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A U.S. Supreme Court decision, South Dakota v. Wayfair, Inc., allows local taxing jurisdictions to require remote businesses (without a physical presence in Texas) to collect local sales or use taxes on items that are delivered to their jurisdiction. The Texas legislature passed two bills in the last session to deal with this issue. Now, the Texas Comptroller of Public Accounts has recommended policies that would substantially negatively impact Coppell and many other communities.
Currently, if someone orders items from one of the many warehouses or fulfillment centers in Coppell, we receive the sales tax generated by the sale. Under the Comptroller’s proposed rules, even though the sale is made in Coppell, the sales tax would be designated for the city in Texas where the product is delivered. Remember, Coppell, and other cities like Coppell, provide all the public services required for these warehouse operations, including police, fire protection, streets and utilities.
We believe this is a radical change, not envisioned by the Texas Legislature when they passed these two bills, that would have a significant impact on Coppell and many other Texas cities. This approach would disrupt decades of established local sales tax sourcing rules. Coppell and other cities are asking the Comptroller of Public Accounts to reconsider the current proposed rules and, if necessary, may be forced to take legal action if these issues cannot be resolved.
The Council and City Manager are taking a two-pronged approach to this issue. One step is to work with other cities, retain legal counsel, work with our legislators and attempt to see if the proposed comptroller’s rule can be delayed, modified or rescinded. The council has authorized the hiring of experts to assist with this issue, and the Mayor and city manager have gone to Austin to testify on behalf of the city. Litigation is another possibility.
Read the Mayor's testimony.
Read the City Manager's testimony.
The second step being taken by city staff is to begin a review of the
budget to determine how to best maintain a high level of city services, continue to operate in a conservative and responsible fiscal manner while taking into account the possibility of a substantial reduction in sales tax revenue.
Staff has put in place a three-step analysis to best determine how to meet this objective.
The city manager has already instituted a hiring freeze in order to begin reducing costs.
We do not know the severity of the reduction in revenue, nor do we know the timing. If the new rule goes into effect in April, the city would loose approximately $6 million in sales tax revenue. Annually it could lose as much as $12 million in the General Fund which is 16% of the city’s overall General Fund budget.