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News Release from Comptroller Susan Combs

Contact:Allen Spelce
R.J. DeSilva
(512) 463-4070

For Immediate Release
December 13, 2007

Texas and Other States Make Major Move Toward Online Sales Tax Compromise


AUSTIN — Comptroller Susan Combs says Texas and a working coalition of other states are a major step closer to agreement on a streamlined sales tax (SST), a simpler and more uniform set of sales tax laws to help state and local governments receive sales tax revenue from online and mail order sales.

In Dallas Wednesday, the Streamlined Sales Tax Governing Board unanimously approved a compromise allowing Texas and other sales tax-dependent states to continue taxing intrastate sales at the rate in effect at the seller’s location (origin sourcing), but to tax interstate sales at the rate in effect where the merchandise is delivered (destination sourcing). As originally drafted, the SST plan required destination sourcing for both interstate and intrastate sales.

Destination sourcing for intrastate sales has been a major barrier preventing Texas from joining the alliance of states supporting SST.

“We strongly favor making state tax laws simpler and more uniform to make it easier for online sellers to collect state and local sales taxes from customers,” Combs said. “But Texas could not agree to a plan that would cause local communities to lose sales tax revenue generated by local businesses that ship goods elsewhere in the state. Texas communities work hard to attract and support local businesses and rely on the taxes those businesses generate.”

Since 2000, the Streamlined Sales Tax Project has worked to create a standardized sales tax collection system across member states. By agreeing on uniform laws, the coalition of states hopes to persuade the U.S. Congress to pass a law making it mandatory for online and mail order businesses to collect state and local sales taxes from their customers.

Under the compromise approved by the SST Governing Board, on intrastate sales, states like Texas could continue to collect the state sales tax and use origin sourcing to determine the correct local tax on goods, but the local sales tax would be collected for the place the order is taken. Currently in Texas, local sales tax is collected for the location the goods are shipped from, if the seller has multiple places of business. On interstate sales, the seller would collect state and local tax based on the place of delivery.

Currently, online and mail order businesses are required to collect Texas sales tax only if they have a physical presence in the state, such as a store, warehouse or distribution center; sales agents; or delivery vehicles.

“In fiscal 2006, Texas lost an estimated $541 million in state sales tax on Internet and mail order sales,” Combs said. “We must monitor and fix this leak. This compromise is a major step forward on the long road toward allowing states to collect sales tax that is rightfully due on Internet and mail order sales. I commend the Streamlined Sales Tax Governing Board for recognizing Texas’ concerns and working with us to craft a plan that protects local governments from sales tax losses.”

Representatives of Texas cities, including Farmers Branch, Carrollton and Round Rock, helped convince the SST Governing Board to accept Texas’ position.

“Round Rock has been supportive of simplifying sales tax rules to facilitate interstate commerce as long as the changes did not harm our city or the many cities with similar sales tax reliance,” said Round Rock Assistant City Manager David Kautz. “Round Rock believes that the approved amendment provides a compromise that we have long sought and enables our intrastate origin-based sourcing rules to remain intact. Many details must be worked out, but we believe this is a positive first step.”

Combs made a commitment to the Streamlined Sales Tax Governing Board to work with the Legislature for passage of needed legislation for Texas to adopt the streamlined sales tax. If that happens, Texas would be the largest state to join the SST project. Twenty-two states have already adopted SST.

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