- Sales Tax Regulations
- Rule 3.334 Timeline
Rule 3.334 Timeline
Use this reverse timeline to track the progression of Rule 3.334 and the lawsuit. The timeline will be updated as litigation continues.
The City of Farmers Branch joined the lawsuit.
After a day of arguments before the 250th Civil District Court, the Texas Comptroller of Public Accounts, Glenn Hegar, agreed to a temporary injunction (PDF) to delay enforcement of those provisions of Rule 3.334 scheduled to go into effect October 1, 2021. The injunction effectively delays the implementation of those provisions until the trial (scheduled for January 2024) or further order of the court. As a result of the temporary injunction, the rules currently in place will remain in effect statewide. Businesses across Texas should continue their current approach to assigning the local portion of Texas sales tax to a local taxing authority.
The City of Coppell, in conjunction with the Cities of DeSoto, Humble and Carrollton, filed suit against Glenn Hegar in his official capacity as the Texas Comptroller of Public Accounts arguing that the Comptroller arbitrarily and capriciously tried to change a long-standing Texas practice based on state law that governs how cities receive local sales tax revenues from Internet sales to the detriment of cities such as Coppell and others. The City of Round Rock also filed a similar suit. The lawsuits were filed in state court in Travis County, Texas.
City Manager Mike Land and former Mayor Karen Hunt testify at a hearing regarding the rule change. Read the City Manager’s testimony (PDF). Read Mayor Hunt’s testimony (PDF).
The Texas Legislature passed Senate Bill 2, which adds restrictions to revenue sources, and the Comptroller of Public Accounts proposed Rule 3.334, which significantly negatively impacts the City’s sales tax revenue. Rule 3.334 was initially expected to go into effect in April 2020, giving the City only months to prepare for an expected 60% loss to sales tax revenue. To mitigate the revenue shortfalls that will result from these changes – in addition to the impact of the COVID-19 pandemic – staff analyzed departmental budgets in depth to determine how to make the necessary expenditure reductions while maintaining the high level of quality city services Coppell has come to represent.
- Major steps included: freezing hiring for approximately 32 positions, reducing expenditures, and reducing capital spending
- The City analyzed existing fund balances to determine the best strategy to mitigate the impact of the expected remaining revenue loss. The City identified two fund balances that will be used to cover the revenue reduction that cannot be accounted for through reduced expenditures: funds that City Council had previously set aside in the City’s designated fund balance until designated for a use should an issue such as this arise, and a fund that Council had previously set up to be used in case of revenue threats. Transfers from the Water/Sewer Fund and allocations from other fund balances are also being used to mitigate revenue reductions.
United States Supreme Court decision, South Dakota versus 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 2019 to address this issue.