House Ways & Means – February 5, 2020

The House Committee on Ways and Means met to take up several interim charges which included discussions on recent proposed rule 3.334 on local sale and use taxes by the Comptroller.

• Charge 1.2: HB 1525 and HB 2153, which relate to the collection of sales and use taxes by marketplaces and out-of-state businesses. Monitor the Comptroller of Public Accounts’ rules regulating the collection of sales, use, and franchise tax to ensure compliance by marketplace providers and out-of-state businesses and monitor any revenue increases as a result of implementation of these bills.

• Charge 5: Review the use of third-party tax collection firms, including law firms and tax specialty firms, by governmental units. Evaluate what methods other states use to collect taxes. Determine whether the use of those firms is cost-effective for the taxing jurisdiction or if the tax collection efforts should be performed by the taxing units directly. 

• Charge 6: Monitor the State Auditor’s review of agencies and programs under the Committee’s jurisdiction. The Chair shall seek input and periodic briefings on completed audits for the 2019 and 2020 fiscal years and bring forth pertinent issues for full committee consideration.

This report is intended to give you an overview and highlight of the discussions on the various topics the committee took up. It is not a verbatim transcript of the hearing but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

Interim Charge 1.2

Invited Testimony

Texas Comptroller Glenn Hegar

• Proposed rule 3.334 on local sale and use taxes implements HB 1525 and HB 2153
  • The proposed rule was published in the Texas Register on Jan. 3^rd, 2020 initially with a 30 day public comment period – testimony was that this period has been extended
  • Proposed rule amendments implement the requirement that a seller located in Texas collects local use tax when the seller ships or delivers a taxable item into a local jurisdiction where those use taxes exceed the local sales tax where the sale is consummated
  • The proposed rule also add a definition for “internet order”, “marketplace provider”, “order placed in person”, and amends the definition for “engaged in business”, “place of business of the seller – general definition” 
• Approach to rulemaking – update rules so they are more friendly, keep up with growth and Texas economy
• In 2014 looked to clarify rules on internet orders but did not at that time
• Since 2014 technology has changed and internet orders have increased
• Most questions on the rule have been on re-organization of the rule and sourcing of local taxes on internet orders

Associate Deputy Comptroller Karey Barton 

• Refers to power point presentation provided
• Reviews history of Wayfair decision and implementation of rules in 2019 addressing it
• Collection began in Oct. 1, 2019 – funds have come into state coffers since then
• Since then, amendments were made to 3.286 and adopted which took effect on Jan. 1, 2020
  • With rule, notification of marketplace sellers and providers
  • Required third party sellers to aggregate all sales over all sites (ie Amazon platform, their own webform, Ebay, etc)
  • This matches what other states have done
  • Establish procedures for a waiver that creates an exception to marketplace providers
  • To date, have had three providers ask for extension, Comptroller office is working with them
• First report on Wayfair due Nov. 20, 2019
  • 2,640 new remote sellers were registered
  • 345 registered as marketplace providers
  • Have provided more of a broader exclusion to entities that are like “delivery apps”
    • Like uber eats and grocery stores
  • Identified some would be marketplace providers and others would not, decision was across the board, to exclude them for now
• Issues they may hear next session
  • What about other fees/taxes from sellers such as those who collect the $2 battery fee
  • Discussions about tying that together
  • Telecom asking for exclusion, they want clarity
• Revenue from Market Place Providers – 4^th quarter 2019
  • Total state revenue $213 million
  • Local collection is just shy of $60 million
  • Remote seller self- reporting $66 million
  • $18 local million under HB 2153 language
• HB 2153 rate is 1.75% and will run through 2020, will look at it later in the year for possible changes for next year
  • Require registration with notification if they are moving away
  • Remote sellers using the rate, this goes into a pool
  • Local areas get percentage of the pool for example Houston would receive 7.3%
  • Stop gap measure and eventually want to provide remote seller with a database to determine local sales tax rates based by addresses
  • Next few weeks will issue RFO to develop that with it coming online by 2022
• Other changes proposed in 3.334
  • Addressing HBs and is re-organizing
  • Only made a couple of clarification – like where is an internet order received or sourcing
  • Internet order may make it difficult to determine where service is occurring, hope is rules address and provide clarity
• How they see rules impact and apply are addressed in slides
• Clarification relating to traveling salesperson are also in the proposed rules
• Proposed rule also provides for a temporary exception from sourcing provisions regarding internet orders for businesses and cities who entered into economic development agreements under ch.380 and 381 as long as entered into by 2019
• Exception expires on Dec 31, 2022
• Exception will last for 3 years but does not apply to walk in sales or those taken over the phone
• Chart included in slides walks through how would one source out local sales tax for orders

