voters new construction of a real property improvement performed under a eligible to vote on the enactment of the tax, then applies only in the separated contract. When a contractor constructs a new improvement portions of the district included in the election. The tax does not apply to realty pursuant to a separated contract or improves residential real to sales made in the excluded territories in the district and sellers in the property pursuant to a separated contract, the sale is consummated at excluded territories should continue to collect local sales and use taxes the job site at which the contractor incorporates taxable items into the

45 TexReg 3516 May 22, 2020 Texas Register for the local taxing jurisdictions in effect at the time of the election un- ernment Code, Chapters 380 or 381, to persons whose business consists der which the district sales and use tax was authorized as applicable. primarily of purchasing taxable items using resale certificates and then reselling those same items to a related party. A related party means a (B) Consolidation of districts resulting in sales tax person or entity which owns at least 80% of the business enterprise to sub-districts. Pursuant to the provisions of Health and Safety Code, which sales and use taxes would be rebated as part of an economic in- §775.018(f), if the territory of a district proposed under Health and centive.

Safety Code, Chapter 775 overlaps with the boundaries of another district created under that chapter, the commissioners court of each (n) Prior contract exemptions. The provisions of §3.319 of this county and boards of the counties in which the districts are located may title (relating to Prior Contracts) concerning definitions and exclusions choose to create a consolidated district in the overlapping territory. If apply to prior contract exemptions. two districts that want to consolidate under Health and Safety Code, (1) Certain contracts and bids exempt. No local taxes are §775.024 have different sales and use tax rates, the territory of the due on the sale, use, storage, or other consumption in this state of tax- former districts located within the consolidated area will be designated able items used: as sub-districts and the sales tax rate within each sub-district will continue to be imposed at the rate the tax was imposed by the former (A) for the performance of a written contract executed district that each sub-district was part of prior to the consolidation. prior to the effective date of any local tax if the contract may not be modified because of the tax; or (4) East Aldine Management District. (B) pursuant to the obligation of a bid or bids submitted (A) Special sales and use tax zones within district; prior to the effective date of any local tax if the bid or bids and contract separate sales and use tax rate. As set out in Special District Local entered into pursuant thereto are at a fixed price and not subject to Laws Code, §3817.154(e) and (f), the East Aldine Management withdrawal, change, or modification because of the tax.

District board may create special sales and use tax zones within the boundaries of the District and, with voter approval, enact a special (2) Annexations. Any annexation of territory into an exist- sales and use tax rate in each zone that is different from the sales and ing local taxing jurisdiction is also a basis for claiming the exemption use tax rate imposed in the rest of the district. provided by this subsection. (B) Exemptions from special zone sales and use tax. (3) Local taxing jurisdiction rate increase; partial exemp- The sale, production, distribution, lease, or rental of; and the use, stor- tion for certain contracts and bids. When an existing local taxing ju- age, or other consumption within a special sales and use tax zone of; a risdiction raises its sales and use tax rate, the additional amount of tax taxable item sold, leased, or rented by the entities identified in clauses that would be due as a result of the rate increase is not due on the sale, (i) - (vi) of this subparagraph are exempt from the special zone sales use, storage, or other consumption in this state of taxable items used: and use tax. State and all other applicable local taxes apply unless oth- (A) for the performance of a written contract executed erwise exempted by law. The special zone sales and use tax exemption prior to the effective date of the tax rate increase if the contract may applies to: not be modified because of the tax; or (i) a retail electric provider as defined by Utilities (B) pursuant to the obligation of a bid or bids submitted Code, §31.002; prior to the effective date of the tax rate increase if the bid or bids and (ii) an electric utility or a power generation company contract entered into pursuant thereto are at a fixed price and not subject as defined by Utilities Code, §31.002; to withdrawal, change, or modification because of the tax. (iii) a gas utility as defined by Utilities Code, (4) Three-year statute of limitations.

§101.003 or §121.001, or a person who owns pipelines used for (A) The exemption in paragraph (1) of this subsection transportation or sale of oil or gas or a product or constituent of oil or and the partial exemption in paragraph (3) of this subsection have no gas; effect after three years from the date the adoption or increase of the tax (iv) a person who owns pipelines used for the trans- takes effect in the local taxing jurisdiction. portation or sale of carbon dioxide; (B) The provisions of §3.319 of this title apply to this (v) a telecommunications provider as defined by subsection to the extent they are consistent.

Utilities Code, §51.002; or (C) Leases. Any renewal or exercise of an option to (vi) a cable service provider or video service extend the time of a lease or rental contract under the exemptions pro- provider as defined by Utilities Code, §66.002. vided by this subsection shall be deemed to be a new contract and no exemption will apply. (5) Imposition of city sales tax and transit tax on certain military installations; El Paso and Fort Bliss. Pursuant to Tax Code, (5) Records. Persons claiming the exemption provided by §321.1045 (Imposition of Sales and Use Tax in Certain Federal Military this subsection must maintain records which can be verified by the Installations), for purposes of the local sales and use tax imposed under comptroller or the exemption will be lost.

Tax Code, Chapter 321, the city of El Paso includes the area within the (6) Exemption certificate. An identification number is re- boundaries of Fort Bliss to the extent it is in the city's extraterritorial quired on the prior contract exemption certificates furnished to sellers. jurisdiction. However, the El Paso transit authority does not include The identification number should be the person's 11-digit Texas tax- Fort Bliss. See Transportation Code, §453.051 concerning the Creation payer number or federal employer's identification (FEI) number. of Transit Departments.

The agency certifies that legal counsel has reviewed the adop- (m) Restrictions on local sales tax rebates and other economic tion and found it to be a valid exercise of the agency's legal au- incentives. Pursuant to Local Government Code, §501.161, Section 4A thority. and 4B development corporations may not offer to provide economic incentives, such as local sales tax rebates authorized under Local Gov- Filed with the Office of the Secretary of State on May 11, 2020.

ADOPTED RULES May 22, 2020 45 TexReg 3517 TRD-202001858 The comptroller repeals existing §9.103, concerning audits of William Hamner school district taxable property value, in order to reorganize the Special Counsel for Tax Administration rule and update the rule to be consistent with statutes. The Comptroller of Public Accounts comptroller adopts new §9.103 to clarify definitions, identify re- Effective date: May 31, 2020 quired submissions, clarify deadlines, update references and re- move the requirement to adopt audit forms by rule. The comp- Proposal publication date: January 3, 2020 troller also adopts this new section to better organize the infor- For further information, please call: (512) 475-2220 mation in the current section. ♦ ♦ ♦ The comptroller received written comments from: Ms. Sandra Griffin, with Perdue, Brandon, Fielder, Collins & Mott, LLP; Mr. CHAPTER 9. PROPERTY TAX ADMINISTRA- Steve Bird and Mr. Chris Young of Linebarger, Goggan, Blair TION & Sampson, LLP; Ms. Robin Willim, with Tarrant Appraisal Dis- trict; Ms. Missy Pope, of Pope Audit Group, LLC; Mr. Steve SUBCHAPTER A. PRACTICE AND Wise, with Dallas Central Appraisal District; Mr. Daniel Combs, PROCEDURE with Alvin Independent School District; Mr. Rostam Kavoussi, of Linebarger, Goggan, Blair & Sampson, LLP on behalf of Alamo TAC §9.103 Heights ISD, East Central ISD, Fredericksburg ISD, Harlandale The Comptroller of Public Accounts adopts the repeal of exist- ISD, Medina Valley ISD, North East ISD, Northside ISD, and ing §9.103, concerning audits of school district taxable property Southwest ISD; Mr. John Passero, Sr.; and Mr. Andrew Peters values, without changes to the proposed text as published in the of Caldwell ISD.

February 14, 2020, issue of the Texas Register (45 TexReg 998). Subsection (a) defines relevant terms and phrases, including The rule will not be republished. clarified definitions from the existing §9.103 and new definitions The comptroller repeals existing §9.103 in order to adopt new for terms which appear in the existing section but were not de- §9.103 with revisions to improve clarity, organization and imple- fined therein. mentation of the section. The repeal of §9.103 will be effective Subsection (b) identifies the procedures and required submis- as of the date the new §9.103 takes effect. sions for a request for audit received from a school district. Para- The comptroller did not receive any comments regarding adop- graphs (1)(A) through (E) list the required forms by name and tion of the repeal. number and paragraph (1)(F) describes the summary or recapit- ulation of information from the local appraisal roll for the request- The repeal is adopted under Government Code, §403.302 (De- ing school district. termination of School District Property Values), which provides the comptroller with the authority to adopt rules governing the Ms. Sandra Griffin requested retaining language from current conduct of the property value study after consultation with the subsection (b) or adding language to new subsection (b) only Comptroller's Property Tax Administration Advisory Board, and requiring additional forms for schools that have value loss under under Government Code, §403.303 (Protest), which provides Tax Code, §33.06 or §33.065, participate in Tax Increment Fi- the comptroller with the authority to adopt rules governing the nancing, or have Chapter 313 Agreements. conduct of protest hearings related to the property value study. The forms required by subsection (b) report statutorily required The repeal implements Government Code, §403.302 (Deter- deductions enumerated to determine taxable value as set forth in mination of School District Property Values) and §403.303 Government Code, §403.302(d). Without the forms required un- (Protests). der subsection (b), the comptroller cannot distinguish between a complete or incomplete request without seeking additional infor- The agency certifies that legal counsel has reviewed the adop- mation upon receipt of a request for school district taxable value tion and found it to be a valid exercise of the agency's legal au- audit. The comptroller instead amends new subsection (b) by thority. adding paragraph (2) allowing school districts to submit a signed affirmative statement that the district has zero value to report on Filed with the Office of the Secretary of State on May 6, 2020. the required forms, providing documentation for the determina- TRD-202001798 tion of the completeness of a request.

Victoria North Mr. Steve Bird and Mr. Chris Young provided comments on Chief Counsel Fiscal and Agency Affairs Legal Services Division subsection (b) asserting that discretion on the part of the director Comptroller of Public Accounts to exclude some of the six items required by subsection (b) is Effective date: May 26, 2020 an apparent acknowledgment of discretion in Government Code, Proposal publication date: February 14, 2020 §403.302 to change the scope of an audit.

For further information, please call: (512) 475-2220 Mr. Bird and Mr. Young also commented that subsection (b) ♦ ♦ ♦ lacks clarity as to when and how the director's discretion will be utilized and provides no guidelines as to under what conditions TAC §9.103 the director may or may not grant a request to exclude such in- The Comptroller of Public Accounts adopts new §9.103, con- formation. cerning audit of total taxable value of property in a school district, The discretion afforded the director in proposed new subsection with changes to the proposed text as published in the February (b) was discretion for reporting requirements, not discretion in 14, 2020, issue of the Texas Register (45 TexReg 998). The rule the statutory scope of an audit of the statutorily required deter- will be republished. mination of total taxable value of all property in each school dis-

45 TexReg 3518 May 22, 2020 Texas Register APPENDIX J (4) been subject to denial of payment under Title XVIII or (i) If HHSC proposes to withdraw approval of a NATCEP Title XIX of the Act; based on §556.3 of this chapter or §556.7 of this chapter (relating to Review and Reapproval of a Nurse Aide Training and Competency (5) operated under state-appointed or federally appointed Evaluation Program (NATCEP)), the NATCEP may request a hearing temporary management to oversee the operation of the facility under to challenge the withdrawal. A hearing is governed by 1 TAC Chapter §1819(h) or §1919(h) of the Act; 357, Subchapter I (relating to Hearings Under the Administrative (6) had its participation agreement terminated under Procedures Act), and 40 TAC Chapter 91 (relating to Hearings Under §1819(h)(4) or §1919(h)(1)(B)(i) of the Social Security Act; the Administrative Procedures Act). 1 TAC §357.484 (relating to Request for a Hearing) requires a hearing to be requested in writing (7) pursuant to state action, closed or had its residents within 15 days after the date the notice is received by the applicant. If transferred under §1919(h)(2); or a NATCEP does not make a timely request for a hearing, the applicant (8) refused to permit unannounced visits by HHSC. has waived the opportunity for a hearing and HHSC may withdraw the approval. (b) HHSC withdraws approval of a NATCEP if the NATCEP does not comply with §556.3 of this chapter (relating to NATCEP (j) A trainee who started a NATCEP before HHSC sent notice [Nurse Aide Training and Competency Evaluation Program (NAT- that it was withdrawing approval of the NATCEP may complete the CEP)] Requirements). NATCEP. (1) HHSC reviews allegations of noncompliance with this The agency certifies that legal counsel has reviewed the pro- chapter by a NATCEP. If HHSC receives an allegation of noncompli- posal and found it to be within the state agency's legal authority ance, HHSC notifies the NATCEP in writing and gives the NATCEP to adopt. an opportunity to correct the noncompliance or provide documentation showing compliance. The NATCEP must correct the noncompliance or Filed with the Office of the Secretary of State on October 12, provide evidence of compliance and submit notification of the correc- 2023. tion or documentation to show compliance to HHSC, in writing, within days after receipt of the notice of noncompliance. TRD-202303793 Karen Ray (2) If the NATCEP fails to correct the noncompliance, pro- Chief Counsel vide documentation showing compliance, or respond to the first notifi- cation from HHSC, HHSC sends a second notice. The NATCEP must Health and Human Services Commission correct the noncompliance or provide documentation showing compli- Earliest possible date of adoption: November 26, 2023 ance and submit notification of the correction or documentation to show For further information, please call: (512) 438-3161 compliance to HHSC, in writing, within 20 days after receipt of the sec- ond notice. Failure to comply will result in withdrawal of approval of ♦ ♦ ♦ the NATCEP. TITLE 34. PUBLIC FINANCE (c) If HHSC withdraws approval of a NATCEP for failure to comply with §556.3 of this chapter, HHSC does not approve the NAT- PART 1. COMPTROLLER OF PUBLIC CEP for at least two years after the date the approval was withdrawn. ACCOUNTS (d) If HHSC proposes to withdraw approval of a NATCEP based on subsection (a) of this section, HHSC notifies the NATCEP [by CHAPTER 3. TAX ADMINISTRATION certified mail] of the facts or conduct alleged to warrant the withdrawal. SUBCHAPTER O. STATE AND LOCAL SALES HHSC sends [mails] the notice to the facility's last known email address as shown in HHSC records. AND USE TAXES (e) A dually certified nursing facility that offers a NATCEP 34 TAC §3.334 may request a hearing to challenge the findings of noncompliance that The Comptroller of Public Accounts proposes amendment to led to the withdrawal of approval of the NATCEP, but not the with- §3.334, concerning local sales and use taxes. drawal of approval of the NATCEP itself, in accordance with 42 CFR [Code of Federal Regulations (CFR)], Part 498. The comptroller proposes to add subsection (c)(7) regarding the location where an order is received: (f) A nursing facility that offers a NATCEP and that partici- pates only in Medicaid may request a hearing to challenge the findings "The location where the order is received by or on behalf of the of noncompliance that led to the withdrawal of approval of the NAT- seller means the physical location of a seller or third party such CEP, but not the withdrawal of approval of the NATCEP itself. A hear- as an established outlet, office location, or automated order re- ing is governed by 1 Texas Administrative Code (TAC) Chapter 357, ceipt system operated by or on behalf of the seller where an or- Subchapter I (relating to Hearings Under the Administrative Procedure der is initially received by or on behalf of the seller and not where Act), and 40 TAC Chapter 91 (relating to Hearings Under the Admin- the order may be subsequently accepted, completed or fulfilled. istrative Procedure Act), except the nursing facility must request the An order is received when all of the information from the pur- hearing within 60 days after receipt of the notice described in subsec- chaser necessary to the determination whether the order can be tion (d) of this section, as allowed by 42 CFR §431.153. accepted has been received by or on behalf of the seller. The location from which a product is shipped shall not be used in de- (g) A nursing facility may request a hearing under subsection termining the location where the order is received by the seller." (e) or (f) of this section, but not both.

The text is taken from Section 3.10.1C5 of the Streamlined (h) If the finding of noncompliance that led to the denial of Sales and Use Tax Agreement. See https://www.stream- approval of the NATCEP by HHSC is overturned, HHSC rescinds the linedsalestax.org/docs/default-source/agreement/ssuta/ssuta- denial of approval of the NATCEP.

48 TexReg 6340 October 27, 2023 Texas Register as-amended-through-05-24-23-with-hyperlinks-and-com- a definitive standard may also facilitate a more definitive deci- piler-notes-at-end.pdf. sion from the courts.

