A new bill introduced by State Representative Morgan Meyer could change state law so sales tax originating from online purchases would be collected by destination cities instead of going to the cities from where the product is being shipped.
On April 7, 2023, officials from three North Texas cities spoke out against the legislation in a hearing before the House Ways and Means Committee in Austin.
According to the Dallas Business Journal, officials from Coppell, Lancaster and Lewisville argued that the change in taxation House Bill 5089 proposes would hit municipal budgets and affect cities that built their budgets based on existing tax laws.
Patrick Kelly, a Lewisville City Council member explained that cities with lower property values, welcome warehouses as part of their long-term strategic planning and switching to destination sourcing would increase homeowners’ property taxes to compensate for the loss of sales tax.
“The ability to collect property taxes is somewhat limited. Sales tax is one of the ways that we can kind of catch up with other communities,” added Karl Stundins, research & business development manager for the City of Lancaster. “This bill will limit our ability and abilities of communities like us that haven't traditionally done as well but are working to bring ourselves up."
In the case of the city of Coppell, the new bill would throw away more than 50 years of infrastructure investment, land use and zoning ordinances aimed at turning areas near the noisy Dallas Fort Worth International Airport flight paths into prime distribution hubs. According to Coppell Mayor Wes Mays, today, the distribution hubs total almost 29 million square feet of space.
“While other communities were growing with rooftops, Coppell held firm in its decision-making these past 50 years to ensure that the western half of our city developed as a warehouse distribution and light manufacturing hub for the region,” Mays said. “Road, water, sewer and drainage investments were sized and constructed to accommodate the wear and tear of the 18-wheelers to protect the 29 million square feet of office space. The negative impact of the proposed legislation HB 5089 is devastating — $35 million of the city sales tax will vanish overnight.”
But Rep. Meyer, who, in addition to authoring the bill chairs the House Ways and Means Committee, said this change would reflect other states’ tax laws where destination sourcing is used as a fairer taxing method for e-commerce sales. He argued that cities with distribution centers are profiting from the sales taxes of purchases made somewhere else. He added that the change would not be overnight.
“We're grandfathering it in,” said Meyer. “We're giving you five years to figure it out on a go-forward basis. This will not take immediate effect.” The five-year transition period is expected to give municipalities time to adjust their budgets to the new tax structure.
For now, the Ways and Means Committee left HB 5089 pending but it’s unclear if it will be revisited before being voted on by the committee, and presented to the full House for approval.