Texas Comptroller Glenn Hegar

• Place of Business (POB) has been in statute since 1980 – POB where customer can walk in or call in and place an order where internet does not meet POB definition
• Proposed rule prevents arbitrary shifting of local revenues from one taxing jurisdiction to another
• Sent drafts of proposed rules to certain stakeholder before they were filed in Tx Register to certain stakeholders
  • Cities voices concern on sourcing of local internet sales tax
  • Comment period on this proposed rule ends Feb 17
• 1,166 local entities receive local sales taxes, and others such as counties, Special Purpose districts
  • $9.6 billion to local governments in 2019
  • Ecommerce shares of retail shares was 4.5% in 2011 and is expected to be 15% by 2020
• Economic development agreements will result in local taxpayers asking as ecommerce continues why the local sales tax they pay is not going into their local communities
  • “Proliferation of these agreements will accelerate rapidly”, in situation where taxes are used for economic development voters have ability to have a say in those local elections but in these agreements, argues Hegar, taxpayers paying taxes being used cities where they have no rights as voters and is the “ultimate case of taxation without representation”
• Burrows- asked if rule changes were being proposed because of the growth in ecommerce?
  • Proposed rule is cumulation of several things: implement legislation, re-clarify, and address the sourcing of internet orders
  • Comptroller office has always had broad rulemaking authority over the years, time to look at the issue 
• Burrows – feedback he has heard is concern this is anti 380 agreements
  • Local taxpayers should have a say, not sure how you call these agreements economic development if taxpayers don’t have say in the process
  • These agreements are really competition with next-door city
• Burrows – other questions include if Comptroller had authority to do this? Is this a legislative purview and should he wait until the legislative session? Is this attempting to change statutory precedent?
  • We have broad rulemaking authority and there is a reason because it is their job to keep up with the times
  • Some have said we need a bright-line test as to the definition on headquarters, we don’t have that authority and is beyond their scope but would like lawmakers to look at that next session because it is outside of our scope
• Murphy- Argues the rule as proposed creates winners and losers
  • Would not disagree with comment but under current law there are winners and losers
• Murphy – If this were law, there would be impact statements, amendments, etc different from the rulemaking process
  • Agrees rulemaking process is different but have tried to take a comprehensive approach and have approached some before rulemaking was published
  • Had a hearing yesterday, which was requested
  • Wants to hear comments and it is important
• Murphy – If you have an agreement that is impaired by rulemaking, what is the answer to the constitutional issues on that?
  • Notes he gets sued frequently
  • Every time they implement a rule “there is an impact to somebody”, job to take all comments and try to lessen that to the extent possible
  • Trying to take it into account
• Murphy- Notes does not want a rule that will be Constitutionally invalid
• Burrows- is there already statutory precedent or ambiguity that discretion for the Comptroller
  • Technology has changed and trying to figure out how to apply in a fair method
  • Business have been coming asking questions on applying the rules
  • Comptroller needs to provide clarity
• Zwiener- Have heard communities concern on impact, creating winners and losers, asked if the office has done projections on impacts?
  • Hegar – Limited due to confidentiality but willing to help work through scenarios
  • Barton points to diagram in slides – sourcing depends on very specific details
  • Barton – Understand there will be some shifting of money around but there will be money
  • Barton – coming in from other areas to offset the shift
  • Barton – Difficult to say what it is on a jurisdiction but try to look at state whole, more of a combined look
  • Hegar – stresses there are new dollars coming into the state that was not before which are replacing some of the revenue shift
  • Hegar – argues most of communities having concerns may find themselves as net losers  
• Zwiener – discusses concern of her district, asked how long would it take Comptroller to provide the numbers and talk about mitigation
  • Does not plan to go through every city to forecast a projection, have not had much help from some cities so taking a look at all of them in totality not just city by city
• Zwiener – Washington pursued destination based sales tax and did have a mitigation fund for those impacted
  • That would be beyond their scope
• Burrows – when talking about re-shift of money, confirms it is within Texas, that some cities are getting more/less
  • Yes
• Springer – asked if there is a list of all 380 agreements with details  
  • Hegar – does not think they do, has made request to cities
• Springer – a lot of the 380s are very protective, generational poverty in rural Texas is bad and will get worse as brick and mortars go away, most Texans think local tax will come back to their community  
• Springer- 380 agreements were passed when less than .1% of internet sales took place, when things get to a certain size they have to be addressed; provided an example
  • POB is one lawmakers need to look at
  • One example, if you get retail item on app before you go inside, it is an internet order which illustrates his point on source
• Springer – this is a good first step, but thinks language needs to go further to be able to tell where taxes are able to go
• Rodriguez – provided an example, that currently an order from Dell would result in sales tax to Round Rock but with this change the funds would go to Austin?
  • Yes
  • Rodriguez – lets talk offline more about that
• Rodriguez – How do you determine pool percentage?  
  • It adjusts as sales tax does, it is collected on destination, pool is distributed out by looking at every single month
• Rodriguez – have you looked at how that could impact smaller communities?
  • Projections going out in monthly allocations, so they have those numbers
  • Looking at putting together a report that combines amounts coming out of marketplace coming back into local jurisdictions – those would be all new dollars
• Leman – would like to focus on incremental taxes being paid with Ch. 380, specially unincorporated vs incorporated and impact to suburban and rural area, example provided asking if unincorporated citizen may find themselves paying an increase in tax of 1.75% (a 355% sales tax increase)? 
  • Barton – Restates what he thinks example is, seller may be in place with 380 and they are collecting an additional 1.75% (8.25% state and local)
  • Barton – Even if there was not a 380 in place and business took walk in orders, phone orders, internet orders and shipped out they would still collect 8.25%
• Leman – he has 7 counites, so $7 million at a 355% increase would mean additional $17.5 million – is that the scope of what we are talking about and those proceeds could go to a different jurisdiction? Don’t even have a vote to increase tax on themselves?
  • Hegar – If it’s in another county, then not a voter
  • Hegar –  That is kind of his point, understanding where Texas is going into the future it they don’t clarify this issue
• Cole- the analysis that would be most helpful would recognize; Austin is the exception/rule with Dell. it would be helpful to look at urban counties (Big 8) and effect on rural counites
  • Hegar – Vast majority agreements will be in areas where they have the full 2% local sales tax or 1.75%, would not typically go to areas where rebate will not be as great
• Springer- there is no negative impact to elected official accountable because the 380 benefits that community, its just surrounding communities and rest of state it takes away from  
  • Hegar – Agrees with sentiment
• Talarico- gave history of Dell, Round Rock utilized agreements to keep Dell in Round Rock and area felt impacts, community is what allowed Dell to grow – do you believe there is a special or unique burden on certain communities that make these businesses possible 
  • Hegar – Growth is a good thing but has a lot of obligation
  • Hegar – Technology and the way we do business has fundamentally changed
• Talarico – $29 million in revenue received from relationship with Dell, $9 million sent back to Dell, 2/3 goes to City of Round Rock to pay for enterprise the rest of the state benefits from, asked if Texas still believes in origin based sales taxes or moving to a destination base sales tax
  • Barton – Rules clarifies how to source a certain subset of orders
  • Barton – Operating within statute as it is structured today
  • Barton – Tried in 2014 but it did not address this
  • Barton – POB definition is antiquated in this world
• Talarico- asked about the process of making these changes, why not wait for legislature to come back in session, “what is the happening?”
  • Hegar-  Nothing is being done today as comments period still open until Feb 17
  • Hegar – Similar in 2014, but they decided not to go forward
  • Talarico – Thanks for extending the time on comments, isn’t rulemaking supposed to be around the two bills and not 380s
  • Hegar – Important to look at totality of rule being proposed with lawmakers, rule is broader than just those two bills
  • Talarico – Why not wait and have this issue go through legislative process
  • Hegar – After legislative session they go through rulemaking, does not see this as a rush, lawmakers can speak on it when they come back to session   
• Talarico- appreciates the affirmation there is no rush
  • Hegar – But wants to be clear, “not sitting here saying we are going to do nothing”, will take comments, there is the 87^th Session process, as Texas is changing he believes voters are going to ask the question about where their taxes are going
  • Talarico- Again notes Legislature is the supreme voice on this, wants to make sure appropriate authority is dealing with this issue
• Zwiener – 380 agreements are grandfathered in until 2022, if the rule goes forward as written but any business that isn’t under a 380 will be impacted April 1^st ?
  • Barton – Issues about effective date when it is adopted, looks like April 1 or it could be pushed a quarter
  • Barton – Have heard request to start in Oct. 1 to align with budget schedules, and they are looking at that
• Zwiener – concerned about mom and pop business, not sure why online order received via email or text message is different from someone picking up the phone, gave several other examples seeking to get clarification
  • Barton – when rule was provided to stakeholders and advisory groups, they got questions to clarify what counts as internet order, and they will look at it after the comment period has closed and will try to address
  • Hegar – more questions help make a reasonable rules, all good questions
  • Barton – in one situation, need to know who is the manufacturer or if warehouse is in Texas or in out of Texas, it is a complicated issue on how you source
  • Hegar – cannot say it is simple if A then B
• Springer – asked if small mom and pops have a 380 agreement, doesn’t hear of them getting any of these agreements which could be the cause to drive them out of business
•  Zwiener – asked if an estimation on additional complexity this might create for small business
  • Hegar – hoping the transparency in the rule will add clarity

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Public Testimony

Chair Burrows begins by stating he would like witnesses coming up now to add to their testimony the extent of their 380’s, terms, and revenue to help committee get a better understanding of the impact to the state.

