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ACCEPTED
15-25-00022-CV
FIFTEENTH COURT OF APPEALS
AUSTIN, TEXAS
9/26/2025 7:45 PM
No. 15-25-00022-CV CHRISTOPHER A. PRINE
CLERK
FILED IN
In the Court of Appeals 15th COURT OF APPEALS
AUSTIN, TEXAS
For the Fifteenth Judicial District
9/26/2025 7:45:27 PM
Austin, Texas CHRISTOPHER A. PRINE
Clerk

City of Coppell, Texas; City of Humble, Texas; City of
Desoto, Texas; City of Carrollton, Texas; City of Farmer’s
Branch, Texas; City of Round Rock, Texas,
Appellants/Cross-Appellees,
v.
Kelly Hancock, Acting Comptroller of Public Accounts of
the State of Texas,
Appellee/Cross-Appellant.

On Appeal from the 201st Judicial District Court, Travis County, Texas
Cause No. D-1-GN-21-003198; consolidated with D-1-GN-21-003203

AMENDED APPELLEE/CROSS-APPELLANT’S BRIEF

Ken Paxton Kyle Pierce Counce
Attorney General of Texas Deputy Division Chief
State Bar No. 24082862
Brent Webster Kyle.Counce@oag.texas.gov
First Assistant Attorney General Office of the Attorney General
Tax Litigation Division
Ralph Molina P. O. Box 12548
Deputy First Assistant Attorney General Austin, Texas 78711-2548
T: (512) 463-3112
Austin Kinghorn F: (512) 478-4013
Deputy Attorney General for Civil Litigation
Counsel for Appellee/Cross-
Steven Robinson Appellant
Division Chief, Tax Litigation Division

Oral Argument Requested
IDENTITY OF PARTIES AND COUNSEL

Appellants/Cross-Appellees:
City of Coppell, Texas
City of Humble, Texas
City of DeSoto, Texas
City of Carrollton, Texas
City of Farmer’s Branch, Texas

Appellate and Trial Counsel for Appellants/Cross-Appellees:
James B. Harris, Jim.Harris@hklaw.com
Stephen F. Fink, Stephen.Fink@hklaw.com
Reed C. Randel, Reed.Randel@hklaw.com
Richard B. Phillips, Jr., Rich.Phillips@hklaw.com
HOLLAND & KNIGHT LLP
1722 Routh Street, Suite 1500
Dallas, Texas 75201
(214) 964-9500

Brandon L. King, Brandon.King@hklaw.com
HOLLAND & KNIGHT LLP
98 San Jacinto Boulevard, Suite 1900
Austin, Texas 78701

Appellees:
City of Round Rock, Texas

Appellate and Trial Counsel for Appellees:
Cindy Olson Bourland, Bourland@bourlandlaw.com
BOURLAND LAW FIRM, PC
P.O. Box 546
Round Rock, Texas 78680

Bryan Dotson, Bryan.Dotson@chamberlainlaw.com
Chamberlain, Hrdlicka, White, Williams, & Aughtry, P.C.
112 East Pecan Street, Suite 1450
San Antonio, Texas 78205
(210) 278-5844

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Appellee/Cross-Appellant:
Kelly Hancock, Acting Comptroller of Public Accounts of the State of Texas

Appellate and Trial Counsel for Appellee/Cross-Appellant:
Ken Paxton
Brent Webster
Ralph Molina
Austin Kinghorn
Steven Robinson
Kyle Pierce Counce (lead counsel)
Kyle.Counce@oag.texas.gov
Peter Berquist
Peter.Berquist@oag.texas.gov
OFFICE OF THE ATTORNEY GENERAL
P.O. Box 12548
Austin, Texas 78711-2548
(512) 463-3112

Former Counsel no longer with Office of the Attorney General:
Grant Dorfman (currently employed by the Texas Business Court, Eleventh
Division)
James Lloyd (currently employed by the Office of the Vice President of the United
States)
Shawn Cowles (currently employed by Dhillon Law Group, Inc.)
Alison Andrews (currently employed by Jackson Walker LLP)
Brittney Johnston (currently employed by McLane
Deborah Rao (currently employed by the State Office of Risk Management)
Matthew T. Kennedy (currently employed by Covenant Clearinghouse, LLC)
Ray Langenberg (Specially Deputized trial counsel, currently employed by the
Office of the Comptroller of Public Accounts of Texas)

Former Counsel no longer with Tax Litigation Division:
Amanda Romenesko (currently employed by the Opinion Committee, Office of the
Attorney General of Texas)

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TABLE OF CONTENTS
Identity of Parties and Counsel ................................................................................i
Index of Authorities ................................................................................................ v
Record References .................................................................................................. x
Statement of the Case ............................................................................................. x
Statement Regarding Oral Argument ...................................................................... x
Issues Presented .................................................................................................... xi
Statement of Facts .................................................................................................. 1
I. The Parties ......................................................................................... 1
II. Background on Texas local sales and use tax ....................................... 1
III. Promulgation of Comptroller Rule 3.334 .............................................2
IV. Procedural History .............................................................................. 3
Summary of the Argument ...................................................................................... 5
Argument................................................................................................................ 7
I. Rule 3.334 is a valid exercise of the Comptroller’s rulemaking
authority because it does not contravene the statutes ..........................8
A. Rule 3.334(a)(9) defines the term “fulfill” as used within
the entire rule ......................................................................... 12
B. Rule 3.334(a)(18) defines the phrase “place of business of
the seller” as used within the entire rule ................................. 14
C. Rule 3.334(b)(5) clarifies what is and is not a “place of
business of the seller.” ............................................................ 17
D. Rule 3.334(c) does not contravene the Tax Code .................... 19
1. The rule clarifies that it applies to “all sellers” ............. 19
2. The rule is not counter to the statutory scheme of
the Tax Code ................................................................ 22
3. The trial court improperly overturned language
which no party disputed ................................................ 23
II. The Comptroller’s notice complied with the APA ............................ 24

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A. The Comptroller’s Fiscal Note substantially complied
with the APA .......................................................................... 25
1. The rulemaking record shows substantial
compliance.................................................................... 26
2. The Fiscal Note requirement should not be read to
require more than is possible ......................................... 29
B. The Comptroller’s Adverse Economic Effect Notice
substantially complied with the APA....................................... 31
III. The Comptroller substantially complied with the APA’s
reasoned justiﬁcation requirement .................................................... 33
A. The Comptroller’s rulemaking record is exhaustive in its
factual summary and rational connection ................................ 35
1. The Comptroller summarized the factual bases for
the Rule ........................................................................ 36
2. The Comptroller demonstrated a rational
connection between the factual bases and the rule
as adopted ..................................................................... 37
3. The Comptroller’s rational connection was not
arbitrary and capricious .................................................40
a. The Comptroller considered only the
Legislatively mandated factors ............................ 41
b. The Comptroller did not reach a completely
unreasonable result ............................................. 44
B. The Comptroller gave the reasons why the agency
disagrees with party submissions and proposals ...................... 46
Conclusion and Prayer .......................................................................................... 49
Certificate of Compliance ..................................................................................... 51
Index of Appendices ............................................................................................. 53

iv
Index of Authorities

Cases: Page(s)
Bullock v. Hewlett–Packard Co.,
628 S.W.2d 754 (Tex.1982) ........................................................................ 41
Dall. Cnty. Bail Bond Bd. v. Stein,
771 S.W.2d 577 (Tex. App.—Dallas 1989, writ denied) ............................... 11
DuPont Photomasks, Inc. v. Strayhorn,
219 S.W.3d 414 (Tex. App.—Austin 2006, pet. denied) ............................. 19
Cadena Comercial USA Corp. v. Tex. Alcoholic Beverage Comm’n,
518 S.W.3d 318 (Tex. 2017)......................................................................... 22
Castleman v. Internet Money, Ltd.,
546 S.W.3d 684 (Tex. 2018) ....................................................................... 22
City of El Paso v. Pub. Util. Comm’n of Tex.,
883 S.W.2d 179 (Tex. 1994) ........................................................................ 44
Combs v. City of Webster,
311 S.W.3d 85 (Tex. App.—Austin 2009, pet. denied) ................................. 1
Farm & Ranch Freedom All. v. Tex. Dep’t. of Agric.,
No. 03-23-00459-CV, 2025 WL 994190 (Tex. App.—Austin
Apr. 3, 2025, no pet.) (mem. op.) ............................................... 14, 38, 41, 44
First Am. Title Ins. Co. v. Combs,
258 S.W.3d 627 (Tex. 2008) ......................................................................... 9
GEO Group, Inc. v. Hegar,
709 S.W.3d 585 (Tex. 2025)........................................................................ 14
Gerst v. Nixon,
411 S.W.2d 350 (Tex. 1966) ........................................................................ 44
Gulf Coast Coal. of Cities v. Public Util. Coman,
161 S.W.3d 706, 714 (Tex. App.—Austin 2005, no pet.) ....................... 36, 37
Harlingen Family Dentistry, P.C. v. Texas Health & Human Servs. Comm’n,
452 S.W.3d 479 (Tex. App.—Austin 2014, pet. dism’d) ............................... 9

v
Johnson v. City of Fort Worth,
774 S.W.2d 653 (Tex.1989) ......................................................................... 10
Lambright v. Texas Parks & Wildlife Dep’t,
157 S.W.3d 499 (Tex. App.—Austin 2005, no pet.) .............................. passim
McCarty v. Tex. Parks & Wildlife Dep’t,
919 S.W.2d 853 (Tex. App.—Austin 1996, no writ) ......................................8
Methodist Hosps. of Dallas v. Tex. Indus. Accident Bd.,
798 S.W.2d 651 (Tex. App.—Austin, 1990, writ dism’d w.o.j.) ...... 24, 29, 34
Molinet v. Kimbrell,
356 S.W.3d 407 (Tex. 2011) ........................................................................ 30
Nat’l Ass’n of Indep. Insurers v. Tex. Dep’t of Ins.,
925 S.W.2d 667 (Tex. 1996) ........................................................................ 26
Nat’l Liab. & Fire Ins. Co. v. Allen,
15 S.W.3d 525 (Tex. 2000).......................................................................... 10
Patient Advocates of Tex. v. Texas Workers Comp. Comm’n,
80 S.W.3d 66 (Tex. App.—Austin 2002), aff’d in part, rev’d in part,
136 S.W.3d 643 (Tex. 2004).................................................................. 34, 35
Perry Homes v. Strayhorn,
108 S.W.3d 444 (Tex. App.—Austin 2003, no pet.) ................................... 18
Reliant Energy, Inc. v. Public Util. Comm’n of Tex.,
62 S.W.3d 833 (Tex. App.—Austin 2001, no pet.) ................................ passim
R.R. Comm’n of Tex. v. ARCO Oil & Gas Co.,
876 S.W.2d 473 (Tex. App.—Austin 1994, writ denied) .................. 35, 38, 47
R.R. Comm’n of Tex. v. Lone Star Gas Co., a Div. of Enserch Corp.,
844 S.W.2d 679 (Tex. 1992) ....................................................................... 11
R.R. Comm’n of Tex. v. Tex. Citizens for a Safe Future & Clean Water,
336 S.W.3d 619 (Tex. 2011)....................................................................... 7, 9
State v. Pub. Util. Comm’n of Tex.,
883 S.W.2d 190 (Tex. 1994) ........................................................................ 11

vi
State Bd. of Ins. v. Deffebach,
631 S.W.2d 794 (Tex. App.—Austin 1982, writ ref’d n.r.e.) ................. 24, 26
State of Texas Office of Pub. Util. Counsel v. Public Util. Comm’n of Texas,
131 S.W.3d 314 (Tex. App.—Austin 2004, pet. denied) ........................passim
Statewide Convoy Transps. Inc. v. R.R. Comm’n of Tex.,
753 S.W.2d 800 (Tex. App.—Austin 1988, no writ) ................................... 41
Tex. Ass’n of Psychological Assocs. v. Tex. State Bd. of Examiners of Psychologists,
439 S.W.3d 597 (Tex. App.—Austin 2014, no pet.) ......................................8
Tex. Medical Ass’n v. Texas Workers Compensation Comm’n,
137 S.W.3d 342 (Tex. App.—Austin 2004)................................ 38, 40–41, 46
Tex. Mun. Power Agency v. Pub. Util. Comm’n,
253 S.W.3d 184 (Tex. 2007) ........................................................................ 11
Tex. State Examiners of Marriage & Fam. Therapists v. Tex. Med. Ass’n,
511 S.W.3d 28, 33 (Tex. 2017) ....................................................................... 8
Tex. Workers’ Comp. Comm’n v. Patient Advocates,
136 S.W.3d 643 (Tex. 2004)........................................................................ 26
TGS–NOPEC Geophysical Co. v. Combs,
340 S.W.3d 432 (Tex. 2011) ............................................................. 10, 11, 14
Unified Loans, Inc. v. Pettijohn,
955 S.W.2d 649 (Tex. App.—Austin 2007, no pet.)...............................31, 32

Statutes and Rules:
34 Tex. Admin. Code:
§ 3.334 .................................................................................................. passim
§ 3.334(a)(9) ......................................................................................... passim
§ 3.334(a)(17) .............................................................................................. 15
§ 3.334(a)(18)........................................................................................ passim
§ 3.334(b)(1) ............................................................................................... 23
§ 3.334(b)(1)(A) .......................................................................................... 12
§ 3.334(b)(5) ......................................................................................... passim

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§ 3.334(c) .............................................................................................. passim
§ 3.334(c)(1) ............................................................................................... 12
§ 3.334(c)(7) ......................................................................................... 12, 23
Tex. Gov’t Code:
§§ 2001.001–2001.091 .................................................................................. 8
§ 2001.023 .................................................................................................. 24
§ 2001.024 ............................................................................................ passim
§ 2001.024(a)(4) ................................................................................... 25, 26
§ 2001.033 .................................................................................................. 33
§ 2001.033(a)(1).......................................................................................... 34
§ 2001.033(a)(1)(A) .................................................................................... 34
§ 2001.033(a)(1)(B) ............................................................................... 35, 37
§ 2001.033(a)(1)(C) ........................................................................ 46, 48, 49
§ 2001.035 .................................................................................................. 30
§ 2001.035(a) ............................................................................. 24, 31, 34, 37
§ 2001.035(c) .................................................................................. 26, 38, 46
§ 2006.002....................................................................................... 25, 31, 33
§ 2006.002(c) ........................................................................................ 31, 32
Tex. Tax Code:
§ 111.002 ............................................................................................... passim
§ 111.002(a) ................................................................................................ 13
§ 151.0595(j) .................................................................................... 11, 41, 42
§ 151.107 ..................................................................................................... 16
§ 321.001 et seq. ........................................................................................... 1
§ 321.002(a)(3)(A) ................................................................................ passim
§ 321.002(a)(3)(B) ...................................................................................... 15
§ 321.002(a)(3)(C) ................................................................................. 15, 17
§ 321.203 .............................................................................................. passim
§ 321.203(a) .................................................................................................. 2
§ 321.203(b) ..................................................................................... 15, 20, 21

viii
§ 321.203(c-1) ............................................................................................. 13
§ 321.203(c) ................................................................................................ 15
§ 321.203(e) ................................................................................................20
§ 321.303..................................................................................................... 16
§ 321.306............................................................................................... passim
§ 321.312 ....................................................................................................... 2
§ 321.502 ...................................................................................................... 2
§ 322.203 .............................................................................................. passim
§ 323.306 .............................................................................................. passim

Other Authorities:
45 Tex. Reg. 98–115 (Jan. 3, 2020) .......................................................................... 2
45 Tex. Reg. 3499–518 (May 22, 2020) ................................................................... 2
47 Tex. Reg. 6158–74 (Sept. 23, 2022) .................................................................... 3
48 Tex. Reg. 6340–50 (Oct. 27, 2023) ..................................................................... 3
49 Tex. Reg. 2440–57 (Apr. 29, 2024) ............................................................ passim
49 Tex. Reg. 4797–4808 (June 28, 2024) ........................................................ passim
Tex. Parks & Wild. Code § 77.007(b)(1)–(6) ......................................................... 42
Tex. Util. Code § 39.202 ...................................................................................... 42
Ronald Beal, The Scope of Judicial Review of Agency Rulemaking: The
Interrelationship of Legislating and Rulemaking in Texas, 39 Baylor L.
Rev. 597 (1987) ........................................................................................... 24

ix
Record References
“CR” refers to the clerk’s record. “RR” refers to the court reporter’s record,

with the volume before RR and the page number after RR.

STATEMENT OF THE CASE
Nature of the Case: This litigation was brought by cities challenging the validity
of amendments to Comptroller Rule 3.334 regarding the
sourcing of local sales and use taxes to local jurisdictions.
Trial Court: The Honorable Karin Crump, Judge of the 250th Civil
District Court of Travis County, Texas.
Disposition: After a bench trial, the trial court rendered judgment
enjoining the Comptroller from enforcing portions of Rule
3.334 and remanding those portions to the Comptroller for
further consideration. CR 2799. The judgement also denied
claims for relief of some of the plaintiffs. CR 2799. As a result,
some of the city plaintiffs have appealed and the Comptroller
has cross-appealed. CR 2854–58; 2859–64.

STATEMENT REGARDING ORAL ARGUMENT
The Comptroller requests oral argument. This appeal presents issues of
statutory interpretation and administrative law that are significant to the
development of Texas jurisprudence, and will otherwise determine where a sale or
use is “consummated” for purposes of sourcing local sales and use taxes. Oral

argument will aid the Court in addressing the interplay between the consummation
statutes and the agency’s rulemaking authority to implement such statutes.

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ISSUES PRESENTED
The Texas Comptroller of Public Accounts began procedures to revise

Comptroller Rule 3.334, which governs the place of consummation of a sale for
purposes of Texas sales and use tax. See 34 Tex. Admin. Code § 3.334; 49 Tex. Reg.
2440-57 (Apr. 19, 2024); 4797-08 (June 28, 2024). Plaintiffs sued under the APA for
declarations that the Comptroller improperly promulgated Rule 3.334 by violating
rulemaking provisions of the Texas APA. Plaintiffs also sought declarations that Rule
3.334 violated various sales tax statutes. The trial court ruled that the Comptroller

had violated the APA and that Rule 3.334 contravened existing statutes and rendered
injunctions against enforcement of the rule. The issues presented are:
1. Whether the Comptroller substantially complied with the notice
requirements in the APA.
2. Whether the Comptroller substantially complied with the reasoned
justification requirement in the APA.
3. Whether Rule 3.334 contravened Chapter 151 and sections 321.203 and
323.203 of the Texas Tax Code.
4. Whether Rule 3.334(a)(18), (b)(5), and (c) contravene sections
321.002(a)(3)(A), 321.203, and 323.203 of the Texas Tax Code.
5. Whether Rule 3.334(c) contravenes the statutory schemes for
determining where a sale is consummated under sections 321.203, and
323.203 of the Texas Tax Code.

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STATEMENT OF FACTS
I. The Parties

This is an appeal of a consolidated case where two different sets of
municipalities sued the Comptroller to invalidate an administrative rule. First
Appellant, Cross-Appellee and plaintiff below, are the Cities of Coppell, Humble,
DeSoto, Carrollton, and Farmers Branch, Texas (collectively, “Coppell”). The
second plaintiff at the trial court and second Cross-Appellee is the City of Round
Rock (“Round Rock”, and together with Coppell, the “Plaintiff Cities”). Cross-

Appellant, Appellee, and defendant below, is Glenn Hegar, in his Official Capacity
as Comptroller of Public Accounts of the State of Texas (the “Comptroller”).
Comptroller Hegar resigned on June 30, 2025. Kelly Hancock is the Acting Texas
Comptroller of Public Accounts and was automatically substituted into this appeal
on July 29, 2025.
II. Background on Texas local sales and use tax
The Plaintiff Cities are all Texas municipalities subject to the Municipal Sales
and Use Tax Act. Tex. Tax Code § 321.001 et seq. Municipal sales tax is imposed on
the sale of a taxable item within the municipality in which the sale is
“consummated.” Id. § 321.203. The statutes and administrative rule for
determining where a sale is consummated is the core of this case. The term is not
explicitly defined in the Texas Tax Code, but the location of consummation is the
subject of section 321.203. Id. § 321.203; Combs v. City of Webster, 311 S.W.3d 85, 95
(Tex. App.—Austin 2009, pet. denied). Where a sale is consummated is relevant to
the municipalities in this appeal because that determines which municipality will

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receive the portion of sales tax that the Comptroller collects and then remits back to
cities and other local taxing jurisdictions. See Tex. Tax Code §§ 321.203(a), 321.312,

321.502.
The Comptroller promulgated rules that affect consummation determinations
of both municipal and county sales taxes. This dispute only involves the
consummation provisions of the Municipal Sales Tax Act as found in Texas Tax
Code chapter 321, with occasional reference to Chapter 323, the County Sales and
Use Tax Act. Most relevant to this dispute is Texas Tax Code section 321.203, which

governs consummation of sale for sales tax in municipalities.
III. Promulgation of Comptroller Rule 3.334
On January 3, 2020, the Comptroller initiated rulemaking to update its local
sales and use tax rule. 45 Tex. Reg. 98-102 (Jan. 3, 2020). The rulemaking would
amend Chapter 34 of the Texas Administrative Code section 3.334 (“Rule 3.334”).
Id. Rule 3.334 governs local sales and use taxes, including determinations of where a
sale is consummated for local sales tax purposes. The Comptroller stated that the
amendments to Rule 3.334 were to clarify provisions concerning, among others:
fulfillment, temporary places of business, places of business receiving more than
three orders, traveling salespersons, internet orders, and in-person orders. 45 Tex.
Reg. 98 (Jan. 3, 2020). It also reorganized Rule 3.334 for clarity and readability. Id.
Other changes were made which are not at issue in this appeal.
After the notice and comment period, the Comptroller finally adopted the
2020 version of Rule 3.334. 45 Tex. Reg. 3509 (May 22, 2020). The 2020 version of
Rule 3.334 was scheduled to take effect on October 1, 2021. The Plaintiff Cities filed

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suit to halt its implementation. The Comptroller repealed, revised, and reamended
Rule 3.334 several times between 2021 and 2024. 1 Only the April 2024 amendment,

which was adopted in June 2024 (49 Tex. Reg. 4797–808 (June 28, 2024)), is at issue
in this appeal.
IV. Procedural History

Coppell filed its Original Petition on July 12, 2021. CR 6. Round Rock also
filed its Original Petition on July 12, 2021. The cases were consolidated on July 13,
2022. CR 1251. Both Coppell and Round Rock amended their petitions, with the final
amendments on September 11, 2024. CR 2396; CR 2437. Between the filing of the
Original Petitions and the final trial on the merits, the Plaintiff Cities and the
Comptroller agreed to a series of temporary injunctions until the court rendered a

final judgment. CR 121; 123; 1248; 1338; 1340; 1342; 1344; 1745. Each party
attempted several summary judgment motions, none of which are subject to appeal.2
The version of Rule 3.334 that went to trial and is on appeal in this case was initially
published on April 19, 2024 (the “April 2024 Notice”) and was adopted on June 28,
2024 (the “June 2024 Order”). 49 Tex. Reg. 2440–57; 49 Tex. Reg. 4797–808.3
The case was called for trial on October 14, 2024, in the 250th District Court

1 Rule 3.334 was amended in September 2022 (47 Tex. Reg. 6158–74 (Sept. 23, 2022)), October

2023 (48 Tex. Reg. 6340–50 (Oct. 27, 2023)), and April 2024 (49 Tex. Reg. 2440-57 (Apr. 29,
2024)).
2 The trial court granted Plaintiﬀ Cities’ Partial Motions for Summary Judgment on August 29,

2022. CR 1336. The order remanded Rule 3.334 to the Comptroller “for revision or readoption
through established procedures within a reasonable time.” CR 1337.
3 In this brief, the Comptroller will cite to the Texas Register for the April 2024 Notice and the June

2024 Order for readability. Both are available in the Clerk’s Record and as trial court exhibits in the
Reporter’s Record and are included in the Appendix. The April 2024 Notice is at CR 2532–50 and
12 RR 874–91. The June 2024 Order is at CR 2551–62 and 10 RR 301–12.

