House Ways & Means met on April 6 to discuss a number of bills. This report covers HB 2438 (Meyer), HB 2530 (Ashby), HB 2626 (Noble), HB 2695 (Noble), HB 3021 (Burns), HB 3376 (Meyer), HB 3610 (Gervin-Hawkins, et. al),Β  HB 3935 (Slawson), & HB 4072 (Meyer) . The schedule for the meeting can be found here; the video archive can be found here.

 

This report is intended to give you an overview and highlight of the discussions on the various topics taken up. It is not a verbatim transcript of the discussions 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.

 

HB 2438 (Meyer) – Relating to the municipalities and counties that adopt budgets that defund law enforcement agencies

  • Cuts to Austin Police Dept. resulted in 83% increase in resignation
  • Obligation to keep population safe
  • Bill would free property tax funding to police system if department has taken defunding actions
  • Committee substitute removes counties from state monitoring and control and requires a city to have a population of 250,000 or more to be subject to this statute
  • Citizens are protected from increasing taxes
  • Rodriguez – Does not spell out Office of Governor; would β€œdefunding” include a shifting of funds that still go to public safety but under another department?
    • Laid out in bill, specifically in the language of waivers
    • Funds are allowed to be reallocated in criminal justice division
  • Rodriguez – What about forensics, if it were moved to somewhere else?
    • Cannot speak specifically, would need to be considered as a budgetary need instead of defunding
  • Cole – This bill only applies to Austin?
    • No, applies to municipalities with a population over 250,000, 10-12 cities

 

Joseph Chacon, Austin Police Department – Against

  • Unhappy that positions were eliminated from department, working to refill
  • In order to best serve community, must work with community
  • Designated priorities may need additional funding over police funding without negatively impacting police services
  • List of budget items in bill are based on assumptions that reducing the budget of those items are considered defunding
  • Supportive of changes to improve police outcomes; police should not be the first course of action in calls of mental health problems – triage, determination, and get the right help
  • Added 4th option to 911 call option script to include mental health, first in the country; allowed us to move people out of criminal justice system
  • Austin’s forensic lab was separated from the police department and has been established independently of APD because community felt more secure; this was a dip to the budget, but is by no means harming the citizens of Austin
  • Council and APD hired researchers to independently evaluate aggressive training practices; study highlighted significant racial and gender disparities. APD halted training until disparities were addressed
    • Hoping to start a new cadet class in next few months
    • Not training cadets, under this statute, would be considered dismantling the police system, when we are making active strides toward a more effective and safe department
  • Rodriguez – The statue must define defund vs reallocating when going to public safety outside police. Decisions must be made locally. Do you think these restrictions will hinder steps forward?
    • Yes, must build relationships with community, we are being responsive to their needs and their direction
    • If a city is penalized for making changes, runs counter to progress
  • Rodriguez – Forensic lab; you believe that would be considered defunding?
    • That is my understanding. If money is moved out of our budget, seen as defunding
  • Rodriguez – The bill could provide more clarity?
    • My greatest concern is the broadness of the language in these bills
  • Cole – Mental health; give us more explanation to the reallocation of funding?
    • Intent is to improve mental health response
    • Many people we respond to in point of crisis leave police in option to use deadly force
    • Start looking at those issues further upstream to intercede before the situation becomes critical
    • Enroll individuals in services and divert away from criminal justice system, as it’s not appropriate
  • Cole – Sobriety center
    • Austin has robust entertainment district, we encounter highly intoxicated people often
    • Previously, only option was to take them to jail; Austin opened up a sobering center to take people and sober up responsibly
    • If the individual is struggling with drug or alcohol addiction, we provide resources
    • An arrest could impact their future, especially the young adults here for school
  • Cole – These young people are coming from across the state, explain how this makes it better for them?
    • Whether from local or outside, want to provide best service
    • Local control to determine the services most necessary and appropriate
  • Meyers – Does flexibility in the waivers ease your concern?
    • I would hate to speak to it without understanding it fully
    • If it can be determined that a city is not defunding, it may be more appropriate
    • On it’s face, the thought of losing local control is not good