Mayor of Coppell Karen Hunt

• The City of Coppell set their position as neutral because they agree with the portion of rule that implements HB 1525 and HB 2153
• Was assured by Comptroller’s office that legislation was not going to be a pre-text of changing sourcing of sales tax
• Proposed language on Place of Business and Internet Sale may cause harm to businesses in Coppell  
• Would like proposed changes to be discussed in the committee versus in the rulemaking process
• Burrows – have you run the numbers to determine the economic effects these rule changes will have?
  • Hunt – Data is not available
  • City Manager Mike Land –a report determined, on an annual basis, the marketplace and remote sales would generate $230,000 of new revenue for the city
  • Land – on a cumulative basis, on the 2%, the city would lose anywhere from $25 to $26 million of revenue
  • Land – Coppell has 380 agreements with 5 businesses, of that 2 would be affected by the rule change
  • Land – if the rule begins on April 1, there would be a $6 million reduction in our general fund

City Manager of Coppell Mike Land

• Asking for time before the rule goes into place
• Reiterates assurances the rules would not affect sourcing of sales tax during the legislative session
• Commented on the rules on October with our concerns and now the rule is published with an effective April 1^st date and no impact data
• Have begun to interview certain businesses on how they collect sales tax and some of those businesses are already being told the state is going to destination
• Proposed rule is a drastic generational change
• Committee has charge to look at origin vs destination
• Argues rule is complicated and it needs time, 45 days to provide comments is a problem
• Springer- what are the names of the businesses with the 380 agreements?
  • Land – 2 are inactive with Amazon because Texas told them they are only doing destination not origin; the others are Quill, Staples and Uline
• Hunt – there should be no trouble in getting copies of 380 agreements, all public record done in the open during council meeting
  • Springer – there just has not been a database with all of them, some are resistant to release that information
• Hunt – Coppell is not a consumer hub, the funds they are discussing have been used to go towards infrastructure and public safety, $17 million was spent on infrastructure
• Springer – asked about 312 agreements in place
  • Hunt – our 312 agreements are short in nature
• Leman- with those 380 or 381 agreements, is there a percentage of the sales tax revenue going back to the company?
  • Land – Staples and Quill have 60%
• Leman – what would be the net revenue that is incremental to the city, on an annual basis?
  • Land – to the city, it would be $2 million
• Leman – mentions the $17 million spent is due to damage (infrastructure need) caused by these companies
  • Land – the companies that have 380 agreements are a small portion of the businesses that cause need for infrastructure investment
• Talarico – mentions the rule would have an impact on their community, who represents you? Have they had a chance to vote on this policy change concerning 380 agreements?
  • Land – Beckley and Johnson, did not vote on 380 agreements and would like all lawmakers to have input
  • Talarico – same, thank you
• Rodriguez- asked about belief of legislative intent for these two bills
  • Hunt – agrees thought it was about marketplace sales and remote sales, did not think it was about transactions inside the state that happened to be internet sales

City Manager of New Braunfels Robert Camareno

Chief Financial Officer for New Braunfels Jared Warner (did not speak)

• Echo the concerns of the city of Coppell
• Appreciates Comptroller’s office meeting with them
• Willing to share any and all 380 agreements with committee
• Provides background on New Braunfels growth
• Have a 380 agreement with HD Supply, which has a customer contact center with over 500 employees, orders are taken and received through the telephone, fax and internet
  • The existing comptroller’s rules define this a place of business
  • The company generates $2 million in sales tax revenue for the city’s general fund
  • Our 380 agreement rebates 50% of the local sales tax generated from these orders
• Fully support the passage of proposed rule 3.334 necessary to implement HB 1525 and HB 2153
• A significant amount of the language in the rule is not related to the two bills and could change the sales tax status for internet orders
• Ask why any rule would be proposed before committee study
• The city believes sales tax should be place of origin and not destination
  • The rule should not overturn current tax statute governing the location of consummation of a sale
• If there are unlawful agreements between business and cities, legislation should be made to target those agreements
• The city would support more stringent limitations on the use of sales tax sharing agreements that would govern rebates
• A study should be done in order to evaluate the effect these new rules would have on businesses and communities both positive and negative
• If the rule is adopted that results in reallocation of a large portion, the City supports an extension of time beyond Dec 2022 exception for economic development agreements
  • Two budget cycles are insufficient to mitigate the loss of sales tax revenue
  • At least two legislative sessions are needed to collaboratively discuss and craft legislation for this issue
• Burrows – inquired about sales tax revenue from HD Supply and internet sales; $2 million HD is getting under 380, do you have reason to believe they would move out of New Braunfels and possibly Texas?
  • Camareno –  cannot answer for them, but they have paused their talks about expansion since this rule has been published
• Burrows – Would like to hear from more businesses to discuss their point of view, it may be worthwhile to get industry in and hear how the economic tool drives business growth or not

City Attorney of Round Rock Steve Sheets

Outside Council for Round Rock Cindy Olson Bourland (did not speak)