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of Travis County, Judge Karin Crump presiding. 6 RR 1. After a bench trial on the
merits, the trial court took the matter under advisement and rendered a judgment on

December 3, 2024. CR 2797. The judgment was mixed. A portion of the judgment
was in favor of the Plaintiff Cities, with the court ruling that:

1. The Comptroller did not substantially comply with the notice
requirements under the APA;

2. The Comptroller did not substantially comply with the reasoned
justification requirement under the APA;

3. 34 TAC § 3.334(a)(9) contravenes existing statutes by adding a
definition at the agency level that the Legislature has not defined
in Chapter 151 of the Texas Tax Code and for which Sections
321.203 and 323.203 already provide a detailed statutory scheme
for determining where a sale of a taxable item is consummated;

4. 34 TAC 3.334(a)(18), (b)(5), and (c) contravene specific
statutory language set forth in Texas Tax Code sections
321.002(a)(3)(A), 321.203, and 323.203; and

5. 34 TAC 3.334(c) [(c)(1) and (c)(2) inclusive] contravenes the
statutory schemes for determining where a sale is consummated,
under Sections 321.203 and 323.203.
CR 2798. It is these five rulings that the Comptroller appeals.
The Court made an explicit ruling against Coppell (on an issue it raised
separately from Round Rock). CR 2798. The remainder of the judgment was in favor

of the Comptroller, with the Plaintiff Cities being denied all other relief. CR 2798.
Both Coppell and the Comptroller moved for the trial court to modify the
judgment. CR 2800; 2816. The trial court denied the motions. CR 2840; 2841.

Coppell requested Findings of Fact and Conclusions of Law, which it later amended

4
to only Conclusions of Law. CR 2842; 2848. The trial court issued Conclusions of
Law on December 30, 2024. CR 2846. The Conclusions of Law are virtually identical

to the judgment language. CR 2846. Coppell timely filed a Notice of Appeal on
March 3, 2025. CR 2854. The Comptroller also timely filed a Notice of Appeal on
March 17, 2025. CR 2859.
SUMMARY OF THE ARGUMENT
This is an appeal of a bench trial where the trial court invalidated and enjoined
parts of Comptroller Rule 3.334. The standard of review is de novo. The Comptroller
brings ﬁve issues, which are divided into three buckets: (1) Rule 3.334 does not
contravene the Texas Tax Code; (2) the Comptroller’s rulemaking complied with the
APA’s notice requirements; and (3) the Comptroller’s rulemaking complied with the

APA’s reasoned justiﬁcation requirement. This Court should reverse the judgment
of the trial court and render judgment in favor of the Comptroller.
I. The trial court wrongly invalidated four parts of Rule 3.334. An
administrative rule is invalid under the APA if it contravenes speciﬁc statutory
language, runs counter to the objectives of the statute, or imposes burdens
inconsistent with the statute. Rule 3.334(a)(9) deﬁnes the word “fulﬁll”, which is

used throughout Rule 3.334 but not used within the statute; the deﬁnition is
consistent with the statutory language. Rule 3.334(a)(18) deﬁnes the phrase “place
of business of the seller,” and oﬀers examples of what does not meet the deﬁnition.

The deﬁnition expounds on the legislature’s partial deﬁnition of the phrase, and
support for the Comptroller’s deﬁnition comes when the statute is read as a whole,
not in isolation. Rule 3.334(b)(5) clariﬁes that a computer that operates an automated

5
shopping cart on a website is not a “place of business” for purposes of sales tax
consummation. This rule is well within the Legislature’s broad grant of rulemaking

authority to the Comptroller. Rule 3.334(c) clariﬁes that the rule applies to “all sellers
engaged in business in Texas.” This comports precisely with the statute’s language
and avoids providing special treatment to any sellers.
II. The trial court wrongly found that the Comptroller did not comply with the
APA’s notice requirements. The APA requires administrative agencies to provide
certain notices to the public when considering a rule. Two were at issue in the trial

court: the “Fiscal Note” and the “Adverse Economic Impact Notice” requirements.
The Legislature’s intent in requiring these notices was to give interested parties
suﬃcient notice of a rule’s content to permit them to see if they need to participate
in the rulemaking process. Whether an agency followed the APA is reviewed under a
substantial compliance standard. The Comptroller’s Fiscal Note did more than track
the statutory language; it gave data and analysis suﬃcient to put cities and taxpayers
on notice of potential ﬁnancial implications of Rule 3.334. And the Comptroller
demonstrated that compliance to the standard the Plaintiﬀ Cities requested would be
impossible. The Comptroller’s Adverse Economic Impact Notice provided
everything required by the statute and more; the Plaintiﬀ Cities simply did not like
the Comptroller’s conclusions. The Comptroller substantially complied with both
the Fiscal Note and Adverse Economic Impact Notice requirements.
III. The trial court wrongly found that the Comptroller did not comply with
the APA’s reasoned justiﬁcation requirement. The APA requires administrative
agencies to provide a reasoned justiﬁcation when adopting rules. Substantial

6
compliance is again the standard for review, and the courts are limited to the face of
the rulemaking itself. Reasoned justiﬁcation requires: an agency to summarize the

factual bases of the rule, demonstrate a rational connection between the factual bases
and the rule, and give reasons why the agency disagreed with comments received
during rulemaking.
The Comptroller satisﬁed each prong. The Comptroller exhaustively gave the
factual bases that lead it to adopt the rule, primary amongst them to provide clarity
in how sales tax consummation works. Second, a rational connection will not

substantially comply with the APA if it was arbitrary and capricious. But a review of
the Comptroller’s rulemaking record reveals that the rule is a reasonable means to a
legitimate objective, and the Comptroller considered only those factors the
Legislature required it to consider. And third, the Comptroller gave reasons why it
disagreed with each submission opposed to adoption of the rule. The Comptroller
demonstrated its substantial compliance with the reasoned justiﬁcation requirement.

ARGUMENT

“The gravamen of this dispute . . . is [the Comptroller’s] construction of a

statute it is charged with administering. The construction of a statute is a question

of law [courts] review de novo.” R.R. Comm’n of Tex. v. Tex. Citizens for a Safe Future

& Clean Water, 336 S.W.3d 619, 624 (Tex. 2011).

7
I. Rule 3.334 is a valid exercise of the Comptroller’s rulemaking authority
because it does not contravene the statutes.
The Court should reverse the lower court’s decision and render judgment in
favor of the Comptroller because Rule 3.334 is valid in its entirety under the APA. 4

With a rule validity challenge, the rule is presumed to be valid, and Plaintiff Cities
bear the burden of showing it is not. See, e.g., Tex. State Bd. Of Examiners of Marriage
& Family Therapists v. Tex. Med. Ass’n, 511 S.W.3d 28, 33 (Tex. 2017); McCarty v.

Tex. Parks & Wildlife Dep’t, 919 S.W.2d 853, 854 (Tex. App.—Austin 1996, no writ).
To establish a rule’s invalidity, the Plaintiff Cities must demonstrate that the
challenged provisions (1) contravene specific statutory language; (2) run counter to
the general objective of the statute; or (3) impose additional burdens, conditions, or
restrictions in excess of or inconsistent with the relevant statutory provisions. Tex.
Ass’n of Psychological Associates. v. Tex. State Bd. of Examiners of Psychologists, 439

S.W.3d 597, 603 (Tex. App.—Austin 2014, no pet.). In analyzing a challenged
agency rule, a court must “recognize that the Legislature intends an agency created
to centralize expertise in a certain regulatory area be given a large degree of latitude
in the methods it uses to accomplish its regulation function.” Id. (internal quotation
marks omitted). Further, “[w]hen conferring a power upon an agency, the
Legislature also impliedly intends that the agency have whatever powers are
reasonably necessary to fulfill its express functions or duties, and the Legislature is
not required to include every specific detail or anticipate all [unforeseen]

4 As used herein, “APA” and “Texas APA” refer to the Administrative Procedure Act, codiﬁed in

Chapter 2001 of the Texas Government Code, which governs rulemaking, contested case
procedures, and judicial review of state agency actions. See Tex. Gov’t Code §§ 2001.001–
2001.091.

8
circumstances when enacting an agency’s authorizing statute.” Id. (internal
quotation marks omitted).

An agency’s interpretation of a statute that it is charged with enforcing its
entitled to “serious consideration,” as long as the agency’s interpretation is
reasonable and “does not contradict the plain language of the statute.” See, e.g., First
Am. Title Ins. Co. v. Combs, 258 S.W.3d 627, 632 (Tex. 2008) (internal quotation
marks omitted). As the Supreme Court has explained, “we need not consider
whether [the agency’s] construction is the only—or the best—interpretation in

order to warrant our deference.” Tex. Citizens for a Safe Future & Clean Water, 336
S.W.3d at 628.
The Plaintiﬀ Cities failed to carry their burden to show that any subsection of
Rule 3.334 that the lower court ruled on (1) contravenes speciﬁc statutory language,
(2) is counter to the statute’s general objectives, or (3) imposes additional burdens,
conditions, or restrictions in excess of or inconsistent with the relevant statutory
provisions. See Harlingen Family Dentistry, P.C. v. Tex. Health & Human Services
Comm’n, 452 S.W.3d 479, 482 (Tex. App.—Austin 2014, pet. dism’d); State, Oﬃce
of Pub. Util. Counsel v. Pub. Util. Comm’n of Tex., 131 S.W.3d 314, 321 (Tex. App.—
Austin 2004, pet. denied).
The court below determined that: (1) Rule 3.334(a)(9) contravenes sections
321.203 and 323.203 of the Tax Code which provide for where a sale of a taxable item
is consummated; (2) Rules 3.334(a)(18), (b)(5), and (c) contravene “speciﬁc statutory
language set forth in” sections 321.002(a)(3)(A), 321.203, and 323.203 of the Tax
Code; and (3) Rule 3.334(c) contravenes the statutory schemes for determining

9
where a sale is consummated under sections 321.203 and 323.203 of the Tax Code.
CR 2846–47. The trial court repeated these rulings verbatim in its Conclusions of

Law. CR 2846. The trial court then enjoined enforcement of each of the rules and
remanded them to the Comptroller for further consideration or correction.
Generally, matters of statutory construction are questions of law for courts to
decide and, therefore, are subject to de novo review. See Johnson v. City of Fort Worth,
774 S.W.2d 653, 656 (Tex. 1989). When construing a statute, the court’s objective is
to ascertain and eﬀectuate the Legislature’s intent. Nat’l Liab. & Fire Ins. Co. v. Allen,

15 S.W.3d 525, 527 (Tex. 2000). The court ﬁrst reviews the statute’s words to discern
intent. TGS–NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 439 (Tex. 2011). An
undeﬁned term in a statute is typically assigned its ordinary meaning unless a more
precise deﬁnition is required or dictated by the context of the statute. Id.
The Legislature vests in the Comptroller the authority to adopt rules that do
not conﬂict with the laws of this state, the constitution of this state, or the
constitution of the United States for the enforcement of the relevant provisions on
the collection of taxes and other revenues. Tex. Tax Code § 111.002. Speciﬁcally, as
to local sales and use taxation, the Comptroller has the authority to adopt reasonable
rules that are consistent with the relevant chapters for the administration, collection,
reporting, and enforcement of the chapters. Tex. Tax Code §§ 321.306, 322.203,
323.306.
The Legislature did not impose stronger restrictions for the Comptroller to
adopt rules, as is seen in some other delegation statutes. Compare Reliant Energy, Inc.
v. Pub. Util. Comm’n of Tex., 62 S.W.3d 833, 835 n.1, 841 (Tex. App—Austin 2001, no

10
pet.), with Tex. Tax. Code §§ 111.002, 151.0595(j), 321.306, 322.203, and 323.306.
Thus, so long as the Rules do not conﬂict with the laws or Constitution of Texas, or

the United States Constitution, and are consistent with the Texas Tax Code, they
should be aﬃrmed by this Court.
While “[a]n agency’s rules must comport with the agency’s authorizing
statute … the Legislature does not need to include every speciﬁc detail or anticipate
all unforeseen circumstances.” State Oﬃce of Pub. Util. Counsel, 131 S.W.3d at 321
(citing R.R. Comm’n of Tex. v. Lone Star Gas Co., a Div. of Enserch Corp., 844 S.W.2d

679, 689 (Tex. 1992)). Likewise, “[i]n ascertaining the scope of an agency’s
authority, [the court] give[s] great weight to the agency’s own construction of a
statute.” Tex. Mun. Power Agency v. Pub. Util. Comm’n, 253 S.W.3d 184, 192 (Tex.
2007) (citing State v. Pub. Util. Comm’n of Tex., 883 S.W.2d 190, 196 (Tex. 1994)). By
vesting the Comptroller with the power to make rules and regulations necessary to
carry out the enforcement of the provisions of the Tax Code, the Legislature
foreclosed the argument that it intended to spell out every detail of tax regulation.
See Tex. Tax Code §§ 111.002, 321.306, 322.203, 323.306; State Oﬃce of Pub. Util.
Counsel, 131 S.W.3d at 321; Dall. Cnty. Bail Bond Bd. v. Stein, 771 S.W.2d 577, 580
(Tex. App.—Dallas 1989, writ denied).
Moreover, the Comptroller’s interpretation of the consummation statutes, as
the administrative agency charged with enforcing the statutes, is entitled to deference
by courts unless it is plainly erroneous or inconsistent with the language of the
statute. See TGS–NOPEC, 340 S.W.3d at 438. Where there is vagueness, ambiguity,

11
or room for policy determinations in a statute, as there is here, courts defer to the
agency’s interpretation. Id.
A. Rule 3.334(a)(9) defines the term “fulfill” as used within the
entire rule.
Rule 3.334(a)(9) deﬁnes the term “fulﬁll,” which is used elsewhere in Rule
3.334. See, e.g., Rule 3.334(c)(1); (c)(7). It also limits the deﬁnition by providing what
“fulﬁll” does not mean, such as tracking an order. The challenged portion of
Comptroller’s Rule 3.334(a)(9), as adopted in the June 2024 Order, reads:

(9) Fulﬁll—To complete an order by transferring possession of a taxable
item to a purchaser, or to ship or deliver a taxable item to a location
designated by the purchaser. The term does not include receiving or
tracking an order, determining shipping costs, managing inventory, or
other activities that do not involve the transfer, shipment, or delivery of
a taxable item to the purchaser or a location designated by the purchaser.
49 Tex. Reg. 2449 (Apr. 19, 2024). Round Rock contended in the trial court that Rule
3.334(a)(9) contravened the Texas Tax Code by “contradicting the language of the
Tax Code and its overall purposes and structure.” CR 2465. Round Rock complained
that the Legislature did not use the terms “fulﬁll” or “fulﬁllment” and the Rule was
an attempt by the Comptroller to substitute “fulﬁll” in place of “consummation,”

because those terms “do not appear in Chapter 321 of the Tax Code. CR 2466.
Coppell speciﬁcally did not challenge Rule 3.334(a)(9). 5
The trial court rendered judgment that Comptroller Rule 3.334(a)(9)
contravened “existing statutes by adding a deﬁnition at the agency level that the
5 In Coppell’s Trial Brief, Coppell stated that the oﬀending sections in the 2024 Rule—the only

rule on trial—were 34 Tex. Admin. Code §§ (a)(18), (b)(1)(A), and (c)(7). CR 2683 n.1. The statute
is not referenced in Coppell’s live Petition. To the extent the trial court invalidated Rule
3.334(A)(9) on behalf of Coppell, it erred.

12
Legislature has not deﬁned in Chapter 151 of the Texas Tax Code and for which
Sections 321.203 and 323.203 already provide a detailed statutory scheme for

determining where a sale of a taxable item is ‘consummated’” CR 2798.
Rule 3.334(a)(9) does not contravene Texas Tax Code sections 321.203 or
323.203. The Rule is consistent with the statutory language because Texas Tax Code
Chapter 321 and 323 do not use the term “fulﬁll,” thus Rule 3.334 does not redeﬁne
or contradict the Tax Code. Instead, Rule 3.334(a)(9) uses “fulﬁll” as a single-word
descriptor for the acts that qualify a location to be a “place of business,” which is

consistent with the following language in the Tax Code:

(c-1) If the retailer has more than one place of business in this state and
Subsection (c) does not apply, the sale is consummated at the place of
business of the retailer in this state:

(1) from which the retailer ships or delivers the item, if the retailer ships
or delivers the item to a point designated by the purchaser or lessee; or

(2) where the purchaser or lessee takes possession of and removes the
item, if the purchaser or lessee takes possession of and removes the item
from a place of business of the retailer.
Tex. Tax Code § 321.203(c-1). The text of Rule 3.334(a)(9) also provides examples of
speciﬁc acts that do not qualify as fulﬁlling an order and thus will not qualify as
consummation under Tax Code section 321.203. 49 Tex. Reg. 4801–02 (June 28,
2024). No direct commentary was made by the Plaintiﬀ Cities or others that took
part in the rulemaking process as to the substance of section (a)(9).

The Legislature permits the Comptroller to “adopt rules that do not conﬂict
with the laws of this state.” Tex. Tax Code § 111.002(a). The Supreme Court of

13
Texas has recognized the breadth of that mandate just this past year, writing “when
the Tax Code’s directives are not decisive, the Comptroller’s rules may provide

further guidance so long as they are reasonable and consistent with state and federal
law.” GEO Group, Inc. v. Hegar, 709 S.W.3d 585, 591 (Tex. 2025) (citing TGS-
NOPEC, 340 S.W.3d at 438). This must include deﬁning terms that are used in rules
but not present in statutes, so long as the terms are not inconsistent with the statute
itself. See Farm & Ranch Freedom All. v. Tex. Dep’t of Agric., No. 03-23-00459-CV,
2025 WL 994190, at *5 (Tex. App.—Austin Apr. 3, 2025, no pet.) (mem. op.) (noting

that when the Legislature confers power upon an agency, it “impliedly intends that
the agency have whatever powers are reasonably necessary to fulﬁll its express
functions or duties,” and thus it “is not required to include in every speciﬁc detail or
anticipate all unforeseen circumstances when enacting an agency’s authorizing
statute.”) (internal quotation marks omitted).
Rule 3.334(a)(9) provides further guidance for taxpayers to comply with Tax
Code section 321.203. The Comptroller’s deﬁnition of fulﬁll is needed to properly
administer the statutory language and is based on the Comptroller’s assessment of
the clarity needed to administer the controlling statutory provisions regarding receipt
of orders. Rule 3.334(a)(9) is thus a reasonable interpretation of the statute and
should be aﬃrmed.

B. Rule 3.334(a)(18) defines the phrase “place of business of the
seller” as used within the entire rule.
Rule 3.334(a)(18) deﬁnes the term “Place of business of the seller,” which is
used both within the relevant statute and throughout amended Rule 3.334. See, e.g.,

14
Tex. Tax Code §§ 321.203(b), (c); Rule 3.334(a)(17), (b), (c). The Plaintiﬀ Cities
challenged only the ﬁrst three sentences of Rule 3.334(a)(18). CR 2433 (Coppell

Plaintiﬀ’s Fifth Amended Petition Exhibit A); CR 2611 (Round Rock Trial Brief at
2). Those three sentences read:

(18) Place of business of the seller - general deﬁnition—A place of
business of the seller must be an established outlet, oﬃce, or location
operated by a seller for the purpose of receiving orders for taxable items
from persons other than employees, independent contractors, and
natural persons aﬃliated with the seller. An "established outlet, oﬃce,
or location" usually requires staﬃng by one or more sales personnel.
The term does not include a computer server, Internet protocol address,
domain name, website, or software application.
49 Tex. Reg. 2449-50. The phrase “place of business” is partially deﬁned in Chapter
321:

“Place of business of the retailer” means an established outlet, oﬃce,
or location operated by the retailer or the retailer’s agent or employee
for the purposes of receiving orders for taxable items and includes any
location at which three or more orders are received by the retailer during
a calendar year. A warehouse, storage yard, or manufacturing plant is
not a “place of business of the retailer” unless at least three orders are
received by the retailer during the calendar year at the warehouse,
storage yard, or manufacturing plant.
Tex. Tax Code § 321.002(a)(3)(A). The statute further deﬁnes what a place of
business of the retailer is not. Tex. Tax Code §§ 321.002(a)(3)(B), (C).
The trial court rendered judgment that Comptroller Rule 3.334(a)(18)
contravened “speciﬁc statutory language set forth in Texas Tax Code sections
321.002(a)(3)(A), 321.203, and 323.203.” CR 2798. Plaintiﬀ Cities contended in the

15
trial court that Rule 3.334(a)(18) contravened the Texas Tax Code because the
Comptroller does not have the authority to adopt Rule 3.334(a)(18). CR 2466-67.