Β 

Jim Allison, County Judge – On

  • Counties are no longer included in the bill, important distinction
  • Great deal of our law enforcement budget is not in our control
  • We have undergone a tremendous change in our jails; county budget increase over 10% in jails

 

Mayor Karen Hunt, Coppell – On

  • We are bracketed out of the bill through the committee substitute
  • Meyer – Had the committee sub not been added, you would be against?
    • We had to institute cuts against the board, compounded negative impact

 

Sally Bakko, City of Galveston – On

  • Committee sub bracketed us out of the bill
  • Law enforcement is a high priority for us; primary concern was the impact of disasters on budget and how that could be determined as defunding

 

Russell Schaffner, Tarrant County – On

  • Thank you for removing county
  • We increased sheriff budget, but we would be labeled as defunding due to constable positions

 

David Stout, Self – Against

  • Glad to be excluded by committee sub
  • Local control; no county in Texas has dismantled their police department
  • Inappropriate for the state to interfere in this manner

Committee substitute is withdrawn; HB 2438 left pending

 

HB 2530 (Ashby) – Relating to the rate of interest on certain tax refunds

  • Change the month from December to November to give comptroller’s office sufficient time to update systems and ensure taxpayers are getting the appropriate, entitled interest refund
  • Meyer – You worked closely with comptroller?
    • Yes, in interim

HB 2350 left pending

 

HB 2626 (Noble) – Relating to the imposition of the use tax on tangible personal property purchased in another state and transferred to an affiliate of the purchaser before being brought into this state for storage, use, or other

  • We speak of sales tax often, this bill relates to the use tax portion
  • Current statue regarding use tax is only imposed on property that is bought by retailer; this language creates a tax loophole
  • Comptroller cleanup bill

HB 2626 left pending

 

HB 2695 (Noble) – Relating to municipalities and counties that adopt budgets that defund law enforcement agencies

  • Committee sub removes counties from bill and creates 250,000 population threshold
  • Does not apply to cities that lower overall budget
  • If city is proven to defunding, all tax revenue funds frozen at levels they were before the defunding
  • If tax payers are paying to be safe, police will not get that extra funding from taxes

 

Mayor Karen Hunt, Coppell – On

  • Bracketed out

 

Mike Land, Coppell – On

  • Bracketed out

Committee sub is withdrawn, HB 2695 left pending

 

HB 3021 (Burns) – Relating to municipalities and counties that adopt budgets that defund law enforcement agencies

  • The state has an obligation to ensure safety to citizens, including cities that have defunded their police departments

 

Sally Bakko, City of Galveston – On

  • Galveston is bracketed out

 

Mike Land, Coppell – On

  • Coppell is bracketed out, would otherwise be against

Β 

Mayor Karen Hunt, Coppell – On

  • Coppell is bracketed out, would otherwise be against
  • This bill does not have options for waivers or exceptions, huge for municipalities and decision making

 

Burns, in closing

  • Bill allows circumstantial provisions

Committee substitute is withdrawn, HB 3021 left pending

 

HB 3376 (Meyer) – Relating to the effect of a disaster on the calculation of certain tax rates and the procedure for adoption of a tax rate by a taxing unit

  • Laid out bill

 

Vance Ginn, Texas Public Policy Foundation – For

  • Increase in property taxes because of disaster loophole
  • There was no expectation of pandemic in SB 2, and counties used disaster to raise tax threshold above 3.5%
  • Need clarity language to define disaster
  • Questions if property taxes should be raised at all
  • Martinez Fischer – Tell me why you consider the disaster protocol a loophole?
    • Claimed to be loophole by governments to get around 3.5% tax limit
  • Martinez Fischer – That is disingenuous. If we wanted to exclude pandemics, we could have said it better; local governments are following what we wrote. Criticize us instead of local governments
    • Pandemic was not foreseeable
    • Local governments understood the struggle of their constituents and still raised taxes
  • Martinez Fischer – Within their rights due to the disaster authority we gave them
    • We need clarity in the statute
  • Martinez Fischer – Who is characterizing as loophole specifically?
    • Mayor Turner in Houston
  • Chairman – The bill does not rule out pandemics, more so focuses on physical property damage?
    • Yes

 