• The city has a neutral stance on the proposed rule as it applies to HB 1525 and HB 2153
• Has concern with rest of Comptroller’s proposed amendments to Rule 3.344 and impact they will have on City of Round Rock
• Round Rock gets credit or blame for 380 agreements, because Dell was first in the state
• Provides background on Dell 380 agreement
  • A copy of the city’s 380 agreement is accessible online
  • Apparently first agreement in State of Texas
• Dell’s Round Rock campus has an assessed value of $517 million and 12,000 employees in Round Rock make 87% more than the statewide average
• Last year the city collected $28.5 million in sales tax revenue from Dell’s sales
• Troubling language in the proposed rule – the definition of an internet order and whether or not they are received anywhere
  • “The comptroller is taking an unusual position” on internet orders
• If these rules are adopted, then it will be to the financial detriment of Round Rock
• They city will lose at least $30 million annually in sales tax revenues and will be forced to increase property taxes
  • This will result in a downgrade of the city’s bond rating and taxpayers paying millions in interest in future bond issues
  • They city’s financial advisor said the proposed rule change could affect bond ratings across the state
• Burrows – do you know if the percentage of catalog sales versus all other sales and internet sales versus all other sales are the same?
  • Sheets – I have no idea, guess is bigger percentage shop by internet
• Talarico – the Dell example illuminates flaws in this proposed rule, discusses how Dell contributed to the economic development of Round Rock and that Dell would not be here if the HB  3192 and 380 agreements did not exist
• Talarico – would Dell stop investing in the Round Rock campus if the rule goes into effect?
  • Sheets – it is hard to say, but if they lost the $10 million sales tax rebate, it is possible
• Talarico – there is a tone that has bothered that we have manipulated the rules, a loophole, in order to make this work, can you speak to that?
  • Sheets – it is not a loophole
• Talarico – there is an accusation that 75% of sales tax revenue is being rebated to big companies, is that the rebate rate for Dell?
  • Sheets – no
• Talarico – believes Comptroller has brought up valid questions, the committee has brought up valid questions and believes this issue should be in the hands of the legislature during session, but is there a way to address this now to honor agreements that have been made?
  • Sheets – a question was raised earlier about rules impairing existing contracts being unconstitutional – and thinks there may be some issues with the proposed rule
  • Sheets – Believes the Texas legislature should be dealing with this
• Talarico – the Comptroller said we could come back and change the rule later, but we know it is harder to change it back, so sees a difference in doing this on the front end vs the back end
• Burrows – even though Dell does not have a 75% rebate, argues there may be some out there that do
  • Sheets – I am not aware of any others that do
• Burrows – does Dell plan to testify?
  • Sheets – does not believe so
• Burrows –  it would be helpful from the committee to ask questions, the fact that no industry is here to testify on this issue should be recognized, still hoping some will show up so they can get the impact on them
• Murphy – does Round Rock give a property tax abatement to the headquarters for Dell?
  • Sheets – no, but in the first years of agreement, the amount of property taxes they generated was a part of the measurement of our economic development payment back to them
• Murphy – what is the Round Rock city tax rate today?
  • Sheets – 43.9 cents
• Murphy – that is a low municipal tax rate, how high would it have to go to make up for the loss of revenue – would it have to go up to the rate that other cities in Texas are paying?
  • Sheets – it would need to go up 13 cents
• Murphy – inquired more on this detail –
  • Sheets – part of the sales tax, the half cent we get, is directly for property tax relief
  • Sheets – That does not get calculated into the economic payment to Dell
  • Sheets provided more background details
• Murphy – I find it hard to believe the rate would get almost as high as Houston’s, but I will accept that
• Murphy – if Dell were to propose expansion, then could you offer them a 312 or 313 school district agreement?
  • Sheets – those tools are available, but the school district has never done that
• Leman – Texas Miracle, small businesses are 99.8% of businesses in TX. Your business depends on small businesses. It is important that the rest of TX has a healthy ability to fund it’s infrastructure needs in order to support small businesses in the state that support your business.
  • Sheets – Yes
• Leman – You testified it was critical for the city to have 380 agreement to bring Dell to Round Rock
• If not for the 380 agreement, Dell would not have relocated to Round Rock
• Leman- If Dell did move away, wouldn’t you want a diversified approach so you can continue to fund what you need to fund?
• I would like my community to have tools available to continue to do economic development
• Leman- Right, and so does every other comm in TX. As trend continues, it will be difficult to fund needs outside of the sales tax. If they have to rely on the property tax you don’t want to rely on, they become uncompetitive
• I agree with that, yes
• Cole- I remember how vigorous the fight was between Austin and Round Rock to get Dell. Now I know it’s 13%, I understand. You received a line of questioning regarding property tax relief you have because of Dell to be able to spread throughout the state, to get you to the 3.5% everyone else has. If you executed a 312 and a 313, where would you be?
• I am not very familiar with 312 and 313 is school district. I have no experience with either of those statutes
• Cole- I am just trying to get us to a middle ground. Before HB 2 passed, cities had an option to go up to 8%. I am just trying to figure out if there are other tools
• We are concerned with double whammy in RR. Last session, leg limited ability of our city to raise property taxes. If the rule takes away internet sales from RR, it is a double blow. Also, it wasn’t that big of a fight with Dell and Austin
• Talarico- Round Rock and other cities would be hesitant to enter into agreements like 312’s because they can be pulled out from under you in the middle of interim?
• Absolutely
• Talarico- In Round Rock, we are not opposed to having a conversation about issues Rep. Leman and others have brought up, we are just wanting to do it in a way to preserves and promotes economic success
• Yes, there are concerns on both sides of destination vs origin sales and we need to discuss this
• Talarico- Yes, it is too important to rush

Heather Hurlburt, City of San Marcos

• City of San Marcos has concerns with definitions, clarity, and timing of changes for Rule 3.344
• San Marcos has entered into agreement with Best Buy, at time of agreement it was in good faith and were assured by Best Buy that what we were entering into was within regulations set forth by the comptroller
• One of the lowest per capita’s incomes in the area, do struggle to generate revenue for growing needs
• Use sales tax to offset need for property tax increases and 1/3 of sales tax goes to property tax relief.  If we didn’t have offset, we would have to add additional $0.14 to property tax to make up for lost revenue
• Entered into agreement with Best Buy in 2016 for call center, the agreement provides San Marcos with $2 million in net annual sales tax revenue
• Burrows- How much is rebated to Best Buy?
  • 75% rebate, estimated $6 million to Best buy
• We feel like timeline is quick, Comptroller didn’t reach out to us, we found out through another city changes were being proposed and provided comment in December right as comment period was closing
• San Marcos has identified $7.7-9 million sales tax that will be shifted away from city and to destination
• Impact to city is reduction in 5% of total general fund expenses
• Reduction paired with revenue cap will necessitate difficult fiscal decisions
• We don’t know which businesses will have to move sales tax collections from origination to destination
• Identified an established business that generates $1.8 million in annual sales tax revenue. It has no incentives from city and is in the city. Changes may force business to move sales tax from origination to destination, even though office and staff are in San Marcos. We have received two different opinions about if the operations in the city constitutes a business under the proposed regulations. If they don’t satisfy definition, change will take effect immediately and city will lose approx. $900,000 in revenue. When I spoke to business, they weren’t even aware of proposed changes and would have to modify software to report to point of destination
• Burrows – If rule changes go into effect with respect to Best Buy agreement, you will lost $2 million and Best Buy will lose $8 million
  • Yes
• Burrows- Would that change their decision to be in San Marcos?
  • They have not indicated their thoughts on that
• Burrows- They couldn’t be lured away to another city with the same terms because they couldn’t do it either, so question becomes what would they do under $6 million or less
• Springer- What other 380 agreements do you have in San Marcos that deal with online?
  • No, we don’t have any agreements with any other businesses dealing with online and internet sales
• Springer- I have visited with McCoy’s, they don’t get a 380 from you, but their competitors do and get dollars rebated back
• Zwiener- Comptroller was talking about difficulties getting 380 agreements from cities
  • We received open records request a couple weeks ago and gave quick turnaround
• Zwiener- Are you concerned you are a poster child for this but weren’t kept in the loop?
  • Yes, we weren’t involved in preliminary discussion and no one reached out to us
• Zwiener- There are concerns about a 380 agreement you have that tested spirit of rules, were you aware?
  • We were told is they were going to consolidate internet sales and didn’t specify internet sales would happen while you were standing in store, we assumed it would be web based. We also thought they would be accepting all calls from TX into call center in San Marcos
• Zwiener- Even with lack of awareness of rule changes, you will still be impacted when it goes in effect
  • Yes
• Zwiener- How many jobs does this 380 agreement create in the city?
  • About 100
• Zwiener-Your understanding is that true internet orders are processed at facility?
  • Correct
• Zwiener- Are available jobs growing as fast as population?
  • We are being diligent about trying to attract jobs. San Marcos has been one of the last cities in the area to really grow
• Zwiener- Is it safe to say you are trying to transition from bedroom to stand alone community that offers employment as well?
  • Yes, we are trying to offer housing, looking at airport as economic catalyst
• Zwiener- Are you ready to come to table to find a solution if we have time to work it out
  • Yes, we need more time, two budget cycles to make up for lost revenue
• Zwiener- You are concerned also about potential revenue lost that can happen as early as April 1^st?
  • Correct

