Reed Smith Client Alerts

Key takeaways

  • On April 19, 2024, the Comptroller proposed further revisions to Comptroller Rule § 3.334, concerning local sales and use taxes.1
  • This proposal introduced three new definitions and included a provision specifically addressing small businesses or micro-businesses operating from a single location.
  • The 30-day comment period concludes on May 19, 2024.

作者: Rich Moore


By way of background, the Comptroller and several Texas cities have been litigating for several years how internet sales by in-state retailers to Texas residents (i.e., intrastate online sales) should be sourced for local sales and use tax purposes. Until 2020, these sales were generally sourced to the seller’s in-state place of business where the online purchase was “consummated” — that is, where the order was received or fulfilled by the seller. As a result, the city that hosts an online retailer’s order-processing facility or fulfillment center has traditionally received the local tax on 100 percent of the intrastate online orders processed and fulfilled at the location in the city. In many cases, local governments made deals with retailers to site facilities within their jurisdictions to capture the local sales tax revenue on intrastate online sale, often providing sales tax rebates to retailers in return.

In 2020, to address these perceived abuses, the Comptroller adopted changes to the state’s local tax sourcing rule — Comptroller Rule § 3.334 — including a provision that would change the sourcing of online sales for local sales and use tax purposes to the location where the goods are delivered or taken possession of, unless the sale is fulfilled at a location that constitutes a “place of business”. In response, the cities of Round Rock, Coppell, DeSoto, Humble, Carrollton, and Farmers Branch — many of which host fulfillment centers for online retailers — filed suit in 2021 to overturn those changes in City of Round Rock v. Hegar.2 The cities raised procedural and substantive arguments, including that the Comptroller was creating a destination-sourcing local tax regime without legislative authorization.

In August 2022, the district court upheld the cities’ procedural complaints. In January 2023, the Comptroller readopted the rule to correct the procedural defects, but also included new language providing that online orders forwarded to a fulfillment center are not considered to be received at the fulfillment center. The Comptroller also included language providing that facilities like fulfillment centers are not places of business per the state’s sales tax law unless they meet certain criteria, like having sales personnel working at the facility and receiving orders from customers. The Comptroller’s amended sourcing rule effectively results in the local tax on many intrastate internet sales going to the location of the buyer.