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Texas Local Tax Sourcing Rule Temporarily Enjoined

Tax Development Sep 02, 2021

Texas Local Tax Sourcing Rule Temporarily Enjoined

The Texas Comptroller of Public Accounts (“Comptroller”) and the cities of Coppell, DeSoto, and Round Rock agreed to an injunction to prohibit the Comptroller from implementing an amendment to the Comptroller’s Rule 3.334 on local tax collection.1 The enjoined Subsection (b)(5) provides that internet orders are not received at “places of business of the seller.”

If implemented, this would move Texas toward destination-based local tax collection and away from the origin-based model. In Texas, local sales tax is collected based on the seller’s place of business

  • where an order is placed in person,
  • that ships the order, or
  • that receives the order.

As defined in the Comptroller’s rule, a place of business is a location established to receive orders from nonrelated individuals and that receives at least three orders in a year.

In effect, the enjoined amendment provides that a business that receives orders exclusively via the internet does not have a “place of business” in Texas, for local tax purposes. Therefore, local tax would have been based on the ship-to addresses of its Texas customers even if the business was actually located in a city, county, transit authority, and/or special purpose district that imposes sales tax.

The enjoined amendment also would have affected a business that has both a Texas place of business and a warehouse that does not receive orders. Orders shipped from the warehouse would have been subject to two different local tax rules based solely on the technology used to receive the orders:

  1. Phone orders, based on the location of the place of business where the order was received; and
  2. Internet orders, based on the ship-to addresses of the customers.   

Unless modified by a future order, the injunction will remain in effect until a final hearing on the merits of the case. The trial on the merits is presently scheduled for the week of June 13, 2022. As a practical matter, therefore, Rule 3.334(b)(5) will not be implemented or enforced before that date.

1 34 TAC Sec, 3.334.


Clara Kippes

Adina Christian

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