Rule 3.334(a)(18) does not contravene Texas Tax Code sections 321.203 or
323.203. The Rule is consistent with the statutory language because each of the three
challenged sentences ﬁnd support within the statutes. The ﬁrst sentence tracks the
statutory language but adds a qualiﬁer that allows facilities to make “in house
courtesy sales without becoming a place of business.” 49 Tex. Reg. 4799.
The reference to sales personnel in the second sentence of Rule 3.334(a)(18)

is consistent with the general objectives of the local tax statutes. First, the “sales
personnel” language is consistent with the general objectives of the local tax statutes,
as the “place of business” deﬁnition in Section 321.203 is also used in sales tax
permitting requirements. Tex. Tax Code § 321.303; 49 Tex. Reg. 4799. This is
important because a sales tax permit is required if a location has sales personnel. See
Tex. Tax Code § 151.107.
Second, the Comptroller added “sales personnel” language to provide an
objective criterion for buyers, sellers, and auditors to consider: If a facility has sales
personnel, it is likely a place of business for purposes of the consummation statute;
if it does not, then it is likely not a place of business. 49 Tex. Reg. 4798–99. But the
language is not absolute. The Rule says that the presence of sales personnel will
“usually” elevate a facility to an established outlet, oﬃce, or location under the place
of business deﬁnitions. 49 Tex. Reg. 4798.
Finally, the third sentence limits place of business by stating what it is not: “a
computer server, Internet protocol address, domain name, website, or software

16
application.” 49 Tex. Reg. 4799. This deﬁnition is consistent with the statutory
concept that a place of business usually requires personnel to be present—similar to

how a kiosk is speciﬁcally deﬁned as not being a place of business. Tex. Tax Code
§ 321.002(a)(3)(C). Otherwise, any data center that hosts a computer server could
become a “place of business” of any retailer leasing space. Moreover, the plain
meaning of “place of business,” both as read by an ordinary person and as deﬁned
within the statute, cannot plausibly be read to include an “internet protocol address,
a domain name, or a website” as an established outlet, oﬃce, or location. 49 Tex.

Reg. 4799. The Comptroller’s interpretation of the relevant statute is that the
Legislature did not intend that “the receipt of an order by an automated mechanical
devise” without the presence of personnel could make the automated device an
“established outlet, oﬃce, or location” operated by a retailer. Id. The Comptroller
oﬀered further explanations for Rule 3.334(a)(18) in the April 2024 Notice and June
2024 Order, which support its construction of the statute and the promulgation of
the Rule. See 49 Tex. Reg. 2446; 49 Tex. Reg. 4799.
The Comptroller’s construction of the controlling Tax Code provisions in
Rule 3.334 is a faithful embodiment of the plain language of the controlling statutory
provisions. The Comptroller’s rule provides for administrative expediency, clarity,
and consistency for the agency, taxpayers, and the public regarding the application of
the consummation statutes and should be found valid.

17
C. Rule 3.334(b)(5) clarifies what is and is not a “place of business of
the seller.”
Rule 3.334(b)(5) clariﬁes that for a facility to be a “place of business of the
seller” there usually need to be sales personnel present. Importantly, it clariﬁes that

certain types of computer-operated shopping systems do not qualify as a “place of
business of the seller” for consummation purposes. Plaintiﬀ Cities challenged only
two sentences of Rule 3.334(b)(5). CR 2434 (Coppell Plaintiﬀ’s Fifth Amended

Petition Exhibit A); CR 2611 (Round Rock Trial Brief at 2). The challenged text of
Rule 3.334(b)(5) reads:

A computer that operates an automated shopping cart software program
is not an established outlet, oﬃce, or location," and does not constitute
a “place of business of the seller.” A computer that operates an
automated telephone ordering system is not “an established outlet,
oﬃce, or location,” and does not constitute a “place of business of the
seller.”
49 Tex. Reg. 2451.
The trial court rendered judgment that Comptroller Rule 3.334(b)(5)
contravened “speciﬁc statutory language set forth in Texas Tax Code sections
321.002(a)(3)(A), 321.203, and 323.203.” CR 2798. Rule 3.334(b)(5) provides

examples of how the application of Rule 3.334(a)(18)—the place of business of the
seller—would work.
Rule 3.334(b)(5) does not contravene Texas Tax Code sections 321.203 or

323.203. The Rule stems from similar factual bases as Rule 3.334(a)(18). See infra
Part I.B. An agency rule need not be limited to parroting the words of the statute and
a rule may impose burdens, conditions, or restrictions that are consistent with the

18
statute. See State Oﬃce of Pub. Util. Counsel, 131 S.W.3d at 321 (“the legislature does
not ne
ed to include e
very spe
ciﬁc de
tail or anticipate all unfore
see
n

circumstances.”). A rule may articulate requirements that are not explicitly stated
within the statute. See Perry Homes v. Strayhorn, 108 S.W.3d 444, 448 (Tex. App.—
Austin 2003, no pet.) (“The Comptroller is authorized to adopt rules that clarify and
implement the legislation.”); DuPont Photomasks, Inc. v. Strayhorn, 219 S.W.3d 414,
422 (Tex. App.—Austin 2006, pet. denied) (noting that courts give “serious
consideration” to the Comptroller’s “construction of [an enabling] statute”). That

is precisely what the Comptroller has done here. Moreover, Rule 3.334(b)(5) is
consistent with prior Comptroller rules and interpretations of the Tax statutes. See
49 Tex. Reg. 4799.
The Rule is consistent with the statutory language because the Comptroller’s
recognition of the realities of online orders and their eﬀect on local tax collection
does not contravene the speciﬁc statutory language, is not counter to the statute’s
general objectives, and does not impose additional burdens, conditions, or
restrictions in excess of or inconsistent with the relevant statutory provisions. The
Comptroller regulated within its rulemaking authority, as evidenced by the extensive
commentary on the history and current state of Comptroller regulation. See 49 Tex.
Reg. 2440-57; 49 Tex. Reg. 4797-808.
D. Rule 3.334(c) does not contravene the Tax Code.
The trial court made two separate rulings regarding Rule 3.334(c), ﬁnding that
it contravened speciﬁc Texas Tax Code sections and that it contravened statutory

19
schemes for determining where a sale is consummated. The trial court erred, and
this Court should aﬃrm Rule 3.334(c) in its entirety.

1. The rule clarifies that it applies to “all sellers.”
The trial court rendered judgment that Comptroller Rule 3.334(c) contravened
“speciﬁc statutory language set forth in Texas Tax Code sections 321.002(a)(3)(A),
321.203, and 323.203.” CR 2798. Rule 3.334(c) concerns the application of
consummation rules and permits taxpaying entities to determine to which local
jurisdiction their sales tax should be sourced. The relevant but controversial

preliminary language of Rule 3.334(c) reads:

(c) […] The following rules, taken from Tax Code, §321.203 and
§323.203, apply to all sellers engaged in business in Texas, regardless of
whether they have no place of business in Texas, a single place of
business in Texas, or multiple places of business in Texas.
49 Tex. Reg. 2451. A lengthy set of rules for determining where a sale is
consummated then follows. 49 Tex. Reg. 2451-52. But only Rule 3.334(c), (c)(1), and
(c)(2) were ruled on by the trial court. CR 2798.
Round Rock contended in the trial court that Rule 3.334(c) contravened the
Texas Tax Code by applying to “all sellers engaged in business in Texas, regardless
of whether they have no place of business, a single place of business in Texas, or
multiple places of business in Texas.” CR 2626; 49 Tex. Reg. 2451. Round Rock
further argued that taxpayers with a single place of business in Texas are required to
receive special treatment under the Tax Code, which states: “if a retailer has only
one place of business in this state, all of the retailer’s retail sales of taxable items are

20
consummated at that place of business except as provided by Subsection (e).” Tex.
Tax Code § 321.203(b).

As explained in the June 2024 Order, the Comptroller disagrees with that
assertion. First, Round Rock’s claim would ignore that an exception is explicitly
within the tax code: “except as provided by Subsection (e).” Tex. Tax Code §§
321.203(b), (e); 49 Tex. Reg. 4805.
However, when the statute is read as a whole, it is clear that the language in
section 321.203(b) was not intended to create special rules for retailers with a single

place of business but is merely the ﬁrst step on a hierarchy of tax sourcing. The
remainder of section 321.203 details the further steps a retailer must take in
determining where a sale was consummated. When considered in this light, the
Comptroller’s Rule 3.334(c) is entirely consistent within that hierarchy, and is
consistent with the language of section 321.203(b) and the text of Rule 3.334(c).
Further, Rule 3.334 helps determine whether a business in fact is a single place of
business or not, which helps determine the applicability of section 321.203(b). If a
business has only a single place of business, the sale will be consummated there.
Round Rock’s interpretation would lead to an absurd result: sales could be
sourced to a city that the customer and the product had no connection to. It would
be an absurd result to consummate a sale at a location that has no discrete connection
with the sale. Under Round Rock’s interpretation, consider if a reseller had a single
place of business in Austin that consists only of a sales oﬃce. The reseller has a fully
automated shopping website hosted by a server in Brownsville. A customer who lives
in Corpus Christi places an order on the website located in Brownsville. The order is

21
then fulﬁlled and shipped from a third-party manufacturer in Dallas and shipped to
the customer in Corpus Christi. The sale being consummated in Austin, a city with

which the customer did not visit (either in person, by phone, or by internet
connection), would be an unreasonable reading of the statute that the Legislature
could not have intended—even though the reseller’s only place of business was
Austin. Moreover, it would permit sellers to game the system to divert sales tax
revenues to certain preferred localities. The Texas Supreme Court has held that one
must make the logical inferences necessary to “avoid an absurd or nonsensical result

that the Legislature could not have intended.” Castleman v. Internet Money Ltd., 546
S.W.3d 684, 688 (Tex. 2018) (citing Cadena Comercial USA Corp. v. Tex. Alcoholic
Beverage Comm’n, 518 S.W.3d 318, 338 (Tex. 2017)).

2. The rule is not counter to the statutory scheme of the Tax
Code
The trial court rendered judgment that Comptroller Rule 3.334(c) [(c)(1) and
(c)(2) inclusive] contravened the “statutory schemes for determining where a sale is
consummated, under Sections 321.203 and 323.203.” CR 2798. There is no relevant
caselaw in Texas courts that helpfully diﬀerentiates between when a promulgated
rule contravenes speciﬁc statutory language versus a statutory scheme. The trial

court did not explain why it made separate ﬁndings that Rule 3.334(c) violated
speciﬁc statutory language under sections 321.203 and 323.203, and the statutory
scheme of sections 321.203 and 323.203. Speciﬁcally, the Plaintiﬀ Cities oﬀered no
argument on this issue at the trial on the merits and thus the trial court erred in

22
holding that Plaintiﬀ Cities met their burden to prove the Rule contravened the
statutory schemes for determining where a sale is consummated.

For the purposes of de novo review, the Comptroller reasserts its arguments
above that Rule 3.334(c) did not violate any speciﬁc statutory language under
Sections 321.203 and 323.203 and thus did not violate the statutory scheme.

3. The trial court improperly overturned language which no
party disputed.
Comptroller Rule 3.334(c) is a comprehensive rule to determine the local
taxing jurisdiction in which local sales and use taxes are due. The Final Judgment
enjoined the entirety of Rule 3.334(c). CR 2799. While the Court should reverse the
Final Judgment and validate the entire provision, at a minimum the Court should
reverse the Final Judgment to the extent that it enjoins portions of the Rule that were
not disputed.
The language contested by Coppell in the trial court was speciﬁcally not
invalidated by the trial court. Paragraph (7) states that the location where an order is
“received” is the location where an order is “initially received” and that the
“location from which a product is shipped shall not be used in determining the
location where the order is received by the seller.” 34 Tex. Admin. Code

§ 3.334(c)(7). The trial court’s Conclusions of Law did not invalidate paragraph (7).
In fact, the Conclusions of Law speciﬁcally validated a similar statement in Rule
3.334(b)(1) regarding distribution centers, and the Final Judgment denied the
Coppell’s request to enjoin Rule 3.334(b)(1). CR 2847 (Conclusions of Law); CR
2798 (Final Judgment). The relevant portion of validated Rule 3.334(b)(1) states:

23
“Forwarding previously received orders to the facility for fulﬁllment does not make
the facility a place of business.” 34 Tex. Admin. Code § 3.334(b)(1); CR 2683.

However, if this Court determines that the trial court did enjoin and remand Rule
3.334(c)(7) as part of the trial court’s overall ruling, then this Court should reverse
the trial court and render judgment that that rule is not void or enjoined.
II. The Comptroller’s notice complied with the APA.
The Texas APA requires an agency to provide public notice of its intent to
adopt a rule. Tex. Gov’t Code §§ 2001.023, 2001.024. The purposes of the notice

requirements are to inform the public of the contents of the proposed rule and to give
persons sufficient notice of the rule’s content to permit them to ascertain whether
protection of their interests requires them to request a hearing and participate in the
rulemaking. State Bd. of Ins. v. Deffebach, 631 S.W.2d 794, 800 (Tex. App.—Austin
1982, writ ref’d n.r.e.).
Whether an agency complied with the notice requirements is reviewed under
the substantial compliance standard. Tex. Gov’t Code § 2001.035(a). Substantial
compliance does not mean literal and exact compliance with every requirement of a
statute, but simply “compliance with the essential” requirements of the statute.
Methodist Hosps. Of Dallas v. Tex. Indus. Acc. Bd., 798 S.W.2d 651, 654 (Tex. App.—
Austin 1990, writ dism’d w.o.j.). The questions courts look at to determine
substantial compliance is “[d]o the acts tendered in satisfaction of a statutory
requirement (1) secure the legislative objectives that underline the requirement and
(2) come fairly within the character and scope of each action or thing explicitly
required by the statute in terms that are concise, specific, and unambiguous.” Id.

24
(citing Ronald Beal, The Scope of Judicial Review of Agency Rulemaking: The
Interrelationship of Legislating and Rulemaking in Texas, 39 Baylor L. Rev. 597, 646–

47 (1987)).
The trial court ruled that the Comptroller did not substantially comply with
the APA’s notice requirements, but it did not specify which specific statutes the
Comptroller violated. CR 2798, 2847. At trial, the Plaintiff Cities alleged that the
Comptroller violated the APA by not meeting the requirements of Texas
Government Code section 2001.024(a)(4), which requires a fiscal note (the “Fiscal

Note”). CR 2636, 2699. The Fiscal Note must contain certain information when an
agency gives notice of a rule. Tex. Gov’t Code § 2001.024(a)(4). And separately,
Round Rock asserted that the Comptroller violated the APA by not meeting the
requirements of Texas Government Code section 2006.002, which requires an
agency to give special notice when a rule would have an adverse economic effect on
small businesses, micro-businesses, or rural communities (the “Adverse Economic
Effect Notice”). CR 2638; Tex. Gov’t Code § 2006.002. But the Comptroller’s
April 2024 Notice and June 2024 Order substantially complied with both the Fiscal
Note and the Adverse Economic Effect Notice.

A. The Comptroller’s Fiscal Note substantially complied with the
APA.
The APA states that a rule notice must state:

(A) the additional estimated cost to the state and to local
governments expected as a result of enforcing or administering
the rule;

25
(B) the estimated reductions in costs to the state and to local
governments as a result of enforcing or administering the rule;

(C) the estimated loss or increase in revenue to the state or to local
governments as a result of enforcing or administering the rule;
and

(D) if applicable, that enforcing or administering the rule does not
have foreseeable implications relating to cost or revenues of the
state or local governments;
Tex. Gov’t Code § 2001.024(a)(4).
The Texas APA makes clear that the Fiscal Note requirement hinges on
substantial compliance. Tex. Gov’t Code § 2001.035(c) (The agency must
demonstrate “in a relatively clear and logical fashion that the rule is a reasonable
means to a legitimate objective.”); See Nat’l Ass’n of Indep. Insurers v. Tex. Dep’t of
Ins., 925 S.W.2d 667, 669 (Tex. 1996). Put in the context of the APA notice
requirements, agency compliance depends on the public being informed of the
proposed rule and on sufficient notice of the contents of the proposed rule as to allow
stakeholders to ascertain whether protection of their interests requires them to take
part in the rulemaking process. Tex. Workers’ Comp. Comm’n v. Patient Advocates of
Tex., 136 S.W.3d 643, 650 (Tex. 2004); see Deffebach, 631 S.W.2d at 800–01. The
Comptroller clearly complied here, as Plaintiff Cities all participated in the

rulemaking.
1. The rulemaking record shows substantial compliance.
The Comptroller’s April 2024 Notice provides the methodology, procedure,
and information needed to attempt an accurate prediction as to the revenue of every
local jurisdiction and a comprehensive fiscal impact statement. 49 Tex. Reg. 2440–

26
57. The Comptroller also engaged in further discussions and responded to Plaintiff
Cities’ comments in the June 2024 Order. 49 Tex. Reg. 4799-808.

The Comptroller’s April 2024 Notice addressed the effect on local
jurisdictions regarding revenue and the fiscal impact of Rule 3.334. The Comptroller
stated that “some vendors may change their reporting methods, which might
positively or negatively affect the tax revenue of particular local tax jurisdictions.”
49 Tex. Reg. 2441. The Comptroller further specified that it “does not have
sufficient data on the business operations of each business to identify and quantify

the businesses and transactions that might be affected, and the positive or negative
revenue impact on each tax jurisdiction.” Id. Moreover, “reliable estimates of net
changes in revenue by individual jurisdictions for the 1,759 local sales taxing
jurisdictions that might stem from compliance with the rule cannot feasibly be
produced” by the Comptroller. 49 Tex. Reg. 2443. Thus, quantification would be
impossible.
The Comptroller engaged in a substantial examination of the data that would
be required to analyze the estimated costs and loss or increase of revenue to local
governments. 49 Tex. Reg. 2442-47. For more than five pages and 5,000 words, the
Comptroller examined the claims made by each of the parties to this case and
addressed the concerns. See id. In doing so, the Comptroller demonstrated what
would be necessary to prepare a jurisdiction-by-jurisdiction estimate and addressed
how infeasible the Plaintiff Cities’ demands were.
The Comptroller provided examples of the impossibility of the task in its April
2024 Notice. Regarding fulfillment centers, the Comptroller noted that “the

27
estimates of the Plaintiff cities and the fulfillment centers in those cities cannot be
reliably projected to other cities. The Comptroller does not have data to identify the

‘fulfillment centers’; in any particular jurisdiction or statewide—it is not a
characteristic that is reported to the agency.” 49 Tex. Reg. 2444. Further, “even if
[the] agency could identify ‘fulfillment centers’ from its data, the agency could not
assume that the fulfillment centers in other cities are sourcing local tax like the
Plaintiff cities’ fulfillment centers purportedly are sourcing.” Id. Indeed, the
Comptroller determined that “a fulfillment center could reasonably reach a different

conclusion and conclude that it was not automatically a ‘place of business’ for local
tax sourcing purposes.” Id. The Comptroller then proceeded to explain in five points
why it believes it is reasonable that a fulfillment center could come to a different
conclusion than the Plaintiff Cities. Id. The level of detail required on each individual
taxpaying entity throughout the entire state makes such a detailed estimate as the
Plaintiff Cities demand impossible.
As another example, the Comptroller outlined the impracticability of
preparing a revenue impact estimate based on individual municipalities or large
taxpaying entities, stating that “it would require the audit of Dell and any other
vendor from whom the city thinks there will be a revenue loss.” 49 Tex. Reg. 2445.
The Comptroller then laid out the analysis it would have to make. First, “a local sales
tax audit of Dell would have to examine all the business locations of Dell to determine
which, if any, of the locations were ‘places of business’ for local tax sourcing
purposes.” Id. Second, “if the comptroller verifies that Dell in fact operated a single
‘place of business’ in Texas, the comptroller would still have to audit the sourcing

28
of Dell’s sales to determine which sales were complaint and which sales were
noncompliant with the proposed rule.” Id. Third, “the comptroller would have to

thoroughly audit Dell and any other vendors from whom Round Rock thinks there
will be revenue loss.” Id. Finally, the Comptroller would be “[r]epeating this audit
exercise on a jurisdiction-by-jurisdiction basis across the state.” Id. The Comptroller
also noted that, even with this analysis, “[i]t is also possible that an audit of Dell or
other vendors would identify noncompliance with sourcing provisions that are not
involved in the disputed rulemaking.” Id.

Rule 3.334 requires taxpayers to review their current sourcing methodology
and come into compliance with the specificities of Rule 3.334. The current method
by which any individual taxpayer sources is not known to the Comptroller and cannot
feasibly be determined by the Comptroller. 49 Tex. Reg. 2444. Thus, the
Comptroller thoroughly prepared revenue impact statements and fiscal impact
statements that identified and put the public on notice of the factors and components
that would go into such assessments. In doing so, the Comptroller substantially
complied with the contested notice requirements of Section 2001.024 of the APA.
Tex. Gov’t Code § 2001.024; see Methodist Hosps. of Dallas, 798 S.W.2d at 654.
Here, the Comptroller provided notice of potential loss of revenue and fiscal
impact, detailed out what information it would need to provide a comprehensive
analysis, and further explained why the Comptroller would not be able to provide a
detailed analysis. The Comptroller substantially complied with the notice
requirements of the Texas APA.

29
2. The Fiscal Note requirement should not be read to require more
than is possible.
The Texas APA does not predicate a standard of impractical specificity.
Otherwise, any rule by the Comptroller where a detailed estimate is not feasible

would be voided if challenged in court. Such a precedent delays the uniformity and
efficiency in the Comptroller’s responsibility to administer the Texas Tax Code and
hinders taxpayers’ understanding and the implementation of the taxing regulations.

Most importantly, the statutory language itself does not require the
Comptroller to prepare a jurisdiction-by-jurisdiction report on the estimated
increased or decreased costs or increases or decreases in revenue as a result of the
rule. The notice is not required to be as detailed as that. The Comptroller’s Chief
Revenue Estimator made the estimates as required by the statute. See 49 Tex. Reg.
2440–42.
The law does not require impossibilities of any person. It is therefore absurd
to find that Texas Government Code sections 2001.024 and 2001.035 demand that
the Comptroller provide reports that contain data stated with a precision beyond

what is obtainable from what the Comptroller traditionally collects and has, or even
taxpayer data which the Comptroller could reasonably collect and analyze. The
statute should not be construed as requiring a level of specificity beyond what is

realistically possible. See Molinet v. Kimbrell, 356 S.W.3d 407, 411 (Tex. 2011).
Before the trial court, Plaintiff Cities did not contend that the Comptroller was
incorrect in saying it could not ascertain the effect on revenue of the cost to comply

with the change in Rule 3.334, or that the Comptroller was incorrect in the

30
information it would need. CR 2636, 2699. Rather, Plaintiff Cities claimed that it is
unfair for the Comptroller to regulate in an area it is charged with enforcing, if it

cannot make an exact estimate in every instance of regulation. Id. But the standard
Plaintiff Cities promote and by which the court below decided is not substantial
compliance with the Texas APA.

