Round Rock files lawsuit against Texas Comptroller over sales tax revenue dispute

Williamson County

ROUND ROCK, Texas (KXAN) — Starting in October, the Texas Tax Code will change to redirect sales tax revenues, and some Texas cities aren’t happy about it.

The City of Round Rock has joined at least three other cities in filing lawsuits against the Texas Comptroller.

Round Rock’s suit alleges the Texas Comptroller’s sales tax sourcing rule is “invalid, void, and of no force and effect” and should be overturned.

Comptroller’s Rule 3.334 would source sales tax revenue from online purchases to the buyer’s location instead of the seller’s place of business.

This would most notably affect the amount of sales tax revenue the City of Round Rock generates from online sales made by Round Rock-based Dell Technologies.

“This rule change is bad for the state of Texas, bad for Round Rock, and bad for our businesses,” Mayor Craig Morgan said. “This kind of fundamental change should only be made by our elected leaders in the Texas Legislature, not the Comptroller. If this rule takes effect, it will eliminate an economic development tool that has been the foundation of the ‘Texas Miracle,’ championed by both former Gov. Rick Perry and current Gov. Greg Abbott.”

The City of Coppell, in conjunction with the Cities of DeSoto and Humble, also filed suit against Texas Comptroller Glenn Hegar.

“The smaller towns will certainly benefit somewhere, but the amount of revenue they’re going to bring in is relatively small,” said Coppell Mayor Wes Mays.

Mays said the move will cost Coppell, a suburban city just outside of Dallas, upwards of $26 million a year.

“We currently are headquartered to 27 corporate headquarters,” said Mays. “Some of those companies you’re going to know, like the Container Store and AAA Texas.”

Mays argued the headquartered cities need to keep those companies’ sales tax revenue to continue supporting businesses.

“We’re still going to be providing police, fire, roadways, and water and all of those services that require companies to do business. Yet, we won’t be getting any revenue for it,” said Mays.

In an op-ed article, the Texas Comptroller acknowledged businesses often cut deals with cities to get tax breaks or rebates for sourcing local sales tax dollars on internet purchases, but he also said, “my duty is to the taxpayers. Taxpayers do not pay local sales tax on internet purchases with the expectation that the revenue is being distributed to businesses and cities no where in their communities.”

The lawsuits were filed by Desoto, Humble, Coppell and Round Rock on Monday.

Hegar sent KXAN a statement in response to the lawsuits:

“The lawsuits make the same arguments that were presented to my office during the rule-making process. The arguments are addressed in the preamble and in a prior op-ed that I have written. The arguments were also presented to the Legislature, and the Legislature chose not to change our rules.”

Texas Comptroller Glenn Hegar

KXAN’s Kaitlyn Karmout reached out to smaller, neighboring cities to get their take on the tax code changes.

Taylor City Manager Brian LaBorde and Deputy City Manager Jeff Jenkins are monitoring the situation with the new sales tax laws and will be consulting with the Texas Municipal League for guidance on how to move forward. 

The City of Round Rock did not respond to KXAN’s inquiry on how much money the current sales tax code generates for the city.

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