In its 2014 rulemaking, the comptroller proposed a definition Brad Reynolds, Chief Revenue Estimator, has determined that of "receive," but deleted the proposed definition in response to during the first five years that the proposed amended rule is in ef- concerns stated in oral and written comments. See (39 TexReg fect, the rule: will not create or eliminate a government program; 4179) (May 30, 2014) (proposed rule amendment) and (39 will not require the creation or elimination of employee positions; TexReg 9598) (December 5, 2014) (adopted rule amendment). will not require an increase or decrease in future legislative ap- propriations to the agency; will not require an increase or de- In its January 2023 rulemaking, the comptroller again declined crease in fees paid to the agency; will not increase or decrease to adopt a definition of "receive" and instead, addressed the two the number of individuals subject to the rule's applicability; and circumstances that were most prominently debated - automated will not positively or adversely affect this state's economy. website orders and fulfillment warehouses. Subsection (b) of the adopted rule articulated the comptroller's interpretation that Mr. Reynolds also has determined that the proposed amended an automated website "receives" the order and that a fulfillment rule would benefit the public by updating the rule to reflect or warehouse does not "receive" the order when it is forwarded from clarify the current policy. This rule is proposed under Tax Code, the website to the warehouse. See (48 TexReg 400) (January Title 2, and does not require a statement of fiscal implications for 27, 2023). small businesses or rural communities. The proposed amended rule would have no significant fiscal impact on the state govern- Since then, it has become apparent that other circumstances ment, units of local government, or individuals. There would be also require a clear articulation of the comptroller's interpreta- no significant anticipated economic cost to the public. tion of the term "received." Thus, the comptroller is proposing a general standard that is applicable to all situations, as well as to The comptroller will hold a hearing to take public comments, on automated website orders and fulfillment warehouses. November 8, 2023 in Room 2.034 of the Barbara Jordan Build- ing, 1601 Congress Ave., Austin, Texas 78701. Interested per- The proposed standard comports with the ordinary usage of the sons may sign up to testify beginning at 8:30 a.m. and testimony terms, as evidenced by the fact that the standard has been ap- will be heard on a first come first serve basis. All persons will proved by twenty-four states under the Streamlined Sales Tax have 10 minutes to present their testimony and shall also pro- Agreement. The proposed standard will also promote unifor- vide their testimony in writing prior to their oral testimony. mity with those states that have elected or will elect origin-based sourcing. You may submit comments on the proposal to Jenny Burleson, Director, Tax Policy Division, P.O. Box 13528 The comptroller is currently in litigation with cities claiming that Austin, Texas 78711 or to the email address: tp.rule.com- the location where an order is received should be the location [email protected]. The comptroller must receive your where the vendor forwards the order for fulfillment, rather than comments no later than 30 days from the date of publication of the location where the order is received from the customer. See the proposal in the Texas Register.

City of Coppell, Texas; the City of Humble, Texas; the City of DeSoto, Texas; the City of Carrollton, Texas; the City of Farm- The comptroller proposes the amendment under Tax Code, ers Branch, Texas; and the City of Round Rock, Texas v. Glenn §§111.002 (Comptroller's Rule; Compliance; Forfeiture); Hegar, Cause No. D-1-GN-21-003198 in Travis County, Texas 321.306 (Comptroller's Rules); 322.203 (Comptroller's Rules); District Court. However, as explained more fully in the January 323.306 (Comptroller's Rules), which authorize the comptroller 2023 rulemaking, the legislative history indicates that the legis- to adopt rules to implement the tax statutes. lature did not intend a fulfillment warehouse to be the location The amendment to this section implements Tax Code, where the order was received unless the fulfillment warehouse §151.0595 (Single Local Tax Rate for Remote Sellers); Tax received the order directly from the customer. See (48 TexReg Code, Chapter 321, Subchapters A, B, C, D, and F; Tax Code, 398) (January 27, 2023).

Chapter 322; Tax Code, Chapter 323.

In addition, as explained more fully in the January 2023 rule- §3.334. Local Sales and Use Taxes. making (48 TexReg 396), the comptroller's current interpretation (a) Definitions. The following words and terms, when used goes as far back as Comptroller's Decision No. 15,654 (1985), in this section, shall have the following meanings, unless the context which stated: clearly indicates otherwise. "But it seems to the administrative law judge that the legislature (1) Cable system--The system through which a cable ser- was amending the law if not entirely in reaction to the then-pend- vice provider delivers cable television or bundled cable service, as ing case of Bullock v. Dunigan Tool & Supply Co., 588 S.W.2d those terms are defined in §3.313 of this title (relating to Cable Televi- (Tex. Civ. App.-Texarkana, writ ref'd n.r.e.), at least partly in sion Service and Bundled Cable Service). reaction to that case. And if that be so, then the legislature did not want warehousing and storage facilities (many of which are (2) City--An incorporated city, municipality, town, or vil- outside city limits) to be the places where sales were consum- lage. mated for local sales tax purposes unless orders were actually (3) City sales and use tax--The tax authorized under Tax received there by personnel working there, but wanted the of- Code, §321.101(a), including the additional municipal sales and use fice location out of which the salesman operated to be the place tax authorized under Tax Code, §321.101(b), the municipal sales and where the sales were consummated." use tax for street maintenance authorized under Tax Code, §327.003, The comptroller expects this issue to be fully litigated. But in the the Type A Development Corporation sales and use tax authorized un- interim, the comptroller must still apply the local tax consumma- der Local Government Code, §504.251, the Type B Development Cor- tion statutes to pending controversies, and taxpayers are entitled poration sales and use tax authorized under Local Government Code, to understand the basis for the comptroller's rulings. Adoption of §505.251, a sports and community venue project sales and use tax

PROPOSED RULES October 27, 2023 48 TexReg 6341 adopted by a city under Local Government Code, §334.081, and a mu- (C) a special purpose district created under the Special nicipal development corporation sales and use tax adopted by a city un- District Local Laws Code or other provisions of Texas law that is autho- der Local Government Code, §379A.081. The term does not include rized to impose sales and use tax by the Tax Code or other provisions the fire control, prevention, and emergency medical services district of Texas law and as governed by the provisions of Tax Code, Chapters sales and use tax authorized under Tax Code, §321.106, or the munic- 321 or 323 and other provisions of Texas law; or ipal crime control and prevention district sales and use tax authorized (D) a transit authority that imposes sales and use tax as under Tax Code, §321.108. authorized by Transportation Code, Chapters, 451, 452, 453, 457, or (4) Comptroller's website--The comptroller's 460 and governed by the provisions of Tax Code, Chapter, 322. website concerning local taxes located at: https://comptrol- (14) Marketplace provider--This term has the meaning ler.texas.gov/taxes/sales/. given in §3.286 of this title. (5) County sales and use tax--The tax authorized under (15) Order placed in person--An order placed by a pur- Tax Code, §323.101, including a sports and community venue project chaser with the seller while physically present at the seller's place of sales and use tax adopted by a county under Local Government Code, business regardless of how the seller subsequently enters the order.

§334.081. The term does not include the county health services sales and use tax authorized under Tax Code, §324.021, the county landfill (16) Place of business of the seller - general definition--A and criminal detention center sales and use tax authorized under Tax place of business of the seller must be an established outlet, office, or Code, §325.021, or the crime control and prevention district sales and location operated by a seller for the purpose of receiving orders for use tax authorized under Tax Code, §323.105. taxable items from persons other than employees, independent con- tractors, and natural persons affiliated with the seller. An "established (6) Drop shipment--A transaction in which an order is re- outlet, office, or location" usually requires staffing by one or more ceived by a seller at one location, but the item purchased is shipped by sales personnel. The term does not include a computer server, Inter- the seller from another location, or is shipped by the seller's third-party net protocol address, domain name, website, or software application. supplier, directly to a location designated by the purchaser.

The "purpose" element of the definition may be established by proof (7) Engaged in business--This term has the meaning given that the sales personnel of the seller receive three or more orders for in §3.286 of this title (relating to Seller's and Purchaser's Responsibil- taxable items at the facility during the calendar year. Additional crite- ities). ria for determining when a location is a place of business of the seller are provided in subsection (b) of this section for distribution centers, (8) Extraterritorial jurisdiction-An unincorporated area manufacturing plants, storage yards, warehouses and similar facilities; that is contiguous to the corporate boundaries of a city as defined in kiosks; and purchasing offices. An outlet, office, facility, or any loca- Local Government Code, §42.021. tion that contracts with a retail or commercial business to process for (9) Fulfill--To complete an order by transferring possession that business invoices, purchase orders, bills of lading, or other equiva- of a taxable item to a purchaser, or to ship or deliver a taxable item lent records onto which sales tax is added, including an office operated to a location designated by the purchaser. The term does not include for the purpose of buying and selling taxable goods to be used or con- receiving or tracking an order, determining shipping costs, managing sumed by the retail or commercial business, is not a place of business inventory, or other activities that do not involve the transfer, shipment, of the seller if the comptroller determines that the outlet, office, facil- or delivery of a taxable item to the purchaser or a location designated ity, or location functions or exists to avoid the tax legally due under Tax by the purchaser. Code, Chapters 321, 322, and 323 or exists solely to rebate a portion of the tax imposed by those chapters to the contracting business. An out- (10) Itinerant vendor--A seller who travels to various loca- let, office, facility, or location does not exist to avoid the tax legally due tions for the purpose of receiving orders and making sales of taxable under Tax Code, Chapters 321, 322, and 323 or solely to rebate a por- items and who has no place of business in this state. A person who tion of the tax imposed by those chapters if the outlet, office, facility, sells items through vending machines is also an itinerant vendor. A or location provides significant business services, beyond processing salesperson that operates out of a place of business in this state is not invoices, to the contracting business, including logistics management, an itinerant vendor. purchasing, inventory control, or other vital business services. (11) Kiosk--A small stand-alone area or structure: (17) Purchasing office--An outlet, office, facility, or any lo- (A) that is used solely to display merchandise or to sub- cation that contracts with a retail or commercial business to process for mit orders for taxable items from a data entry device, or both; that business invoices, purchase orders, bills of lading, or other equiva- lent records onto which sales tax is added, including an office operated (B) that is located entirely within a location that is a for the purpose of buying and selling taxable goods to be used or con- place of business of another seller, such as a department store or shop- sumed by the retail or commercial business. ping mall; and (18) Remote Seller--As defined in §3.286 of this title, a re- (C) at which taxable items are not available for imme- mote seller is a seller engaged in business in this state whose only ac- diate delivery to a purchaser. tivity in the state is: (12) Local taxes--Sales and use taxes imposed by any local (A) engaging in regular or systematic solicitation of taxing jurisdiction. sales of taxable items in this state by the distribution of catalogs, (13) Local taxing jurisdiction--Any of the following: periodicals, advertising flyers, or other advertising, by means of print, radio, or television media, or by mail, telegraphy, telephone, computer (A) a city that imposes sales and use tax as provided data base, cable, optic, microwave, or other communication system under paragraph (3) of this subsection; for the purpose of effecting sales of taxable items; or (B) a county that imposes sales and use tax as provided under paragraph (5) of this subsection;

48 TexReg 6342 October 27, 2023 Texas Register (B) soliciting orders for taxable items by mail or tax purposes. A seller who owns or operates a kiosk in Texas is, how- through other media including the Internet or other media that may be ever, engaged in business in this state as provided in §3.286 of this title. developed in the future. (3) Purchasing offices. (19) Seller--This term has the meaning given in §3.286 of (A) A purchasing office is not a place of business of the this title and also refers to any agent or employee of the seller. seller if the purchasing office exists solely to rebate a portion of the lo- (20) Special purpose district--A local governmental entity cal sales and use tax imposed by Tax Code, Chapters 321, 322, or 323 authorized by the Texas legislature for a specific purpose, such as crime to a business with which it contracts; or if the purchasing office func- control, a local library, emergency services, county health services, or tions or exists to avoid the tax legally due under Tax Code, Chapters a county landfill and criminal detention center. 321, 322, or 323. A purchasing office does not exist solely to rebate a portion of the local sales and use tax or to avoid the tax legally due (21) Storage--This term has the meaning given in §3.346 under Tax Code, Chapters 321, 322, or 323 if the purchasing office pro- of this title (relating to Use Tax). vides significant business services to the contracting business beyond (22) Temporary place of business of the seller--A location processing invoices, including logistics management, purchasing, in- operated by a seller for a limited period of time for the purpose of sell- ventory control, or other vital business services. ing and receiving orders for taxable items and where the seller has in- (B) In making a determination under subparagraph (A) ventory available for immediate delivery to a purchaser. For example, of this paragraph, as to whether a purchasing office provides signif- a person who rents a booth at a weekend craft fair or art show to sell icant business services to the contracting business beyond processing and take orders for jewelry, or a person who maintains a facility at a invoices, the comptroller will compare the total value of the other busi- job site to rent tools and equipment to a contractor during the construc- ness services to the value of processing invoices. If the total value of tion of real property, has established a temporary place of business. A the other business services, including logistics management, purchas- temporary place of business of the seller includes a sale outside of a ing, inventory control, or other vital business services, is less than the distribution center, manufacturing plant, storage yard, warehouse, or value of the service to process invoices, then the purchasing office will similar facility of the seller in a parking lot or similar space sharing be presumed not to be a place of business of the seller. the same physical address as the facility but not within the walls of the facility. (C) If the comptroller determines that a purchasing of- fice is not a place of business of the seller, the sale of any taxable item (23) Transit authority--A metropolitan rapid transit author- is deemed to be consummated at the place of business of the seller from ity (MTA), advanced transportation district (ATD), regional or subre- whom the purchasing office purchased the taxable item for resale and gional transportation authority (RTA), city transit department (CTD), local sales and use taxes are due according to the following rules. county transit authority (CTA), regional mobility authority (RMA) or coordinated county transportation authority created under Transporta- (i) When taxable items are purchased from a Texas tion Code, Chapters 370, 451, 452, 453, 457, or 460. seller, local sales taxes are due based on the location of the seller's place of business where the sale is deemed to be consummated, as determined (24) Two percent cap--A reference to the general rule that, in accordance with subsection (c) of this section. except as otherwise provided by Texas law and as explained in this section, a seller cannot collect, and a purchaser is not obligated to pay, (ii) When the sale of a taxable item is deemed to be more than 2.0% of the sales price of a taxable item in total local sales consummated at a location outside of this state, local use tax is due and use taxes for all local taxing jurisdictions. based on the location where the items are first stored, used or consumed by the entity that contracted with the purchasing office in accordance (25) Use--This term has the meaning given in §3.346 of with subsection (d) of this section. this title. (4) An order that is received by a salesperson who is not (26) Use tax--A tax imposed on the storage, use or other at a place of business of the seller when the salesperson receives the consumption of a taxable item in this state. order is treated as being received at the location from which the sales- (b) Determining the place of business of a seller. person operates. Examples include orders that a salesperson receives by mail, telephone, including Voice over Internet Protocol and cellular (1) Distribution centers, manufacturing plants, storage phone calls, facsimile, and email while traveling. The location from yards, warehouses, and similar facilities. which the salesperson operates is the principal fixed location where the (A) A distribution center, manufacturing plant, storage salesperson conducts work-related activities. The location from which yard, warehouse, or similar facility operated by a seller for the purpose a salesperson operates will be a place of business of the seller only if of selling taxable items where sales personnel of the seller receive three the location meets the definition of a "place of business of a seller" in or more orders for taxable items during the calendar year from persons subsection (a)(16) of this section on its own, without regard to the or- other than employees, independent contractors, and natural persons af- ders imputed to that location by this paragraph. filiated with the seller is a place of business of the seller. Forwarding (5) A facility without sales personnel is usually not a "place previously received orders to the facility for fulfilment does not make of business of the seller." A vending machine is not "an established the facility a place of business. outlet, office, or location," and does not constitute a "place of business (B) If a location that is a place of business of the seller, of the seller." Instead, a vending machine sale is treated as a sale by such as a sales office, is in the same building as a distribution center, an itinerant vendor. See subsections (a)(10) and (c)(6) of this section. manufacturing plant, storage yard, warehouse, or similar facility op- However, a walk-in retail outlet with a stock of goods available for im- erated by a seller, then the entire facility is a place of business of the mediate purchase through a cashier-less point of sale terminal at the seller. outlet would be "an established outlet, office, or location" so as to con- stitute a "place of business of the seller" even though sales personnel (2) Kiosks. A kiosk is not a place of business of the seller are not required for every sale. A computer that operates an automated for the purpose of determining where a sale is consummated for local shopping cart software program is not an established outlet, office, or