Sally Backko, City of Galveston – Neutral

  • Disaster exception allows ability to moderate the tax increase necessary to make up for property value reduction
  • Take advantage of property value to reimburse and stabilize
  • Recollection of property damage incurred by Hurricane Ike
  • Instrumental tool of recovery and flexibility
  • Cole – This allows you to even out expenses?
    • Not even out, without exception, spike in tax rate increase
    • As property values are rise, tax rates can lower
    • FEMA, at the time, reimbursed us, but Galveston was caught in trap of taxes during disaster

HB 3376 left pending

 

HB 3610 (Gervin-Hawkins, et. al) – Relating to the applicability of certain laws to open-enrollment charter schools

  • Charter schools are often required to lease space; hard to make capital investment and buy land when growing
  • Leasing for charter schools is not exempt from property taxation; increases overall cost to educating students
  • Bill will provide property tax exemption for land used by charter schools
  • Fund can go to classroom instead of taxes
  • 12 million of state funds could be kept in the classroom
  • ISD and private schools do not pay property taxes, why are charters treated differently?
  • Cole – Private schools are tax exempt?
    • Traditional public schools and private are exempt from paying property taxes. Public charter schools are not exempt

 

Joseph Hoffer, Charter Schools in San Antonio – Support

  • We litigate tax exemptions throughout the state for charter schools; Supreme Court case pending
  • Charter schools do not own their money, they are state funds; paying property taxes puts state funds back into local entities
  • Shine – What about appraisals of the land? Any implications if charter moved off of property?
    • No, appraised value appeal process is separate from exemption
  • Cole – Would think this would be larger than $12 million impact
    • Unsure where Rep. Gervin got that number, but I would assume it is more
    • Every startup charter school must pay out of pocket
  • Cole – Has no impact on public schools?
    • Tangential impact; the property taxes currently paid by charter schools would not go to school
  • Shine – Charters could go to permanent school fund?
    • Would need credit rating, which would take a couple of years
    • Most charter schools receive a purchase option as soon as they can get credit
    • Some schools relocate to where the students are, continuously leasing, and they would be protected under this bill
  • Shine – Are there some charters that are already on tax exempt property like churches?
    • Yes

 

Verina Shad, Great Hearts Texas – For

  • Parity and treatment that private and public schools receive
  • Estimated $70,000 a year in Galveston that could go to technology and curriculum

 

Bruce Tabor, Goodwater Montessori – For

  • Property taxes are $93,000 a year
  • Goodwater was granted exempt status and was reimbursed
  • Allowed greater support for students, continue to grow

HB 3610 left pending

 

HB 3935 (Slawson) – Relating to the distribution of municipal sales and use tax revenue to a municipality that reduces the funding allocated to law enforcement agencies

  • Very similar to Burn’s bill
  • Requested substitute to provide waivers, substitute not present at this time
  • Providing distribution of sales and use tax revenue be reduced to defunding government

 

Sally Bakko, Galveston – On

  • Did not specifically speak to brackets
  • If we are bracketed in, we would be concerned about a disaster exception

 

Mike Land, Coppell – Against

  • Does the substitute bracket?
    • No substitute, you are testifying on bill as written
  • City of Coppell would lose $25 million of sales tax revenue and the crime control district would be reduced by almost half
  • Coppell had to reduce expenditures, including police; under the definitions in the bill, we would qualify as being defunded and would lose funding

 

Mayor Karen Hunt, Coppell – Against

  • Ditto to Mike Land
  • Important to note that all city department heads in Coppell made those suggestions for cuts, under local control

HB 3935 left pending

 

HB 4072 (Meyer) – Relating to the location at which certain sales are consummated for purposes of local sales and use taxes

  • Bill streamlines sales tax administration to where the item is shipped or where the consumer uses the object for intrastate sales
  • Origin sourcing vs. destination sourcing; Texas uses origin sourcing primarily
  • Comptroller creating GIS system to determine local sales tax rate to make it easier for sellers

 

Thomas Gwozdz, Victoria Sales Tax Corporation – For

  • Citizens in Victoria have chosen to tax themselves for economic development in our community
  • Due to the increase in internet sales, the extra tax they are paying is being redirected to other communities and no longer boosting local economy
  • We support destination sourcing because it returns money back to local communities
  • Murphy – Is the assumption that internet sales are taking money out of communities? Evidence?
    • No, asked corporate treasurer if he can calculate impact
    • Dealing with individual corporations scattered throughout the state
  • Presented written testimony from the treasurer of Victoria Sales Tax Corporation