Mayor Steve Presley, City of Palestine

• City of 18,000 struggles to meet infrastructure needs every year; poverty rate in Palestine ISD at 75%
• Added 1,600 new jobs in last 6-7 years, sales tax revenues have remained flat
• Where have sales taxes gone?
  • Coincides with internet sales and ability of certain businesses to source sales tax to a location that is not their primary place of business
  • They have done this because cities have signed 380 agreements with these companies to rebate some of the collected tax back to the company
• If I order goods/products from my house, to be shipped to my house, the sales tax goes to another city, that is unfair
• Fair- Sales tax collected on internet sales should be sourced to the destination
• Companies without a TX nexus must now source sales tax to the destination, why have a two-tiered system that has some internet sales sent to destination and some not?
• Simplest, show up at a business, that’s where the taxes are collected; otherwise, it goes to destination
• With a fair destination-based system, sales tax revenues will cease being rebated to a few companies and will start going to all cities instead of just a few
  • Revenue caps, destination-based system will help decrease property taxes in most cities
• Less than 5% of cities in TX benefit from 380 agreements, change in economy is killing rural areas in TX that depend heavily on sales tax revenue
• HB 1525 and HB 2153, and proposed Comptroller’s clarifications, and TAC Title 34 are good steps in right direction
• Sourcing needs to be addressed or more cities will go with 380 agreements to increase local revenue at expense of taxpayers and rural cities
• If another city is willing to get a 70% rebate to get a warehouse, our city will offer 80%__
• Springer- You’re right. We drive a lot of economic GDP from rural Texas and we should send those tax dollars and benefits back to support education in the state. When we lose that local tax revenue, it makes it tough
• Springer-Have you seen a decrease in your brick and mortars?
  • Yes, especially in mom and pop brick and mortars
• Springer- We continue to incentivize the killing of mom and pop businesses with these types of agreements
  • We have Sanderson Farms Plant and we don’t get sales tax revenue off that, but we must support the infrastructure for Wal-Mart warehouses in towns, but get no help for that
• Springer- Walmart goes and buys from Staples and sends tax dollars to Coppell, they took advantage of a system we put in place. We changed nationally with Wayfair
• Leman- You mentioned rural TX, don’t you think it also affects suburban TX?
  • Absolutely. If you count numbers of communities that benefit from 380 sales tax rebates, you can easily see that. Redistribution of taxes has become tremendous burden if we don’t stop it
• Leman- How can you compete with other cities- are there infrastructure incentives given by cities?
  • Property tax abatements and rebates, economic development corporations. We can’t afford the infrastructure to do what cities can do (nice parks, playgrounds, library systems, etc.)
• Leman- Do you think there is equal need in rural TX for ratio of historical sales tax revenue to maintain infrastructure for destination side of transaction?
  • Yes
• Talarico – Arguments are being made to distribute services to rural areas, like putting good public libraries in rural areas. Resident of Palestine travels to Round Rock and they buy a computer from Dell in Round Rock, where does tax go?
  • Round Rock
• Talarico- Sales tax is based on business not consumer?
  • Yes, it’s based on where the business is
• Talarico- That’s the question we are trying to answer. We agree it stays with community where it is purchased, why doesn’t that apply to all transactions? If it is a business-based tax, it should stay where the business is. We need to have an open conversation with representatives from multiple districts to figure this out
  • We have plenty of time to work it out during the next legislative session. Communities aren’t thinking about what they will be missing because we haven’t seen the sales tax revenues online yet. Once rule goes in effect, we will start to see the impact is much greater on a larger group of cities
• Talarico- We should do this through the legislative process before we make any policy decisions
• Zwiener-You are talking about the 380 agreements, is your main concern the cities where we have those agreements or online sales?
  • Concern is residents are buying online and they think the sales tax is going to the city, but it isn’t staying local. I keep having to tell citizens not to shop there because we aren’t making that money
• Zwiener-If a rule were made that threatened 5% of your city’s revenue, is that something you would want discussed during rule making or in legislative session?
  • I would want it discussed just like you did when you discussed the revenue caps and included us in that

Kenneth Welch, Individual

• Lives in Blanco county
• I don’t know what the bill or rule says
• I am here because I take it personal, I have heard from big cities and companies
• Emergency Service Districts (ESD’s) are capped on what they can collect in property taxes, only 10-cents; 10-cents doesn’t go far when population is low
• My daughter was having trouble breathing when we were in the car, I pulled up to ESD and they were closed. I gave her CPR, but she died. We have no hospitals or medicals facilities. When I called the ESD, they told me they didn’t have funds to keep someone there all the time
• I am worried about the big corporations; I appreciate the people that work there, and I wish people in Blanco county had good paying jobs like that
• 10-cents in Round Rock in property tax overfunds their ESD’s. 10-cents doesn’t cut it in rural areas, they have to drive further and need bigger capability
• I am concerned about inequality in the state, you need to look at property and sales tax
• Lift the 10-cent cap on property taxes, change that and give rural areas a chance on sales tax
• We don’t have HEB or Home Depot, so we have to buy online or go to another county. Either way, the sales tax isn’t staying in our county
• Burrows-You’re important to being here today, especially because you don’t have vested financial interest. You want sales tax to go to your area
• Zwiener- We will keep working on rural healthcare issues, thank you for coming

Andrew Fortune, City of Grand Prairie

• Appreciate work on HB 1525 and HB 2153
• Concerned about forecasting initial revenue gains
• Internal analysis shows us losing $4-6 million in revenue annually, approx. 10% of revenue, could result in credit downgrade
• Transparency, I am a taxpayer and city officials are as well. We are not afraid of providing anything we can to be helpful
• 380 agreements: We have one impacted, Cardinal Heath Medical Supplier, it’s a deal structured with a 50% rebate up to a $50 million mark. They have traveling sales, but we have to provide fire and police service to their warehouse, so rule shift will hit us hard
• I am chairman of chamber of commerce, with all our businesses, any shift in revenue in services is a great concern to our business community
• Consider requesting additional analysis, we will continue process collaboratively
• Burrows- Ask your businesses what the impact would be if the rule when into effect. I assume they enjoy the economic incentives, but it would be interesting to see if they would leave the city, leave the state, change the way they do business, etc.

