Local Sales and Use Tax Rule Changes

Rule 3.334, Local Sales and Use Taxes, effective May 31, 2020, implements provisions related to the Wayfair decision, marketplace providers and single local use tax rate for remote sellers legislation, and provides guidance on determining the place of business of a seller.

Texas sellers are now required to collect any additional local use tax if they ship or deliver items to an address in another local taxing jurisdiction that has a higher local sale and use tax rate regardless of whether the seller has physical presence (people or property) in that locality.

Additionally, the rule requires both remote sellers and marketplace providers to collect local tax based on the destination location. Remote sellers may elect in writing to the comptroller to use the single local use tax rate (1.75 percent). Purchasers can also request a refund when the single local use tax rate is higher than the locality’s tax rate. However, marketplace providers cannot use the single local use tax rate.

The rule also clarifies the definition of a place of business to more closely follow the statutory provision that a place of business must have employees (sales personnel) at its location. It amends the definition to specifically exclude computer servers, Internet protocol addresses, websites, domain names or software applications because orders placed through these applications are automated and are not received by sales personnel as described by statute.

The rule provides a hierarchy for determining where a local sale is "consummated," which includes an evaluation of whether an order is received at a place of business of the seller in Texas, and whether an order is fulfilled from a place of business of the seller in Texas. This evaluation may result in local tax being due in the local jurisdiction where the order is received, in the local jurisdiction where the order is fulfilled, or in the local jurisdiction where the order is delivered.

The rule also provides guidance regarding the location where an order is received. Two of these provisions are effective Oct. 1, 2021:

  • An order received by a salesperson while traveling will be treated as being received at the location from which the salesperson operates if the location independently meets the definition of a place of business.
  • An order not received by a salesperson, such as an order received by a shopping website or shopping application, is received at a location that is not a place of business of the seller.

Pursuant to an agreed temporary injunction, the agency has agreed not to enforce the second of these provisions while its validity is being challenged in district court. The temporary injunction does not change the effective date of rule. If the courts ultimately determine that the rule follows the statute, taxpayers as well as the agency will be bound by that determination.