Texas to Move for Its Piece of the Online-Sales-Tax Pie

Millions of dollars in online tax revenue go missed each year in the state, but a plan is in motion to potentially begin taxing remote purchases as early as Oct. 2019, the state’s chief tax collector says.

by Robert T. Garrett, The Dallas Morning News / January 2, 2019
Shutterstock/BigTunaOnline

(TNS) — Texas will miss out on millions in revenue from this year's holiday shopping season because it hasn't adopted rules to collect state and local sales tax on Internet purchases.

For at least several more months, it also will maintain a decades-old approach to administering the tax that confers a competitive advantage on certain online vendors beyond state lines.

Retailers with walk-in stores in Texas long have resented how their online competitors could sell to state residents without charging sales tax. In June, the U.S. Supreme Court delivered a huge victory to the "bricks and mortar" stores in a lawsuit, South Dakota v. Wayfair Inc. In a 5-4 decision, the court's majority said states may collect sales tax on Internet shopping, even if sellers don't have a physical presence in the taxing state.

Retailers who have buildings and lots of workers in Texas are eager for the state to start slapping its 6-1/4-percent sales tax — plus up to 2 percent more in local levies — on all e-commerce by Texas consumers, said George Kelemen, the traditional merchants' top lobbyist in Austin.

"The whole Wayfair decision was a big deal for us," said Kelemen, president and chief executive of the Texas Retail Federation. "It was about creating a level playing field for the industry."

Still, grocery company executives and soft goods retailers he represents grasp that the court's decision requires some complex governmental machinery to be set in motion, such as new state regulations and laws, he said.

"Obviously, if our Legislature had been in session when this came down, it probably would have been easier to move a little quicker," Kelemen said. "Some of these other states have the benefit of more full-time legislatures."

Within weeks of the high court's ruling, key state GOP leaders signaled they'd be in no rush.

Comptroller Glenn Hegar would confer with affected parties and lawmakers before issuing rules, and legislative leaders would propose needed bills for the 2019 regular session.

Kevin Lyons, a Hegar spokesman, acknowledged that Hegar is moving with caution — and deliberately so.

"We do want to get it right," Lyons said.

He stressed, though, that Amazon, Wayfair and some other large online sellers already are remitting to Hegar's office the state and local sales taxes due on purchases by Texans.

"We're obviously missing out on some" revenues, he said. "But we just had a record fiscal year in sales tax revenue. November was a record month, with almost $3 billion that we collected. I wouldn't be surprised if it tops that" for December.

In late 2014, then-Comptroller Susan Combs estimated that if Congress passed a proposed federal law to lower barriers to state and local taxation of Internet sales, Texas could gain $840 million annually and its local governments, $200 million.

But a settlement reached with online giant Amazon and voluntary compliance by other e-commerce companies means much of the predicted revenue bump already has occurred, Lyons said.

Hegar — not only chief tax collector, but lead prognosticator of state revenue — probably will give next session's budget writers only a modest amount of additional money from ramped-up collections of online sales tax, the spokesman said.

Hegar has laid out a timetable to collect sales tax on more Internet retailers' transactions with Texans, beginning Oct. 1.

Under a regulation recently proposed by the comptroller's office, "remote sellers" would look at their previous 12 months' worth of sales to Texas residents. If they exceeded $500,000, then they'd have to begin collecting and remitting the state and local levies to Hegar's office.

If not, they'd have a "safe harbor." They wouldn't have to pay.

Previous language in sales-tax regulations about physical presence or "nexus" — the subject of fierce lawsuits nationwide, for decades — would be scrapped.

According to the retail federation's Kelemen, the $500,000 threshold is "a well-balanced figure."

He noted that an out-of-state bookseller might never hit the $500,000 mark, though an online purveyor of jewelry, cameras or computers might hit it — and start having to pay — in the first few months of the 12-month cycle.

South Dakota and a number of states that already have moved to capture more online retailers used a threshold of $100,000 a year, or 200 transactions in the state, as the trigger for having to collect and remit the state's tax.

Still, "Texas is a big state. It's a huge economy and retail sales and sales tax remittance is a big part of our state's economy," Kelemen said. "To (state leaders') credit and to the comptroller's credit, they want to get it right."

He said the federation "understands" that Hegar intends to make third-party marketplace sellers such as eBay, Amazon and Etsy to pay on their "aggregate sales" from small vendors.

"If I'm a guy in Arkansas selling comic books into Texas and I'm going through eBay, you as my customer are going to pay sales tax on that because I'm going through eBay, (which) has to remit sales tax" on all third-party transactions, he said.

Meanwhile, the Legislature is moving to give remote sellers fewer hassles when it comes to computing how much local tax to remit to the Texas comptroller.

Under a bill prefiled by Flower Mound Republican Sen. Jane Nelson, the Senate's chief tax-policy writer, the remote retailers wouldn't have to figure out the local sales tax in each of Texas' nearly 1,500 sales tax jurisdictions. They could opt to pay a flat 1.75 percent of local tax on all sales to Texas residents.

©2018 The Dallas Morning News. Distributed by Tribune Content Agency, LLC.

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