B. The Comptroller’s Adverse Economic Effect Notice substantially
complied with the APA
Round Rock asserted that the “Comptroller did not follow the procedures that
protect small businesses and rural communities from adverse economic effects.” CR
2638. Round Rock specifically complained that the April 2024 Notice “does not
include an economic impact statement or regulatory flexibility analysis.” Id. Section
2001.024 of the APA requires that the published notice of a rule include “any other
statement required by law,” and that one such “other statement” is that required by
Section 2006.002, the Adverse Economic Effect Notice. See Tex. Gov’t Code §§
2001.024, 2006.002(c); Unified Loans, Inc. v. Pettijohn, 955 S.W.2d 649, 651 (Tex.
App.—Austin 1997, no pet.). Agencies considering adoption of a rule that would
have an adverse economic effect on small businesses or rural communities must
prepare:

(1) an economic impact statement that estimates the number of
small businesses or rural communities subject to the proposed
rule, projects the economic impact of the rule on small businesses
or rural communities, and describes alternative methods of
achieving the purpose of the proposed rule; and

(2) a regulatory flexibility analysis that includes the agency’s
consideration of alternative methods of achieving the purpose of

31
the proposed rule.
Tex. Gov’t Code § 2006.002(c). Failure to substantially comply with the procedural
requirements in Sections 2001.0225 through 2001.034, including Section 2001.024,
is grounds to render a rule voidable. Tex. Gov’t Code § 2001.035(a).
The Comptroller followed the Adverse Economic Effect Notice requirements

found in Section 2006.002(c) of the APA. At the outset, the Comptroller noted that
it could not identify and quantify the businesses and transactions that might be
affected or the positive or negative revenue impact on each tax jurisdiction. 49 Tex.

Reg. 2448.
Then, in a section of its notice titled “Economic impact statement and
regulatory flexibility analysis,” the Comptroller gave notice of potential effects to
small businesses and rural communities. Id. First, the Comptroller noted that
changes in revenue would tend to be “cities with Local Government Code, Chapter
380 agreements involving rebates of local sales and use tax revenues.” Id. Then, the

Comptroller said that many small businesses would not be affected, as a “small
business that has all of its operations at a single location in Texas, including sales and
fulfillment, is probably reporting local sales tax to the taxing jurisdiction where it is

located, and it will continue that reporting.” Id. Additionally, to address the agency’s
consideration of alternative methods of achieving the purpose of the proposed rule,
the Comptroller amply detailed the alternatives it considered. Id. The Comptroller

was required to state the grounds for its conclusions, and it did so. See Pettijohn, 955
S.W.2d at 651 (holding that a rulemaking agency must state in the notice some basis
in order that interested persons might know and confront that basis in a meaningful

32
way in their comments).
The Comptroller provided an economic impact statement and regulatory

flexibility analysis, explained extensively throughout its notice what information
would be needed to make such analysis, and further detailed its commentary and
analysis where possible. 49 Tex. Reg. 2448. Thus, the Comptroller has substantially
complied with its obligations under Texas Government Code section 2006.002(c) to
provide an economic impact statement and regulatory flexibility analysis for small
businesses, micro-businesses, and rural communities. Any interested entities were

on notice of the Comptroller’s economic effect analysis and had the opportunity to
contribute meaningfully in the rulemaking process, complying with the Legislature’s
intent in drafting section 2006.002 of the Texas Government Code. Proper notice
was given, and this Court should reverse the trial court and render judgment for the
Comptroller.

III. The Comptroller substantially complied with the APA’s reasoned
justiﬁcation requirement.
The APA requires an agency to provide a “reasoned justiﬁcation” when
adopting rules. Tex. Gov’t Code § 2001.033. The statute states that the ﬁnal order
adopting a rule must include a reasoned justiﬁcation for the rule as adopted

consisting solely of:

(A) a summary of comments received from parties interested in the
rule that shows the names of interested groups or associations
oﬀering comment on the rule and whether they were for or
against its adoption;

33
(B) a summary of the factual basis for the rule as adopted which
demonstrates a rational connection between the factual basis for
the rule and the rule as adopted; and

(C) the reasons why the agency disagrees with party submissions and
proposals [. . . .]
Id. The trial court held that the Comptroller did not substantially comply with the
reasoned justiﬁcation requirement in adopting Rule 3.334. CR 2847. The trial court
did not specify how the Comptroller violated the reasoned justiﬁcation requirement.

There is no serious contention that the Comptroller did not comply with the
ﬁrst element—the requirement that the agency include in its ﬁnal order “a summary
of comments received from parties interested in the rule that shows the names of
interested groups or associations oﬀering comment on the rule and whether they
were for or against its adoption . . . .” Tex. Gov’t Code § 2001.033(a)(1)(A). The
Comptroller did just that in its June 2024 Order. 49 Tex. Reg. 4797-808.
Therefore, the Comptroller will address the second two prongs of reasoned
justiﬁcation: in section III.A. below, the Comptroller demonstrates that it provided a
summary of factual basis that demonstrates a rational connection between the factual

basis and the rule; and in section III.B., below, the Comptroller demonstrates that it
gave reasons it disagreed with comments. Tex. Gov’t Code § 2001.033(a)(1). Once
again, the standard for reviewing an agency’s reasoned justiﬁcation requirement

compliance is substantial compliance. Tex. Gov’t Code § 2001.033(a)(1); see Reliant
Energy, Inc., 62 S.W.3d at 840. An agency rule not adopted in substantial compliance
with the APA is voidable. Tex. Gov’t Code § 2001.035(a); Reliant Energy, Inc., 62

S.W.3d at 840.

34
An order adopting a rule will substantially comply with the reasoned
justiﬁcation requirement when it demonstrates “in a relatively clear and logical

fashion that the rule is a reasonable means to a legitimate objective.” Patient Advocates
of Tex. v. Tex. Workers’ Comp. Comm’n, 80 S.W.3d 66, 73 (Tex. App.—Austin 2002),
aﬀ’d in part, rev’d in part, 136 S.W.3d 643 (Tex. 2004) (citing Methodist Hosps. of
Dallas, 798 S.W.2d at 657-59). The four corners of the agency’s ﬁnal notice must
present the agency’s justiﬁcation in a relatively clear, precise, and logical fashion.
Reliant Energy, Inc., 62 S.W.3d at 840.

When reviewing an agency order for a reasoned justiﬁcation, a court should
look to the full order. See Lambright v. Tex. Parks & Wildlife Dep’t, 157 S.W.3d 499,
504 (Tex. App.—Austin 2005, no pet.). This includes both the preamble and reply
comments. See Patient Advocates of Tex., 80 S.W.3d at 72-74 (discussing how the
reasoned justiﬁcation requirement was met by explanation contained in the
preamble). The full April 2024 Notice and June 2024 Order were provided to the
trial court as exhibits and are contained in the Appendix to this brief.
But the trial court is not to review beyond the rule making record. Lambright,
157 S.W.3d at 504. By requiring an agency to expressly state the reasoned justiﬁcation
for a rule, the Legislature did not intend to create a situation where the underlying
factual accuracy of the events, conditions, and circumstances received and relied
upon by the agency would be attacked. ARCO Oil & Gas Co., 876 S.W.2d at 480.
Instead, courts simply apply an arbitrary and capricious standard in determining
whether an agency order has substantially complied with the reasoned justiﬁcation
requirement. Id. at 490-91; see also State Oﬃce of Pub. Util. Counsel, 131 S.W.3d at 328.

35
A. The Comptroller’s rulemaking record is exhaustive in its factual
summary and rational connection
The second element in the reasoned justiﬁcation requirement is that the

agency includes in its ﬁnal order “a summary of the factual basis for the rule as
adopted which demonstrates a rational connection between the factual basis for the
rule and the rule as adopted . . . .” Tex. Gov’t Code § 2001.033(a)(1)(B).

1. The Comptroller summarized the factual bases for the Rule.
The Comptroller’s extensive factual support for Rule 3.334 is summarized in
the June 2024 Order. 49 Tex. Reg. 4797. But there is little guidance within the APA
on how the factual bases for the rule must be summarized. Courts, however, have
said that so long as the factual bases can be gleaned from the entirety of the
rulemaking, it will be held to substantially comply. Gulf Coast Coal. of Cities v. Pub.
Util. Comm’n, 161 S.W.3d 706, 714 (Tex. App.—Austin 2005, no pet.) (examining the
ﬁnal order in its entirety and accepting factual basis when provided in summary of
comments.).
In its June 2024 Order, the Comptroller started by summarizing the
background leading to the need to adopt Rule 3.334. See 49 Tex. Reg. 4797-98
(“Summary of the Factual Bases for the Rule – Background”). The Comptroller
stated that many of the provisions (which are unchallenged here) of amended Rule
3.334 were promulgated to implement legislative bills or address compliance with a
Supreme Court case. 49 Tex. Reg. 4798. Other factual bases are listed throughout

the order.

36
Importantly, the Comptroller gave factual bases summaries for the parts of
Rule 3.334 that were challenged by Plaintiﬀ Cities: Rule 3.334(a)(18), (b)(5), and (c).

See 49 Tex. Reg. 4798, 4799, 4801, 4805, 4807. Below is a list of section headings,
each of which contains factual bases in the paragraphs that follow:

• Summary of the Factual Bases for the Rule – Background
• Summary of the Factual Bases for the Rule - Subsection (a)(18) -
The deﬁnition of “place of business of the seller.”

• Summary of the Factual Bases for the Rule - Subsection (b)(5) -
A facility without sales personnel is usually not a “place of
business of the seller.”
• Summary of the Factual Bases for the Rule - Subsections (b)(1)
and (c)(7) - Distributions centers, manufacturing plants, storage
yards, and warehouses, and when and where an order is
“received.”
• Summary of the Factual Bases for the Rule - Subsection (c) -
Application of the consummation rules.
49 Tex. Reg. 4797-806. The Plaintiﬀ Cities may not like the factual bases
summarized, but it is not plausible to contend that the Comptroller did not
summarize them. The summary is extensive, appears within the June 2024 Order,
and substantially complies with the statutory requirements. Tex. Gov’t Code
§ 2001.033(a)(1)(B).

2. The Comptroller demonstrated a rational connection
between the factual bases and the rule as adopted.
The APA requires that an agency’s reasoned justification must include
summarized factual bases for its rule that demonstrate “a rational connection

between the factual basis for the rule and the rule as adopted . . . .” Tex. Gov’t Code

37
§ 2001.033(a)(1)(B). An agency substantially complies with the requirement when it
explains how and why it reached its conclusion. State Office of Pub. Util. Counsel, 131

S.W.3d at 327 (citing Tex. Gov’t Code § 2001.035(a)). Any question of substantial
compliance must be determined solely from the face of the adopting order. Gulf
Coast Coal. Of Cities, 161 S.W.3d at 713. In substantially complying with the reasoned
justification requirement, the agency only must minimally demonstrate “in a
relatively clear and logical fashion that the rule is a reasonable means to a legitimate
objective.” Tex. Gov’t Code § 2001.035(c); see Farm & Ranch Freedom All., 2025

WL 994190, at *7. A reviewing court examines whether the agency’s explanation of
the facts and policy concerns it relied on when it adopted the rule demonstrates that
the agency considered all the factors relevant to the objectives of the agency’s
delegated rulemaking authority and engaged in reasoned decision-making. See ARCO
Oil & Gas Co., 876 S.W.2d at 491. An agency adopting a rule need not demonstrate
that its rulemaking decision is the only reasonable or factually defensible policy
alternative. Texas Medical Ass’n v. Tex. Workers’ Compensation Comm’n, 137 S.W.3d
342, 354 (Tex. App.—Austin 2004).
In other words, the Comptroller’s order adopting the Rule should explain how
and why the Comptroller reached its conclusion. See, e.g, State Office of Pub. Util.
Counsel, 131 S.W.3d at 327; Reliant Energy, Inc., 62 S.W.3d at 840. Thus, the
Comptroller needs only to demonstrate that there is a rational connection between
the rule and the factual material it has received or otherwise considered, and that the
rule was a legitimate and factually defensible choice that complies with the multiple
statutory requirements of the code. Id.

38
The Comptroller demonstrated a rational connection between the factual
basis and the rule as adopted. The Comptroller extensively discussed the factual,

policy, and legal bases for Rule 3.334, based on both the agency’s research and
commentary made during the rulemaking process in its final order. The
Comptroller’s initial preamble in the April 2024 Notice, bolstered by its additional
comments and summary in the June 2024 Order, clearly and exhaustively explain
the Comptroller’s reasons for adopting Rule 3.334. Both the notice and the order are
abound with demonstrations of the rational connection.

For example, the Comptroller provided a detailed factual summary for the
promulgation of Rule 3.334(a)(18). The Comptroller explained that local sales and
use taxes are generally sourced to where a sale is consummated. Tex. Tax Code
§ 321.203; 49 Tex. Reg. 4798. There are a few potential locations to where a local
sales tax can be sourced: where the order was received, fulﬁlled, or delivered to the
customer. Tex. Tax Code § 321.203. Sourcing is aﬀected by the manner in which the
order is placed, which involves determining where the seller’s “place of business” in
Texas is located. Id. The Tax Code deﬁnes “place of business of the retailer” in 82
words. Tex. Tax Code § 321.002(a)(3)(A). But “place of business” is a term of art,
and many business activities can be conducted at a location without that location
becoming a “place of business” for local tax sourcing. The statutory deﬁnition for
“place of business” sets forth a combination of elements that lead to the
Comptroller’s interpretation that one factor indicating whether a location is a “place
of business” is the presence of sales personnel. Thus, the Comptroller promulgated
Rule 3.334(a)(18), which sets forth additional criteria for determining if a location is

39
a place of business—none of which are inconsistent with the underlying statutory
deﬁnition. Instead, the additional criteria help taxpayers and the government to

objectively determine whether a location is a “place of business” which provides
clarity and certainty to relatively complicated process of sales tax sourcing.
The Comptroller engaged in similarly detailed explanations for the three other
challenged rule provisions: Rule 3.334(a)(9) at 49 Tex. Reg. 4801–02; Rule
3.334(b)(5) at 49 Tex. Reg. 4799; and Rule 3.334(c) at 49 Tex. Reg. 4805. Moreover,
the Comptroller gave summaries that demonstrate the rational connection for all of

promulgated Rule 3.334 in both the April 2024 Notice and June 2024 Order.
The Comptroller’s extensive explanation of the facts and policy concerns
relied on in adopting the rule demonstrates that it considered all the factors relevant
to the objectives of its delegated rulemaking authority and engaged in reasoned
decision-making. Therefore, under the arbitrary and capricious standard, the
Comptroller substantially complied with the reasoned-justification requirement of
the APA.
As noted above, the Comptroller need not demonstrate that its rulemaking
decision is the only reasonable or factually defensible policy alternative. Tex. Medical
Ass’n, 137 S.W.3d at 354. Rather, the Comptroller needs only to demonstrate that
there is a rational connection between the rule and the factual material it has received
or otherwise considered, and that the rule was a legitimate and factually defensible
choice that complies with the statutory requirements of the code. Id.

40
3. The Comptroller’s rational connection was not arbitrary and
capricious.
Courts review a challenge to the rational connection requirement using an

“arbitrary and capricious” standard and not presuming that facts exist to support
the agency’s order. Id. at 353. An agency acts arbitrarily if, in making a decision, it
commits any of the following errors: (1) omits from its consideration a factor that the

Legislature intended the agency to consider in the circumstances; (2) includes in its
consideration an irrelevant factor; or (3) reaches a completely unreasonable result
after weighing only relevant factors. Statewide Convoy Transps. Inc. v. R.R. Comm’n of
Tex., 753 S.W.2d 800, 804 (Tex. App.—Austin 1988, no writ); see also Bullock v.
Hewlett–Packard Co., 628 S.W.2d 754, 756 (Tex. 1982) (stating a rule is arbitrary and
capricious when it lacks a legitimate reason to support it). The Comptroller will
demonstrate its compliance with these standards.

a. The Comptroller considered only the Legislatively
mandated factors.
An agency’s reasoned justification is arbitrary if in making its rational
connection the agency omits from consideration a factor the Legislature intended the
agency to consider in the circumstances or includes in its consideration an irrelevant
factor. Farm & Ranch Freedom All., 2025 WL 994190, at *7 (citing Lambright, 157

S.W.3d at 505). In determining the factors, courts “consider each substantive
element set out in the statute.” Reliant Energy, Inc., 62 S.W.3d at 841. The
Comptroller properly considered all legislatively mandated factors and did not
consider any irrelevant factors.
The Legislature has granted the Comptroller broad discretion in adopting

41
rules related to the Texas Tax Code. See, e.g., Tex. Tax Code §§ 111.002,
151.0595(j), 321.306, 322.203. In considering whether an agency has omitted from its

consideration a legislatively intended factor, or considered an irrelevant factor,
courts have looked to the express mandates from the Legislature. For example, the
Third Court found that the Public Utility Commission of Texas’ (“PUC”) statutory
mandate was to “protect the public interest to and in the establishment of a fully
competitive electric power industry.” Reliant Energy, Inc., 62 S.W.3d 833 at 841. In
adopting rules, the PUC was mandated to “make and enforce rules necessary to

protect customers … consistent with the public interest.” Id. at 835 n.1. And the
Legislature expressed specifically how the PUC was to adjust certain fuel charges.
Id. at 841 (citing Tex. Util. Code § 39.202). If the PUC failed to follow those
legislative factors in its rulemaking, it would have failed in its reasoned justification.
Id.
The Legislature is well equipped to require an agency to explicitly consider
certain factors, as they have done with many agencies. For example, at issue in
Lambright was a Texas Parks and Wildlife Department rule reducing the shrimping
season and expanding nursery areas. Lambright, 157 S.W.3d at 502. The Legislature
required Parks and Wildlife to consider six factors before issuing rules regarding the
catching, possession, purchase, and sale of shrimp. See Tex. Parks & Wild. Code
§ 77.007(b)(1)–(6).
The Legislature’s grant to the Comptroller is not nearly so limiting. No
explicit factors are found in the statutes enacted by the Legislature, as with the PUC
or Parks and Wildlife. See, e.g, Tex. Tax Code §§ 111.002, 151.0595(j), 321.306,

42
322.203, 323.306. To the extent the rule-making delegation does contain factors,
they are generally to “adopt rules that do not conflict with the laws of this state or

the constitution of this state or the United States for the enforcement … and
collection of taxes.” Tex. Tax Code § 111.002. More specifically, the grants of
legislative authority that the Comptroller cited in the April 2024 Notice and June
2024 Order put the following restrictions on the Comptroller’s rules:

• To “reﬂect changes in the power of this state to collect taxes and
enforce the provisions of this title due to changes in the
constitution or laws of the United States and judicial
interpretations thereof.” Tex. Tax Code § 111.102(a).
• Be “consistent with [Chapter 321] for the administration,
collection, reporting, and enforcement of this chapter.” Tex. Tax
Code § 321.306.
• Be “consistent with [Chapter 322] for the administration,
collection, and enforcement of this chapter and for the reporting
of taxes imposed under this chapter.” Tex. Tax Code § 322.203.
• Be “consistent with [Chapter 323] for the administration,
collection, reporting, and enforcement of this chapter.” Tex. Tax
Code § 323.306.
Those are the only factors the Legislature has required the Comptroller to consider.

For purposes of reasoned justification, the Comptroller need show only that Rule
3.334 does not conflict with the laws or constitution and that they are promulgated
for the enforcement and collection of taxes, as articulated in the above statutes.
The Comptroller did just that. Its June 2024 Order reflects that the principal
policy reason for the adoption of the rule is to provide guidance to taxpayers and
auditors regarding the application of the local sales and use tax consummation

43
statutes. 49 Tex. Reg. 4797. The rational connection between the factual basis for
the rule and the rule as adopted is amply demonstrated within the June 2024 Order.

See 49 Tex. Reg. 4801-07. First, it explained how the use of sales personnel is
consistent with the general objectives of the local tax statute and detailed why the
term “place of business” must be read within the context of the Tax Code and why
in the statutory context, the term has a narrower meaning than ordinary usage. 49
Tex. Reg. 4798. The Comptroller next expanded on the controlling statutes’ singular
usage of “the place of business.” 49 Tex. Reg. 4802. And the Comptroller explained

how its understanding of the statute, as reflected in the rule, provides clarification
regarding the consummation statutes and means they can be applied with greater
certainty. Id. Additionally, regarding the treatment of single places of business, the
Comptroller explained that its interpretation is reasonable under the controlling
statute, and how a conflicting interpretation would lead to no rational connection or
sufficient governmental interest in the state’s local taxation scheme. 49 Tex. Reg.
4805. These explanations contained within the June 2024 Order show that the
Comptroller not only considered the proper legislative factors, but demonstrated the
rational connection between the factual bases and the rule as adopted.

b. The Comptroller did not reach a completely
unreasonable result.
An agency acts arbitrarily in making a decision if it reaches a completely
unreasonable result after weighing only relevant factors. Farm & Ranch Freedom All.,
2025 WL 994190, at *7 (citing Lambright, 157 S.W.3d at 505). Courts should avoid
striking down agency action unless they feel competent to find that the agency has

44
clearly acted unreasonably. Gerst v. Nixon, 411 S.W.2d 350, 360 n.8 (Tex. 1966). 6
Neither Round Rock nor Coppell offered another explanation for how the

Comptroller’s rule was a completely unreasonable result. And there is nothing in the
four corners of the June 2024 Order that allowed for the trial court to conclude that
the Comptroller reached an unreasonable result. Nevertheless, some examples of the
reasonableness of the result are offered:

• The Comptroller oﬀered a reason for adoption of the rule as “to
provide guidance to taxpayers and auditors regarding the
application of the local sales and use tax consummation statutes.”
49 Tex. Reg. 4797.
• The Comptroller explained that the “sales personnel” language
in its deﬁnition of place of business of a retailer is to provide an
objective criterion for buyers, sellers, and auditors to consider. 49
Tex. Reg. 4798.
• The Comptroller explained how the sales personnel language is
consistent with the general objectives of the local tax statute. 49
Tex. Reg. 4799.
• The Comptroller explained that broad, every-day usage of the
term “place of business” does not include computer servers,
Internet protocol addresses, and websites. 49 Tex. Reg. 4799.
• The Comptroller explained that its interpretation is practical and
will facilitate uniformity and ease of administration for taxpayers
and auditors. 49 Tex. Reg. 4799.

6 This language comes from dicta from a footnote in the 1966 Supreme Court of Texas. It is in fact

the court quoting a law review article about the beneﬁts of administrative agency rules. It appears
to be the source for the “unreasonable result” line of inquiry. See also City of El Paso v. Pub. Util.
Comm’n of Tex., 883 S.W.2d 179, 184 (Tex. 1994) (citing Gerst and stating “An agency’s decision is
arbitrary … if the agency: (1) failed to consider a factor the legislature directs it to consider; (2)
considers an irrelevant factor; or (3) weighs only relevant factors that the legislature directs it to
consider but still reaches a completely unreasonable result.”).