Keith Wright, City of Lufkin

• 35,000 Lufkin pop., retail and medical hub for area
• Wealthiest county in the 12 counties, we qualify for 70% aid for free/reduced lunches
• Without growing and stable sales tax, city struggles to meet basic needs of growth-related issues
• Sales tax makes up 40% of revenue for general fund
• City has seen stagnation of sales tax over the past few years, mainly due to e-sales
• Murphy- Stagnation of sales tax, heard about job growth from Mayor of Palestine-seems counterintuitive
  • We have added 500 jobs over the past year, we are adding housing, it doesn’t make sense. We think it’s because of increase in e-sales, 16% of all sales in 2020 is what a study from E-Marketer is predicting for online sales
• Gave background on Wayfair decision
• If out of state company collects taxes to residents in one city and then money sent to another city, it’s an inequitable distribution of sales tax
• Comptroller rule will help to provide equitable sales tax on behalf of all cities, I urge your support for adoption of rules presented by comptroller
• Leman- What is your property tax rate?
  • 53 cents
• Leman- If you knew you were going to be missing 5% of what you could be having, would you want Comptroller to act sooner rather than later?
  • Absolutely

TJ Gilmore, City of Lewisville

• More than 100,000 residents
• This has all come down to rural/urban how do we divide sales tax money
• It is an awesome conversation that the legislature should be having
• There are unintended consequences of the 380 agreements going away and we need to look at it as a legislature
• If you remove 380 from Lewisville, you are removing tool from my toolkit
• I hope the state has something to replace 380’s with because other states will overtake us. I have had 6 corporations come to Lewisville because I had an economic development tool that brought them into the city
• Burrows- Absent of 380 agreements, would the companies leave the state? We need businesses to tell us what they would do if we took away that incentive package
  • Those 6 corporations were looking at other states to go to
• Burrows- You will help yourself if companies tell us if it was a state to state incentive that was a defining thing, to see the sincerity of it
  • Yes we can do that
• Springer- You will never lose to another state for giving up the local taxes, because they can’t give away a TX city’s taxes there. They can only give up their own incentives. I agree with leaving tools in toolbox, other than looking at internet sales local tax and where they go. I just don’t want you to have the thought the legislature is trying to do away with all 380’s
  • Yes and I think 380’s work, but how much of a boundary should we have? We have lost 380’s to cities that offer higher rebate than us. Maybe Lewisville can be a model for how 380’s are constrained. There are unintended consequences for cities that don’t even have 380 agreements because of definition changes. We have 28 380 agreements primarily for façade improvements grants for small businesses

John Kroll, HMWK, LLC, Tax Consultant & Lobbyist

• I was on Comptroller Sales Tax Advisory Committee
• The rule that dealt with 1525 and 2153 involved remote sales and marketplace, consistent with Wayfair. The rule was drafted with a business to consumer mindset
• Internet order in rule definition: order placed on a website software platform using a mobile device/computer that doesn’t belong to the seller (thinking about putting order in store at Best Buy for something out of stock- it is put in on the seller’s computer)
• Because of technical aspects of rules drafted, I am hearing the rule needs more revision
• Burrows- Can Comptroller do this or not at this time?
  • The statute on which local gov’t gets the sales tax is the statute for consummation of the sale, last change in 2009. We changed from the shipped from location to the statute we have now
• Burrows- Does the statute provide enough ambiguity for the Comptroller to change it?
  • People have been applying it unchanged for the last 10 years
• Burrows- Does the language preclude them from adjusting it?
  • Business can decide what qualifies their place as a place of business, that is where some of the issues arise
• Rodriguez- Leased computers, with proposed rules, where would sales taxes go?
  • If Dell owns computers, internet order sourcing rules would not apply to that, sales tax stays in Round Rock, under general sourcing rules. It is complicated because the rule is distinguished based on communication methods (ordered by phone, internal/external order)
• Rodriguez- Would Dell move towards leasing exclusively?
  • We do it based off what the customer wants
• Talarico- You are one of the smartest people on these issues, but there are still a lot of issues you don’t have the answer for. Why are we not just waiting 10 months to change a big policy that has been there 30 years and could have huge implications for all communities in TX?
  • I don’t know why we are doing it now. Comptroller is asked to make new interpretations of statute and law all the time. It will be difficult for many businesses to comply with and have some assurance they are complying because of discrepancies like how the order came in, etc. Most tax compliance software may not be able to differentiate in that way
• Talarico- Does Comptroller’s office have to make a decision about this right now, or could they wait 10 months?
  • The portions of the rule that deal with 1525 and 2153 should be dealt with now to give businesses and Comptroller clarity
• Talarico- Origin based/destination based, it doesn’t have to be dealt with now?
  • That is a question for you guys
• Zwiener- What type of redistribution of tax revenue do you expect to see throughout state if proposed rule changes go into effect?
  • The data doesn’t exist, each company structures internal business process differently. Most of those don’t delineate communication method, so I think it is impossible to tell at this point
• Zwiener- We are discussing 380 agreements, sales tax sourcing, and internet sales and how they should be handled. Do you think the affected parties could come together and come up with rule fixes for this?
  • In 2009, there were several 380 agreements affected and legislature provided statute change, a 4-5 year glide path for those agreements that had been grandfathered in. Only one of those is still in place, one that generates 80% of sales tax for its city. In 2009, those parties signed off on the statutory changes

Comptroller’s Office

William Hamner, Comptroller’s Office

• In 2009, people went to a store, but sales tax revenue was going to a distribution center. That is why legislature acted so if you walk into the store, it is sourced there not the distribution center