 

Michelle Madden, Grand Prairie Chamber of Commerce – Against

  • Burdensome administrative tax
  • Texans have a choice between origin and destination
  • Origin source is inherently easier and cheaper
  • Adding this regulation will hinder recovery

 

David Erb, City of Lewisville – Against

  • Change to destination sourcing is a major change; financial impact would be devastating
  • Cannot raise property taxes enough to cover costs
  • We have aggressively pursued new business in our state using the tools given to us by the legislature., and we have benefitted
  • Shine – In handout, one of largest producers is concrete batch plant. Selling on internet?
    • Sales tax is distributed where that sale is consummated, the destination of the sale will be reported in other communities, not Louisville
  • Murphy – What is Louisville tax rate?
    • 44 cents
  • Murphy – And they would be outraged by going up a penny?
    • Yes, it has been stable for 20 years.
  • Winners and losers, do you have any data that would prove you would be a loser?
    • Sales tax is confidential, but we would lose 25% of sales tax.
  • Meyer – What percentage of tax payer funds do you rebate to Bed Bath and Beyond?
    • Unsure of specifics, but sliding scale
  • Meyer- Taking tax from other parts of the state? This policy is good for Texas overall. If I buy something, it should go to my county. This is good tax policy, that is why 35 other states have adopted this

 

Mayor Karen Hunt, Coppell – Against

  • Convoluted definitions and rule making
  • Cuts would violate some of the law enforcement bills we have heard today
  • Have you told cities that legislature is considering such a dramatic policy change?
  • We interviewed cities about this change, not one business was aware of the change
  • Leave it to the city of Coppell to educate their business communities?
  • The consequences of changing to destination has not been fully studied, given appropriate weight or been considered
  • Meyer – You realize we had public hearings? I disagree with your testimony, it has been studied
  • Countless times, we requested data on the why? We never got data or why. We had to talk to our cities
  • Meyers – How much do you rebate to amazon?
    • Nothing

 

Dale Craymer, Texas Taxpayers Association – On

  • There is no in-between option
  • We support a single system, Texas has a hybrid now; ultimately, states are moving toward destination
  • October 1 is a very aggressive timeline
  • Texas has expansive services subject to sales tax that do not have an address, such as web hosting: where do the taxes go?
  • GIS system will be helpful, but July 1 is a strict timeline
  • Happy to work with you on that
  • Murphy – We talk about sales tax like it is the only revenue stream, as if the companies do not pay property tax
    • Yes, they pay property tax
  • What happen to sales tax in cities close to state border?
    • If you show up at a store front, that is the destination of sales
    • If you deliver to Arkansas, different set of rules as it crosses state lines
    • Would have to look up
  • 20% live outside cooperated areas, if it’s delivered, do we lose sales tax?
    • Subject to local sales tax but you can get a refund
  • Meyer – This does not effect existing 380 contracts?
    • No

 

Ellie Braxton, Coppell Chamber of Commerce – Against

  • This act will be detrimental to small businesses
  • Interested in collaborating to craft policy that will better serve the entire state
  • Burdensome to small business; additional regulatory burden, concerned about repercussion for honest mistakes
  • Texas has not made small business aware of the bill

 

Hilary Shine, City of Killeen – For

  • Significant positive impact for many cities in Texas, though we recognize not all cities will benefit
  • Would reduce reliance on property tax
  • Sending our sales tax elsewhere; revenue is leaving our local communities
  • 73 cent sales tax in our region
  • Shine – How many soldiers and families on Ft. Hood?
    • 35,000 on base
    • 75% live in local communities
  • Shine – If they buy on ft hood, taxes go to community?
    • No, bases are tax exempt
  • Shine – Percentage of veterans in Killeen is growing, buying on base and not paying sales tax. Unique situation. Destination impact would be significant
  • Military families are moving every 2-3 years, living transiently, accustomed to ordering things online

 

Leward Lafleur, Marianne County – Against

  • Would impact counties around Marianne

 