45
• The Comptroller concluded that the best way to treat computer
servers consistently and coherently is to uniformly recognize that
they are not an “established outlet, oﬃce, or location” and do not
constitute places of business of the seller. 49 Tex. Reg. 4799.
“To satisfy the reasoned justification requirement, an agency’s order
adopting a rule must explain how and why the agency reached the conclusion it did.”
Reliant Energy, Inc., 62 S.W.3d at 839. The four corners rule requires that a reviewing

court consider the adequacy of the agency’s reasoned justification from the
rulemaking record itself. Lambright, 157 S.W.3d at 504. Extrinsic material is
forbidden. Id. (stating that “[a] reviewing court must confine its search for a
reasoned justification to the four corners of the order finally adopting the rule . . . .”).
The Comptroller met its obligation to show there is a rational connection between
the rule and the factual material it has received or otherwise considered, and that the
rule was a legitimate and factually defensible choice that complies with the multiple
statutory requirements of the code. See Tex. Medical Ass’n, 137 S.W.3d at 342.

B. The Comptroller gave the reasons why the agency disagrees with
party submissions and proposals.
As part of its reasoned justiﬁcation, an agency must outline the reasons why
the agency disagrees with party submissions and proposals that were submitted as
part of the notice and comment rulemaking procedure. See Tex. Gov’t Code
§ 2001.033(a)(1)(C). The Comptroller speciﬁcally addressed why it disagreed with

each and every party submission and proposal in its June 2024 Order. The
Comptroller’s responses are suﬃcient to satisfy the substantial compliance
requirement of the APA. Tex. Gov’t Code § 2001.035(c). The Comptroller’s

responses demonstrate in a clear and logical fashion that the rule is a reasonable

46
means to a legitimate objective. Tex. Gov’t Code § 2001.035(c). The reasonableness
of the responses to all party submissions and proposals is apparent from the face of

the June 2024 Order. See 49 Tex. Reg. 4797-808.
To comply with Texas Government Code section 2001.033, the Comptroller
needs only to provide the reasons why the agency disagrees with Round Rock’s
comments. Tex. Gov’t Code § 2001.033(a)(1)(C); Reliant Energy, Inc., 62 S.W.3d at
843. As outlined above in Part III.A and this Part III.B, the Comptroller provided an
extensive reasoned justiﬁcation as to why it disagreed with the submitted comments,

as well as a reasoned justiﬁcation for the rule as a whole. Here, the four corners of
the agency’s June 2024 Order presents the agency’s reasoned justiﬁcation in a
“relatively clear, precise, and logical fashion.” ARCO Oil & Gas Co., 876 S.W.2d at
492.
At trial, Round Rock made claims that the Comptroller did not adequately
address its comments. Round Rock asserted that the June 2024 Order did not address
its comments requesting a reasoned justiﬁcation in three speciﬁc areas: (1) the APA’s
Notice Requirements; (2) the Comptroller’s Authority to adopt the Rule; and (3)
Small and Micro-Businesses. CR 2639. The Comptroller responded suﬃciently to
each comment as demonstrated below, such that this Court should reverse the trial
court’s judgment and render judgment in favor of the Comptroller.
First, Round Rock asserted that, “[t]he Comptroller’s inability to comply with
the notice requirements of the Administrative Procedure Act means the Comptroller
cannot adopt the rule amendments.” CR 2639. As explained in Parts II.A and II.B
above, the Comptroller substantially complied with the notice requirements of the

47
APA. The City of Round Rock improperly framed the Comptroller’s detailed and
thorough explanation of each notice requirement of the APA as an inability to

comply. See 49 Tex. Reg. 4808. The Comptroller gave reasons why the agency
disagreed with Round Rock’s notice comments.
Second, Round Rock claimed “[t]he Comptroller does not have the authority
to adopt Rule 3.334(c).” CR 2639. The Comptroller responded with a “statement of
the statutory and other authority under which the rule is adopted” detailing Sections
111.002, 321.306, 322.203, and 323.306 of the Tax Code as providing statutory

authority for the Comptroller’s actions. 49 Tex. Reg. 4808. Further, throughout its
order detailing the bases on which it has the authority to adopt the provision, the
Comptroller explained how the June 2024 Order is within the scope of the
controlling statutes. 49 Tex. Reg. 4805. Round Rock’s dislike of the Comptroller’s
exercise of its legislatively granted rulemaking authority does not equate to a lack of
delegation of rulemaking authority by the Legislature or the Comptroller’s permitted
use of this authority. Nor does it show that the Comptroller did not substantially
comply with the APA when it made its responses to Round Rock’s comments in the
June 2024 Order.
Finally, Round Rock argued that the Comptroller did not address its comment
that “[t]he addition of (b)(6) does nothing to reduce the adverse economic eﬀects of
Rule 3.334 on small and micro-businesses.” CR 2639. The Comptroller responded
that it had considered small and micro-businesses in its June 2024 Order. 49 Tex.
Reg. 4806-07. The Comptroller explained that it would presume these businesses
conducted all their business operations out of a single location. Id. From this record,

48
the Comptroller clearly considered any “adverse economic eﬀects of Rule 3.334 on
small and micro-businesses” and took steps in the rulemaking to ameliorate those

eﬀects. CR 2639.
Coppell did not make a speciﬁc complaint about the adequacy of the
Comptroller’s responses under Texas Government Code section 2001.033(a)(1)(C).
See, e.g, CR 2396 (Coppell Fifth Amended Petition); CR 2682 (Coppell Trial Brief ).
However, in its trial brief, Coppell complained that the Rule “contradicts the
evidence contained in comments” that Coppell submitted to the Comptroller. CR

2693. But the Comptroller responded to the comments made by Coppell and its
representatives. 49 Tex. Reg. 4797, 4799, 4804, & 4807. Coppell did complain that
it submitted the report of an expert who opined on how websites work. CR 2693.
Coppell asserted that the Rule “contradicts this evidence, and is, therefore,
unreasonable and arbitrary and capricious.” CR 2693. But it is not necessary that
every opining expert agrees with the basis for the rules. To the extent the trial court
ruled against the Comptroller on Texas Government Code section 2001.033(a)(1)(C)
grounds, the judgment should be reversed.
CONCLUSION AND PRAYER

In cases involving rule making, the only evidence the reviewing court should
consider is the four-corners of the rule itself. That includes the April 2024 Notice
and the June 2024 Order. The entirety of both documents were part of the trial

record and are attached in the Appendix. Together, the two notices comprise a
lengthy and comprehensive administrative record that show the Comptroller has
substantially complied with the APA. This case is far from the sort where an agency

49
hand-waved away its responsibilities to keep the public informed of the reasons for a
rule. The thorough and thoughtful analysis engaged in by experts at the

Comptroller’s office in adopting Rule 3.334 should not be lightly overturned.
For the above reasons, Appellee/Cross-Appellant requests that the Court
reverse the judgment of the trial court and render judgment that Appellee/Cross-
Appellant substantially complied with the APA, provided a “reasoned justification”
for the rule, and hold that Rule 3.334 is valid in its entirety.

Respectfully submitted.

Ken Paxton /s/ Kyle Pierce Counce
Attorney General of Texas Kyle Pierce Counce
Deputy Division Chief
Brent Webster State Bar No. 24082862
First Assistant Attorney General T: (512) 463-3112
Kyle.Counce@oag.texas.gov
Ralph Molina
Deputy First Assistant Attorney Peter Berquist
General Assistant Attorney General
State Bar No. 24131255
Austin Kinghorn T: (512) 936-1383
Deputy Attorney General for Civil Peter.Berquist@oag.texas.gov
Litigation
Tax Litigation Division
Steven Robinson P. O. Box 12548
Division Chief, Tax Litigation Austin, Texas 78711-2548
Division F: (512) 478-4013

Counsel for Appellee/Cross-Appellants

50
Certificate of Compliance

This document complies with the typeface requirement of Tex. R. App. P.
9.4(e) because it has been prepared in a conventional typeface no smaller than 14-
point for text and 12-point for footnotes. This document also complies with the
word-count limitations of Tex. R. App. P. 9.4(i), if applicable, because it contains
13,606 words, excluding any parts exempted by Tex. R. App. 9.4(i)(1), as counted
by the computer program used to prepare this document.

/s/ Kyle Pierce Counce
KYLE PIERCE COUNCE
Certificate of Service
I certify that a copy of this document was served on all counsel of record by e-
mail and/or e-service on September 26, 2025.

James B. Harris Cindy Olson Bourland
Jim.Harris@hklaw.com Bourland@bourlandlaw.com
Stephen F. Fink BOURLAND LAW FIRM, PC
Stephen.Fink@hklaw.com P.O. Box 546
Reed C. Randel Round Rock, Texas 78680
Reed.Randel@hklaw.com
Richard B. Phillips, Jr. Bryan Dotson
Rich.Phillips@hklaw.com Bryan.Dotson@chamberlainlaw.com
HOLLAND & KNIGHT LLP CHAMBERLAIN, HRDLINKA, WHITE,
1722 Routh Street, Suite 1500 WILLIAMS, & AUGHTRY, P.C.
Dallas, Texas 75201 112 East Pecan Street, Suite 1450
(214) 964-9500 San Antonio, Texas 78205
(210) 278-5844
Brandon L. King Counsel for Appellee
Brandon.King@hklaw.com
HOLLAND & KNIGHT LLP
98 San Jacinto Boulevard, Suite 1900
Austin, Texas 78701
Counsel for Appellants/Cross-Appellees
/s/ Kyle Pierce Counce
KYLE PIERCE COUNCE

51
INDEX OF APPENDICES

Final Judgment ...................................................................................... Appendix A

Conclusions of Law ................................................................................ Appendix B

49 Tex. Reg. 2440–57 (Apr. 29, 2024) (“April 2024 Notice”) .............. Appendix C

49 Tex. Reg. 4797–4808 (June 28, 2024) (“June 2024 Order”)............ Appendix D

52
APPENDIX A
12/03/2024 11:08:06 AM
Velva L. Price
District Clerk
Travis County
D-1-GN-21-003198
CAUSE NO. D-1-GN-21-003198*
(Consolidated with D-1-GN-21-003203)

CITY OF COPPELL, TEXAS, § IN THE DISTRICT COURT OF
CITY OF HUMBLE, TEXAS, §
CITY OF DESOTO, TEXAS, §
CITY OF CARROLLTON, TEXAS, §
CITY OF FARMERS BRANCH, TEXAS, and §
CITY OF ROUND ROCK, TEXAS, §
§
Plaintiffs,
§ TRAVIS COUNTY, TEXAS
v. §
§
GLENN HEGAR, in his official capacity §
as Comptroller of Public Accounts of §
the State of Texas, §
§
Defendant. § 201ST JUDICIAL DISTRICT
§ (*Assigned to the 250th District)

FINAL JUDGMENT

On October 14–16, 2024, the Court heard the merits of these consolidated causes. Attorneys

James Harris and Reed Randel appeared for Plaintiffs City of Humble, Texas; City of Desoto, Texas;

City of Carroll, Texas; City of Coppell, Texas; and City of Farmers Branch, Texas (the Coppell

Plaintiffs). Attorneys Cindy Olsen Bourland and Bryan Dotson appeared for Plaintiff City of Round

Rock, Texas (the Round Rock Plaintiff). Attorneys Kyle Counce and Ray Langenberg appeared for

Defendant Comptroller of Public Accounts of the State of Texas (the Comptroller). The parties

announced ready and proceeded to trial.

After careful consideration of the evidence and arguments of counsel, the Court renders

judgment as follows:

FINAL JUDGMENT Page 1 of 3
Cause No. D-1-GN-21-003198 (Consolidated)
The Court FINDS that Section 321.002(a)(3)(A) of the Tax Code requires a determination

of whether at least three orders were received by the retailer during the calendar year. Therefore,

the Court cannot prospectively declare Fulfillment Centers as places of business.

Accordingly, the Court FINDS that Coppell Plaintiffs’ request to declare Fulfillment Centers

receiving only Website Orders places of business under the 2016 version of 34 TAC § 3.334 should

be and is DENIED.

The Court FINDS that 34 TAC § 3.334(a)(9) contravenes existing statutes by adding a

definition at the agency level that the Legislature has not defined in Chapter 151 of the Texas Tax

Code and for which Sections 321.203 and 323.203 already provide a detailed statutory scheme for

determining where a sale of taxable item is “consummated.”

The Court FINDS that 34 TAC § 3.334(a)(18), (b)(5), and (c) contravene specific statutory

language set forth in Texas Tax Code sections 321.002(a)(3)(A), 321.203, and 323.203.

The Court FINDS that 34 TAC § 3.334(c) [(c)(1) and (c)(2) inclusive] contravenes the

statutory schemes for determining where a sale is consummated, under Sections 321.203 and

323.203.

The Court FURTHER FINDS that the Comptroller did not substantially comply with the

notice requirements under the APA.

The Court FURTHER FINDS that Defendant Comptroller did not substantially comply

with the “reasoned justification” requirement under the APA.

FINAL JUDGMENT Page 2 of 3
Cause No. D-1-GN-21-003198 (Consolidated)
IT IS JUDICIALLY DECLARED that 34 TAC § 3.334 or its threatened application interferes

with or impairs, or threatens to interfere with or impair, a legal right or privilege of the Coppell

Plaintiffs.

IT IS JUDICIALLY DECLARED that 34 TAC § 3.334 or its threatened application interferes

with or impairs, or threatens to interfere with or impair, a legal right or privilege of the Round Rock

Plaintiff.

IT IS THEREFORE ORDERED that Defendant Comptroller of Public Accounts of the State

of Texas is hereby PERMANENTLY ENJOINED from enforcing 34 TAC § 3.334, subsections (a)(9),

(a)(18), (b)(5), and (c), effective July 4, 2024, and those subsections are hereby REMANDED to the

Comptroller of Public Accounts of the State of Texas for further consideration not inconsistent with

Chapters 151, 321, and 323 of the Texas Tax Code.

All other relief not expressly granted herein is DENIED. This judgment finally disposes of all

parties and all claims and is appealable.

Signed on this third day of December 2024,

____________________________________
KARIN CRUMP
JUDGE PRESIDING
250th DISTRICT COURT

FINAL JUDGMENT Page 3 of 3
Cause No. D-1-GN-21-003198 (Consolidated)
APPENDIX B
12/30/2024 04:16:17 PM
Velva L. Price
District Clerk
Travis County
D-1-GN-21-003198
CAUSE NO. D-1-GN-21-003198*
(Consolidated with D-1-GN-21-003203)

CONCLUSIONS OF LAW

On December 3, 2024, the Court issued its Final Judgment for this cause. The Coppell

Plaintiffs’ Request for Findings of Fact and Conclusions of Law was filed on December 23, 2024. On

December 30, 2024, the Coppell Plaintiffs informed the Court that they have “concluded that findings

of fact are unnecessary in this case [and] therefore withdraw that portion of the December 3, 2024

request for findings of fact.” Accordingly, the Court hereby issues the following Conclusions of Law:

1. 34 Texas Administrative Code (TAC) § 3.334(a)(9) contravenes existing statutes by

adding a definition at the agency level that the Legislature has not defined in Chapter 151 of the Texas

Tax Code and for which Sections 321.203 and 323.203 already provide a detailed statutory scheme for

determining where a sale of taxable item is “consummated.”

2. 34 TAC § 3.334(a)(18), (b)(5), and (c) contravene specific statutory language set forth

in Texas Tax Code sections 321.002(a)(3)(A), 321.203, and 323.203.

CONCLUSIONS OF LAW
Cause No. D-1-GN-21-003198 (Consolidated)
3. 34 TAC § 3.334(c) [(c)(1) and (c)(2) inclusive] contravenes the statutory schemes for

determining where a sale is consummated, under Sections 321.203 and 323.203.

4. 34 TAC § 3.334(b)(1)(A), when read in conjunction with its (b)(1)(B), is a descriptive

statement of those circumstances when a distribution center, manufacturing plant, storage yard,

warehouse, or similar facility “is a place of business of the seller” within the meaning of Texas Tax

Code section 321.002(a)(3)(A). As such, 34 TAC § 3.334(b)(1)(A) is a statement of qualification by

which such a location may be considered a place of business of the seller under Section

321.002(a)(3)(A).

5. The Comptroller did not substantially comply with the notice requirements under the

Administrative Procedure Act (APA).

6. The Comptroller did not substantially comply with the “reasoned justification”

requirement under the APA.

7. 34 TAC § 3.334 or its threatened application interferes with or impairs, or threatens to

interfere with or impair, a legal right or privilege of the Coppell Plaintiffs.

8. 34 TAC § 3.334 or its threatened application interferes with or impairs, or threatens to

interfere with or impair, a legal right or privilege of the Round Rock Plaintiff.

Signed on the 30th day of December 2024.

____________________________________
KARIN CRUMP
Judge Presiding, 250th District Court

CONCLUSIONS OF LAW
Cause No. D-1-GN-21-003198 (Consolidated)
APPENDIX C
The department has determined that the rule as proposed will The agency certifies that legal counsel has reviewed the pro-
not affect rural communities, as it does not directly regulate any posal and found it to be within the state agency's legal authority
rural community. to adopt.
The department has not drafted a local employment impact
Filed with the Office of the Secretary of State on April 8, 2024.
statement under the Administrative Procedures Act, §2001.022,
as the agency has determined that the rule as proposed will not TRD-202401417
impact local economies. James Murphy
General Counsel
The department has determined that Government Code,
§2001.0225 (Regulatory Analysis of Major Environmental Texas Parks and Wildlife Department
Rules), does not apply to the proposed rule. Earliest possible date of adoption: May 19, 2024
For further information, please call: (512) 389-4775
The department has determined that there will not be a taking of
private real property, as defined by Government Code, Chapter ♦ ♦ ♦
2007, as a result of the proposed rule.
TITLE 34. PUBLIC FINANCE
In compliance with the requirements of Government Code,
§2001.0221, the department has prepared the following Govern- PART 1. COMPTROLLER OF PUBLIC
ment Growth Impact Statement (GGIS). The rule as proposed,
if adopted, will not create a government program; not result in ACCOUNTS
an increase or decrease in the number of full-time equivalent
employee needs; not result in a need for additional General CHAPTER 3. TAX ADMINISTRATION
Revenue funding; not affect the amount of any fee; create a SUBCHAPTER O. STATE AND LOCAL SALES
new regulation (to prohibit "canned" hunting of mountain lions
and establish trapping rules); not expand an existing regulation; AND USE TAXES
neither increase nor decrease the number of individuals subject 34 TAC §3.334
to regulation; and not positively or adversely affect the state's
economy. The Comptroller of Public Accounts proposes the repeal of
§3.334, concerning local sales and use taxes. The comptroller
Comments on the proposed rule may be submitted to Richard repeals existing §3.334 to replace it with new §3.334. The
Heilbrun, Texas Parks and Wildlife Department, 4200 Smith repeal of §3.334 will be effective the date the new §3.334 takes
School Road, Austin, Texas 78744; (512) 389-8104; email: effect.
richard.heilbrun@tpwd.texas.gov or via the department website
at www.tpwd.texas.gov. Brief explanation of the proposed rulemaking.
The new rule is proposed under the authority of Parks and It has been called to the comptroller's attention that the October
Wildlife Code, §67.004, which requires the commission by 27, 2023 notice of proposed rulemaking did not contain a state-
regulation to establish any limits on the taking, possession, ment of fiscal implications for small businesses or rural commu-
propagation, transportation, importation, exportation, sale, or nities as required by Government Code, Chapter 2006. See (48
offering for sale of nongame fish or wildlife that the department TexReg 6340) (October 27, 2023). Therefore, the comptroller is
considers necessary to manage the species. proposing to repeal the adopted rule as proposed in the October
27, 2023 notice of proposed rulemaking. The comptroller is si-
The proposed new rule affects Parks and Wildlife Code, Chapter multaneously proposing to readopt the text of the rule effective
67. on January 5, 2024, with amendments, under the same num-
§65.950. Mountain Lions (Puma concolor). ber and title, with the repeal to be effective as of the date of the
adopted rule.
(a) In this section "captivity" means the state of being held
under control, or kept caged, penned, or trapped. Fiscal note.
(b) No person in this state may: Brad Reynolds, Chief Revenue Estimator, has determined that
repeal of the current rule is of no consequence apart from facilita-
(1) hunt a mountain lion that is in captivity;
tion of adoption of a new substitute §3.334 and has no fiscal im-
(2) release a mountain lion from captivity for purposes of: plications in and of itself. The fiscal implications of the repeal are
the same as the fiscal implication of the proposed new substitute
(A) being hunted;
§3.334. The statements in this fiscal note are supplemented by
(B) training dogs; the additional statements in the preamble to the proposed new
§3.334, which the comptroller will propose to adopt concurrently
(3) allow a live mountain lion to be captured in a trap or
with this proposed repeal.
snare for more than 36 hours; or
Brad Reynolds has determined the following for each year of the
(4) conduct, promote, assist, or advertise an activity pro-
first five years that the proposed repeal and the substitute new
hibited by this subsection.
rule will be in effect.
(c) This section does not:
The additional estimated cost to the state and to local govern-
(1) prohibit a person from humanely dispatching a lawfully ments expected as a result of enforcing or administering the rule.
trapped mountain lion; or
There will be no additional estimated cost to the state and to local
(2) apply to the use of snares designed to break away or governments expected as a result of enforcing or administering
disassemble with 285 pounds of force or less. the proposed repeal of the existing rule and concurrent new rule.