Karey Barton, Comptroller’s Office

• Burrows- With rule, are you changing statute or precedent?
  • Providing clarification in some instances were no precedent has been set or laid out
  • Trying to address in rule, like they do in many instances
• Burrows- You have been publicly silent on it until now?
  • In 2014, we took an attempt to define where internet order was received. Too many comments and it seemed that approach was not workable
  • Hamner- Comments were: is it first person that touched it?, when it was approved? That is why we retracted that part of the rule and continue to get questions
• Burrows- The statute is broad enough to allow rule making for you? Is your decision you can do this because statue is open for interpretation. Should you do it?
  • Karey- question asked is why now? Understanding there will be redistribution of money around. New money is coming in that will help to offset. If we wait too long to do this, they are too dependent on that new money as part of their budget and its not an offset anymore
• Burrows- Is internet gobbling up more share of the market? And are you trying to get ahead of this because of changing economy?
  • Yes and yes
  • Seeing more and more questions about this
• Barton – Regarding the authority in rulemaking, we get called up to address these types of issues all the time
  • Barton – At a certain point when you start to provide broad based guidance by letter rulings, courts have said we can’t do it, illegal rulemaking aspect. To do broad clarifications in policy, we have do it by rule
• Burrows- Is there anything we can do soften blow if these rules do go into effect?
  • Barton -We have looked and addressed with grandfathering (Dec 2022)
• Burrows- Consideration of other ideas beyond 3-year grandfather?
  • Barton- asked to push effective date off until October 1 to coincide with budgetary cycles. We are still taking comments and clarifications. Comptroller is in tune with what is going on and we are having the conversation to keep him up to speed
• Talarico- Has clock already started on 3 year grace period?
  • Yes, not full 3 year
• Talarico– You said in 2014 you didn’t have authority to make changes, what has changed in statute?
  • Hamner- We interpreted place of business (POB), physical location, established. We are now saying internet not a physical location, it is the place the order is received
• Talarico- There are huge statewide ramifications, why are we doing it now?
  • Barton – We have to address this at comptroller’s office when new revenue streams are coming in to help minimize the impact of revenue to cities. This isn’t about 380 agreements.
  • Barton – Trying to provide clarification
• Talarico- I hope we can give the democratic process a chance on this
• Zwiener- Curious about rationale for separating phone and internet when the difference is rapidly being eroded by technology? Phone numbers not tied to an address anymore.
  • Barton – With a phone order there is a destination location on the other end where someone takes that. It may not be a good distinguishing factor, but it’s part of how orders received has been processed in the past. With internet, you have argument of where it was received, could point to 5 or more places of how it was received. We haven’t had anyone make that argument about being able to move around your phone to have order go through in different places
  • Barton – Had no one make the argument they can move their phone destination around. We are trying to address as they become more prevalent in terms of the ways things are changing
• Zwiener- Timing concern about rule change moving forward now. Whiplash effect if we come into legislative session and addressing more fully. Have you considered that?
  • Barton – Yes
• Murphy- I get the rule making element, we can’t legislate every nuance. Believes 380 conversation is a red herring in this. I think ya’ll ended up opposite of principles comptroller himself put in op eds (phase in/wind down period). There are some things protected for 3 years but some things that are going to go away immediately, I think we are penalizing the wrong things
  • Barton- Patterned wind down after 2009 legislation
• Leman – In your time, has the legislature ever failed to act on something you anticipated them to act on during a session? Is there a guarantee a bill would be passed to provide clarification?
  • Barton – There have been issues that the legislature decided that the way the comptroller interpreted thing was incorrect and they did overturn (franchise tax example). We have had situations where we have ruled on something, provided clarifications, and next session, industry and legislature decide they don’t want it done that way
• Leman- If you didn’t provide a rule clarification and the legislature did not act to provide further guidance, then wouldn’t businesses be in limbo trying to figure it out on their own?
  • Barton – Yes
• Springer- Confirms agency believes in tax fairness. 3 years, you were giving notice when you put 2022 number out there, you weren’t trying to play gotcha. Says there is trust for Comptroller to be fair and to come up with the right method of enacting. 1990, less than 1% of retail sales were online, and we are about to be at 15%. This is why we have to address it. Asked if Barton would agree the changes being proposed in rule making deal will be more fair for the 28 million Texans?
  • Barton – I will answer indirectly, fairness is not part of what we are taking into consideration on the policy. We are trying to answer and clarify how it should be applied. Revenue neutral is in the eye of the beholder and fair is also in the eye of the beholder. Area we think should be addressed in rule and provide clarifications

Interim Charge 6- Monitor state auditors review

Lisa Collier, State Auditor’s Office

• Refers to handout
• 2019-2020:  5 audit reports released with work specific to Comptroller’s office
  • Statewide single audit, clean
  • Recurring audit-Ch. 313 agreements, found 2 medium rated issues, Comptroller worked with school districts to resolve issues moving forward
  • Performance audit-Comptroller’s Unclaimed Property Project completed slighted after deadline, Vendor performance tracking system- 3 issues, 2 related to IT (not uncommon for a state agency)
  • Comptroller’s process for looking at grades A-F, A’s in alignment and B-F had discrepancies, recommended to look at different populations
  • Texas Multiple Award Schedule Contract Program- Follow up to 2016 audit, Comptroller fully implemented all recommendations

Robert Word, Comptroller’s Office

• Any questions about presentation?
• No questions

Interim Charge 5- Instructing committee to review 3^rd party tax collection firms by governmental units