PROPOSED RULES October 27, 2023 48 TexReg 6343 location," and does not constitute a "place of business of the seller." (3) Exception for qualifying economic development A computer that operates an automated telephone ordering system is agreements entered into before January 1, 2009, pursuant to Tax Code, not "an established outlet, office, or location," and does not constitute §321.203(c-4) - (c-5) or §323.203(c-4) - (c-5). This paragraph is a "place of business of the seller." effective until September 1, 2024. If applicable, the local sales tax due on the sale of a taxable item is based on the location of the qualifying (c) Local sales tax - Consummation of sale - determining the warehouse, which is a place of business of the seller, from which the local taxing jurisdictions to which sales tax is due. Except for the spe- item is shipped or delivered or at which the purchaser of the item takes cial rules applicable to remote sellers in subsection (i)(3) of this section, possession. direct payment permit purchases in subsection (j) of this section, and certain taxable items, including taxable items sold by a marketplace (4) Local sales taxes are due to each local taxing jurisdic- provider, as provided in subsection (k) of this section, each sale of a tion with sales tax in effect where the sale is consummated. Local use taxable item is consummated at the location indicated by the provisions tax may also be due if the total amount of local sales taxes due does not of this subsection. The following rules, taken from Tax Code, §321.203 reach the two percent cap, and the item purchased is shipped or deliv- and §323.203, apply to all sellers engaged in business in Texas, regard- ered to a location in one or more different local taxing jurisdictions, as less of whether they have no place of business in Texas, a single place provided in subsection (d) of this section. of business in Texas, or multiple places of business in Texas. (5) Multiple special purpose district taxes, multiple transit (1) Consummation of sale - order received at a place of authority sales taxes, or a combination of the two may apply to a single business of the seller in Texas. transaction. If the sale of a taxable item is consummated at a location within the boundaries of multiple special purpose districts or transit (A) Order placed in person. Except as provided by authorities, local sales tax is owed to each of the jurisdictions in effect paragraph (3) of this subsection, when an order for a taxable item is at that location. For example, a place of business of the seller located in placed in person at a seller's place of business in Texas, including at a the city of San Antonio is within the boundaries of both the San Antonio temporary place of business of the seller in Texas, the sale of that item Advanced Transportation District and the San Antonio Metropolitan is consummated at that place of business of the seller, regardless of Transit Authority, and the seller is required to collect sales tax for both the location where the order is fulfilled. transit authorities. Similarly, a place of business of the seller in Flower (B) Order not placed in person. Mound is located within the boundaries of two special purpose districts, the Flower Mound Crime Control District and the Flower Mound Fire (i) Order fulfilled at a place of business of the seller Control District, and the seller is responsible for collecting sales tax for in Texas. When an order is received at a place of business of the seller both special purpose districts. in Texas and is fulfilled at a place of business of the seller in Texas, the sale is consummated at the place of business where the order is fulfilled. (6) Itinerant vendors; vending machines. (ii) Order not fulfilled at a place of business of the (A) Itinerant vendors. Sales made by itinerant vendors seller in Texas. When an order is received at a place of business of the are consummated at, and itinerant vendors must collect sales tax based seller in Texas and is fulfilled at a location that is not a place of business upon, the location where the item is delivered or at which the purchaser of the seller in Texas, the sale is consummated at the place of business of the item takes possession. Itinerant vendors do not have any respon- where the order is received. sibility to collect use tax. (2) Consummation of sale - order not received at a place of (B) Vending machines. Sales of taxable items made business of the seller in Texas. from a vending machine are consummated at the location of the vend- ing machine. See §3.293 of this title (relating to Food; Food Prod- (A) Order fulfilled at a place of business of the seller ucts; Meals; Food Service) for more information about vending ma- in Texas. When an order is received at a location that is not a place chine sales. of business of the seller in Texas or is received outside of Texas, and is fulfilled from a place of business of the seller in Texas, the sale is (7) The location where the order is received by or on be- consummated at the place of business where the order is fulfilled. half of the seller means the physical location of a seller or third party such as an established outlet, office location, or automated order re- (B) Order not fulfilled from a place of business of the ceipt system operated by or on behalf of the seller where an order is seller in Texas. initially received by or on behalf of the seller and not where the order (i) Order fulfilled in Texas. When an order is re- may be subsequently accepted, completed or fulfilled. An order is re- ceived at a location that is not a place of business of the seller in Texas ceived when all of the information from the purchaser necessary to the and is fulfilled from a location in Texas that is not a place of business determination whether the order can be accepted has been received by of the seller, the sale is consummated at the location in Texas to which or on behalf of the seller. The location from which a product is shipped the order is shipped or delivered, or at which the purchaser of the item shall not be used in determining the location where the order is received takes possession. by the seller. (ii) Order not fulfilled in Texas. When an order is (d) Local use tax. The provisions addressing the imposition received by a seller at a location that is not a place of business of the of state use tax in §3.346 of this title also apply to the imposition of seller in Texas, and is fulfilled from a location outside of Texas, the local use tax. For example, consistent with §3.346(e) of this title, all sale is not consummated in Texas. However, a use is consummated taxable items that are shipped or delivered to a location in this state that at the first point in Texas where the item is stored, used, or consumed is within the boundaries of a local taxing jurisdiction are presumed to after the interstate transit has ceased. A taxable item delivered to a have been purchased for use in that local taxing jurisdiction as well as point in Texas is presumed to be for storage, use, or consumption at that presumed to have been purchased for use in the state. point until the contrary is established. Local use tax should be collected (1) General rules. as provided in subsection (d) of this section. Except as provided in subsection (i)(3) of this section, a remote seller required to collect state (A) When local use taxes are due in addition to local use tax under §3.286(b)(2) of this title must also collect local use tax. sales taxes as provided by subsection (c) of this section, all applicable

48 TexReg 6344 October 27, 2023 Texas Register use taxes must be collected or accrued in the following order until the the earliest date for which the enabling legislation under which each two percent cap is reached: city, county, special purpose district, and authority was created became effective. transit authority. If more than one special purpose district use tax is due, (2) General use tax rules applied to specific situations. The all such taxes are to be collected or accrued before any transit authority following fact patterns explain how local use tax is to be collected or use tax is collected or accrued. See subparagraphs (D) and (E) of this accrued and remitted to the comptroller based on, and subject to, the paragraph. general rules in paragraph (1) of this subsection. (B) If a local use tax cannot be collected or accrued at (A) Sale consummated outside the state, item delivered its full rate without exceeding the two percent cap, the seller cannot from outside the state or from a location in Texas that is not operated by collect it, or any portion of it, and the purchaser is not responsible for the seller - local use tax due. Except as provided in subsection (i)(3) of accruing it. this section, if a sale is consummated outside of this state according to (C) If a seller collects a local sales tax on an item, or a the provisions of subsection (c) of this section, and the item purchased purchaser accrues a local sales tax on an item, a use tax for the same is either shipped or delivered to a location in this state as designated type of jurisdiction is not due on the same item. For example, after a by the purchaser from a location outside of the state, or if the order city sales tax has been collected or accrued for an item, no use tax is is drop shipped directly to the purchaser from a third-party supplier, due to that same or a different city on that item, but use tax may be due local use tax is owed based upon the location in this state to which to a county, special purpose district, or transit authority. Similarly, if the order is shipped or delivered or at which the purchaser of the item one or more special purpose district sales taxes have been collected or takes possession. The seller is responsible for collecting the local use accrued for an item, no special purpose district use tax is due on that tax due on the sale. If the seller does not collect the local use taxes due item, and if one or more transit authority sales taxes have been collected on the sale, the purchaser is responsible for accruing such taxes and or accrued for an item, no transit authority use tax is due on that item. remitting them directly to the comptroller according to the provisions in paragraph (1) of this subsection. For example, if an order for a taxable (D) Collection or accrual of use tax for multiple special item is received by a seller at a location outside of Texas, and the order purpose districts. If more than one special purpose district use tax is in is shipped to the purchaser from a location outside of the state, local effect at the location where use of an item occurs, the special purpose use tax is due based upon the location to which the order is shipped or district taxes are due in the order of their effective dates, beginning delivered or at which the purchaser of the item takes possession. with the earliest effective date, until the two percent cap is met. The effective dates of all special purpose district taxes are available on the (B) Sale consummated in Texas outside a local taxing comptroller's website. However, if the collection or accrual of use tax jurisdiction, item delivered into one or more local taxing jurisdictions - for the district with the earliest effective date would exceed the two local use tax due. If a sale is consummated at a location in Texas that is percent cap, the tax for that district is not due and the seller or purchaser outside of the boundaries of any local taxing jurisdiction according to should determine, following the criteria in subparagraphs (A) - (C) of the provisions of subsection (c) of this section, and the order is shipped this paragraph, whether use tax is due for the district that next became or delivered to the purchaser at a location in this state that is within the effective. boundaries of one or more local taxing jurisdictions, local use tax is due based on the location to which the items are shipped or delivered (i) If the competing special purpose district taxes be- or at which the purchaser of the item takes possession. The seller is came effective on the same date, the special purpose district taxes are responsible for collecting the local use taxes due on the sale, regardless due in the order of the earliest date for which the election in which the of the location of the seller in Texas. If the seller fails to collect any district residents authorized the imposition of sales and use tax by the local use taxes due, the purchaser is responsible for accruing such taxes district was held. and remitting them directly to the comptroller. (ii) If the elections to impose the local taxes were (C) Sale consummated in any local taxing jurisdictions held on the same date, the special purpose district taxes are due in the imposing less than 2.0% in total local taxes - local sales taxes and use order of the earliest date for which the enabling legislation under which taxes due. If a sale is consummated at a location in Texas where the each district was created became effective. total local sales tax rate imposed by the taxing jurisdictions in effect at (E) Collection or accrual of use tax for multiple transit that location does not equal 2.0% according to the provisions of sub- authorities. If more than one transit authority use tax is in effect at section (c) of this section, and the item is shipped or delivered to the the location where use of an item occurs, and the two percent cap has purchaser at a location in this state that is inside the boundaries of a not been met, the transit authority taxes are due in the order of their different local taxing jurisdiction, additional local use tax may be due effective dates, beginning with the earliest effective date, until the two based on the location to which the order is shipped or delivered or at percent cap is met. The effective dates of all transit authority taxes which the purchaser of the item takes possession, subject to the two are available on the comptroller's website. However, if the collection percent cap. The seller is responsible for collecting any additional lo- or accrual of use tax for the authority with the earliest effective date cal use taxes due on the sale, regardless of the location of the seller in would exceed the two percent cap, the tax for that authority is not due Texas. See subsection (i) of this section. If the seller fails to collect the and the seller or purchaser should determine, following the criteria in additional local use taxes due, the purchaser is responsible for accruing subparagraphs (A) - (D) of this paragraph, whether use tax is due for such taxes and remitting them directly to the comptroller. the authority that next became effective. (i) Example one - if an order is received in person at (i) If the competing transit authorities became effec- a place of business of the seller, such that the sale is consummated at tive on the same date, the transit authority taxes are due in the order of the location where the order is received as provided under subsection the earliest date for which the election in which the authority residents (c)(1)(A) of this section, and the local sales tax due on the sale does authorized the imposition of sales and use tax by the authority was held. not meet the two percent cap, additional local use taxes are due based on the location to which the order is shipped or delivered or at which (ii) If the elections to impose local taxes were held the purchaser of the item takes possession, subject to the provisions in on the same date, the transit authority use taxes are due in the order of paragraph (1) of this subsection.

PROPOSED RULES October 27, 2023 48 TexReg 6345 (ii) Example two - if a seller receives an order for a lie within the boundaries of more than one special purpose district or taxable item at a seller's place of business in Texas, and the seller ships more than one transit authority. or delivers the item from an out-of-state location to a location in this (D) Extraterritorial jurisdictions. Except as otherwise state as designated by the purchaser, local sales tax is due based upon provided by paragraph (3) of this subsection concerning strategic part- the location of the place of business of the seller where the order is nership agreements and subsection (l)(5) of this section concerning the received. If the local sales tax due on the item does not meet the two City of El Paso and Fort Bliss, city sales and use tax does not apply to percent cap, use taxes, subject to the provisions in paragraph (1) of this taxable sales that are consummated outside the boundaries of the city, subsection, are due based upon the location where the items are shipped including sales made in a city's extraterritorial jurisdiction. However, or delivered or at which the purchaser of the item takes possession. an extraterritorial jurisdiction may lie within the boundaries of a spe- (e) Effect of other law. cial purpose district, transit authority, county, or any combination of the three, and the sales and use taxes for those jurisdictions would ap- (1) Tax Code, Title 2, Subtitles A (General Provisions) and ply to those sales.

B (Enforcement and Collection), Tax Code, Chapter 141 (Multistate Tax Compact) and Tax Code, Chapter 151 (Limited Sales, Excise, and (2) Combined areas. A combined area is an area where the Use Tax) apply to transactions involving local taxes. Related sections boundaries of a city overlap the boundaries of one or more other local of this title and comptroller rulings shall also apply with respect to local taxing jurisdictions as a result of an annexation of additional territory taxes. This includes authorities such as court cases and federal law by the city, and where, as the result of the imposition of the city tax that affect whether an item is taxable or is excluded or exempt from in the area in addition to the local taxes imposed by the existing tax- taxation. ing jurisdictions, the combined local tax rate would exceed 2.0%. The comptroller shall make accommodations to maintain a 2.0% rate in any (2) Permits, exemption certificates, and resale certificates combined area by distributing the 2.0% tax revenue generated in these required by Tax Code, Chapter 151, shall also satisfy the requirements combined areas to the local taxing jurisdictions located in the combined for collecting and remitting local taxes, unless otherwise indicated by areas as provided in Tax Code, §321.102 or Health and Safety Code, this section or other sections of this title. For example, see subsection §775.0754. Combined areas are identified on the comptroller's web- (n) of this section concerning prior contract exemptions. site. Sellers engaged in transactions on which local sales or use taxes (3) Any provisions in this section or other sections of this are due in a combined area, or persons who must self-accrue and re- title related to a seller's responsibilities for collecting and remitting lo- mit tax directly to the comptroller, must use the combined area local cal taxes to the comptroller shall also apply to a purchaser if the seller code when reporting the tax rather than the codes for the individual does not collect local taxes that are due. The comptroller may proceed city, county, special purpose districts, or transit authorities that make against the seller or purchaser for the local tax owed by either. up the combined area. (f) Tax rates. Except as otherwise provided by law, no local (3) City tax imposed through strategic partnership agree- governmental entity may adopt or increase a sales and use tax if, as a ments. result of the adoption or increase of the tax, the combined rate of all (A) The governing bodies of a district, as defined in sales and use taxes imposed by local taxing jurisdictions having terri- Local Government Code, §43.0751, and a city may enter into a lim- tory in the local governmental entity would exceed 2.0% at any location ited-purpose annexation agreement known as a strategic partnership within the boundaries of the local governmental entity's jurisdiction. agreement. Under this agreement, the city may impose sales and use The following are the local tax rates that may be adopted. tax within all or part of the boundaries of a district. Areas within a dis- (1) Cities. Cities may impose sales and use tax at a rate of trict that are annexed for this limited purpose are treated as though they up to 2.0%. are within the boundaries of the city for purposes of city sales and use tax. (2) Counties. Counties may impose sales and use tax at rates ranging from 0.5% to 1.5%. (B) Counties, transit authorities, and special purpose districts may not enter into strategic partnership agreements. Sales (3) Special purpose districts. Special purpose districts may and use taxes imposed by those taxing jurisdictions do not apply in impose sales and use tax at rates ranging from 0.125% to 2.0%. the limited-purpose annexed area as part of a strategic partnership (4) Transit authorities. Transit authorities may impose agreement between a city and an authorized district. However, a sales and use tax at rates ranging from 0.25% to 1.0%. county, special purpose district, or transit authority sales and use tax, or any combination of these three types of taxes, may apply at locations (g) Jurisdictional boundaries, combined areas, and city tax im- included in a strategic partnership agreement between a city and an posed through strategic partnership agreements. authorized district if the tax is imposed in that area by the applicable (1) Jurisdictional boundaries. jurisdiction as allowed under its own controlling authorities. (A) City boundaries. City taxing jurisdictional bound- (C) Prior to September 1, 2011, the term "district" was aries cannot overlap one another and a city cannot impose a sales and defined in Local Government Code, §43.0751 as a municipal utility use tax in an area that is already within the jurisdiction of another city. district or a water control and improvement district. The definition was amended effective September 1, 2011, to mean a conservation and (B) County boundaries. County tax applies to all loca- reclamation district operating under Water Code, Chapter 49. tions within that county. (h) Places of business of the seller and job sites crossed by (C) Special purpose district and transit authority bound- local taxing jurisdiction boundaries. aries. Special purpose districts and transit authorities may cross or share boundaries with other local taxing jurisdictions and may encom- (1) Places of business of the seller crossed by local taxing pass, in whole or in part, other local taxing jurisdictions, including jurisdiction boundaries. If a place of business of the seller is crossed by cities and counties. A geographic location or address in this state may one or more local taxing jurisdiction boundaries so that a portion of the place of business of the seller is located within a taxing jurisdiction and

48 TexReg 6346 October 27, 2023 Texas Register the remainder of the place of business of the seller lies outside of the (ii) at the remote seller's election, the single local use taxing jurisdiction, tax is due to the local taxing jurisdictions in which tax rate published in the Texas Register. the sales office is located. If there is no sales office, sales tax is due to (B) A remote seller that is storing tangible personal the local taxing jurisdictions in which any cash registers are located. property in Texas to be used for fulfillment at a facility of a market- (2) Job sites. place provider that has certified that it will assume the rights and duties of a seller with respect to the tangible personal property, as provided (A) Residential repair and remodeling; new construc- for in §3.286 of this title, may elect the single local use tax rate under tion of an improvement to realty. When a contractor is improving real subparagraph (A)(ii) of this paragraph. property under a separated contract, and the job site is crossed by the boundaries of one or more local taxing jurisdictions, the local taxes due (C) Notice to the comptroller of election and revocation on any separately stated charges for taxable items incorporated into the of election. real property must be allocated to the local taxing jurisdictions based on (i) Before using the single local use tax rate, a re- the total square footage of the real property improvement located within mote seller must notify the comptroller of its election using a form pre- each jurisdiction, including the square footage of any standalone struc- scribed by the comptroller. A remote seller may also notify the comp- tures that are part of the construction, repair, or remodeling project. troller of the election on its use tax permit application form. The remote For more information about tax due on materials used at residential seller must use the single local use tax rate for all of its sales of taxable and new construction job sites, refer to §3.291 of this title (relating to items until the election is revoked as provided in clause (ii) of this sub- Contractors). paragraph. (B) Nonresidential real property repair and improve- (ii) A remote seller may revoke its election by filing ment. When taxable services are performed to repair, remodel, or a form prescribed by the comptroller. If the comptroller receives the restore nonresidential real property, including a pipeline, transmission notice by October 1, the revocation will be effective January 1 of the line, or parking lot, that is crossed by the boundaries of one or more following year. If the comptroller receives the notice after October 1, local taxing jurisdictions, the local taxes due on the taxable services, the revocation will be effective January 1 of the year after the follow- including materials and any other charges connected to the services ing year. For example, a remote seller must notify the comptroller by performed, must be allocated among the local taxing jurisdictions October 1, 2020, for the revocation to be effective January 1, 2021. If based upon the total mileage or square footage, as appropriate, of the the comptroller receives the revocation on November 1, 2020, the re- repair, remodeling, or restoration project located in each jurisdiction. vocation will be effective January 1, 2022.