49 TexReg 2440 April 19, 2024 Texas Register
The proposed amendments explain the manner in which the affect local economic activity or employment would depend on
comptroller intends to apply the consummation statutes. The ex- discretionary actions of the governing body or the electorate of
planation should lead to greater taxpayer compliance, and less an affected jurisdiction, and cannot be determined.
audit resources required to enforce or administer the rule.
Government growth impact statement.
The estimated reductions in costs to the state and to local gov-
Brad Reynolds, Chief Revenue Estimator, has determined the
ernments as a result of enforcing or administering the rule.
following for each year of the first five years that the existing rule
There will be no estimated reductions in costs to the state and to will be repealed and the proposed new rule will be in effect: the
local governments as a result of enforcing or administering the amendment will not create or eliminate a government program;
proposed repeal of the existing rule and the concurrent new rule. will not require the creation or elimination of employee positions;
Local governments do not administer the tax, and the comptroller will not require an increase or decrease in future legislative ap-
will not be reducing the size of its audit staff as a result of the rule. propriations to the comptroller; will not require an increase or
decrease in fees paid to the comptroller; will not create a new
The estimated loss or increase in revenue to the state or to local
regulation; will increase the number of individuals subject to the
governments as a result of enforcing or administering the rule,
rule's applicability because sellers without a physical presence
and the foreseeable implications relating to cost or revenues of
in a local tax jurisdiction will be required to collect local use tax if
the state or local governments.
they are required to collect state use tax; and will not positively
Change in sourcing of transactions subject to local sales taxation or adversely affect this state's economy.
could result in net change in sales tax revenue of local taxing en-
Economic impact statement and regulatory flexibility analysis.
tities generally, which may be significant for some jurisdictions.
Most, but not all, reductions in taxable transactions sourced to A "rural community" is a municipality with a population of less
some jurisdictions would be increases in taxable transactions than 25,000. The comptroller estimates that there are 1,098
sourced to other jurisdictions. If the comptroller repeals the exist- such rural communities, of which 1,017 impose a sales tax and
ing rule and concurrently adopts the proposed new rule, it is esti- may have revenue affected by compliance with the rule.
mated that there could be a $28.5 million reduction in aggregate
A "small business" is a legal entity, including a corporation, part-
local sales tax levies sourced to unincorporated areas without lo-
nership, or sole proprietorship, that: (A) is formed for the pur-
cal sales tax or with cumulative local county and special district
pose of making a profit; (B) is independently owned and oper-
tax rates less than the cumulative local rates that applied at the
ated; and (C) has fewer than 100 employees or less than $6
locations where the taxable transactions were formerly sourced.
million in annual gross receipts. The Comptroller estimates that
A $28.5 million reduction in aggregate local tax levies would re-
there are 470,000 businesses with fewer than 100 employees,
sult in reduced state service charge revenue of $570,000.
and 377,000 businesses with annual gross receipts less than $6
Reliable estimates of net changes in revenue for each of the million; the sum of these two estimates would overstate the num-
1,759 local sales taxing jurisdictions that might stem from compli- ber of small businesses, as many businesses would be expected
ance with the proposed repeal of the existing rule and concurrent to have both fewer than 100 employees and less than $6 million
adoption of new rule cannot feasibly be produced by the comp- in annual gross receipts.
troller.
To the extent that the repeal of the existing rule and the adoption
Public benefits and costs. of the proposed new rule leads to greater awareness and compli-
ance with the local tax consummation standards, some vendors
Brad Reynolds, Chief Revenue Estimator, has determined the
may change their reporting methods, which might positively or
following for each year of the first five years that the existing rule
negatively affect the tax revenue of particular local tax jurisdic-
will be repealed and the proposed new rule will be in effect.
tions. As previously explained, the comptroller does not have
The public will benefit from greater clarity regarding the consum- sufficient data on the business operations of each business to
mation standards, making compliance easier. identify and quantify the businesses and transactions that might
be affected, and the positive or negative revenue impact on each
There may be additional economic costs to a person required to
tax jurisdiction.
comply with the proposed repeal of the existing rule and adoption
of the new rule. The rule may cause some vendors to realize that It is conceivable that repeal of the existing rule and adoption of
they are noncompliant. If the vendors come into compliance by the proposed new rule may cause some vendors, small or large,
changing from single-location reporting to multiple-location re- to realize that they are noncompliant. If the vendors come into
porting, their compliance burden may increase. And if vendors compliance by changing from single-location reporting to multi-
change from multiple-location reporting to single-location report- ple-location reporting, their compliance burden may increase.
ing, their compliance burden may diminish.
The repeal of the existing rule and the adoption of the proposed
Local employment impact statement. new rule will expand the local tax collection obligations of remote
sellers - out-of-state sellers that collect state use tax must also
For the first five years that the existing rule will be repealed
collect local sales tax. The expansion of the remote seller local
and the proposed new rule will be in effect, the effect on local
tax collection obligation may benefit small businesses in Texas
economies and employment, if any, cannot be determined. To
by reducing the perception of customers that purchases from
the extent that the repeal of the existing rule and the proposed
out-of-state sellers are preferable because out-of-state sellers
new rule leads to greater awareness and compliance with the
charge less sales or use tax than the small businesses in Texas.
local tax consummation standards, some vendors may change
their reporting methods, which might positively or negatively af- The proposed new rule adds subsection (b)(6):
fect the tax revenue of particular local tax jurisdictions. Whether
"If a small business or a micro-business operates a single lo-
a change in local tax revenue might increase or decrease the
cation out of which it conducts all of its business activities, the
provision of local government services to an extent that would

PROPOSED RULES April 19, 2024 49 TexReg 2441
comptroller will presume that the location is a place of business 53) (January 5, 2024), (48 TexReg 391) (January 27, 2023), (45
of the seller." TexReg 3499) (May 22, 2020). The amendments implemented
House Bill 1525, 86th Legislature, 2019, which placed local sales
To the extent that repeal of the existing rule facilitates the adop-
and use tax collection responsibilities on marketplace providers.
tion of the proposed new rule, the repeal will simplify the collec-
The amendments also implemented House Bill 2153, 86th Leg-
tion of local sales tax for many small businesses and micro-busi-
islature, 2019, which set a single local use tax rate that remote
nesses.
sellers may elect to use. The amendments also expanded the
Public hearing local sales tax collection responsibilities of sellers based on the
United States Supreme Court decision in South Dakota v. Way-
The comptroller will hold a hearing to take public comments, on
fair, Inc., 138 S. Ct. 2080 (June 21, 2018). These amendments
May 9, 2024, at 9:00 a.m. in Room 2.034 of the Barbara Jordan
have been noncontroversial.
Building, 1601 Congress Avenue, Austin, Texas 78701. Inter-
ested persons may sign up to testify beginning at 8:30 a.m. and The rulemaking made other revisions to the text, which are now
testimony will be heard on a first come first serve basis begin- the subject of litigation in Cause No. D-1-GN-21-003198, City of
ning at 9:00 a.m. All persons will have 10 minutes to present Coppell, Texas, et al. v. Glenn Hegar, in the 201st District Court
their testimony and shall also provide their testimony in writing of Travis County Texas. The Plaintiff cities claim that the agency
prior to their oral testimony. did not comply with the rulemaking procedures in Government
Code, §2001.024 and Government Code, Chapter 2006. The
Comments
purpose of this rulemaking is to address those claims by propos-
You may submit comments on the proposal to Jenny ing the readoption of the rule, with amendments, and a more
Burleson, Director, Tax Policy Division, P.O. Box 13528 complete statement of the elements required by Government
Austin, Texas 78711 or to the email address: tp.rule.com- Code, §2001.024 and Government Code, Chapter 2006.
ments@cpa.texas.gov. The comptroller must receive your
The comptroller proposes to add the following definitions:
comments no later than 30 days from the date of publication of
the proposal in the Texas Register. "Micro-business--a legal entity, including a corporation, partner-
ship, or sole proprietorship, that:
Statement of the statutory or other authority under which the rule-
making is proposed. (A) is formed for the purpose of making a profit;
The repeal is proposed under Tax Code, §§111.002 (Comp- (B) is independently owned and operated; and
troller's Rule; Compliance; Forfeiture), 321.306 (Comptroller's
(C) has not more than 20 employees."
Rules), 322.203 (Comptroller's Rules), and 323.306 (Comptrol-
ler's Rules), which authorize the comptroller to adopt rules to "Small business--a legal entity, including a corporation, partner-
implement the tax statutes. ship, or sole proprietorship, that:
Sections or articles of the code affected. (A) is formed for the purpose of making a profit;
The repeal affects Tax Code, §151.0595 (Single Local Tax Rate (B) is independently owned and operated; and
for Remote Sellers); Tax Code, Chapter 321, Subchapters A, B,
(C) has fewer than 100 employees or less than $6 million in an-
C, D, and F; Tax Code, Chapter 322; and Tax Code, Chapter
nual gross receipts."
323.
The definition of "independently owned and operated business"
§3.334. Local Sales and Use Taxes.
is taken from the Attorney General of Texas' Government Code
The agency certifies that legal counsel has reviewed the pro- Chapter 2006 Small Businesses and Rural Communities Impact
posal and found it to be within the state agency's legal authority Guidelines updated in December 2017.
to adopt.
The definitions of "micro-business" and "small business" are
Filed with the Office of the Secretary of State on April 8, 2024. taken from Government Code, Chapter 2006.
TRD-202401426 The comptroller further proposes to add subsection (b)(6):
Jenny Burleson
"If a small business seller or a micro-business seller operates a
Director, Tax Policy Division single location out of which it conducts all of its business activi-
Comptroller of Public Accounts ties, the comptroller will presume that the location is a place of
Earliest possible date of adoption: May 19, 2024 business of the seller."
For further information, please call: (512) 475-2220
Fiscal note.
♦ ♦ ♦ Brad Reynolds, Chief Revenue Estimator, has determined the
34 TAC §3.334 following for each year of the first five years that the rule will be
in effect. The fiscal note considers the effect of the prior 2020,
The Comptroller of Public Accounts proposes new §3.334, con- 2023, and 2024 amendments to the rule, as well as the amend-
cerning local sales and use taxes. The comptroller proposes ments in this proposal.
new §3.334 to readopt the text of existing §3.334 proposed for
repeal, with the addition of paragraph (b)(6). The additional estimated cost to the state and to local govern-
ments expected as a result of enforcing or administering the rule.
Brief explanation of the proposed rule.
There will be no additional estimated cost to the state and to local
In January 2020, the comptroller initiated a rulemaking to update governments expected as a result of enforcing or administering
its local sales and use tax rule. The comptroller subsequently the proposed rule. The proposed amendments explain the man-
adopted amendments in 2020, 2023, and 2024. (49 TexReg

49 TexReg 2442 April 19, 2024 Texas Register
ner in which the comptroller intends to apply the consummation The comptroller does not have sufficient data to verify these cal-
statutes. The explanation should lead to greater taxpayer com- culations or to make similar estimates for other jurisdictions. The
pliance, and less audit resources required to enforce or admin- agency does have data regarding the amount of sales tax re-
ister the rule. ceipts that that a vendor reports to local jurisdictions. But, that
data does not prove that the vendor is incorrectly reporting, that
The estimated reductions in costs to the state and to local gov-
the vendor would change its reporting as a result of the rule
ernments as a result of enforcing or administering the rule.
amendments, or that specific jurisdictions would gain or lose tax
There will be no estimated reductions in costs to the state and to revenue as a result of the rule amendments. Those determi-
local governments as a result of enforcing or administering the nations would require an understanding of the business opera-
rule amendments. Local governments do not administer the tax, tions of the vendor to determine which business locations were
and the comptroller will not be reducing the size of its audit staff "places of business" for purposes of local tax sourcing. Then,
as a result of the rule. the comptroller would have to examine individual transactions to
determine the location where the orders were received, the loca-
The estimated loss or increase in revenue to the state or to local
tion where the orders were fulfilled, and the location where the
governments as a result of enforcing or administering the rule,
order was delivered, since all three locations are potential sourc-
and the foreseeable implications relating to cost or revenues of
ing locations. Then, the comptroller would have to compare that
the state or local governments.
information with how the vendor has been reporting local tax on
Change in sourcing of transactions subject to local sales taxa- each transaction, identify the circumstances, if any, that would
tion could result in net change in sales tax revenue of local tax- require the vendor to change its methods of reporting as a result
ing entities generally, with the net change quite significant for of the rule, and determine the dollar value for each transaction.
some jurisdictions. Most, but not all, reductions in taxable trans- The comptroller does not have sufficient information on the indi-
actions sourced to some jurisdictions would be increases in tax- vidual vendors to make this determination.
able transactions sourced to other jurisdictions. But to the ex-
The consultant's explanation of his methodology confirms that
tent that transactions previously sourced within an incorporated
the comptroller does not have sufficient data on hand, and that
municipality would be sourced to an unincorporated area with-
the comptroller could not reasonably acquire the necessary data
out a cumulative local tax rate levied by municipal (pursuant to
to perform a study for every jurisdiction. The consultant identified
a limited purpose annexation agreement), county, and/or special
and researched the "top tier" taxpayers for the cities in his study,
purpose taxing authorities commensurate with the cumulative lo-
and then conducted research to determine who they were selling
cal tax rate levied by the municipal, county, and/or special pur-
to and whether any sales were made other than through web-
pose taxing authorities applicable where the transactions were
sites. The research ranged from interviews with local employ-
formerly sourced, there would be a reduction in aggregate lo-
ees, to passive research on web pages, job postings, certificate
cal sales tax levies and consequent reduction in state service
of occupancy maps/filings, and in some instances, purchases
charge revenues under §§ 321.503, 322.303, and 323.503, Tax
were made as well as physical visits to the taxpayer's locations.
Code.
From this research, the consultant identified "suspect" taxpay-
For reasons further discussed, reliable estimates of net changes ers and estimated the value of their shipment outside of the city.
in revenue by individual jurisdictions for the 1,759 local sales tax- In doing this work, the consultant estimated that he spent forty
ing jurisdictions that might stem from compliance with the rule hours per jurisdiction. The comptroller does not have the time or
cannot feasibly be produced by the comptroller. Even if the req- resources to conduct what is essentially an audit of the tens of
uisite audits of potentially affected sales tax permittees in every thousands of permitted taxpayers to identify noncompliant tax-
jurisdiction could be timely performed to support such estima- payers and then estimate the extent of their noncompliance.
tion, the sales tax permittees are not static entities. It would not
With the exception of the City of Round Rock, the Plaintiff cities
be plausible to assume that those who currently source local tax
have alleged that their jurisdictions have a particular type of tax-
to a location that is not a place of business as defined in the
payer that is primarily affected - "fulfillment centers" that ship or-
rule would not adjust their operations to qualify such locations as
ders to customers. According to the cities, the fulfillment cen-
places of business and consequently not be obligated to change
ters are sourcing local tax to the cities in which they are located,
the sourcing of local tax.
pursuant to Tax Code, §321.203(c-1)(1), which provides that a
Plaintiff cities allege that portions of the proposed rule are invalid, sale is consummated at the place of business of the retailer
that the proposed rule "dramatically" or "fundamentally" changes from which the retailer ships or delivers the item. For subsec-
the former rule, that compliance with the proposed rule will re- tion (c-1)(1) to apply, a fulfillment center has to be a "place of
quire vendors to change to existing reporting methods, and that business of the retailer" for local sales tax sourcing purposes.
the changes to existing reporting methods will result in the loss The term "place of business of the retailer" (hereinafter "place of
of revenue to the cities. business") is defined by Tax Code, §321.002(a)(3)(A) to include
a location at which three or more orders are received during a
One consultant estimated that the City of Carrollton would have
calendar year.
a likely net loss of $1.1 to $2 million; that the City of Coppell
would have a likely net loss of $18.8 million of $30.8 million, that The Plaintiff cities contend that the fulfillment centers are prop-
the City of DeSoto would have a likely net loss of $5.1 million, erly sourcing local tax to the cities in which they are located be-
that the City of Farmers Branch would have a likely net loss of cause every fulfillment center is automatically a "place of busi-
$600,000 to $1.8 million, and the City of Humble would have ness." The theory is that a fulfillment center is automatically a
a likely net loss of $5.6 million. The consultant did not provide "place of business" because it has to "receive" orders as a nec-
the comptroller with data to support these calculations and he essary prerequisite to fulfilling the orders, and a fulfillment center
declined to identify the vendors that he predicted would have to can be expected to "receive" three or more orders in a calendar
change their reporting methods. year.

PROPOSED RULES April 19, 2024 49 TexReg 2443
Subsection (c)(7) of the proposed rule now explicitly states that "(2) Distribution centers, manufacturing plants, storage yards,
the location where an order is "received" for purposes of local warehouses, and similar facilities.
sales tax sourcing is the location where the order is initially re-
(A) A distribution center, manufacturing plant, storage yard,
ceived. Therefore, under the proposed rule, a fulfillment cen-
warehouse, or similar facility operated by a seller at which the
ter that processes orders forwarded from another location is not
seller receives three or more orders for taxable items during the
automatically a "place of business" for local tax sourcing. The
calendar year is a place of business.
Plaintiff cities contend that if the fulfillment centers in their juris-
diction begin sourcing local sales tax to other cities, they will lose (B) If a salesperson who receives three or more orders for tax-
millions of dollars in tax revenue. able items within a calendar year is assigned to work from, or to
work at, a distribution center, manufacturing plant, storage yard,
The merits of the conflicting interpretations are discussed in the
warehouse, or similar facility operated by a seller, then the facil-
preambles of the previous rulemakings. The issue here is the
ity is a place of business.
effect on local tax revenue, and whether the comptroller can reli-
ably estimate the effect on cities, individually or collectively. The (C) If a location that is a place of business of the seller, such
estimates of the Plaintiff cities and the fulfillment centers in those as a sales office, is in the same building as a distribution center,
cities cannot be reliably projected to other cities. The comptrol- manufacturing plant, storage yard, warehouse, or similar facility
ler does not have data to identify the "fulfillment centers" in any operated by a seller, then the entire facility is a place of business
particular jurisdiction or statewide - it is not a characteristic that of the seller."
is reported to the agency.
(41 TexReg 260, 263) (2016) (former 34 Tex. Admin. Code
And, even if agency could identify "fulfillment centers" from its §3.334(e)(2), emphasis added); (39 TexReg 9597, 9605) (2014)
data, the agency could not assume that the fulfillment centers (former 34 Tex. Admin. Code §3.334(e)(2), emphasis added).
in other cities are sourcing local tax like the Plaintiff cities' ful-
If a distribution center were automatically a "place of business"
fillment centers purportedly are sourcing. For reasons enumer-
for local tax sourcing as the Plaintiff cities contend, subpara-
ated to the Revenue Estimating Division by agency counsel, it
graphs (B) and (C) would not be required - there would be no
is comptroller's opinion that a fulfillment center could reasonably
need for a salesperson or a sales office to "then" make the dis-
reach a different conclusion, and conclude that it was not auto-
tribution center a "place of business" for local tax sourcing pur-
matically a "place of business" for local tax sourcing purposes,
poses.
as claimed by the Plaintiff cities.
Third, in addition to its rule, the comptroller distributed Publica-
First, the text of former §3.334(h)(3) indicated that a fulfillment
tion 94-105, sometimes called the "Local Sales and Use Tax
center is not automatically a "place of business" for local sourcing
Bulletin - Guidelines for Collecting Local Sales and Use Tax,"
(emphasis added):
or "Tax Topics - Guidelines of Collecting Local Sales and Use
"(3) Consummation of sale. The following rules, taken from Tax Tax" (Guidelines). These Guidelines were posted on the comp-
Code, §321.203 and §323.203, apply to all sellers engaged in troller's website and indexed in the comptroller's State Tax Au-
business in this state, regardless of whether they have a place tomated Research System. Since at least 2007, the Guidelines
of business in Texas or multiple places of business in the state. referred to a "location within the state that is not a place of busi-
ness (such as a warehouse or distribution center)." E.g., STAR
...
Accession No. 200902596L (February 2009). The Guidelines
(B) Order received at a place of business in Texas, fulfilled at were intended as a general guide and not as a comprehensive
a location that is not a place of business. When an order that resource. But, an ordinary reader would not walk away with the
is placed over the telephone, through the Internet, or by any impression that a taxpayer's fulfillment center was automatically
means other than in person is received by the seller at a place a "place of business" for purposes of local tax sourcing.
of business in Texas, and the seller fulfills the order at a loca-
Fourth, in 2016, the comptroller rewrote the Guidelines to be
tion that is not a place of business of the seller in Texas, such as
even more specific regarding fulfillment centers: "The ware-
a warehouse or distribution center, the sale is consummated at
house from which the person ships those items is not a place of
the place of business at which the order for the taxable item is
business, unless the warehouse separately qualifies as a place
received.
of business." STAR Accession No. 201606995L (June 1, 2016).
...
And, fifth, in 2019, a comptroller letter ruling discussed fulfillment
(D) Order fulfilled within the state at a location that is not a place centers, referring to the former rule, then in effect: "Scenario
of business. When an order is received by a seller at any location One: Taxpayer Retailer operates fulfillment centers in Texas that
other than a place of business of the seller in this state, and are not open to the public. ... When an order is received at a lo-
cation that is not a place of business and is fulfilled in Texas at
the seller fulfills the order at a location in Texas that is not a place
a location that is not a place of business, the sale is consum-
of business of the seller, then the sale is consummated at the
mated at the location in Texas to which the order is shipped.
location in Texas to which the order is shipped or delivered, or
See §3.334(h)(3)(D). For Scenario One, local sales and use tax
the location where it is transferred to the purchaser."
is due based on the location where the order is delivered." STAR
(41 TexReg 260, 265) (2016) (former 34 Tex. Admin. Code Accession No. 201906015L (June 13, 2019) (emphasis added).
§3.334(h)(3), emphasis added); (39 TexReg 9597, 9606) (2014)
If the Plaintiff cities and their consultant's study are right about
(former 34 Tex. Admin. Code §3.334(h)(3), emphasis added).
how the various fulfillment centers in their cities reported local
Second, the consummation rules in former §3.334(h)(3) were tax, those fulfillment centers must have either disregarded the
augmented with an explicit provision for fulfillment centers, which comptroller's prior written guidance, overlooked the guidance,
the former rule referred to as "distribution centers" (emphasis or interpreted the guidance as being the opposite of what the
added): comptroller intended. But, it cannot be assumed that fulfillment