Wayne Mansfield, President Longview Economic Development Corporation – Against

  • Redistribution of wealth
  • Impact has not been studied
  • October 1 deadline is too aggressive
  • Meyer – Longview has entered an agreement with Gap? When and how much is the rebate?
    • We were not aware of 380 agreement, closing within the week
    • Sliding scale for rebate, Gap has to create X number of jobs and X revenue for city: baseline is $205 million revenue, 40% rebate.
  • Meyer – How did you not know about the comptroller’s bill?
    • No one was notified, I was totally unaware

 

Kyle Casner, Texas City Services – Neutral

  • We have clients that are winners and losers with this bill
  • Interstate commerce: Texas cannot tax any shipments that go out of state under US constitution
  • Who is the taxpayer? It is the business that remits it under tax law
  • Overall decrease in local sales tax is $9.2 billion a year, decrease by 350-550 million with a move to destination
  • 611,000 businesses report to a single city with a single rate

 

John Kroll, HMWK – Against

  • Destination favors large businesses over small businesses and disrupts 50 years of economic planning and land use decisions made by cities
  • Meyer – last destination in 2008?
  • Meyer – Coppell is a client?
    • Yes

 

Shane Shepard, City of Lancaster – Against

  • Address equity issue
  • Sales tax allows small cities to compete and recruit businesses
  • We have low consumer levels and power of spending; unfairly benefits those with more disposable incomes
  • We are deserving and hardworking citizens
  • Legislators should hold off until economy is stable post pandemic

 

Robert Scott, City of Carrollton – Against

  • Origin sourcing has benefitted our city and stand to lose with the implementation of this bill
  • Carrollton has no 380 agreements at all, we have not needed to
  • Sales tax is complex and hard to predict
  • Will call counter, under comptrollers rule change, we would change the point of sale
  • Default destination sourcing would hurt distribution cities, which are the economic powerhouses of Texas
  • Origin sourcing is not a zero sum gain
  • Study redistribution impact
  • Guerra – Do we have a chart that would show the impact of this?
    • No, sales tax information is confidential
  • Meyer – You do not believe the comptroller did a comprehensive review before making rule change?
    • No, if they did, the results were not distributed
  • Meyer – Comptroller would not publish something without due research

 

Karey Barton, Comptroller’s Office – Resource

  • Meyer – Walk us through what you did for this rule change?
  • Incorrect that Texas businesses get to choose between destination vs origin
  • How to deal with orders not made in person: orders placed over the internet are not received by a person in the same way in personal business is held
  • If the order is online or through an app, you would source them through hierarchy business model and fulfillment
  • If it was not fulfilled by place of business but a distribution center, order would be sourced to the destination
  • If order was fulfilled in business with people and foot traffic, order would be sourced to origin
  • Our rule was aimed, with clarity, to answer source questions
  • Meyer – Do you remember how many comments you reviewed?
    • More than 50-60, for and against
    • They are summarized and put into the preamble
  • Meyer – How often are meetings held?
    • Only if they are requested
  • Cities do not know what the cities might gain, comptroller does not know either
  • Residents receive tax cuts
  • Meyer – Can you speak to GIS tool?
    • Benefit to in state and out of state sellers
    • States should be able to provide a downloadable sales tax database that allows specificity of tax amount per region and address
    • Will look at rule for hold harmless
  • States have to be conscious of the burden they put on out of state taxpayers
  • Shine – Have you have any threats from municipalities for lawsuits?
    • Yes
  • Shine – Can you assess
    • High 80-90%
  • Meyer – What is the basis of the lawsuits?
    • Beyond our influence

 

Mike Land, City of Coppell – Against

  • Rule was never marketed to business community
  • Do not upend the business model of Texas without research and analysis
  • Retailers are not the only ones effected, understand that the majority of sales are from company to company
  • What is the rush? Give us data and a chance to prepare
  • Coppell will be most negatively affected
  • Meyer – You will have some tax benefit
    • We believe that to be true, but will not cover the $25 million loss
  • Meyer – Will not be that much
    • We know it will be $25 million, those sales will not count in Coppell any longer
  • Meyer – You are keeping tax dollars that should follow the tax payer, rather than having 12 municipalities distribute the wealth

HB 4072 left pending