San Marcos, Other TX Cities To Receive Reprieve On Portions of Sales Tax Code Policy Changes

Staff Reports

The City of San Marcos and other cities in Texas will receive a short reprieve when it comes to local sales tax policy changes.

Earlier this year, Texas Comptroller Glenn Hegar announced a proposed policy change on how the state collects sales taxes on internet purchases.

The policy change will close up a loophole and make clarifications to Rule 3.334 in the Texas Sales Tax Code, which cities throughout the state have been benefiting from with or without their knowledge.

Under the current policy, Texans are paying local sales taxes, which are being used in cities where they have no rights as voters.

If a San Marcos resident buys a computer online from Dell, then the sales tax revenue goes to the City of Round Rock, which is where Dell’s headquarters are located.

The comptroller’s office, which initially intended to put the policy changes into effect this year, has delayed portions of the new policy until October 2021.

The postponement will allow the Texas Legislature the opportunity to review the policy changes and propose potential revisions in January 2021.

The City of San Marcos has been anticipating a drop-in revenue with the policy change’s implementation and reviewing their budget early to accommodate necessary budget cuts.

In 2016, the city council approved a 380 Economic Incentives agreement with the retailer, which grants Best Buy a 75 percent sales tax rebate. The remaining 25 percent San Marcos keeps.

The Sales Tax rebate can be extended for up to two additional 10-year terms if the request is approved by city officials.

Best Buy’s agreement states that the facility’s primary focus would be internet retail sales operations.

In February, former Director of Finance Heather Hulbert of San Marcos said Best Buy’s 380 agreement provides $2 million in sales tax revenue to the city’s general fund and would likely be the only one affected by the state’s sales tax policy change.

“This new ruling would shift sales taxes collections from the point of origination of the sale to the point of destination of the product for any sale that is made by a business that cannot meet the new definition of a place of business or that receives the sale through the internet,” Hulbert said.

Mayor Jane Hughson of San Marcos told the Austin American-Statesman she has been advocating the policy change be postponed indefinitely.

Hughson said the policy change will have a “huge negative impact” on San Marcos residents’ quality of life along with the financial impacts of the COVID-19 Pandemic.

Related Coverage: 

• Changes To State, Local Sales & Use Taxes Could Cost San Marcos Millions