For more information about tax due on materials used at nonresidential real property repair and remodeling job sites, refer to §3.357 of this (D) Single local use tax rate. title (relating to Nonresidential Real Property Repair, Remodeling, (i) The single local use tax rate in effect for the pe- and Restoration; Real Property Maintenance). riod beginning October 1, 2019, and ending December 31, 2019, is (i) Sellers' and purchasers' responsibilities for collecting or ac- 1.75%. cruing local taxes. (ii) The single local use tax rate in effect for the pe- (1) Sale consummated in Texas; seller responsible for col- riod beginning January 1, 2020, and ending December 31, 2020, is lecting local sales taxes and applicable local use taxes. When a sale 1.75%. of a taxable item is consummated at a location in Texas as provided by (E) Annual publication of single local use tax rate. Be- subsection (c) of this section, the seller must collect each local sales tax fore the beginning of a calendar year, the comptroller will publish no- in effect at the location. If the total rate of local sales tax due on the sale tice of the single local use tax rate in the Texas Register that will be in does not reach the two percent cap, and the seller ships or delivers the effect for that calendar year. item into another local taxing jurisdiction, then the seller is required to collect additional local use taxes due, if any, based on the location to (F) Calculating the single local use tax rate. The single which the item is shipped or delivered or at which the purchaser of the local use tax rate effective in a calendar year is equal to the estimated item takes possession, regardless of the location of the seller in Texas. average rate of local sales and use taxes imposed in this state during the For more information regarding local use taxes, refer to subsection (d) preceding state fiscal year. As soon as practicable after the end of a state of this section. fiscal year, the comptroller must determine the estimated average rate of local sales and use taxes imposed in this state during the preceding (2) Out-of-state sale; seller engaged in business in Texas. state fiscal year by: Except as provided in paragraph (3) of this subsection, when a sale is not consummated in Texas, a seller who is engaged in business in this (i) dividing the total amount of net local sales and state is required to collect and remit local use taxes due, if any, on orders use taxes remitted to the comptroller during the state fiscal year by the of taxable items shipped or delivered at the direction of the purchaser total amount of net state sales and use tax remitted to the comptroller into a local taxing jurisdiction in this state based upon the location in during the state fiscal year; this state to which the item is shipped or delivered or at which the (ii) multiplying the amount computed under clause purchaser of the item takes possession as provided in subsection (d) (i) of this subparagraph by the rate provided in Tax Code, §151.051; of this section. and (3) Local use tax rate for remote sellers. (iii) rounding the amount computed under clause (ii) (A) A remote seller required to collect and remit one or of this subparagraph to the nearest .0025. more local use taxes in connection with a sale of a taxable item must (G) Direct refund. A purchaser may request a refund compute the amount using: based on local use taxes paid in a calendar year for the difference be- (i) the combined tax rate of all applicable local use tween the single local use tax rate paid by the purchaser and the amount taxes based on the location to which the item is shipped or delivered or the purchaser would have paid based on the combined tax rate for all at which the purchaser of the item takes possession; or applicable local use taxes. Notwithstanding the refund requirements

PROPOSED RULES October 27, 2023 48 TexReg 6347 under §3.325(a)(1) of this title (relating to Refunds and Payments Un- (k) Special rules for certain taxable goods and services. Sales der Protest), a non-permitted purchaser may request a refund directly of the following taxable goods and services are consummated at, and from the comptroller for the tax paid in the previous calendar year, no local tax is due based upon, the location indicated in this subsection. earlier than January 1 of the following calendar year within the statute (1) Amusement services. Local tax is due based upon the of limitation under Tax Code, 111.104 (Refunds). location where the performance or event occurs. For more information (H) Marketplace providers. Notwithstanding subpara- on amusement services, refer to §3.298 of this title (relating to Amuse- graph (A) of this paragraph, marketplace providers may not use the ment Services). single local use tax rate and must compute the amount of local use tax (2) Cable services. When a service provider uses a cable to collect and remit using the combined tax rate of all applicable local system to provide cable television or bundled cable services to cus- use taxes. tomers, local tax is due as provided for in §3.313 of this title. When (4) Purchaser responsible for accruing and remitting local a service provider uses a satellite system to provide cable services to taxes if seller fails to collect. customers, no local tax is due on the service in accordance with the Telecommunications Act of 1996, §602. (A) If a seller does not collect the state sales tax, any applicable local sales taxes, or both, on a sale of a taxable item that (3) Florists. Local sales tax is due on all taxable items sold is consummated in Texas, then the purchaser is responsible for filing by a florist based upon the location where the order is received, regard- a return and paying the tax. The local sales taxes due are based on less of where or by whom delivery is made. Local use tax is not due on the location in this state where the sale is consummated as provided in deliveries of taxable items sold by florists. For example, if the place of subsection (c) of this section. business of the florist where an order is taken is not within the bound- aries of any local taxing jurisdiction, no local sales tax is due on the (B) A purchaser who buys an item for use in Texas from item and no local use tax is due regardless of the location of delivery. a seller who does not collect the state use tax, any applicable local use If a Texas florist delivers an order in a local taxing jurisdiction at the taxes, or both, is responsible for filing a return and paying the tax. The instruction of an unrelated florist, and if the unrelated florist did not local use taxes due are based on the location where the item is first take the order within the boundaries of a local taxing jurisdiction, local stored, used, or consumed by the purchaser. use tax is not due on the delivery. For more information about florists' (C) For more information about how to report and pay sales and use tax obligations, refer to §3.307 of this title (relating to use tax directly to the comptroller, see §3.286 of this title. Florists). (5) Local tax is due on the sales price of a taxable item, as (4) Landline telecommunications services. Local taxes due defined in Tax Code, §151.007, in the report period in which the taxable on landline telecommunications services are based upon the location of item is purchased or the period in which the taxable item is first stored, the device from which the call or other transmission originates. If the used, or otherwise consumed in a local taxing jurisdiction. seller cannot determine where the call or transmission originates, local taxes due are based on the address to which the service is billed. For (6) A purchaser is not liable for additional local use tax if more information, refer to §3.344 of this title (relating to Telecommu- the purchaser pays local use tax using the rate elected by an eligible re- nications Services). mote seller according to paragraph (3) of this subsection. The remote seller must be identified on the comptroller's website as electing to use (5) Marketplace provider sales. Local taxes are due on the single local use tax rate. A purchaser must verify that the remote sales of taxable items through a marketplace provider based on the lo- seller is listed on the comptroller's website. If the remote seller is not cation in this state to which the item is shipped or delivered or at which listed on the comptroller's website, the purchaser will be liable for ad- the purchaser takes possession. For more information, refer to §3.286 ditional use tax due in accordance to paragraph (4) of this subsection. of this title. (j) Items purchased under a direct payment permit. (6) Mobile telecommunications services. Local taxes due on mobile telecommunications services are based upon the location of (1) When taxable items are purchased under a direct pay- the customer's place of primary use as defined in §3.344(a)(8) of this ment permit, local use tax is due based upon the location where the title, and local taxes are to be collected as indicated in §3.344(h) of this permit holder first stores the taxable items, except that if the taxable title. items are not stored, then local use tax is due based upon the location where the taxable items are first used or otherwise consumed by the (7) Motor vehicle parking and storage. Local taxes are due permit holder. based on the location of the space or facility where the vehicle is parked.

For more information, refer to §3.315 of this title (relating to Motor (2) If, in a local taxing jurisdiction, storage facilities con- Vehicle Parking and Storage). tain taxable items purchased under a direct payment exemption certifi- cate and at the time of storage it is not known whether the taxable items (8) Natural gas and electricity. Any local city and special will be used in Texas, then the taxpayer may elect to report the use tax purpose taxes due are based upon the location where the natural gas either when the taxable items are first stored in Texas or are first re- or electricity is delivered to the purchaser. As explained in subsection moved from inventory for use in Texas, as long as use tax is reported (l)(1) of this section, residential use of natural gas and electricity is in a consistent manner. See also §3.288(i) of this title (relating to Direct exempt from all county sales and use taxes and all transit authority sales Payment Procedures and Qualifications) and §3.346(g) of this title. and use taxes, most special purpose district sales and use taxes, and many city sales and use taxes. A list of the cities and special purpose (3) If local use tax is paid on stored items that are subse- districts that do impose, and those that are eligible to impose, local quently removed from Texas before they are used, the tax may be re- sales and use tax on residential use of natural gas and electricity is covered in accordance with the refund and credit provisions of §3.325 available on the comptroller's website. For more information, also refer of this title and §3.338 of this title (relating to Multistate Tax Credits to §3.295 of this title (relating to Natural Gas and Electricity). and Allowance of Credit for Tax Paid to Suppliers). (9) Nonresidential real property repair and remodeling ser- vices. Local taxes are due on services to remodel, repair, or restore

48 TexReg 6348 October 27, 2023 Texas Register nonresidential real property based on the location of the job site where (A) Authority to exclude territory from imposition of the remodeling, repair, or restoration is performed. See also subsection emergency services district sales and use tax. Pursuant to the provi- (h)(2)(B) of this section and §3.357 of this title. sions of Health and Safety Code, §775.0751(c-1), an emergency ser- vices district wishing to enact a sales and use tax may exclude from the (10) Residential real property repair and remodeling and election called to authorize the tax any territory in the district where the new construction of a real property improvement performed under a sales and use tax is then at 2.0%. The tax, if authorized by the voters separated contract. When a contractor constructs a new improvement eligible to vote on the enactment of the tax, then applies only in the to realty pursuant to a separated contract or improves residential real portions of the district included in the election. The tax does not apply property pursuant to a separated contract, the sale is consummated at to sales made in the excluded territories in the district and sellers in the the job site at which the contractor incorporates taxable items into the excluded territories should continue to collect local sales and use taxes customer's real property. See also subsection (h)(2)(A) of this section for the local taxing jurisdictions in effect at the time of the election un- and §3.291 of this title. der which the district sales and use tax was authorized as applicable. (11) Waste collection services. Local taxes are due on (B) Consolidation of districts resulting in sales tax garbage or other solid waste collection or removal services based on sub-districts. Pursuant to the provisions of Health and Safety Code, the location at which the waste is collected or from which the waste is §775.018(f), if the territory of a district proposed under Health and removed. For more information, refer to §3.356 of this title (relating Safety Code, Chapter 775 overlaps with the boundaries of another to Real Property Service). district created under that chapter, the commissioners court of each (l) Special exemptions and provisions applicable to individual county and boards of the counties in which the districts are located may jurisdictions. choose to create a consolidated district in the overlapping territory. If two districts that want to consolidate under Health and Safety Code, (1) Residential use of natural gas and electricity.

§321.105, any city that adopted a local sales and use tax effective Oc- tober 1, 1979, or later is prohibited from imposing tax on the residential (A) Special sales and use tax zones within district; use of natural gas and electricity. See §3.295 of this title. separate sales and use tax rate. As set out in Special District Local Laws Code, §3817.154(e) and (f), the East Aldine Management (B) Imposition of tax allowed in certain cities. Cities District board may create special sales and use tax zones within the that adopted local sales tax prior to October 1, 1979, may, in accor- boundaries of the District and, with voter approval, enact a special dance with the provisions in Tax Code, §321.105, choose to repeal the sales and use tax rate in each zone that is different from the sales and exemption for residential use of natural gas and electricity. The comp- use tax rate imposed in the rest of the district. troller's website provides a list of cities that impose tax on the residen- tial use of natural gas and electricity, as well as a list of those cities that (B) Exemptions from special zone sales and use tax. do not currently impose the tax, but are eligible to do so. The sale, production, distribution, lease, or rental of; and the use, stor- age, or other consumption within a special sales and use tax zone of; a (C) Effective January 1, 2010, a fire control, preven- taxable item sold, leased, or rented by the entities identified in clauses tion, and emergency medical services district organized under Local (i) - (vi) of this subparagraph are exempt from the special zone sales Government Code, Chapter 344 that imposes sales tax under Tax Code, and use tax. State and all other applicable local taxes apply unless oth- §321.106, or a crime control and prevention district organized under erwise exempted by law. The special zone sales and use tax exemption Local Government Code, Chapter 363 that imposes sales tax under Tax applies to: Code, §321.108, that is located in all or part of a municipality that im- poses a tax on the residential use of natural gas and electricity as pro- (i) a retail electric provider as defined by Utilities vided under Tax Code, §321.105 may impose tax on residential use of Code, §31.002; natural gas and electricity at locations within the district. A list of the (ii) an electric utility or a power generation company special purpose districts that impose tax on residential use of natural as defined by Utilities Code, §31.002; gas and electricity and those districts eligible to impose the tax that do not currently do so is available on the comptroller's website. (iii) a gas utility as defined by Utilities Code, §101.003 or §121.001, or a person who owns pipelines used for (2) Telecommunication services. Telecommunications ser- transportation or sale of oil or gas or a product or constituent of oil or vices are exempt from all local sales taxes unless the governing body gas; of a city, county, transit authority, or special purpose district votes to impose sales tax on these services. However, since 1999, under (iv) a person who owns pipelines used for the trans- Tax Code, §322.109(d), transit authorities created under Transporta- portation or sale of carbon dioxide; tion Code, Chapter 451 cannot repeal the exemption unless the repeal (v) a telecommunications provider as defined by is first approved by the governing body of each city that created the Utilities Code, §51.002; or local taxing jurisdiction. The local sales tax is limited to telecommuni- cations services occurring between locations within Texas. See §3.344 (vi) a cable service provider or video service of this title. The comptroller's website provides a list of local taxing provider as defined by Utilities Code, §66.002. jurisdictions that impose tax on telecommunications services. (5) Imposition of city sales tax and transit tax on certain (3) Emergency services districts. military installations; El Paso and Fort Bliss. Pursuant to Tax Code, §321.1045 (Imposition of Sales and Use Tax in Certain Federal Military Installations), for purposes of the local sales and use tax imposed under

PROPOSED RULES October 27, 2023 48 TexReg 6349 Tax Code, Chapter 321, the city of El Paso includes the area within the (6) Exemption certificate. An identification number is re- boundaries of Fort Bliss to the extent it is in the city's extraterritorial quired on the prior contract exemption certificates furnished to sellers. jurisdiction. However, the El Paso transit authority does not include The identification number should be the person's 11-digit Texas tax- Fort Bliss. See Transportation Code, §453.051 concerning the Creation payer number or federal employer's identification (FEI) number. of Transit Departments.