49 TexReg 2444 April 19, 2024 Texas Register
centers in other cities have also disregarded, overlooked, or in- The City of Round Rock suggests that a single facility that con-
terpreted the prior rulings in such a way that they will have to ducts all transactions through automated shopping cart software
change their reporting as a result of the proposed rule. So, even may be affected, since a software application does not consti-
if the comptroller could identify the permitted locations that are tute a "place of business." However, the threshold for becoming
fulfillment centers, the revenue implications of the proposed rule a "place of business" is very low, including the receipt by sales
cannot be reliably extrapolated from the study conducted on be- personnel of three or more orders per year. If a vendor occa-
half of the Plaintiff cities. sionally engages with a customer directly, such as by telephone
or email, as the final step in receiving an order under subsection
Furthermore, the cities' calculations of revenue loss assume the
(c)(7), the vendor's location should be a "place of business" for
proposed rule would force fulfillment centers to begin sourcing
local tax sourcing, even if orders are ordinarily processed by the
local tax to other cities, when that is not the case. The Legisla-
vendor's automated software. To ease the burden on auditors,
ture set a low threshold for a location to be a "place of business"
and on small businesses and micro-businesses that operate out
for local tax sourcing - the receipt of three or more orders dur-
of a single location, proposed subsection (b)(6) presumes that is
ing a calendar year. A fulfillment center that is not a "place of
the case.
business" under the proposed rule could easily become one by
directly receiving three or more orders. The Plaintiff cities have Third, sales made by through a marketplace by a seller with a
alleged that it is easier to source local tax to one jurisdiction than single place of business will not be affected because those or-
to source to many. So, a fulfillment warehouse would have an ders are sourced to destination by Tax Code, §321.203(e-1).
incentive to become a "place of business." And, a fulfillment cen-
The City of Round Rock claims that Dell Technologies has a sin-
ter with a tax sharing agreement with a city would have an even
gle place of business in the city and suggests that Dell is sourc-
greater incentive to make the minor adjustments required to be-
ing all of its local sales tax collections to the City of Round Rock.
come a "place of business," so as to maintain the return on its
The city further claims that it will lose a significant amount of local
revenue sharing agreement. Therefore, even if the potential tax
sales tax revenue under the proposed rule. However, when the
revenue loss from fulfillment centers could be reliably measured,
comptroller served third party discovery on Dell to understand
it is unreasonable to assume that no fulfillment center would take
how Dell's current business operations would be affected by the
remedial efforts to continue its sourcing procedures.
proposed rule, both Round Rock and Dell objected. Dell insisted
The City of Round Rock has asserted claims that are different that the inquiry should only be "conducted under the applicable
from or in addition to the claims of the other Plaintiff cities. The sections of the Texas Tax Code" in Chapter 111 -- in other words,
City has suggested that the proposed rule will radically change an audit.
the way that Texas retailers with one place of business in
This discovery dispute illustrates the impracticability of preparing
Texas will source local tax. However, for enumerated reasons,
a revenue impact estimate for the City of Round Rock - it would
agency counsel advises that it should be assumed that in most
require the audit of Dell and any other vendors from whom the
instances, the proposed rule will not change the sourcing of
city thinks there will be a revenue loss. A local sales tax audit
products sold by Texas retailers with one place of business in
of Dell would have to examine all the business locations of Dell
Texas.
to determine which, if any of the locations were a "place of busi-
First, the proposed rule does not change the comptroller's previ- ness" for local tax sourcing purposes. And, if the comptroller
ous application of the statute, which does not recognize special verified that Dell in fact operated a single "place of business" in
treatment for vendors with a "single place of business" for pur- Texas, the comptroller would still have to audit the sourcing of
poses of local tax sourcing. Proposed subsection (c) states in Dell's sales to determine which sales were compliant and which
relevant part: sales were noncompliant with the proposed rule. For example,
Dell purports to have a sales force in Round Rock. Assuming
"The following rules, taken from Tax Code, §321.203 and
that orders generated by that sales force are received in Round
§323.203, apply to all sellers engaged in business in Texas,
Rock and not fulfilled from a "place of business" elsewhere in
regardless of whether they have no place of business in Texas, a
Texas, those sales would still be sourced to Round Rock. And,
single place of business in Texas, or multiple places of business
any orders fulfilled from Dell's "place of business" in Round Rock
in Texas."
would still be sourced to Round Rock. And, any orders delivered
The language in the proposed rule has the same effect as the in Round Rock would still be sourced to Round Rock. Therefore,
language in the prior 2014 and 2016 versions of the rule - no to meaningfully determine the revenue impact of the proposed
special treatment for vendors with a single "place of business": rule on the City of Round Rock, the comptroller would have to
thoroughly audit Dell and any other vendors from whom Round
"The following rules, taken from Tax Code, §321.203 and
Rock thinks there will be a revenue loss.
§323.203, apply to all sellers engaged in business in this state,
regardless of whether they have a place of business in Texas or Repeating this audit exercise on a jurisdiction-by-jurisdiction ba-
multiple places of business in the state." sis across the state is infeasible. Audits are not quick or easy.
Considerable time and effort is required to acquire and analyze
(41 TexReg 260, 265) (2016) (former 34 Tex. Admin. Code
taxpayer data. Taxpayers are understandably reluctant to furnish
§3.334(h)(3); (39 TexReg 9597, 9606) (2014) (former 34 Tex.
confidential business data. And, the data varies in degree of ac-
Admin. Code §3.334(h)(3)).
cessibility. The average duration of an audit in fiscal year 2023
Second, the proposed rule should have little impact on most was 450 days, and the average number auditor hours spent on
businesses that are a single place of business in the ordinary an audit was 80.5 hours.
sense of the word - i.e., all operations are conducted at a single
It is also possible that an audit of Dell or other vendors would
location. If orders are received and fulfilled in a single facility,
identify noncompliance with sourcing provisions that are not in-
local sales tax will continue to be sourced to that location. A typ-
volved in the disputed rulemaking. For example, if Dell were
ical example would be a retail store.
sourcing marketplace sales to the City of Round Rock rather than

PROPOSED RULES April 19, 2024 49 TexReg 2445
to the delivery location specified by statute, Dell would have to 2023 rulemaking, the comptroller explained how the reference
change its sourcing methods and the City of Round Rock would to sales personnel is a logical extension of prior comptroller
suffer a revenue loss. But, that revenue loss should be attributed statements, including prior statements regarding fulfillment
to the marketplace statute enacted by the Legislature, not the warehouses and computer servers. See (48 TexReg 391, 398)
proposed comptroller rule. (2023).
This possibility is real. During the 2020 rulemaking, the City Agency counsel has advised that there are several instances in
of San Marcos filed comments claiming that the proposed rule which the rule proposed for readoption is substantively different
would cause the city to lose $7-8 million in local sales tax rev- than the 2016 version of the rule. Subsection (c)(2)(B)(ii) pro-
enue generated by a Best Buy call center, with the net effect of vides that a seller required to collect state use tax must also
economic development incentive revenue loss estimated at $3.4 collect local use tax. This provision expands the collection re-
million. Best Buy also filed comments stating that it created a sponsibilities of sellers, which, formerly were obligated to collect
subsidiary called Best Buy Texas.com LLC and sourced the lo- local use tax only if they were engaged in business in the local
cal tax for all of its Internet and telephone sales to the City of San jurisdiction. This provision should have a positive, but indeter-
Marcos. This would mean that if a resident of the City of Houston minant revenue effect on all local jurisdictions.
placed an online order from Houston and picked up the item at an
The proposed rule, as compared with the 2016 version, adds
affiliated Best Buy Stores outlet in Houston, Best Buy Texas.com
provisions that the sourcing of marketplace sales is based on
LLC would collect local sales tax for the City of San Marcos.
destination, because the consummation statute was amended
However, it appears that the Best Buy website was actually op-
in 2019 by House Bill 1525 to require that result. The fiscal note
erated by a different Best Buy affiliate, which would make it a
for House Bill 1525 estimated a probable revenue gain for local
marketplace provider as defined in Tax Code, §151.0242(a)(2).
governments. However, because House Bill 1525 was already
Under the marketplace statute, local tax is sourced to the loca-
in effect, and rulemaking is not required to effectuate the legisla-
tion where the item is shipped or delivered or at which posses-
tion, the comptroller is assigning no fiscal implication to the rule
sion is taken by the purchaser. Thus, any loss to the City of San
revision incorporating House Bill 1525, other than a potential in-
Marcos of local sales tax revenue from the sale to the Houston
crease in compliance with the statute.
resident would be the result of compliance with the marketplace
statute. And the loss of tax revenue would not be attributable The proposed rule, as compared with the 2016 version, also
to the rule. The loss resulting from compliance with the statute adds provisions for remote sellers to apply a single local tax rate,
would occur without regard to whether the proposed rule was as authorized by House Bill 2153 in 2019. The fiscal note for
adopted. House Bill 2153 stated:
The comptroller has considered various other comments of the "There would be no significant fiscal implications for local gov-
Plaintiff cities and others to the effect that the proposed rule ernments in the aggregate; there could be some variance in dis-
will dramatically change local tax sourcing and concluded that tribution of revenue among jurisdictions compared with the distri-
the comments do not accurately apply the proposed rule. The bution that would occur were all remote sellers required to collect
comptroller disagrees with the allegation that the proposed rule and remit tax at applicable local combined rates, but the extent of
will "dramatically change where a sale is consummated if the such variance cannot be determined and would not be expected
Comptroller interprets the change to require destination sourc- to be significant in relation to the total allocations of local sales
ing when a sale is made online using a retailer's website, even and use tax revenues."
if the retailer has only one place of business." And, the comp-
The comptroller is assigning no fiscal implication to the rule re-
troller disagrees with the allegation that "sales made by way of
vision incorporating House Bill 2153, since the statute went into
websites using the Internet are treated as having been consum-
effect before the rulemaking, and rulemaking was not required
mated where the taxable item is delivered to the buyer instead
to implement the statute.
of where the order for the item is received and fulfilled by the
seller." The consummation hierarchy in subsection (c) does not The proposed rule, as compared with the 2016 version, alters
require the alleged results. the treatment of a "traveling salesperson," which was previously
defined as: "A seller, or an agent or employee of a seller, who
The comptroller has amended the definition of "place of business
visits potential purchasers in person to solicit sales, and who
of the seller" in subsection (a)(18) to provide that the term does
does not carry inventory ready for immediate sale, but who may
not include a computer server, Internet protocol address, domain
carry samples or perform demonstrations of items for sale." For-
name, website, or software application. While the discussion of
mer §3.334(h)(4) provided: "Orders taken by traveling sales-
computer servers was added to the rule in 2020, the comptroller
persons are received by the seller at the administrative office
had previously advised taxpayers that the location of the server
or other place of business from which the traveling salesperson
does not create a "place of business" for purposes of the local tax
operates." (41 TexReg 260, 265) (2016) (former 34 Tex. Admin.
collection and that orders placed on a website or though applica-
Code §3.334(h)(4)). The former rule did not further explain the
tions and processed and routed by servers are not "received at" a
location from which the traveling salesperson operates.
place of business. See STAR Accession Nos. 200510723L (Oc-
tober 6, 2005), 200605592L (May 17, 2006), and 201906015L Subsection (b)(4) of the proposed rule replaces the traveling
(June 13, 2019). salesperson language with a provision for an order that is re-
ceived by a salesperson who is not at a place of business when
The comptroller has also amended the definition of "place of
the salesperson receives the order. Subsection (b)(4) provides
business of the seller" in subsection (a)(18) to provide that
that the order is treated as being received at the location from
staffing by one or more sales personnel is usually required.
which the salesperson operates. Subsection (b)(4) further
The statement is not a requirement, but an objective criterion
provides that the location from which the salesperson operates
that will often be an important factor in determining whether an
is the principal fixed location where the salesperson conducts
outlet, office, or location is a "place of business." In the January
work-related activities.

49 TexReg 2446 April 19, 2024 Texas Register
Commenters have reported that the orders from some traveling Public benefits and costs.
salespersons have been sourced to the location to which the
Brad Reynolds, Chief Revenue Estimator, has determined the
traveling salesperson is "assigned," even though the traveling
following for each year of the first five years that the rule will be
salesperson may conduct principal work-related activities from
in effect.
another location. In these situations, the proposed rule might
result in a change to local tax sourcing. However, the signifi- The public will benefit from greater clarity regarding the consum-
cance of this change is indeterminant. The comptroller does not mation standards, making compliance easier.
have data to identify traveling salespersons as defined under the
There may be additional economic costs to a person required to
former rule, and does not have data to identify the instances in
comply with the rule. It is conceivable that the rule may cause
which a traveling salesperson has been "assigned" to a location
some vendors to realize that they are noncompliant. If the ven-
from which the salesperson does not conduct principal work-re-
dors come into compliance by changing from single-location re-
lated activities. And, if the agency could identify those instances,
porting to multiple-location reporting, their compliance burden
without conducting extensive audits, the agency would still not
may increase. And if vendors change from multiple-location re-
know which instances would result in a change of sourcing. For
porting to single-location reporting, their compliance burden may
example, if the order is fulfilled from a "place of business," the
diminish.
location of the salesperson is irrelevant.
Local employment impact statement.
In summary, due to both to the number of taxing jurisdictions
and lack of pertinent, detailed information regarding the specific For the first five years that the rule will be in effect, the effect on
circumstances of the myriad businesses reporting local sales local economies and employment, if any, cannot be determined.
and use taxes, estimation of fiscal effects of the proposed rule, To the extent that the proposed rule leads to greater awareness
whether of dollar amounts or merely sign of change, on an indi- and compliance with the local tax consummation standards,
vidual jurisdiction by jurisdiction basis is infeasible of execution. some vendors may change their reporting methods, which
might positively or negatively affect the tax revenue of particular
The comptroller recognizes that compliance with the proposed
local tax jurisdictions. Whether a change in local tax revenue
rule could result in changes to the local tax reporting methods
might increase or decrease the provision of local government
of some vendors. As a result, there could be loss or increase in
services to an extent that would affect local economic activity
revenue to individual local governments. A revenue loss to one
or employment would depend on discretionary actions of the
local government will often but not always be a revenue gain to
governing body or the electorate of an affected jurisdiction, and
others. There will also be revenue gains experienced by all lo-
cannot be determined.
cal tax jurisdictions from the expansion of the use tax collection
obligations of remote, out-of-state sellers. For the reasons pre- Government growth impact statement.
viously stated, the aggregate net gain or loss cannot be reliably
Brad Reynolds, Chief Revenue Estimator, has determined the
estimated by the comptroller from available or reasonably acces-
following for each year of the first five years that the rule will be
sible data.
in effect: the amendment will not create or eliminate a govern-
The comptroller has been provided with estimates that some ment program; will not require the creation or elimination of em-
cities will experience net revenue losses. However, the comp- ployee positions; will not require an increase or decrease in fu-
troller has not been provided with sufficient information to verify ture legislative appropriations to the comptroller; will not require
the estimates, and the data from the estimates cannot be extrap- an increase or decrease in fees paid to the comptroller; will not
olated to other local tax jurisdictions. That said, the estimates of create a new regulation; will increase the number of individuals
anticipated revenue losses provided by Plaintiffs and others in subject to the rule's applicability because sellers without a phys-
comments to proposed rulemakings are accepted as valid good ical presence in a local tax jurisdiction will be required to collect
faith estimates and may serve as a basis for estimating a min- local use tax if they are required to collect state use tax; and will
imum amount of revenue from online sales associated with lo- not positively or adversely affect this state's economy.
cations that are not places of business as defined in the rule,
Economic impact statement and regulatory flexibility analysis.
that will be subject to different sourcing if the affected sales tax
permittees cannot or choose not to modify their procedures in or- A statement of fiscal implications for small businesses or rural
der to qualify such business locations as places of business for communities under Government Code, Chapter 2006 is normally
purposes of local sales tax sourcing. As those estimates were not required for a comptroller rule because the rule is proposed
constructed from 2020 data and there has been significant infla- under Tax Code, Title 2. In this instance, the rule is proposed
tion as well as real economic growth since then, they are scaled under both Title 2 (State Taxation) and Title 3 (Local Taxation).
up by a factor of 1.35 to yield a minimum estimate of $110 million So, the comptroller provides the following statement.
on a current annual basis that may be lost to those cities, plus
A "rural community" is a municipality with a population of less
another $80 million that may be lost to the other local taxing juris-
than 25,000. The comptroller estimates that there are 1,098
dictions imposing tax at the affected locations, for a total of $190
such rural communities, of which 1,017 impose a sales tax and
million of gross revenue reductions, of which 85% or $161.5 mil-
may have revenue affected by compliance with the rule.
lion would be estimated gains to other local taxing jurisdiction,
and 15% or $28.5 million would be reduction in aggregate local A "small business" is a legal entity, including a corporation, part-
sales tax levies sourced to unincorporated areas without local nership, or sole proprietorship, that: (A) is formed for the pur-
sales tax or with cumulative local county and special district tax pose of making a profit; (B) is independently owned and oper-
rates less than the cumulative local rates that applied at the lo- ated; and (C) has fewer than 100 employees or less than $6
cations where the taxable transactions were formerly sourced. A million in annual gross receipts. The Comptroller estimates that
$28.5 million reduction in aggregate local tax levies would result there are 470,000 businesses with fewer than 100 employees,
in reduced state service charge revenue of $570,000. and 377,000 businesses with annual gross receipts less than $6
million; the sum of these two estimates would overstate the num-

PROPOSED RULES April 19, 2024 49 TexReg 2447
ber of small businesses, as many businesses would be expected ers charge less sales or use tax than the small businesses in
to have both fewer than 100 employees and less than $6 million Texas.
in annual gross receipts.
Since the comptroller initiated its rulemaking in 2020, the agency
To the extent that the proposed rule leads to greater awareness has considered ways to minimize the potential adverse impact on
and compliance with the local tax consummation standards, small businesses. In the fall of 2020, the agency added a multi-
some vendors may change their reporting methods, which address search capability to its local sales tax rate locator. And
might positively or negatively affect the tax revenue of particular in the spring of 2021, the agency added downloadable address
local tax jurisdictions. As previously explained, the comptroller files to determine local tax rates. And, in the winter of 2023, the
does not have sufficient data on the business operations of agency added map search and latitude/longitude search options.
each business to identify and quantify the businesses and
In addition, the comptroller is proposing to add subsection (b)(6):
transactions that might be affected, and the positive or negative
revenue impact on each tax jurisdiction. "If a small business or a micro-business operates a single lo-
cation out of which it conducts all of its business activities, the
Although the fiscal implications for local tax jurisdictions can-
comptroller will presume that the location is a place of business
not be quantified without additional information, several obser-
of the seller."
vations can be made. First, the cities asserting that the clarifica-
tions provided by the rule will result in changes in sourcing and The comptroller cannot make a location a "place of business"
reporting of local taxes, with consequent reductions in their rev- by rule if the statute does not allow it. But, the agency can pre-
enues, tend to be cities with Local Government Code, Chapter sume that a location is a "place of business" based on indicative
380 agreements involving rebates of local sales and use tax rev- facts, such as a small, independent business that conducts all of
enues. And, cities with Government Code, Chapter 380 agree- its business operations out of a single location. If extraordinary
ments involving distribution or fulfillment centers tend to be larger facts are presented to the agency, the presumption may be re-
than rural communities. Of the 1,017 rural communities impos- butted.
ing sales tax, 45 have Chapter 380 agreements involving sales
The agency has considered other alternatives to reduce the ad-
tax on file with the comptroller. Almost all of those involve re-
verse impact on small businesses and micro-businesses, such
bates of sales tax to physical shopping centers or restaurants, or
as allowing small or micro-businesses to source local sales tax
of sales tax paid on equipment or building materials, and would
to their principal place of business, or establishing a single lo-
unlikely be affected by a change in sourcing of online sales as-
cal sales tax rate for small or micro-businesses that would be
sociated with locations that are not places of business; two of
distributed similar to the distribution of the single local sales tax
the 45 communities that are not party to the suit against the
collected by remote sellers. However, because these proposals
comptroller appear to involve distribution or fulfillment centers
would require amendments to the consummation statutes, the
and could be affected if the centers will not qualify as places
comptroller does not have the regulatory flexibility to implement
of business (in Grand Prairie and Waxahachie). Five of the six
these proposed methods.
cities currently suing the Comptroller have populations greater
than 25,000. The comptroller has not verified the assertions of Public hearing
revenue shifting. But, if the assertions are correct, the revenue
The comptroller will hold a hearing to take public comments, on
shifting away from cities with Chapter 380 agreements may re-
May 9, 2024, at 9:00 a.m. in Room 2.034 of the Barbara Jordan
sult in positive revenues for the smaller rural communities from
Building, 1601 Congress Avenue, Austin, Texas 78701. Inter-
whom the revenues have been diverted.
ested persons may sign up to testify beginning at 8:30 a.m. and
Second, although the comptroller does not have sufficient infor- testimony will be heard beginning at 9:00 a.m. on a first come
mation to determine the number of small businesses that may first serve basis. All persons will have 10 minutes to present their
change their local tax reporting as a result of greater awareness testimony and shall also provide their testimony in writing prior
and compliance with the local tax consummation standards, it is to their oral testimony.
reasonable to assume that many small businesses will not be
Comments
affected. A small business that has all of its operations at a sin-
gle location in Texas, including sales and fulfillment, is probably You may submit comments on the proposal to Jenny
reporting local sales tax to the taxing jurisdiction where it is lo- Burleson, Director, Tax Policy Division, P.O. Box 13528
cated, and it will continue that reporting. Non-marketplace or- Austin, Texas 78711 or to the email address: tp.rule.com-
ders fulfilled from that location will continue to be consummated ments@cpa.texas.gov. The comptroller must receive your
at that location pursuant to §3.334(c)(1) or (c)(2)(A). And, sales comments no later than 30 days from the date of publication of
of a small business that are through a marketplace are already the proposal in the Texas Register.
subject to destination sourcing performed by the marketplace
Statement of the statutory or other authority under which the rule
provider. Nevertheless, in some circumstances, it is conceivable
is proposed to be adopted.
that the rule may cause some vendors, small or large, to realize
that they are noncompliant. If the vendors come into compli- Tax Code, §§111.002 (Comptroller's Rule; Compliance; Forfei-
ance by changing from single-location reporting to multiple-loca- ture), 321.306 (Comptroller's Rules), 322.203 (Comptroller's
tion reporting, their compliance burden may increase. Rules), and 323.306 (Comptroller's Rules) authorize the comp-
troller to adopt rules to implement the tax statutes.
Third, the proposed rule expands the local tax collection obliga-
tions of remote sellers - out-of-state sellers that collect state use Sections or articles of the code affected.
tax must also collect local sales tax. The expansion of the remote
Tax Code, §151.0595 (Single Local Tax Rate for Remote Sell-
seller local tax collection obligation may benefit small businesses
ers); Tax Code, Chapter 321, Subchapters A, B, C, D, and F; Tax
in Texas by reducing the perception of customers that purchases
Code, Chapter 322; and Tax Code, Chapter 323 are affected.
from out-of-state sellers are preferable because out-of-state sell-