Amy Samples, Harris County Attorney’s Office

• Consider legislation that would give us the same ability as 3^rd parties to collect taxes at a reduced cost to the taxpayer
• Gave background on Tax Code 3307
• Both governmental entity and taxpayer benefit from taxpayer paying sooner
• There are currently burdensome collection practices in place
• Burrows- You are not against 3^rd parties doing collection work? There is some competition in that marketplace, there is a ceiling of 20% but no floor. You are asking for Harris County to have the ability to do it themselves, but there is a deterrent because you can’t charge extra penalty by having a contract
  • Correct, we are only able to recover expenses under section 3348 and that requires us to file a lawsuit
• Burrows- For 3^rd parties collected pre-lawsuit, how is penalty calculated?
  • It is the amount in the contract, not to exceed 20%
• Burrows- How would Harris County calculate penalty it seeks to impose?
  • We would only seek to collect that which would cover the cost of collections to Harris County
• Burrows- It would be more efficient if you were able to do this?
  • Mimi Han, Harris County Attorney’s Office- If we took this in house, it would offer savings for real property owners. We want a system that is best for property owners to keep their property, we are not here to make a profit
• Burrows- If you’re not incentivized to make a profit, would you do it more efficiently?
  • Yes
• Burrows- Only other county is San Antonio that does this?
  • Han- Yes, but there are many other counties that do in house in other states
• Burrows- What is comparison?
  • Han- we have talked to budget management, looked at different models, anticipating it would be similar to in house collections process now. It wouldn’t be like starting from scratch, we want the flexibility like 3^rd party law firms to defray costs
• Burrows- Do you have to have statutory change to go in house?
  • I don’t know, I think it would help
• Burrows- Do you know how much this would generate for Harris county if you went in house?
  • It depends on the model we used, I don’t know for sure. We do have numbers based on what we are spending through our 3^rd party firm, 500 lawsuits per month
• Murphy- Will penalties be undetermined until final collection?
  • We anticipate if legislation was changed in 3307, we could charge less than 20%
• Murphy- How are you going to do that?
  • I can get back to you on that, it will be up to elected officials
• Murphy- Under current law, the way Travis County is doing it, you can recover the cost
  • What we need is a little bit to defray start up cost. We would use start up cost for computer systems
• Murphy- There is a fair amount of infrastructure needed for that
  • If it didn’t work out, you could still go back to other rule and a 3^rd party would pick it up
• Guillen- Travis County is already doing this?
  • Yes, they have helped us understand this
• Guillen- Do they have a deal in code that allows them to get 20%?
  • Statute allows for gov’t entities to recoup costs when you file a lawsuit
• Guillen- Travis County doesn’t have 3307 authority?
  • If we did it in house, we would do it like Travis County and would only recoup cost if we filed a lawsuit, at 15%
• Guillen- So you are saying Travis County has means to do it that Harris County doesn’t have?
  • Travis county has been doing it all along, so we are asking for an even playing field to get us started. We want to protect current system and make sure property owners that currently pay, continue to pay and keep their homes. We don’t want to file lawsuits, we want to take care of it up front and extend different resources to delinquent taxpayers up front. The longer they don’t pay, the more they pay interest and costs

Larry Gaddes, Williamson County Tax Assessor/Collector

• Supplied handouts
• Opinion is that current method of delinquent tax collection works
• Delinquent tax collections- 3^rd party firms have expertise in relevant matters and consult us as well as other taxing units
• Firms that specialize do serve the needs of 253 counties
• Economy of scale makes this method of collection effective
• Burrows- Is there competition among firms that provide these services?
  • Yes, one of our law firms is at 15%, not at max. From my perspective, competition comes from level of service that law firm provides to myself, taxing entities, and taxpayers
• Noble- When you have a 3^rd party, you are outsourcing. It is up to them to bear cost of ones that never come through?
  • They are not getting reimbursed for costs they have rendered to collect those taxes
• Noble- So there is no loss to the gov’t entities?
  • Correct. Example: letters are mailed to notify delinquent taxpayers. It is not required by law, but law firm incurs that expense, not the gov’t entity
• Rodriguez- That is generally how it works with the other 253 counties?
  • Yes

Donald Postell, Self

• Worked for Dallas county and City of Grand Prairie who contracted with 3^rd party
• Reviewed if we could do it better if we did collection internally
• City council was open to bids and learned of provider that best fit our needs, based largely on their services
• Private firm not paid with taxpayer money, only paid with money they collected on delinquent accounts
• Burrows- Would it have been better if you were able to get extra bump prior to lawsuits?
  • I didn’t account for that at the time
• Other counties and cities may want to do their own collections, I support right of each entity to make their own decision, but I urge you to allow us to continue to use our own system if we feel like it is working for us

Robert Mott, Retired Attorney

• Firm provided tax collection services to local gov’t
• Dedicated resources to software to be used for tax collection services, developed over 46 years
• Passed 3307 to not cause any cost to entities that chose to select outside counsel
• Gave background on tax collection in the state
• Harris County thinks they can save money, but that is only if they prove that the gov’t can do it more effectively at less cost, I am not sure that can be proven
• We get 1-2% of typical tax roll through collections, higher in areas that are economically disadvantaged
• We were told Harris County couldn’t recover cost before cost was turned over to them. We get 1-2% of roll’s versus what used to be 10-20% of roll’s. There is a certainty of enforcement now and there are costs that come with that. That is why we have seen such a huge jump in collection rates overall
• Harris County intends to impose a lesser amount than they are paying their existing provider, providing savings. You wouldn’t be enacting this for Harris County, you would be enacting it statewide and we will begin to see a decline in the efficiency of tax collection
• Delinquent tax collection is not appealing for lawyers. You used to get an attorney assigned to collecting taxes and they had no incentive and often didn’t do a very good job. Addressed by legislature in 1991, many county attorneys wanted to be able to contract 3^rd party for that reason
• Other state’s- Sell tax roll’s at huge discounts to private collection firms. Compared to TX where clients receive all penalties and interest due. Other states only charge 30-40% of what is due, because it is the price the roll was bought at. Our system works more in favor in local governments and taxpayers

Edward Lopez Jr., Linebarger Goggan Blair & Sampson, LLP

• Mr. Mott covered a lot of areas that I wanted to cover
• We are hearing today that the legislation you have in place is working
• Firms are not paid until they do their job and are incentivized to do it well
• Linebarger collects almost $1 billion a year at no cost to non-delinquent taxpayers
• Collection rates are about 97% in Texas, tax collectors and assessors are doing a good job
• Minimizes risk to local gov’t and allows them to fund projects that need to be funded, also able to issue bonds at lower rates
• If someone tells you they are going to perform what we are doing in house, ask them how they are going to do it at a lower cost
• We have very high collection rates in Texas, taxpayers can get on payment plan to pay property taxes, as provided by legislature
• Proposed model shows effective system brought in house, they don’t know how to compute and calculate all the cost associated with personnel (attorney, paralegals, IT, managements, office space, litigation/bankruptcy data), expenses that law firms already have. These are costs that the good taxpayer would have to pay
• Allows local taxing units to have money quicker and focus on their core services

Matthew Tepper, MVBA Law Firm

• Agree with remarks from Mr. Lopez, Mr. Gaddes, and Mr. Mott
• Response from Travis County is that their current system is tax neutral, counties already get 15% attorney fees back, I have urged Travis County to get on board with what the other 253 counties across the state are doing
• When our firms collect 3307 penalties, we reinvest back into building a better tax collection machine, because we are incentivized to do so

David Patterson, Assessments of the Southwest

• Deal with CAD’s, verifying information on certified roll’s are correct, certificates of value, and MUD districts
• Many MUD districts are small so any tax collection that is missed can have a great impact
• Monitor Strategic Partnership Agreements
• Send multiple notices to get taxpayers to pay before Feb. 1
• MUD districts have 3 rates: developing, developed, and specialty district; different than normal cities or counties

Chad Timmons, Abernathy, Roeder, Boyd & Hullett, P.C.

• Represent 35 school districts and community colleges in Collin County area
• 3^rd party collection firm is an arm’s length
• If we had in-house delinquent tax collection services in school districts, people wouldn’t want to work with school districts anymore, because they would be the tax collector
• Echo sentiments stated for those that are for keeping the ability to have 3^rd party collection

Next hearing April 1^st