The agency certifies that legal counsel has reviewed the pro- (m) Restrictions on local sales tax rebates and other economic posal and found it to be within the state agency's legal authority incentives. Pursuant to Local Government Code, §501.161, Section 4A to adopt. and 4B development corporations may not offer to provide economic incentives, such as local sales tax rebates authorized under Local Gov- Filed with the Office of the Secretary of State on October 16, ernment Code, Chapters 380 or 381, to persons whose business consists 2023. primarily of purchasing taxable items using resale certificates and then reselling those same items to a related party. A related party means a TRD-202303841 person or entity which owns at least 80% of the business enterprise to Jenny Burleson which sales and use taxes would be rebated as part of an economic in- Director, Tax Policy Division centive. Comptroller of Public Accounts (n) Prior contract exemptions. The provisions of §3.319 of this Earliest possible date of adoption: November 26, 2023 title (relating to Prior Contracts) concerning definitions and exclusions For further information, please call: (512) 475-2220 apply to prior contract exemptions. ♦ ♦ ♦ (1) Certain contracts and bids exempt. No local taxes are due on the sale, use, storage, or other consumption in this state of tax- PART 3. TEACHER RETIREMENT able items used: SYSTEM OF TEXAS (A) for the performance of a written contract executed prior to the effective date of any local tax if the contract may not be CHAPTER 31. EMPLOYMENT AFTER modified because of the tax; or RETIREMENT (B) pursuant to the obligation of a bid or bids submitted prior to the effective date of any local tax if the bid or bids and contract SUBCHAPTER A. GENERAL PROVISIONS entered into pursuant thereto are at a fixed price and not subject to AND PROCEDURES withdrawal, change, or modification because of the tax.

34 TAC §31.5, §31.6 (2) Annexations. Any annexation of territory into an exist- ing local taxing jurisdiction is also a basis for claiming the exemption The Teacher Retirement System of Texas (TRS) proposes to provided by this subsection. amend §31.5 (relating to Notice and Forfeiture Requirements for Certain Service Retirees) and §31.6 (relating to Second EAR (3) Local taxing jurisdiction rate increase; partial exemp- Warning Payments) under Subchapter A (relating to General tion for certain contracts and bids. When an existing local taxing ju- Provisions and Procedures) of Chapter 31 in Part 3 of Title 34 risdiction raises its sales and use tax rate, the additional amount of tax of the Texas Administrative Code. that would be due as a result of the rate increase is not due on the sale, use, storage, or other consumption in this state of taxable items used: BACKGROUND AND PURPOSE (A) for the performance of a written contract executed In 2021, the Texas Legislature passed House Bill 1585 which prior to the effective date of the tax rate increase if the contract may added, among other provisions, an employment after retirement not be modified because of the tax; or ("EAR") notice procedure (also called a "three strikes" proce- dure) that ensured TRS would issue at least two warnings to a (B) pursuant to the obligation of a bid or bids submitted TRS service retiree before that retiree would forfeit his or her en- prior to the effective date of the tax rate increase if the bid or bids and tire annuity for a month because the retiree exceeded the limits contract entered into pursuant thereto are at a fixed price and not subject on employment after retirement during that month. to withdrawal, change, or modification because of the tax.

Importantly, this notice procedure, which is under Government (4) Three-year statute of limitations. Code §824.601(b-3), requires that a TRS service retiree cannot (A) The exemption in paragraph (1) of this subsection be subject to a second warning (and the possible dollar-for-dol- and the partial exemption in paragraph (3) of this subsection have no lar partial forfeiture associated with a second warning) until the effect after three years from the date the adoption or increase of the tax month after the month TRS issues a first warning to a TRS retiree takes effect in the local taxing jurisdiction. for exceeding the limits on EAR. Further, a TRS retiree cannot be subject to mandatory full forfeiture of his or her annuity until (B) The provisions of §3.319 of this title apply to this the month after the month TRS issues the second warning letter. subsection to the extent they are consistent. These requirements are clear in the statute. (C) Leases. Any renewal or exercise of an option to However, §31.5 and §31.6 currently provide, at least in part, that extend the time of a lease or rental contract under the exemptions pro- a TRS service retiree is not subject to a second warning until the vided by this subsection shall be deemed to be a new contract and no retiree receives, rather than TRS issues, a first warning. Further, exemption will apply. the rules provide that a TRS retiree is not subject to a mandatory (5) Records. Persons claiming the exemption provided by forfeiture until the retiree receives, rather than TRS issues, both this subsection must maintain records which can be verified by the required notices. comptroller or the exemption will be lost.

48 TexReg 6350 October 27, 2023 Texas Register APPENDIX K APPENDIX L APPENDIX M H.B. No. 1525

AN ACT relating to the administration and collection of sales and use taxes applicable to sales involving marketplace providers.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: SECTION 1. Section 151.008(b), Tax Code, is amended to read as follows: (b) "Seller" and "retailer" include: (1) a person in the business of making sales at auction of tangible personal property owned by the person or by another; (2) a person who makes more than two sales of taxable items during a 12-month period, including sales made in the capacity of an assignee for the benefit of creditors or receiver or trustee in bankruptcy; (3) a person regarded by the comptroller as a seller or retailer under Section 151.024; (4) a hotel, motel, or owner or lessor of an office or residential building or development that contracts and pays for telecommunications services for resale to guests or tenants; (5) a person who engages in regular or systematic solicitation of sales of taxable items in this state by the distribution of catalogs, periodicals, advertising flyers, or other advertising, by means of print, radio, or television media, or by mail, telegraphy, telephone, computer data base, cable, optic, microwave, or other communication system for the purpose of effecting sales of taxable items; [and] (6) a person who, under an agreement with another person, is: (A) entrusted with possession of tangible personal property with respect to which the other person has title or another ownership interest; and (B) authorized to sell, lease, or rent the property without additional action by the person having title to or another ownership interest in the property; and (7) a person who is a marketplace provider under Section 151.0242.

SECTION 2. Subchapter B, Chapter 151, Tax Code, is amended by adding Section 151.0242 to read as follows: Sec. 151.0242. MARKETPLACE PROVIDERS AND MARKETPLACE SELLERS. (a) In this section: (1) "Marketplace" means a physical or electronic medium through which persons other than the owner or operator of the medium make sales of taxable items. The term includes a store, Internet website, software application, or catalog. (2) "Marketplace provider" means a person who owns or operates a marketplace and directly or indirectly processes sales or payments for marketplace sellers. (3) "Marketplace seller" means a seller, other than the marketplace provider, who makes a sale of a taxable item through a marketplace. (b) Except as otherwise provided by this section, a marketplace provider has the rights and duties of a seller or retailer under this chapter with respect to sales made through the marketplace. (c) A marketplace provider shall: (1) certify to each marketplace seller that the marketplace provider assumes the rights and duties of a seller or retailer under this chapter with respect to sales made by the marketplace seller through the marketplace; (2) collect in the manner provided by Subchapters C and D the taxes imposed by this chapter on sales of taxable items made through the marketplace; and (3) report and remit under Subchapter I the taxes imposed by this chapter on all sales made through the marketplace. (d) A marketplace seller who in good faith accepts a marketplace provider's certification under Subsection (c)(1) shall exclude sales made through the marketplace from the marketplace seller's report under Subchapter I, notwithstanding Section 151.406. (e) A marketplace seller shall retain records for all marketplace sales as required by Section 151.025. (f) A marketplace seller shall furnish to the marketplace provider information that is required to correctly collect and remit taxes imposed by this chapter. The information may include a certification of taxability that an item being sold is a taxable item, is not a taxable item, or is exempt from taxation. (g) Except as provided by Subsection (h), a marketplace provider is not liable for failure to collect and remit the correct amount of taxes imposed by this chapter if the marketplace provider demonstrates that the failure resulted from the marketplace provider's good faith reliance on incorrect or insufficient information provided by the marketplace seller. The marketplace seller is liable for a deficiency resulting from incorrect or insufficient information provided by the marketplace seller. (h) A marketplace provider and marketplace seller that are affiliates or associates, as defined by Section 1.002, Business Organizations Code, are jointly and severally liable for a deficiency resulting from a sale made by the marketplace seller through the marketplace. (i) This section does not affect the tax liability of a purchaser under Section 151.052 or 151.102. (j) A court may not certify an action brought against a marketplace provider concerning this section as a class action. (k) The comptroller may adopt rules and forms to implement this section and by rule except certain marketplace providers from some or all of the requirements of this section.

SECTION 3. Section 321.203, Tax Code, is amended by adding Subsection (e-1) to read as follows: (e-1) Notwithstanding any other provision of this section, a sale of a taxable item made by a marketplace seller through a marketplace as provided by Section 151.0242 is consummated at the location in this state to which the item is shipped or delivered or at which possession is taken by the purchaser.

SECTION 4. Section 323.203, Tax Code, is amended by adding Subsection (e-1) to read as follows: (e-1) Notwithstanding any other provision of this section, a sale of a taxable item made by a marketplace seller through a marketplace as provided by Section 151.0242 is consummated at the location in this state to which the item is shipped or delivered or at which possession is taken by the purchaser.

SECTION 5. The changes in law made by this Act do not affect tax liability accruing before the effective date of this Act. That liability continues in effect as if this Act had not been enacted, and the former law is continued in effect for the collection of taxes due and for civil and criminal enforcement of the liability for those taxes.

SECTION 6. This Act takes effect October 1, 2019.

______________________________ ______________________________ President of the Senate Speaker of the House

I certify that H.B. No. 1525 was passed by the House on April 11, 2019, by the following vote: Yeas 145, Nays 1, 2 present, not voting; and that the House concurred in Senate amendments to H.B.

No. 1525 on May 10, 2019, by the following vote: Yeas 103, Nays 3, present, not voting.

______________________________ Chief Clerk of the House I certify that H.B. No. 1525 was passed by the Senate, with amendments, on May 3, 2019, by the following vote: Yeas 31, Nays 0.

______________________________ Secretary of the Senate APPROVED: __________________ Date __________________ Governor APPENDIX N CIL 6n3 6th LEGISLATURE-REGULAR SESSION See. 12. Section 46.104, Parks and Wildlife Code, is amended" to read as follows: "8ee. 46.104. License: Period of Validity and Fee "(a) A Lake Texoma fishing license invalid until December 31 follow- ing its date of issuance. "(b) The fee for the license is $5. Fifteen cents of the fee may be retained by the issuing officer." Sec. 13. The importance of this legislation and the crowded co.idition of the calendars in both houses create an emergency and an imperative public necessity that the constitutional rule requiring bills to be read on three several days in each house be suspended, and this rule is hereby sus- pended, and that this Act take effect and be in force from and after its passage, and it is so enacted.

Passed the Senate on May 14, 1979, by a viva-voce vote; Senate con- curred in House amendments on May 26, 1979, by a viva-voce vote; passed the House, with amendments, on May 25, 1979, by a non-record vote.

Approved June 13, 1979.

Effective Aug. 27. 1979, 91) day%4 after date of adjournment.

LOCAL SALES, EXCISE, AND USE TAX-IMPOSITION AND COLLECTION CHAPTER 624 S. B. No. 582 An Act relating to the imposition, levy, and collection of certain local sales, ecx. clue. and use taxes; clarifying the imposition and allocation of local use tax; defining "place of buslnesa of the retailer" for local salee, excise, and use tax purposes; amending Subsection A of and adding Subsections 9 and P to Section 4 and amending Subsections A and a of Section 4, Local Sales and Use Tax Act. as amended (Article 111c, Vernon's Texas Civil Statutes)i amending Chapter 141, Acts of the 63rd Legislature, Regular Seselon, 1W3 (Article 111x. Vernon's Texas Civil Statutes). by amending Subparagraph (1) of and adding Subparagraphs (4) and (5) to Paragraph (c). Subeecton (8), Section 115; providing for expiration and effective dates.

Be it elacted by the Legislure of the State of Texas: ARTICLE I Section 1. Subsection A, Sectiin 4, Local Sales and Use Tax Act, as amended (Article 1066c, Vernon's Texas Civil Statutes), Is amended94 to read as follows: "A. Except as provided in Subsection D of this Section, in every city where the local sales and use tax has been adopted pursuant to the provi- sions of this Act, there is hereby imposed an excise tax on the storage, use, or other consumption within such city of tangible personal property IL V.T.C.A. Parka a Wildlife Code, I 4.- 9O. Vernon's Ann.Clv.st. art. 16k, # 4, 104. subsec. A.

1400 66th LEGISLATUR--REGULAR SESSION Ch. 624 purchased, leased, or rented from any retailer on or after the effective date for collection of the sales tax portion of the local sales and use tax for storage, use or other consumption in such city at the rate of one percent (1%) of the sales price of the property or, In the case of leases or rentals, of said lease or rental price. Except as provided in Subsection E of this Section, the local use tax is not owed to and may not be collected by, for, or in behalf of a city if no excise tax on the storage, use, or other consump- tion of an item of tangible personal property is owed to or collected by the State under the Limited Sales, Excise and Use Tax Act, Chapter 20, Title 122A, Taxation-General. Revised Civil Statutes of Texas, 1925, aa amended or if the tangible personal property is first stored, used, or con- sumed within a city or area that has not adopted the local sales or use tax." Sec. 2. Section 4, Local Sales and Use Tax Act, as amended (Article 1066c, Vernon's Texas Civil Statutes), is amended by adding '7 Subsections E and F to read as follows: "E. If a sale of tangible personal property is consummated within the State but not within a city that has adopted the taxes imposed by this Act and the tangible personal property is shipped directly Into or brought by the purchaser or lessee directly into a city that has adopted the taxes im- posed by this Act, the tangible personal property is subject to the local use tax imposed by the city under Subsection A of this Section. The use is considered consummated at the location where the item is first stored, used, or otherwise consumed after the Intrastate transit has ceased. "F. If the tangible personal property isshipped from outside this State to a customer within this State, the tangible personal property Is subject to the use tax imposed by Subsection A of this Section and not the sales tax imposed by Subsection B, Section 2 of this Act. The use is con- summated at the first point in this State where the property is stored, used, or otherwise consumed after interstate transit has ceased. Tangible personal property delivered to a point in this State is presumed to be for storage, use, or other consumption at that point until the contrary is es- tablished." Sec. 3. Subsections A and B, Section 6, Local Sales and Use Tax Act, as amended (Article 1066c, Vernon's Texas Civil Statutes), are amended 01 to read as follows: "A. All applicable provisions contained in Chapters 1 and 20 of Title 122A shall apply to the collection of the tax imposed by this Act, except as modified in this Act. "B. (1) For the purposes of the local sales and use tax, 'place of business of the retailer' means an established outlet, office, or location operated by the retailer, his agent, or employee for the purpose of receiv- ing orders for taxable items. The term 'place of business of the retailer' includes any location :t which three or more orders are received by the retailer in a calendar year. A warehouse, storage yard, or manufacturing plant may not be considered a 'place of business of the retailer' unless three or more orders are received by the retailer in a calendar year at such warehouse, storage yard, or manufacturing plant. Each 'place of business of the retailer' must have a permit issued by the Comptroller in accord- ance with Article 20.021, Title 122A, Taxation-General, Revised Civil Stat- utes of Texas, 1925, as amended. For the purpose of determining the proper local sales tax Imposed by this Act, a retail sale, lease, or rental is 07. Vernon's Ann. Cv.0l. art. 106ft. 1 4. a. Vernon's Ann.Clv.St. art. 106a. 1 6. subsee.. E. 1. sube c. A, H.

