Sales Tax Regulations

Background Information: Rule 3.334

A 2018 United States Supreme Court decision, South Dakota versus Wayfair, Inc., allows States to require remote businesses (without a physical presence in Texas) to collect State and local sales or use taxes on items that are delivered to their jurisdiction. The Texas legislature passed two bills in 2019 to address this issue. With the adoption of this legislation, the Texas Comptroller of Public Accounts implemented rules that go far beyond the intent of the legislation and additional policies that substantially negatively impact Farmers Branch and many other communities.

Currently, if someone orders items from one of the many warehouses or fulfillment centers in Farmers Branch, the City receives the sales tax generated by the sale. Under the Comptroller's adopted rules, even though the sale is made in Farmers Branch, the sales tax would be designated for the city in Texas where the product is delivered. Remember, Farmers Branch, and similar cities, provide all the public services required for these warehouse operations, including police, fire protection, streets, and utilities.

The City of Farmers Branch believes this is a radical change, not envisioned by the Texas Legislature when they passed the two bills in 2019, and that these additional provisions will have a significant negative impact on Farmers Branch and many other Texas cities. This approach disrupts decades of established local sales tax sourcing rules. Farmers Branch and other cities have taken legal action to ask the Comptroller of Public Accounts to reconsider the current proposed rules.

Legal Action

In September, the City of Farmers Branch joined partner cities in a lawsuit against the Texas Comptroller of Public Accounts in an effort to delay, modify or rescind proposed changes to local sales tax collection rules that were expected to go into effect October 1, 2021.

After legal arguments, the Texas Comptroller agreed to a temporary injunction to delay enforcement of those provisions of Rule 3.334 scheduled to go into effect October 1, 2021. 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.