1401 ChL 624 Uth LEGISLATURE-REGULAR SESSION consummated as provided in Paragraphs (a), (b), (c), and (d) of this subdivision, regardless of where transfer of title or possession or segre- gation in cortemplation of transfer of title or possession of the taxable item occurs unless the tangible personal property sold, leased, or rented is delivered by the retailer or his agent to an out-of-state destination or to a common carrier for delivery to an out-of-state destination. "(a) If a retailer has only one place of business within this State, all retail sales, leases, and rentals of the retailer are consummated at that place of business, except as provided in Subdivisio, (d) of this Subsection. "(b) If a retailer has more than one place of business in this State, the retailer's place of business where the purchaser or lessee takes possession of and removes an item of tangible personal property is the place of busi- ness where the sale, lease, or rental of that item is consummated. If, however, the intailer ships or delivers the tangible personal property to a point designated by the purchaser or lessee, then the retailer's place of business from which the tangible personal property is shipped or deliv- ered to the purchaser or lessee Is the place of business where the sale, lease, or rental Is consummated. "(c) If neither possession of tangible personal property is taken at nor shipment or delivery of the tangible personal property is made from the retailer's place of business within this State, the sale, lease, or rental is consummated at the retailer's place of business within the State where the order is received or if the order Is not received at a place of business of the retailer, at the place of business from which the retailer's salesman who took the order operates. "(d) When transfer of possession of tangible personal property occurs at or shipment or delivery originates from a location within the State other than a place of business of the retailer, the sale, lease, or rental is consummated at the location within thin State to which the tangible per- sonal property Is shipped or delivered or at which possession is taken by the customer when: "(i) the retailer is an itinerant vendor and has no place of business, or "(ii) the retailer's place of business where the purchase order is ini- tially received or from which the retailer's salesman who took the order op- erates is outside the State, c r "(iII) the purchaser places the order directly with the retailer's sup- plier and the property is shipped or delivered directly to the purchaser by the supplier. "(e) The sale of natural gas or electricity is consummated at the point of delivery to the consumer. "(2) For the purpose of the excise tax imposed by this Act on any re- tailer holding tangible personal property purchased on a resale certificate and which property becomes subject to the excise tax by reason of use or other consumption of the property, the use or other consumption of the property Is consummated at the place where the property Is stored or kept at the time of or Just prior to its use or consumption, unless the tangible personal property Is delivered by the retailer or his agent to an out-of- state destination or to a common carrier for delivery to an out-of-state destination. "(Mi For the purpose of determining the proper local use tax imposed by this Act, a holder of a direct payment permit issued b' the Comptroller under Section (K) of Article 20.06, Title 122A, Tax...&on-General, Re- vised Civil Statutes of Texas, 1925, as amended, w'o becomes liable for 1402 Wth LEGISLATURE-REGULAR SESSION C h. 624 ,ocal use tax by reason of storage, use, or other consumption of taxable itoms purchased in this State under a direct payment exemption certifi- cate, shall allocate the tax to the city in which the taxable item was first removed from the permit holder's storage, or if not stored, the place at which the items are first used or consumed by the permit holder after transportation. As used in this paragraph, storage, use, or other consump- tion may not include a temporary delay or interruption necessary and In- cident to the transportation or further fabrication, processing, or assem- bling of taxable items within this State for delivery to the permit holder.

A charge for processing, fabrication, or fuNther assembly in a city that has adopted the local use tax shall be aubject to the local use ax. If a taxable item in first stored, used, or consumed within a city that has rot adopted the tax imposed by this Act or outside of a city, no local use tax is due.

See. 4. Subparagraph (1), Paragraph (c), Subsection (B), Section liB, Chapter 141, Acts of the 63rd Legislature, Regular Session, 1973, as added (Article lll8x, Vernon's Texas Civil Statutes), is amended " to read as follows: "(1) In every authority area where the tax authorized by this Act has been adopted pursuant to the provisions of this Act, there is hereby Im- posed an Pwrise tax on the storage, use or other consumption within such authority area of taxable items purchased, leased, or rented from any retailer on or after the effective date for collection of the sales tax portion of the sales and use tax for storage, use or other consumption In such au- thority area at the same rate as the sales tax levied under this Act of the sales price of the taxable item or, in the case of leases or rentals, of said lease or rental price. Except as provided in Subparagraph (4) of this paragraph, the use tax imposed by this section is not owed to and may not be collected by, for, or in behalf of an authority if ne excise tax on the storage, use, or other consumption of an item of tangible personal property is owed to or collected by the state under the Limited Sales, Excise and Use Tax Act, Chapter 20, Title 122A, Taxation-General, Revised Civil Statutes of Texas, 1925, as amended, or if the tangible personal property is first stored, used, or consumed within an authority or area that has not adopted the sales and use tax imposed by this section." Sec. 5. Paragraph (c), Subsection (B), Section 11B, Chapter 141, Acts of the 63rd Legislature, Regular Session, 1973 (Article 1118x, Vernon's Texas Civil Statutes), is amended by adding I Subparagraphs (4) and (5) to read as follows: "(4) If a sale of tangible personal property is consummated within thi, state but not within an authority that has adopted the taxes imposed by this section and the tangible personal property is shipped directly into or brought by the purchaser or lessee directly into an authority that has adopted the taxes imposed by this section, the tangible personal property is subject to the use tax imposed by the authority under Subparagraph (1) of this paragraph. The use is considered consummated at the location where the item Is first stored, used, or otherwise consumed after the intra- state transit has ceased. "(5) If the tangible personal property in shipped from outside this state to a customer within this state, the tangible personal property is sub- ject to the use tax imposed by Subparagraph (1) of this paragraph and not the sales tax imposed by Subsection (A) of this section. The use is con- summated at the first point in this state where the property is stored, used, 55. Vernon*- Ann.CIv.st. art. Ill.x, I jail. i. Vernon'- Ann.CIv.HL art. 1111. 1 111J.

oubee. (n). par. (a). subpar. (I). aubsec. (I), per. (c), ubpar*. (4). (5).

1403 cO. 624 th LEGISLATURE-REGULAR SESSION or otherwise consumed after interstate transit has ceased. Tangible per- sonal property delivered to a point in this state in presumed to be for stor- ap,use, or other consumption at that point until the contrary is estab- lished." Sec. 6.2 Paragraph (1), Subsection B, Section 6, Local Sales and Use Tax Act, as amended (Article 1066c, Vernon's Texas Civil Statutes), as amended by this article, expires August 31, 1981.

ARTICLE 2 Section 1. Paragraph (1), Subsection B, Section 6, Local Sales and Use Tax Act, as amended (Article 1066c, Vernon's Texas Civil Statutes), is amended s to read as follows: "(1) For the purposes of the local sales tax imposed by this Act, all retail sales, leases, and rentals, except sales of natural gas or electricity, are consummated at the place of business of the retailer unless the tan- gible personal property sold, leased, or rented isdelivered by the retailer or his agent to an out-of-state destination or to a commor, carrier for deliv- ery to an out-of-state destination or the taxable service is to be performed at an out-of-state location. In the event the retailer has no permanent place of butsiness in tho state, the place or places at which the retail sales, leases, or rentals art. consummated for the purposes of the tax imposed by this Act shall be d termined under rules and regulations prescribed by th, comptroller. If the retailer has more than one place of business in the state, the place or places at which retail sales, leases, and rentals are consummated shall be the retailer's place or places where the purchaser or lessee takes possession and removes from the retailer's premises the articles of tangible personal property, or if the retailer delivers the tan- gible personal property to a point designated by the purchaser or lessee, then the sales, leases, or rentals are consummated at the retailer's place or places of business from which tangible personal property is delivered to the purchaser or lessee. The sale of natural gas or electricity is consum- mated at the point of delivery to the consumer." Sec. 2. This article takes effect September 1, 1981.

ARTICLE 3 Jection 1. The importance of this legislation and the crowded condi- tion of the calendars in both houses create an emergency and an impera- tive public necessity that the constitutional rule requiring bills to be read on three several days in each house be suspended, and this rule is hereby suspended, and that this Act take effect and be in force from and after its passage, except as provided by Article 2,Section 2, and it is so enacted.

Passed the Senate on March 21, 1979: Yeas 31, Nays 0; Senate con- curred in House amendment on May 24: Yeas 31. Nays 0; passed the House, with amendment, on May 18, 1979: Yeas 104, Nays 21, one present not voting.

Approved June 13, 1979.

Effective June 13, 1979, except art. 2 effective Sept. 1, 1981.

I. Vernon's Ann.Clv.14t. art. 10"a note. 3. Vernon's Ann.CIv.Xt. art. l0B6e. 1. sub. me. It. per. (1).

1404 APPENDIX O § 321.203. Consummation of Sale, TX TAX § 321.203

Vernon's Texas Statutes and Codes Annotated Tax Code (Refs & Annos) Title 3. Local Taxation Subtitle C. Local Sales and Use Taxes Chapter 321. Municipal Sales and Use Tax Act (Refs & Annos) Subchapter C. Computation of Taxes This section has been updated. Click here for the updated version.

V.T.C.A., Tax Code § 321.203 § 321.203. Consummation of Sale

(a) A sale of a taxable item occurs within the municipality in which the sale is consummated. A sale is consummated as provided by this section regardless of the place where transfer of title or possession occurs.

(b) If a retailer has only one place of business in this state, all of the retailer's retail sales of taxable items are consummated at that place of business except as provided by Subsection (e).

(c) If a retailer has more than one place of business in this state, each sale of each taxable item by the retailer is consummated at the place of business of the retailer in this state where the retailer first receives the order, provided that the order is placed in person by the purchaser or lessee of the taxable item at the place of business of the retailer in this state where the retailer first receives the order.

(c-1) If the retailer has more than one place of business in this state and Subsection (c) does not apply, the sale is consummated at the place of business of the retailer in this state:

(1) from which the retailer ships or delivers the item, if the retailer ships or delivers the item to a point designated by the purchaser or lessee; or

(2) where the purchaser or lessee takes possession of and removes the item, if the purchaser or lessee takes possession of and removes the item from a place of business of the retailer.

(c-2) Subsection (c) does not apply if:

(1) the taxable item is shipped or delivered from a warehouse:

(A) that is a place of business of the retailer;

(B) in relation to which the retailer has an economic development agreement with:

(i) the municipality in which the warehouse is located that was entered into under Chapter 380, 504, or 505, Local Government Code, or a predecessor statute, before January 1, 2009; or

(ii) the county in which the warehouse is located that was entered into under Chapter 381, Local Government Code, before January 1, 2009; and

(C) in relation to which the municipality provides information relating to the economic development agreement as required by Subsection (c-3) by the deadline prescribed by that subsection, or, if appropriate, the county complies with Section 323.203(c-3) by the deadline prescribed by that section; and

(2) the place of business of the retailer at which the retailer first receives the order in the manner described by Subsection (c) is a retail outlet identified in the information required by Subsection (c-3) or Section 323.203(c-3) as being served by the warehouse on January 1, 2009.

(c-3) Not later than September 1, 2009, a municipality that has entered into an economic development agreement described by Subsection (c-2) shall send to the comptroller information prescribed by the comptroller relating to the agreement that identifies each warehouse subject to the agreement and each retail outlet that, on January 1, 2009, was served by that warehouse.

The comptroller shall prescribe the manner in which the information must be provided. The provision of information to the comptroller under this subsection does not affect whether information described by this subsection is confidential or excepted from required public disclosure. This subsection and Subsection (c-2) expire September 1, 2014.

(d) If the retailer has more than one place of business in this state and Subsections (c) and (c-1) do not apply, the sale is consummated at:

(1) the place of business of the retailer in this state where the order is received; or

(2) if the order is not received at a place of business of the retailer, the place of business from which the retailer's agent or employee who took the order operates.

(e) A sale of a taxable item is consummated at the location in this state to which the item is shipped or delivered or at which possession is taken by the customer if transfer of possession of the item occurs at, or shipment or delivery of the item originates from, a location in this state other than a place of business of the retailer and if:

(1) the retailer is an itinerant vendor who has no place of business in this state;

(2) the retailer's place of business where the purchase order is initially received or from which the retailer's agent or employee who took the order operates is outside this state; or

(3) the purchaser places the order directly with the retailer's supplier and the item is shipped or delivered directly to the purchaser by the supplier.

(f) The sale of natural gas and electricity is consummated at the point of delivery to the consumer.

(g) The sale of mobile telecommunications services is consummated in accordance with Section 151.061.

(g-1) The sale of telecommunications services sold based on a price that is measured by individual calls is consummated at the location where the call originates and terminates or the location where the call either originates or terminates and at which the service address is also located.

(g-2) Except as provided by Subsection (g-3), the sale of telecommunications services sold on a basis other than on a call-by- call basis is consummated at the location of the customer's place of primary use.

(g-3) A sale of post-paid calling services is consummated at the location of the origination point of the telecommunications signal as first identified by the seller's telecommunications system or by information received by the seller from the seller's service provider if the system used to transport the signal is not that of the seller.

(h) The sale of an amusement service is consummated in the municipality in which the performance or other delivery of the service takes place.

(i) If a purchaser who has given a resale certificate makes any use of a taxable item that subjects the taxable item to the sales tax under the provisions of Section 151.154, the use or other consumption of the taxable item that subjected the taxable item to the tax is consummated at the place where the taxable item is stored or kept at the time of or just before the use or consumption.

(j) The sale of services delivered through a cable system is consummated at the point of delivery to the consumer.

(k) The sale of garbage or other solid waste collection or removal service is consummated at the location at which the garbage or other solid waste is located when its collection or removal begins.

(l) Repealed by Acts 2007, 80th Leg., ch. 1266, § 15(4).

(m) If there is no place of business of the retailer because the comptroller determines that an outlet, office, facility, or location contracts with a retail or commercial business to process for that business invoices or bills of lading and that the outlet, office, facility, or location functions or exists to avoid the tax imposed by this chapter or to rebate a portion of the tax imposed by this chapter to the contracting business, a sale is consummated at the place of business of the retailer from whom the outlet, office, facility, or location purchased the taxable item for resale to the contracting business.

(n) A sale of a service described by Section 151.0047 to remodel, repair, or restore nonresidential real property is consummated at the location of the job site.

Credits Added by Acts 1987, 70th Leg., ch. 191, § 1, eff. Sept. 1, 1987. Amended by Acts 1989, 71st Leg., ch. 2, § 14.22(a), eff. Aug.

28, 1989; Acts 1989, 71st Leg., ch. 810, § 1, eff. Oct. 1, 1989; Acts 1991, 72nd Leg., ch. 705, § 26, eff. Sept. 1, 1991; Acts 2001, 77th Leg., ch. 370, § 2, eff. Aug. 1, 2002; Acts 2003, 78th Leg., ch. 209, § 55, eff. Oct. 1, 2003; Acts 2003, 78th Leg., ch. 1155, §§ 2, 3, eff. Sept. 1, 2003; Acts 2003, 78th Leg., ch. 1310, § 115, eff. July 1, 2004; Acts 2005, 79th Leg., ch. 728, § 23.001(83), eff. Sept. 1, 2005; Acts 2007, 80th Leg., ch. 1266, §§ 11, 15(4), eff. Sept. 1, 2007; Acts 2009, 81st Leg., ch. 1360, § 5, eff. June 19, 2009.

V. T. C. A., Tax Code § 321.203, TX TAX § 321.203 Current through the end of the 2025 Regular and Second Called Sessions of the 89th Legislature.

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 4 APPENDIX P 8501H0714A01 [Tax Type: Sales] [Document Type: Hearing] [Status: Superseded with Summary] The Comptroller of Public Accounts maintains the STAR system as a public service. STAR provides access to a variety of document types that may be useful in researching Texas tax law and tax policy. Documents which provide the Comptroller's interpretation of the tax laws are accurate for the time periods and facts presented in the documents.

Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued. Documents on STAR that no longer represent current policy may be completely or partially superseded, but there is no assurance that a document on STAR represents current policy even if it has not been marked as superseded.

Tax laws are complex and subject to change. Interpretations of the laws may be affected by administrative hearings, court opinions, attorney general opinions and similar authorities. STAR is a research tool, not a substitute for legal advice. If there is a conflict between the law and the information found on STAR, any decisions will be based on the law.

Texas Comptroller of Public Accounts STAR System

8501H0714A01 ALERT: Section 151.0101(a)(5) relating to the taxation of repair, remodeling, maintenance, and restoration of tangible personal property, was added to the Tax Code effective 10/2/1984. HB 122, 68 th Leg. Session, 2 nd C.S.

ALERT: Local tax collection is now governed by Rule 3.334, effective 5/31/2020.

HEARING NO. 15,654 IN RE: ************ TAXPAYER NO.: ************ FIELD OFFICE: ************ AUDIT PERIOD: JUNE 1, 1979 THROUGH APRIL 30, 1983 SALES TAX BEFORE THE COMPTROLLER OF PUBLIC ACCOUNTS OF THE STATE OF TEXAS FRED CONDER Administrative Law Judge ROBERT FREDERICK Representing Tax Division ************ Representing Petitioner COMPTROLLER'S DECISION INTRODUCTION: Petitioner seeks "redetermination" of its city sales tax assessment, amid waiver of penalty and interest on the entire assessment. Petitioner paid the tax assessed following the audit, but withheld the penalty and interest amounts because it planned to seek redetermination with respect to them. Subsequently, petitioner decided it should be refunded amounts paid as local tax. Petitioner advances one primary contention and two alternative contentions in support of its claim for total or partial refund of local tax, but facts relevant to the issue will be set out before stating and addressing petitioner's contentions.

The penalty and interest issue is addressed as petitioner's fourth contention.

FINDINGS OF FACT: 1. Petitioner is a domestic corporation which manufactures and installs replacement Teflon-based plastic bearings for pumping units in use on oil wells. Petitioner's headquarters office, manufacturing plant and warehouse is outside the city limits of CITY A, in ************ County, Texas. Manufacture of the bearings is done at the CITY A plant where petitioner's products are usually warehoused until they are shipped to the field for use. The CITY A office also handles all billing.

2. Petitioner has nine regional offices located within the state, six of which are within local sales tax jurisdictions and three of which are not. It maintains a small parts inventory at each of those offices. The primary function of these regional offices is to facilitate services to the surrounding oil fields, while creating visibility and enhancing goodwill.

3. The CITY A facility, plant-office-warehouse, had a sales tax permit as did the other nine offices.

4. Approximately two-thirds of petitioner's customers are businesses with which it maintains contracts for the services it performs. Upon a customer's request (or at regular intervals for some customers), an employee of petitioner inspects pumps for defective bearings. If petitioner's employee thinks bearings need to be replaced he so advises the customer's employee in charge at the well-site, and only if the customer agrees does he order and install new bearings on the pumping unit. Installation takes place at the well-site. All of these sites are located outside any local taxing jurisdiction. Almost all bearings were shipped from the CITY A facility to the well site; some went from a regional office to the well-site.

5. Each of the employees who inspected pumps, took orders for bearings and installed bearings at the well-sites, periodically checked in at one of the nine regional offices and were sometimes dispatched to a well-site by personnel at a regional office. None of these employees regularly stopped by the CITY A facility. Some, if not all, of the orders for bearings taken at the well-site were processed through a regional office by petitioner's employees. By processed is meant that some additional handling or paperwork was performed.

6. When petitioner installs new bearings on pumping units, it separately bills the customers for the labor and the bearings or material charges.

7. Petitioner was the subject of a sales tax audit for the 47-month period June 1, 1979 to April 30, 1983. The audit resulted in a deficiency assessment for both state and local taxes. Petitioner has conceded liability on the state tax portion of the assessment. At issue is the local tax assessed and paid, and the penalty and interest assessed.

8. Petitioner and the Tax Division have stipulated that city sales tax was erroneously assessed for CITY B and CITY C, Texas, where petitioner maintains offices outside the city limits. The tax should be deleted from the audit for those two cities. Deletion of the tax automatically reduces the penalty and interest assessment. The CITY D office was also outside the city limits of CITY D, but city sales tax was collected with respect to certain sales from this location. Note: Apparently the amount in dispute insofar as CITY D is concerned is only $************; this amount could be refunded to petitioner if petitioner convinces the Comptroller that it has refunded the money to those from whom it was originally collected. Otherwise, it must remain with the State, for "Any person who receives or collects tax or any money represented to be a tax from another person is liable to the State for the full amount of the taxes plus any accrued penalty and interest on the taxes." TEX. TAX CODE ANN. Section 111.016 (Vernon 1982).

PETITIONER'S PRIMARY CONTENTION: Petitioner contends that it should be considered a separately-billing contractor rather than a repairman, thereby fixing the job site (well-site) as the location for assessment of sales tax.

DISCUSSION AND CONCLUSIONS OF LAW: A one-percent tax is imposed on receipts from the sale at retail of all taxable items within any Texas city adopting a local sales and use tax. TEX. REV. CIV. STAT. ANN. art. 1066c, Section 2.B. (Vernon 1982). Questions regarding the taxability of particular items are governed by the Limited Sales, Excise, and Use Tax Act of the State of Texas. TEX. TAX CODE ANN. Section 151.001 et. seq.

The Comptroller is authorized to promulgate rules for the administration and enforcement of both acts so long as they do not conflict with the acts or with the Constitutions. TEX. REV. CIV. STAT. ANN. art. 1066c, Section 11; TEX. TAX CODE ANN. Section 111.002.

A contractor or repairman owes tax on any tangible personal property furnished by him and incorporated into the property of his customer if the customer is charged a lump-sum price covering both services performed (labor) and the material furnished; in such a situation the contractor or repairman is viewed as the consumer of the property, and it is the cost of the property to him which is the measure of the tax. However, a contractor or repairman must collect tax from his customer on any tangible personal property he incorporates into the property of the customer if the customer is charged separate amounts for services performed (labor) and for materials used. In this situation the contractor or repairman is viewed as a seller of the tangible personal property furnished by him and incorporated into property of the customer, and it is the cost specified to the customer, or the amount paid by the contractor or repairman, whichever is greater, that is the measure of the tax.

The Legislature has said: (d)...."contractor" or "repairman" means a person who performs a repair service on tangible personal property or makes an improvement on real estate and who, as a necessary or incidental part of the service, incorporates tangible personal property into the property repaired or improved.

TEX. TAX CODE ANN. Section 151.056 (Vernon 1982).

The Comptroller, by duly promulgated rules, has somewhat better defined and distinguished these terms. (a) Definitions (2) Contractor - Any person who improves real estate and who, in making such improvement, incorporates tangible personal property into property being improved. The term includes subcontractors but does not include materialmen and suppliers.

Comptroller's Rule 3.291. (a) Definitions (7) Repairman (A) Any person operating under either separated or lump-sum contracts, who restores, to good working order an item belonging to the customer which was broken, damaged, malfunctioning, worn, or defective....

Comptroller's Rule 3.292.

These rules have existed since sometime prior to December 31, 1975, at which time they were filed with the Secretary of State as existing rules, and the definitions have remained in substantially the same form. At no time has the Legislature seen fit to amend or alter the statute which these rules interpret and implement, and, in fact, the Legislature recodified the law as the Texas Tax Code effective January 1, 1982, without substantive change. It is well established that where a statute is reenacted without change that it essentially signals the adoption by the Legislature of the construction given over a period of time by that agency charged with the enforcement of the statute, especially where the agency has published rules announcing its interpretation.

The Comptroller has also defined the phrase "improvement to realty".

Rule 3.347 Improvements to Realty (a) "Contract for the improvement to realty" includes a contract with the intended purpose to: (1) Erect, construct, alter, or repair any building or other structure, project, development, or other permanent improvement on, under the surface of, or to real property whether fee or leasehold; or (2) Furnish and install property becoming a part of any building or other structure, project, development or other permanent improvement on or to such real property including tangible personal property, which after installation becomes real property by virtue of being embedded in or permanently affixed to the land or to a structure constituting realty and which property after installation is necessary to the intended usefulness of the building or other structure; or (3) Alter the land surface of real property by such means as creating roads, earthen dams, and stock tanks. However, mining or timber operations do not, in and of themselves, constitute improvements to realty. (b) "Contract for the improvement to realty" does not include: (1) A contract for the sale and installation of tangible personal property, this includes a contract to furnish and install machinery, equipment, or other tangible property not essential to the building or structure, nor adapted or intended to become a part of the realty, but which incidentally may, on account of its nature, be temporarily attached to the realty without losing its identity as a particular piece of machinery, equipment, or property and, if attached, is readily removable without substantial damage to the unit or to the realty or without destroying the intended usefulness of the realty; Comptroller's Rule 3.379(b)(3) provides that when a contractor performs under a separated contract (as does petitioner), "The job site is [his] place of business for the purpose of determining where city tax is due." If petitioner is a contractor, it would have no city sales tax liability since all the well-sites at which it serviced customer's pumps (the job sites) were outside any city limits.

Petitioner's argument then is as follows: (1) it incorporates the bearings which it manufactures into pumping units affixed to oil wells which are a part of the realty; (2) the pumping units are affixed to the realty in a stationary manner and form an integral part of the well; (3) accordingly, the pumping units are a part of the realty; (4) thus, petitioner's services are an improvement realty, within the terms of the statute; and, (5) its "place of business" is the job site (the well-site), and since the wells it serviced were outside any local taxing jurisdiction, city sales tax was erroneously assessed.

In making this argument petitioner cites and relies upon Wisconsin-Texas Oil Company v. Clutter, 258 S.W. 265 (Tex. App.-San Antonio 1924 , revd. on other grounds) 268 S.W. 921 (Tex. Comm'n. App. 1925, holding approved); and Woodsun Oil Company v. Pruett, 298 S.W.2d 856 (Tex. Civ. App.-San Antonio 1957, writ ref'd. n.r.e.). Petitioner's reasoning, though logically compelling, is not supported by the authorities. It is well-settled that oil field equipment placed on land by a lessee for the purpose of extracting oil and gas is personal property, removable at any time during the existence of the lease or within a reasonable time after its termination." See Summers, OIL AND GAS, 2d Ed. Section 526, and annotations therein. Courts have recognized exceptions to a lessee's right of removal in certain cases. In Texas, exception is made when removal would destroy a producing well. Both cases on which petitioner relies for support of its contention that pumping units are a part of the realty actually state this exception to the general rule. In Woodson Oil Co. v. Pruett, supra, the court made it clear that cessation of the right to removal is temporary and not indicative of a change in status of the equipment from personalty to realty. ... Woodson, under the lease, owns and has the right to remove the property and fixtures, but postpones that right in order to avoid the destruction or a producing well and the waste of resources. Id., at 858. (Emphasis added).

The Administrative Law Judge believes that the case of Meers v. Frick-Reid Supply Corporation, 127 S.W.2d 493, 496 (Tex. Civ. App.- Amarillo 1939, writ dism'd. judgmt. cor.), correctly states the Texas law governing the property status of oil field equipment used on a lease site, when it says: It has long been the law in Texas that property affixed to the land of another under a license from the owner is personal property. The party who annexes the same has the right to remove it within a reasonable time after the expiration of the license and it does not become a part of the soil. Moore v. Carey Bros. Oil Co., Tex. Com. App. , 269 S.W. 75, 39 A.L.R. 1247; Wright v. Macdonell, 98 Tex. 140, 30 S.W. 907.

Thus, the Administrative Law Judge concludes that petitioner is not a "contractor" within the meaning of the statute or administrative rules, but is instead a "repairman". When petitioner "incorporates tangible personal property into the property repaired or improved," to wit, incorporates bearings into pumping units, petitioner is not involved in making "an improvement on real estate" but in performing "a repair service on tangible personal property." Having rejected petitioner's primary contention it becomes necessary to dispose of petitioner's alternative contentions relating to local tax.

Local sales and use tax is determined to be due (or not due) from a substantive standpoint by reference to Texas' Limited Sales, Excise and Use Tax Act. City and MTA taxes simply "piggy-back" the State tax. If sales and use tax is due the state on a particular transaction, then local tax is also substantively (or technically) due, but now certain allocation or "geographic considerations enter the picture. We must decide which local jurisdictions, if any, are entitled to the tax. Before stating and treating the contentions, the legal backdrop should be laid: STATUTORY AND ADMINISTRATIVE PROVISIONS RELEVANT TO PETITIONER'S SECOND AND THIRD CONTENTIONS: The statute, with underscoring added, reads: B. (1) For the purposes of the local sales and use tax act, place of business of the retailer" means an established outlet, office, or location operated by the retailer, his agent or employee for the purpose of receiving orders for taxable items. The term "place of business" includes any location at which three or more orders are received by the retailer in a calendar year. A warehouse, storage yard, or manufacturing plant may not be considered a "place of business of the retailer" unless three or more orders are received by the retailer in a calendar year at such warehouse, storage yard or manufacturing plant. Each "place of business of the retailer must have a permit issued by the Comptroller . . . For the purpose of determining the proper local sales tax imposed by this Act, it retail sale, lease or rental is consummated as provided in Paragraphs (a), (b), (c), and (d) of this subdivision, regardless of where transfer of title or possession of the taxable item occurs unless the tangible personal property sold, leased, or rented is delivered by the retailer or his agent to an out-of-state destination or to a common carrier for delivery to an out-of-state destination. (a) If a retailer has only one place of business within this State, all retail sales, leases and rentals of the retailer are consummated at that place of business, except as provided in Subdivision (d) of this Subsection. (b) If a retailer has more than one place of business in this State, the retailer's place of business where the purchaser or lessee takes possession of and removes an item of tangible personal property is the place of business where the sale, lease, or rental of that item is consummated. If, however, the retailer ships or delivers the tangible personal property to a point designated by the purchaser or lessee, then the retailer's place of business from which the tangible personal property is shipped or delivered to the purchaser or lessee is the place of business where the sale, lease, or rental is consummated. (c) If neither possession of tangible personal property is taken at or shipment or delivery of the tangible personal property is made from the retailer's place of business within this State, the sale, lease, or rental is consummated at the retailer's place of business within the state where the order is received or if the order is not received at a place of business of the retailer, at the place of business from which the retailer's salesman who took the order operates. (d) When transfer of possession of tangible personal property occurs at or shipment or delivery originates from a location within the State other than a place of business of the retailer the sale, lease, or rental is consummated at the location within this State to which the tangible personal property is shipped or delivered or at which possession is taken by the customer when: (i) the retailer is an itinerant vendor and has no place of business, or (ii) the retailer's place of business where the purchase order is initially received or from which the retailer's salesman who took the order operates is outside the State, or (iii) the purchaser places the order directly with the retailer's supplier and the property is shipped or delivered directly to the purchaser by the supplier. (e) The sale of natural gas, or electricity is consummated at the point of delivery to the consumer.

TEX. REV. CIV. STAT. ANN. art. 1066c, Section 6, (Vernon Supp. 1984).

The administrative rule is of no additional help in defining place of business, simply reiterating the statute, but defines "itinerant vendor" as "a retailer who does not operate any 'place of business'," and contains the following pertinent provisions: (c) Determining City Tax (2) Delivery or shipment from a location within Texas other than the retailer's place of business. (A) Order placed with a Texas retailer. (i) If an order is received at the place of business of a Texas retailer, but delivery or shipment is made from a location within the State other than that place of business, city sales tax is due based upon the location of the place of business where the order was received. (ii) If an order is received by a traveling salesperson, and delivery or shipment is made from a location within the State which is not a place of business of that Texas retailer, city sales tax is due based on the retailer's place of business from which the salesperson operates. (4) Itinerant Vendors. If the retailer is an itinerant vendor, city sales tax is due based upon the city where delivery is made or possession is taken by the purchaser.

Title 34, Texas Administrative Code Section 3.374 (Comptroller's Rule 3.374).

Having set out the relevant statutory and rule provisions, petitioner's alternative contentions will be stated in its words, likewise the rebuttal contentions of the tax division will be stated in its words, but as should be apparent, the obtuseness of the pertinent "law" makes even the conceptualization of one's contention difficult.

PETITIONER'S SECOND CONTENTION [denominated by it as CONTENTION III]: "...The location where the order is initiated is controlling, no city sales taxes would be due as the location is out of any city limits. Orders are either taken at the PETITIONER Headquarters in CITY A [outside city limits or OCL] or at the job site." The rejoinder by the tax division was, "The Division contends that the petitioner's business location from which its repairmen are dispatched is the controlling site for imposition of local sales tax." [Six of the nine regional offices are inside city limits, or ICL).

Sidenote: Petitioner is incorrect in contending that any physical "location" where an order is initiated controls the issue of city sales or use tax; the key term is "place of business." Petitioner is, in effect, contending that under these facts the order is placed either at the job site or at the CITY A facility; if at the job site, petitioner contends that none of its locations (offices) meet the "place of business" definition and that Paragraph (d) is controlling and tax is allocated based on destination (location to which shipped or delivered); and if at the CITY A facility, petitioner contends that it then becomes a "place of business" (a location operated for the purpose of receiving orders, or a location at which three or more orders are received) and that whether it then be viewed as having only the "one place of business," per Paragraph (a) or as having "more than one place of business" per Paragraph (b), that tax is going to be allocated to its CITY A" place of business" which is outside city limits (0CL). And what the tax division is contending, is that the nine regional offices are places of business" (six ICL, three OCL) while the CITY A office is not, and that the reason they are "places of business" is because the repairmen-salesmen who do their repairing and selling at the 0CL well-sites are dispatched to such sites by persons in the regional offices; this then makes it a "more-than-one-place-of-business," Paragraph (b), situation and since the property is shipped from CITY A (OCL) which is not a "place of business" then Paragraph (c) comes into play and each sale "is consummated at the retailer's place of business within the State where the order [was] received or if the order (was) not received at a place of business of the retailer, at the place of business from which the retailer's salesman who took the order operates," i.e., from which he was dispatched.

PETITIONER'S THIRD CONTENTION [denominated by it as CONTENTION IV]: "In the event it is determined that. . . 'the order is initiated' at a point other than the CITY A office or in the field as contended above, the city sales tax is still inappropriate by virtue of Article 1066c, Sec. 6(B)(1)(b) .... which provides, with respect to a retailer who has more than one 'place of business' in Texas .... as follows: ...If, however, the retailer ships or delivers the tangible personal property to a point designated by the purchaser or lessee, then the retailer's place of business from which the tangible personal property is shipped or delivered to the purchaser or lessee is the place of business where the sale, lease, or rental is consummated." This time the rejoinder by the tax division was, "The Division contends that the place of business from which each salesman works controls under the instant fact situation." Sidenote: Here, petitioner's contention assumes that the CITY A office is a place of business; it will be correct if that is so. And the tax division's contention assumes that the CITY A office is not a place of business and at the same time assumes that the regional offices are places of business; and it will be correct if both of these assumptions are so.

DISCUSSION AND CONCLUSIONS OF LAW: This case could be disposed of very simply and efficiently if petitioner could show first, that during the audit period its CITY A plant-office-warehouse was a "place of business" pursuant to Section 6B. (1) of Article 1066c, set out above, and second, that all orders for bearings were shipped from the warehouse. But petitioner acknowledged that not all bearings were shipped from the warehouse; thus even if petitioner could show its CITY A facility to be a place of business within the meaning of the act, unless it could also show that its regional offices were not places of business, it would still bear the burden of proving its tax liability, i.e., satisfying the trier of fact of the dollar amount of bearings shipped from inside and outside city limits, although obviously the vast majority are shipped from the CITY A (OCL) facility.

INDIVIDUAL XYZ, who testified for petitioner, said that bearings kept at the regional offices were occasionally used to fill orders; however, there was no indication as to how frequently this happened. And, as found, some local offices were inside city limits at cities having adopted the local tax and some were not. Furthermore, there is a question as to whether or not these offices are "places of business" within the meaning of the act.

The tax division had little way to contest petitioner's assertion that virtually all bearings used by its employees to repair pumping units were shipped from the CITY A warehouse, and did not do so. The division chose only to dispute petitioner's contention that its CITY A plant-office-warehouse was a "place of business". Finally, though impliedly, the tax division asserted that the regional offices were "places of business." For otherwise we would have a "no place of business" situation and local tax would be allocated based on where the purchaser took possession or on where the property was shipped or delivered.

Petitioner supported its CITY A "place of business" contention indirectly by characterizing the contracts it maintained with a large proportion of its customers, and which were executed at its CITY A office, as "orders". As petitioner wrote: As a result of these Contracts or "orders", PETITIONER personnel may make regular calls on the respective customers' field Foreman or Supervisor and inspect pumping units at each well location. After the inspection, such personnel will advise the field Supervisor of the customers' company if new bearings should be incorporated into the unit. Only after the customers' field Supervisor concurs with the personnel of PETITIONER is a bearing ordered from the CITY A warehouse to the field location where it is incorporated into the pumping unit.

Petitioner's Reply to Position Letter, p.5.

The administrative law judge does not accept petitioner's equation of its standard work contract with an "order". Though the term "order" has not been statutorily or administratively defined, common sense dictates that its meaning is not as broad as petitioner would have it be. The work agreement submitted into evidence by petitioner does not constitute a request for any particular item of equipment. Instead, it provides certain terms by which the parties agree to abide in their business relationship.

Petitioner does not contend that its customers ordered equipment directly from its CITY A office, plant or warehouse. And the record indicates that they did not. Personnel employed by petitioner visited well sites, performed inspection of the equipment, and took orders for bearings from customers while at the lease sites where the repairs were to be made. The CITY A facility was operated as a manufacturing plant, headquarters office and warehouse, and it does not appear to have been operated "for the purpose of receiving orders of taxable items," and since there was no showing that "three or more orders [were] received... in a calendar year [there] " the administrative law judge must conclude that petitioner's CITY A plant-office-warehouse was not a "place of business" within the meaning of the statute.

Simply determining that orders were not taken or received at the CITY A facility and that it was not a place of business does not dispose of this case.

The orders for bearings were taken by petitioner's inspecting employees at the well-sites. In other words, the orders were received outside any city limits.

That being the case, petitioner argues that the transactions should relate to those sites. In effect, petitioner is arguing that the regional offices are not established for the purpose of receiving orders of taxable items, and do not receive three or more orders, and therefore they, just like the CITY A office, are not places of business. Thus, petitioner has "no place of business" and Paragraph (d) is applicable so as to fix the sale at the well-site, being "the location within this State to which the tangible personal property is shipped or delivered or at which possession is taken by the customer..." The tax division, on the other hand, argues that this fact situation requires that the location of sale for tax purposes be viewed as that regional office of petitioner out of which the employee receiving the order was dispatched, or if not dispatched, to which the employee reported in. Then, instead of saying that such offices also were not places of business and looking to (d) for allocation, the tax division says (without giving reasons) that they were places of business and therefore Paragraph (b), the "more than one place of business" paragraph, applies; however, since the customer-purchaser doesn't take possession of the bearings at a place of business but has the petitioner-seller ship or deliver the bearings to the well-site where they're to be used, and since that location of the seller from which the bearings are shipped is not a place of business, then Paragraph (c) applies.

Paragraph (c) states, "If neither possession of tangible personal property [was] taken at nor shipment or delivery of the tangible personal property [was] made from the retailer's place of business, the sale, lease or rental [was] consummated at the retailer's place of business within the State where the order [was]-received or if the order [was] not received at a place of business of the retailer, at the place of business from which the retailer's salesman who took the order operates. (underscoring added). Note: The legislature used the term of art "place of business" in the concluding phrase; the question is, did it mean to use the generic term "outlet, office or location operated by the retailer. " The tax division has read the statute in this latter manner, but made no rule making effort to explain or clarify this language.

In sum, petitioner takes the position that its regional offices were not "places of business" as defined by Article 1066c Section 6 B(l), supra, because the regional offices were not established for the purpose of receiving orders for taxable items and did not receive three or more on-site orders, and therefore the provisions of Article 1066c B. (1) (c) and Comptroller's Rule 3.374 (c) (2) (A)(i) and (ii), supra, are inapplicable since its salesmen did not relate to any "place of business" but merely to facilities maintained to provide a presence in the field. Petitioner is in effect urging that Article 1066c B(1)(d) and Rule 3.374(c)(4), supra, are applicable because petitioner had no "place of business" in the state. Since the CITY A plant-office-warehouse was not a "place of business," neither were the regional offices "places of business," and the sales it made should be considered consummated for local tax purposes at the location to which the property was shipped or delivered or at which the customer took possession. This argument is not without some merit, and not without some appeal.

The tax division on the other hand takes the position (I suppose) that the only way a business can make sales but have no "place of business" is to have no stationary location, i.e., to be truly itinerant--although the tax division's definition of "itinerant vendor" is inconsistent with that. (As noted earlier, it has defined itinerant vendor as, "A retailer who does not operate any 'place of business'."--And "places of business" is defined by statute as, "An outlet, office or location operated by the retailer for the purpose of receiving orders for taxable items" or "any location at which three or more orders [for taxable items] are received. . .in a calendar year.") This legislation is somewhat confusing; likewise, legislative intent may not be clearly discerned. But it seems to the administrative law judge that the Legislature was amending the law if not entirely in reaction to the then-pending case of Bullock v. Dunigan Tool & Supply Co., 588 S.W.2d 633 (Tex. Civ. App.-Texarkana, writ ref'd n.r.e.), at least partly in reaction to that case. And if that be so, then the Legislature did not want warehousing and storage facilities (many of which are outside city limits) to be the places where sales were consummated for local sales tax purposes unless orders were actually received there by personnel working there, but wanted the office location out of which the salesman operated to be the place where the sales were consummated. It also seems fairly clear that the Legislature did not want "destination" sales, but some "origination" of sales approach. This, of course, would tend to maximize city revenues while not affecting state revenues.

The administrative law judge concludes that it is reasonable to examine the facts relevant to how any particular employee goes about his assigned duties and responsibilities, and on the basis of such examination to determine which of the employer's various established outlets, offices or locations such employee should be regarded as "operating out of," as that term is commonly understood. The administrative law judge concludes that none of the employees who visited the well-site and ordered and installed bearings, worked out of Midland, but that each such employee logically worked out of one of the nine field offices.

The administrative law judge further concludes that the regional offices out of which petitioner's employees operated in the field were its "places of business" for local sales tax purposes for any sales made by such employees.

This conclusion is reached because the administrative law judge is of the opinion that the Legislature did not intend for a business with one or more stationary offices or locations operated by the business within this state to be an itinerant vendor, and did intend to maximize local revenue for the state's cities. Under the reasoning set out, the orders taken (or sales made) at the well-site by various employees of petitioner relate back to the "outlets, offices or locations operated by petitioner" out of which they operate.

Though customers may never have physically entered the regional offices and ordered bearings for pumping units, the offices did serve as bases of operation for petitioner's employees who performed inspections, ordering and installation functions, and it is reasonable to infer that the regional offices were established, at least in part, for the purpose of having employees operate out of them in receiving orders for taxable items. Orders received by petitioner's employees while at customers' lease-sites relate to those offices out of which they operate and cause them to be "places of business." Hence, the audited tax should be for local taxes assessed against the CITY B and CITY C offices and except for any local taxes assessed for the CITY D office which were not actually collected by petitioner.

PETITIONER'S FOURTH CONTENTION: Petitioner contends that penalty and interest should be abated.

FINDINGS OF FACT (continued): 8. Petitioner was the subject of a prior sales tax audit for the payment period March 1, 1974 through September 30, 1976. The present audit contains errors similar in nature to those discovered in the prior audit with respect to the state sales and use tax. The oldest of the nine regional offices opened outside the city limits of CITY C in July of 1976; petitioner did open a regional office in CITY E, Oklahoma on August 15, 1975; but no other Texas regional office opened prior to the end of the earlier audit period. The deficiency assessed as a result of the prior audit made no mention of local sales tax.

9. During the payment period in question in the present audit, petitioner was late in filing 16 of its 47 monthly returns.

DISCUSSION AND CONCLUSIONS OF LAW: The Comptroller has the discretionary power to waive penalty or interest if he finds that the taxpayer has exercised reasonable diligence in complying with the tax laws. TEX. TAX CODE ANN. Section 111.103 (Vernon 1982).

Petitioner exhibited it habit of filing late returns during the audit period, filing 16 of 47 late. Mistakes in the petitioner's collection and remittance of state tax were the same as errors made and discovered during a prior audit period. The prior audit made no mention of local tax and set up no local tax deficiency; but, of course, petitioner had opened only one regional office in Texas and that office was 0CL.

In exercising his discretion in this area, the Comptroller is concerned with such things as: the size and sophistication of the taxpayer, whether or not there have been prior audits and their results, and the clarity of the law pertaining to those tax questions in issue. In this case the administrative law judge is inclined to believe that petitioner has not demonstrated reasonable diligence with respect to the deficiency for state taxes, but has with respect to the deficiency for local tax. He recommends waiver of penalty with respect to those taxes; however since petitioner filed 16 returns late, and hence even if petitioner had correctly charged and remitted local tax it would have owed a penalty for those months, the administrative law judge concludes that the penalty amount attaching to local tax should be waived for the 31 months when petitioner timely remitted tax.

DISPOSITION: For the reasons contained in this decision and based upon the findings of fact and conclusions of law, the administrative law judge recommends that the audit-determined liability be redetermined by deleting local taxes assessed for the CITY B and CITY C offices and any local taxes assessed for the CITY D office that were not actually collected (or that have been refunded), that penalty be waived for any local tax deficiency occurring during the 31 months for which petitioner timely remitted, but not as to the other 16 months, and that interest be computed only through the date petitioner paid.

SIGNED this the 16th day of October, 1984.

FRED CONDER Administrative Law Judge ORDER OF THE COMPTROLLER The above decision of the administrative law judge, resulting in Petitioner's liability being as set out in Attachment "A" which is incorporated by reference, is approved and adopted in all respects. This decision becomes final on the 29th day of January, 1985, and the total sum of the tax, penalty and interest amounts is due and payable within 20 days thereafter. If such sum is not paid within such time, an additional penalty of ten per cent of the taxes due will accrue, interest will continue to accrue at ten per cent per annum, and the bonding or security provisions c)f the TEX. TAX CODE ANN. Sections 151.251-151.262 (Vernon 1982) will apply.

If a rehearing is desired, a Motion for Rehearing must be filed with the clerk of the administrative law judges on or before the date this decision becomes final, and must state the grounds upon which the motion is based. (See Rule 1.29, Rules of Practice and Procedure, or 34 TAC Section 1.29).

This is issued in accordance with the provisions of the Limited Sales, Excise, and Use Tax statutes, TEX. TAX CODE ANN. ch. 151 (Vernon 1982). RENDERED and ISSUED on this the 14th day of January, 1985.

BOB BULLOCK Comptroller of Public Accounts of the State of Texas

ACCESSION NUMBER: 8501H0714A01 SUPERSEDED: Y DOCUMENT TYPE: H DATE: 1985-01-14 TAX TYPE: SALES APPENDIX Q 200510723L [Tax Type: Sales] [Document Type: Letter/Memo] [Status: Partially Superseded with Summary] The Comptroller of Public Accounts maintains the STAR system as a public service. STAR provides access to a variety of document types that may be useful in researching Texas tax law and tax policy. Documents which provide the Comptroller's interpretation of the tax laws are accurate for the time periods and facts presented in the documents.

Texas Comptroller of Public Accounts STAR System

200510723L

STAR Superseded Information Supersede type: PARTIAL Document superseded on: 12/22/2021 Issue(s) that caused the document to be superseded : definition of “place of business” Reason(s): Rule 3.334 was amended in 2014 to clarify that a place of business’ sales must be made to persons other than employees, independent contractors, and natural persons affiliated with the seller, and to provide that if a sales office and a warehouse are in the same building, the entire facility is a place of business.

STAR Superseded Information Supersede type: partial Document superseded on: 12/21 / 2021 Issue(s) that caused the document to be superseded: Seller’s requirement to collect local sales tax based upon place of business Reason(s): Texas sellers are now required to collect any additional local use tax if they ship or deliver items to an address in another local taxing jurisdiction that has a higher local sales and use tax rate regardless of whether the seller has physical presence (people or property) in that locality. See Rule 3.334, effective 05/31/2020.

STAR Superseded Information Supersede type: partial Document superseded on : 01/31/2023 Issue(s) that caused the document to be superseded : Equating the terms “received” with “accessed and accepted” where internet orders are involved Reason(s): See preamble to Rule 3.334 (adopted 01/10/2023, effective 01/30/2023) concerning local sales and use taxes as it relates to the meaning of "receive" in subsection (b) of the Rule amendment.

October 6, 2005 ************** ************** ************** Dear **************: Thank you for your follow-up request concerning local tax collection.

You asked that I address whether the following facts create a “place of business” for purposes of local sales and use tax collection: Clearance center showroom A taxpayer has clearance merchandise for sale in the same building as a warehouse. In this situation, the merchandise may be in a different room or located in the center of the warehouse. Unless the taxpayer has taken steps to separate the clearance center from the warehouse (e.g. separate buildings, separate entrances without connecting doors), the clearance center showroom and the warehouse are one place of business and city and county sales and use tax should be collected based on the location of that place of business on all merchandise delivered to Texas customers from the warehouse.

Sales person assigned to warehouse whether wholesale or retail A sales person assigned to a warehouse will make the warehouse a place of business even when the sales person sells exclusively to wholesale clients.

Internet computer system receiving orders Orders are considered “received” where the Internet orders are accessed and accepted by the taxpayer. The location of the server does not create a “place of business” for purposes of local tax collection. If a taxpayer has a warehouse where the taxpayer’s employees receive orders for merchandise, then the warehouse will be considered a place of business for local sales tax collection purposes.

Please let me know if I can be of further assistance. My number is 512.463.4614.

Sincerely, Adina Christian Area Manager Tax Policy Division

ACCESSION NUMBER: 200510723L SUPERSEDED: P DOCUMENT TYPE: L DATE: 2005-10-06 TAX TYPE: SALES Automated Certificate of eService This automated certificate of service was created by the efiling system.

The filer served this document via email generated by the efiling system on the date and to the persons listed below. The rules governing certificates of service have not changed. Filers must still provide a certificate of service that complies with all applicable rules.

Mary Lou Swanson on behalf of Kyle Counce Bar No. 24082862 [email protected] Envelope ID: 108512713 Filing Code Description: Response Filing Description: 20251126 Appellee Cross-Appellants Response Brief Status as of 11/26/2025 3:49 PM CST Associated Case Party: City of Coppell, Texas Name BarNumber Email TimestampSubmitted Status Richard Phillips 24032833 [email protected] 11/26/2025 3:39:21 PM SENT Reed Randel 24075780 [email protected] 11/26/2025 3:39:21 PM SENT Stephen Fink 7013500 [email protected] 11/26/2025 3:39:21 PM SENT James Harris 9065400 [email protected] 11/26/2025 3:39:21 PM SENT

Case Contacts Name BarNumber Email TimestampSubmitted Status Bryan Dotson 24072769 [email protected] 11/26/2025 3:39:21 PM SENT Cynthia Bourland 790343 [email protected] 11/26/2025 3:39:21 PM SENT Brandon L.King [email protected] 11/26/2025 3:39:21 PM SENT

Associated Case Party: Glenn Hegar, in his official capacity as Texas Comptroller of Public Accounts Name BarNumber Email TimestampSubmitted Status Ray Langenberg 11911200 [email protected] 11/26/2025 3:39:21 PM SENT Kyle Counce 24082862 [email protected] 11/26/2025 3:39:21 PM SENT

Case-law data current through December 31, 2025. Source: CourtListener bulk data.