49 TexReg 2448 April 19, 2024 Texas Register
§3.334. Local Sales and Use Taxes. sells items through vending machines is also an itinerant vendor. A
(a) Definitions. The following words and terms, when used salesperson that operates out of a place of business in this state is not
in this section, shall have the following meanings, unless the context an itinerant vendor.
clearly indicates otherwise.
(12) Kiosk--A small stand-alone area or structure:
(1) Cable system--The system through which a cable ser-
(A) that is used solely to display merchandise or to sub-
vice provider delivers cable television or bundled cable service, as
mit orders for taxable items from a data entry device, or both;
those terms are defined in §3.313 of this title (relating to Cable Televi-
sion Service and Bundled Cable Service). (B) that is located entirely within a location that is a
place of business of another seller, such as a department store or shop-
(2) City--An incorporated city, municipality, town, or vil-
ping mall; and
lage.
(C) at which taxable items are not available for imme-
(3) City sales and use tax--The tax authorized under Tax
diate delivery to a purchaser.
Code, §321.101(a), including the additional municipal sales and use
tax authorized under Tax Code, §321.101(b), the municipal sales and (13) Local taxes--Sales and use taxes imposed by any local
use tax for street maintenance authorized under Tax Code, §327.003, taxing jurisdiction.
the Type A Development Corporation sales and use tax authorized un-
(14) Local taxing jurisdiction--Any of the following:
der Local Government Code, §504.251, the Type B Development Cor-
poration sales and use tax authorized under Local Government Code, (A) a city that imposes sales and use tax as provided
§505.251, a sports and community venue project sales and use tax under paragraph (3) of this subsection;
adopted by a city under Local Government Code, §334.081, and a mu-
(B) a county that imposes sales and use tax as provided
nicipal development corporation sales and use tax adopted by a city un-
under paragraph (5) of this subsection;
der Local Government Code, §379A.081. The term does not include
the fire control, prevention, and emergency medical services district (C) a special purpose district created under the Special
sales and use tax authorized under Tax Code, §321.106, or the munic- District Local Laws Code or other provisions of Texas law that is autho-
ipal crime control and prevention district sales and use tax authorized rized to impose sales and use tax by the Tax Code or other provisions
under Tax Code, §321.108. of Texas law and as governed by the provisions of Tax Code, Chapters
321 or 323 and other provisions of Texas law; or
(4) Comptroller's website--The comptroller's
website concerning local taxes located at: https://comptrol- (D) a transit authority that imposes sales and use tax as
ler.texas.gov/taxes/sales/. authorized by Transportation Code, Chapters, 451, 452, 453, 457, or
460 and governed by the provisions of Tax Code, Chapter, 322.
(5) County sales and use tax--The tax authorized under
Tax Code, §323.101, including a sports and community venue project (15) Marketplace provider--This term has the meaning
sales and use tax adopted by a county under Local Government Code, given in §3.286 of this title.
§334.081. The term does not include the county health services sales
(16) Micro-business--A legal entity, including a corpora-
and use tax authorized under Tax Code, §324.021, the county landfill
tion, partnership, or sole proprietorship, that:
and criminal detention center sales and use tax authorized under Tax
Code, §325.021, or the crime control and prevention district sales and (A) is formed for the purpose of making a profit;
use tax authorized under Tax Code, §323.105.
(B) is independently owned and operated; and
(6) Drop shipment--A transaction in which an order is re-
(C) has not more than 20 employees.
ceived by a seller at one location, but the item purchased is shipped by
the seller from another location, or is shipped by the seller's third-party (17) Order placed in person--An order placed by a pur-
supplier, directly to a location designated by the purchaser. chaser with the seller while physically present at the seller's place of
business regardless of how the seller subsequently enters the order.
(7) Engaged in business--This term has the meaning given
in §3.286 of this title (relating to Seller's and Purchaser's Responsibil- (18) Place of business of the seller - general definition--A
ities). place of business of the seller must be an established outlet, office, or
location operated by a seller for the purpose of receiving orders for
(8) Extraterritorial jurisdiction--An unincorporated area
taxable items from persons other than employees, independent con-
that is contiguous to the corporate boundaries of a city as defined in
tractors, and natural persons affiliated with the seller. An "established
Local Government Code, §42.021.
outlet, office, or location" usually requires staffing by one or more
(9) Fulfill--To complete an order by transferring possession sales personnel. The term does not include a computer server, Inter-
of a taxable item to a purchaser, or to ship or deliver a taxable item net protocol address, domain name, website, or software application.
to a location designated by the purchaser. The term does not include The "purpose" element of the definition may be established by proof
receiving or tracking an order, determining shipping costs, managing that the sales personnel of the seller receive three or more orders for
inventory, or other activities that do not involve the transfer, shipment, taxable items at the facility during the calendar year. Additional crite-
or delivery of a taxable item to the purchaser or a location designated ria for determining when a location is a place of business of the seller
by the purchaser. are provided in subsection (b) of this section for distribution centers,
manufacturing plants, storage yards, warehouses and similar facilities;
(10) Independently owned and operated business--A self-
kiosks; and purchasing offices. An outlet, office, facility, or any loca-
controlling entity that is not a subsidiary of another entity or otherwise
tion that contracts with a retail or commercial business to process for
subject to control by another entity, and that is not publicly traded.
that business invoices, purchase orders, bills of lading, or other equiva-
(11) Itinerant vendor--A seller who travels to various loca- lent records onto which sales tax is added, including an office operated
tions for the purpose of receiving orders and making sales of taxable for the purpose of buying and selling taxable goods to be used or con-
items and who has no place of business in this state. A person who sumed by the retail or commercial business, is not a place of business

PROPOSED RULES April 19, 2024 49 TexReg 2449
of the seller if the comptroller determines that the outlet, office, facil- county transit authority (CTA), regional mobility authority (RMA) or
ity, or location functions or exists to avoid the tax legally due under Tax coordinated county transportation authority created under Transporta-
Code, Chapters 321, 322, and 323 or exists solely to rebate a portion of tion Code, Chapters 370, 451, 452, 453, 457, or 460.
the tax imposed by those chapters to the contracting business. An out-
(27) Two percent cap--A reference to the general rule that,
let, office, facility, or location does not exist to avoid the tax legally due
except as otherwise provided by Texas law and as explained in this
under Tax Code, Chapters 321, 322, and 323 or solely to rebate a por-
section, a seller cannot collect, and a purchaser is not obligated to pay,
tion of the tax imposed by those chapters if the outlet, office, facility,
more than 2.0% of the sales price of a taxable item in total local sales
or location provides significant business services, beyond processing
and use taxes for all local taxing jurisdictions.
invoices, to the contracting business, including logistics management,
purchasing, inventory control, or other vital business services. (28) Use--This term has the meaning given in §3.346 of
this title.
(19) Purchasing office--An outlet, office, facility, or any lo-
cation that contracts with a retail or commercial business to process for (29) Use tax--A tax imposed on the storage, use or other
that business invoices, purchase orders, bills of lading, or other equiva- consumption of a taxable item in this state.
lent records onto which sales tax is added, including an office operated
(b) Determining the place of business of a seller.
for the purpose of buying and selling taxable goods to be used or con-
sumed by the retail or commercial business. (1) Distribution centers, manufacturing plants, storage
yards, warehouses, and similar facilities.
(20) Remote Seller--As defined in §3.286 of this title, a re-
mote seller is a seller engaged in business in this state whose only ac- (A) A distribution center, manufacturing plant, storage
tivity in the state is: yard, warehouse, or similar facility operated by a seller for the purpose
of selling taxable items where sales personnel of the seller receive three
(A) engaging in regular or systematic solicitation of
or more orders for taxable items during the calendar year from persons
sales of taxable items in this state by the distribution of catalogs,
other than employees, independent contractors, and natural persons af-
periodicals, advertising flyers, or other advertising, by means of print,
filiated with the seller is a place of business of the seller. Forwarding
radio, or television media, or by mail, telegraphy, telephone, computer
previously received orders to the facility for fulfilment does not make
data base, cable, optic, microwave, or other communication system
the facility a place of business.
for the purpose of effecting sales of taxable items; or
(B) If a location that is a place of business of the seller,
(B) soliciting orders for taxable items by mail or
such as a sales office, is in the same building as a distribution center,
through other media including the Internet or other media that may be
manufacturing plant, storage yard, warehouse, or similar facility op-
developed in the future.
erated by a seller, then the entire facility is a place of business of the
(21) Seller--This term has the meaning given in §3.286 of seller.
this title and also refers to any agent or employee of the seller.
(2) Kiosks. A kiosk is not a place of business of the seller
(22) Small business--A legal entity, including a corpora- for the purpose of determining where a sale is consummated for local
tion, partnership, or sole proprietorship, that: tax purposes. A seller who owns or operates a kiosk in Texas is, how-
ever, engaged in business in this state as provided in §3.286 of this title.
(A) is formed for the purpose of making a profit;
(3) Purchasing offices.
(B) is independently owned and operated; and
(A) A purchasing office is not a place of business of the
(C) has fewer than 100 employees or less than $6 mil-
seller if the purchasing office exists solely to rebate a portion of the lo-
lion in annual gross receipts.
cal sales and use tax imposed by Tax Code, Chapters 321, 322, or 323
(23) Special purpose district--A local governmental entity to a business with which it contracts; or if the purchasing office func-
authorized by the Texas legislature for a specific purpose, such as crime tions or exists to avoid the tax legally due under Tax Code, Chapters
control, a local library, emergency services, county health services, or 321, 322, or 323. A purchasing office does not exist solely to rebate
a county landfill and criminal detention center. a portion of the local sales and use tax or to avoid the tax legally due
under Tax Code, Chapters 321, 322, or 323 if the purchasing office pro-
(24) Storage--This term has the meaning given in §3.346
vides significant business services to the contracting business beyond
of this title (relating to Use Tax).
processing invoices, including logistics management, purchasing, in-
(25) Temporary place of business of the seller--A location ventory control, or other vital business services.
operated by a seller for a limited period of time for the purpose of sell-
(B) In making a determination under subparagraph (A)
ing and receiving orders for taxable items and where the seller has in-
of this paragraph, as to whether a purchasing office provides signif-
ventory available for immediate delivery to a purchaser. For example,
icant business services to the contracting business beyond processing
a person who rents a booth at a weekend craft fair or art show to sell
invoices, the comptroller will compare the total value of the other busi-
and take orders for jewelry, or a person who maintains a facility at a
ness services to the value of processing invoices. If the total value of
job site to rent tools and equipment to a contractor during the construc-
the other business services, including logistics management, purchas-
tion of real property, has established a temporary place of business. A
ing, inventory control, or other vital business services, is less than the
temporary place of business of the seller includes a sale outside of a
value of the service to process invoices, then the purchasing office will
distribution center, manufacturing plant, storage yard, warehouse, or
be presumed not to be a place of business of the seller.
similar facility of the seller in a parking lot or similar space sharing
the same physical address as the facility but not within the walls of the (C) If the comptroller determines that a purchasing of-
facility. fice is not a place of business of the seller, the sale of any taxable item
is deemed to be consummated at the place of business of the seller from
(26) Transit authority--A metropolitan rapid transit author-
whom the purchasing office purchased the taxable item for resale and
ity (MTA), advanced transportation district (ATD), regional or subre-
local sales and use taxes are due according to the following rules.
gional transportation authority (RTA), city transit department (CTD),

49 TexReg 2450 April 19, 2024 Texas Register
(i) When taxable items are purchased from a Texas (i) Order fulfilled at a place of business of the seller
seller, local sales taxes are due based on the location of the seller's place in Texas. When an order is received at a place of business of the seller
of business where the sale is deemed to be consummated, as determined in Texas and is fulfilled at a place of business of the seller in Texas, the
in accordance with subsection (c) of this section. sale is consummated at the place of business where the order is fulfilled.
(ii) When the sale of a taxable item is deemed to be (ii) Order not fulfilled at a place of business of the
consummated at a location outside of this state, local use tax is due seller in Texas. When an order is received at a place of business of the
based on the location where the items are first stored, used or consumed seller in Texas and is fulfilled at a location that is not a place of business
by the entity that contracted with the purchasing office in accordance of the seller in Texas, the sale is consummated at the place of business
with subsection (d) of this section. where the order is received.
(4) An order that is received by a salesperson who is not (2) Consummation of sale - order not received at a place of
at a place of business of the seller when the salesperson receives the business of the seller in Texas.
order is treated as being received at the location from which the sales-
(A) Order fulfilled at a place of business of the seller
person operates. Examples include orders that a salesperson receives
in Texas. When an order is received at a location that is not a place
by mail, telephone, including Voice over Internet Protocol and cellular
of business of the seller in Texas or is received outside of Texas, and
phone calls, facsimile, and email while traveling. The location from
is fulfilled from a place of business of the seller in Texas, the sale is
which the salesperson operates is the principal fixed location where the
consummated at the place of business where the order is fulfilled.
salesperson conducts work-related activities. The location from which
a salesperson operates will be a place of business of the seller only if (B) Order not fulfilled from a place of business of the
the location meets the definition of a "place of business of a seller" in seller in Texas.
subsection (a)(16) of this section on its own, without regard to the or-
(i) Order fulfilled in Texas. When an order is re-
ders imputed to that location by this paragraph.
ceived at a location that is not a place of business of the seller in Texas
(5) A facility without sales personnel is usually not a "place and is fulfilled from a location in Texas that is not a place of business
of business of the seller." A vending machine is not "an established of the seller, the sale is consummated at the location in Texas to which
outlet, office, or location," and does not constitute a "place of business the order is shipped or delivered, or at which the purchaser of the item
of the seller." Instead, a vending machine sale is treated as a sale by takes possession.
an itinerant vendor. See subsections (a)(10) and (c)(6) of this section.
(ii) Order not fulfilled in Texas. When an order is
However, a walk-in retail outlet with a stock of goods available for im-
received by a seller at a location that is not a place of business of the
mediate purchase through a cashier-less point of sale terminal at the
seller in Texas, and is fulfilled from a location outside of Texas, the
outlet would be "an established outlet, office, or location" so as to con-
sale is not consummated in Texas. However, a use is consummated
stitute a "place of business of the seller" even though sales personnel
at the first point in Texas where the item is stored, used, or consumed
are not required for every sale. A computer that operates an automated
after the interstate transit has ceased. A taxable item delivered to a
shopping cart software program is not an established outlet, office, or
point in Texas is presumed to be for storage, use, or consumption at that
location," and does not constitute a "place of business of the seller."
point until the contrary is established. Local use tax should be collected
A computer that operates an automated telephone ordering system is
as provided in subsection (d) of this section. Except as provided in
not "an established outlet, office, or location," and does not constitute
subsection (i)(3) of this section, a remote seller required to collect state
a "place of business of the seller."
use tax under §3.286(b)(2) of this title must also collect local use tax.
(6) If a small business or a micro-business operates a sin-
(3) Exception for qualifying economic development
gle location out of which it conducts all of its business activities, the
agreements entered into before January 1, 2009, pursuant to Tax Code,
comptroller will presume that the location is a place of business of the
§321.203(c-4) - (c-5) or §323.203(c-4) - (c-5). This paragraph is
seller.
effective until September 1, 2024. If applicable, the local sales tax due
(c) Local sales tax - Consummation of sale - determining the on the sale of a taxable item is based on the location of the qualifying
local taxing jurisdictions to which sales tax is due. Except for the spe- warehouse, which is a place of business of the seller, from which the
cial rules applicable to remote sellers in subsection (i)(3) of this section, item is shipped or delivered or at which the purchaser of the item takes
direct payment permit purchases in subsection (j) of this section, and possession.
certain taxable items, including taxable items sold by a marketplace
(4) Local sales taxes are due to each local taxing jurisdic-
provider, as provided in subsection (k) of this section, each sale of a
tion with sales tax in effect where the sale is consummated. Local use
taxable item is consummated at the location indicated by the provisions
tax may also be due if the total amount of local sales taxes due does not
of this subsection. The following rules, taken from Tax Code, §321.203
reach the two percent cap, and the item purchased is shipped or deliv-
and §323.203, apply to all sellers engaged in business in Texas, regard-
ered to a location in one or more different local taxing jurisdictions, as
less of whether they have no place of business in Texas, a single place
provided in subsection (d) of this section.
of business in Texas, or multiple places of business in Texas.
(5) Multiple special purpose district taxes, multiple transit
(1) Consummation of sale - order received at a place of
authority sales taxes, or a combination of the two may apply to a single
business of the seller in Texas.
transaction. If the sale of a taxable item is consummated at a location
(A) Order placed in person. Except as provided by within the boundaries of multiple special purpose districts or transit
paragraph (3) of this subsection, when an order for a taxable item is authorities, local sales tax is owed to each of the jurisdictions in effect
placed in person at a seller's place of business in Texas, including at a at that location. For example, a place of business of the seller located in
temporary place of business of the seller in Texas, the sale of that item the city of San Antonio is within the boundaries of both the San Antonio
is consummated at that place of business of the seller, regardless of Advanced Transportation District and the San Antonio Metropolitan
the location where the order is fulfilled. Transit Authority, and the seller is required to collect sales tax for both
transit authorities. Similarly, a place of business of the seller in Flower
(B) Order not placed in person.
Mound is located within the boundaries of two special purpose districts,

PROPOSED RULES April 19, 2024 49 TexReg 2451
the Flower Mound Crime Control District and the Flower Mound Fire with the earliest effective date, until the two percent cap is met. The
Control District, and the seller is responsible for collecting sales tax for effective dates of all special purpose district taxes are available on the
both special purpose districts. comptroller's website. However, if the collection or accrual of use tax
for the district with the earliest effective date would exceed the two
(6) Itinerant vendors; vending machines.
percent cap, the tax for that district is not due and the seller or purchaser
(A) Itinerant vendors. Sales made by itinerant vendors should determine, following the criteria in subparagraphs (A) - (C) of
are consummated at, and itinerant vendors must collect sales tax based this paragraph, whether use tax is due for the district that next became
upon, the location where the item is delivered or at which the purchaser effective.
of the item takes possession. Itinerant vendors do not have any respon-
(i) If the competing special purpose district taxes be-
sibility to collect use tax.
came effective on the same date, the special purpose district taxes are
(B) Vending machines. Sales of taxable items made due in the order of the earliest date for which the election in which the
from a vending machine are consummated at the location of the vend- district residents authorized the imposition of sales and use tax by the
ing machine. See §3.293 of this title (relating to Food; Food Prod- district was held.
ucts; Meals; Food Service) for more information about vending ma-
(ii) If the elections to impose the local taxes were
chine sales.
held on the same date, the special purpose district taxes are due in the
(7) The location where the order is received by or on be- order of the earliest date for which the enabling legislation under which
half of the seller means the physical location of a seller or third party each district was created became effective.
such as an established outlet, office location, or automated order re-
(E) Collection or accrual of use tax for multiple transit
ceipt system operated by or on behalf of the seller where an order is
authorities. If more than one transit authority use tax is in effect at
initially received by or on behalf of the seller and not where the order
the location where use of an item occurs, and the two percent cap has
may be subsequently accepted, completed or fulfilled. An order is re-
not been met, the transit authority taxes are due in the order of their
ceived when all of the information from the purchaser necessary to the
effective dates, beginning with the earliest effective date, until the two
determination whether the order can be accepted has been received by
percent cap is met. The effective dates of all transit authority taxes
or on behalf of the seller. The location from which a product is shipped
are available on the comptroller's website. However, if the collection
shall not be used in determining the location where the order is received
or accrual of use tax for the authority with the earliest effective date
by the seller.
would exceed the two percent cap, the tax for that authority is not due
(d) Local use tax. The provisions addressing the imposition and the seller or purchaser should determine, following the criteria in
of state use tax in §3.346 of this title also apply to the imposition of subparagraphs (A) - (D) of this paragraph, whether use tax is due for
local use tax. For example, consistent with §3.346(e) of this title, all the authority that next became effective.
taxable items that are shipped or delivered to a location in this state that
(i) If the competing transit authorities became effec-
is within the boundaries of a local taxing jurisdiction are presumed to
tive on the same date, the transit authority taxes are due in the order of
have been purchased for use in that local taxing jurisdiction as well as
the earliest date for which the election in which the authority residents
presumed to have been purchased for use in the state.
authorized the imposition of sales and use tax by the authority was held.
(1) General rules.
(ii) If the elections to impose local taxes were held
(A) When local use taxes are due in addition to local on the same date, the transit authority use taxes are due in the order of
sales taxes as provided by subsection (c) of this section, all applicable the earliest date for which the enabling legislation under which each
use taxes must be collected or accrued in the following order until the authority was created became effective.
two percent cap is reached: city, county, special purpose district, and
(2) General use tax rules applied to specific situations. The
transit authority. If more than one special purpose district use tax is due,
following fact patterns explain how local use tax is to be collected or
all such taxes are to be collected or accrued before any transit authority
accrued and remitted to the comptroller based on, and subject to, the
use tax is collected or accrued. See subparagraphs (D) and (E) of this
general rules in paragraph (1) of this subsection.
paragraph.
(A) Sale consummated outside the state, item delivered
(B) If a local use tax cannot be collected or accrued at
from outside the state or from a location in Texas that is not operated by
its full rate without exceeding the two percent cap, the seller cannot
the seller - local use tax due. Except as provided in subsection (i)(3) of
collect it, or any portion of it, and the purchaser is not responsible for
this section, if a sale is consummated outside of this state according to
accruing it.
the provisions of subsection (c) of this section, and the item purchased
(C) If a seller collects a local sales tax on an item, or a is either shipped or delivered to a location in this state as designated
purchaser accrues a local sales tax on an item, a use tax for the same by the purchaser from a location outside of the state, or if the order
type of jurisdiction is not due on the same item. For example, after a is drop shipped directly to the purchaser from a third-party supplier,
city sales tax has been collected or accrued for an item, no use tax is local use tax is owed based upon the location in this state to which
due to that same or a different city on that item, but use tax may be due the order is shipped or delivered or at which the purchaser of the item
to a county, special purpose district, or transit authority. Similarly, if takes possession. The seller is responsible for collecting the local use
one or more special purpose district sales taxes have been collected or tax due on the sale. If the seller does not collect the local use taxes due
accrued for an item, no special purpose district use tax is due on that on the sale, the purchaser is responsible for accruing such taxes and
item, and if one or more transit authority sales taxes have been collected remitting them directly to the comptroller according to the provisions in
or accrued for an item, no transit authority use tax is due on that item. paragraph (1) of this subsection. For example, if an order for a taxable
item is received by a seller at a location outside of Texas, and the order
(D) Collection or accrual of use tax for multiple special
is shipped to the purchaser from a location outside of the state, local
purpose districts. If more than one special purpose district use tax is in
use tax is due based upon the location to which the order is shipped or
effect at the location where use of an item occurs, the special purpose
delivered or at which the purchaser of the item takes possession.
district taxes are due in the order of their effective dates, beginning

49 TexReg 2452 April 19, 2024 Texas Register
(B) Sale consummated in Texas outside a local taxing cal taxes to the comptroller shall also apply to a purchaser if the seller
jurisdiction, item delivered into one or more local taxing jurisdictions - does not collect local taxes that are due. The comptroller may proceed
local use tax due. If a sale is consummated at a location in Texas that is against the seller or purchaser for the local tax owed by either.
outside of the boundaries of any local taxing jurisdiction according to
(f) Tax rates. Except as otherwise provided by law, no local
the provisions of subsection (c) of this section, and the order is shipped
governmental entity may adopt or increase a sales and use tax if, as a
or delivered to the purchaser at a location in this state that is within the
result of the adoption or increase of the tax, the combined rate of all
boundaries of one or more local taxing jurisdictions, local use tax is
sales and use taxes imposed by local taxing jurisdictions having terri-
due based on the location to which the items are shipped or delivered
tory in the local governmental entity would exceed 2.0% at any location
or at which the purchaser of the item takes possession. The seller is
within the boundaries of the local governmental entity's jurisdiction.
responsible for collecting the local use taxes due on the sale, regardless
The following are the local tax rates that may be adopted.
of the location of the seller in Texas. If the seller fails to collect any
local use taxes due, the purchaser is responsible for accruing such taxes (1) Cities. Cities may impose sales and use tax at a rate of
and remitting them directly to the comptroller. up to 2.0%.
(C) Sale consummated in any local taxing jurisdictions (2) Counties. Counties may impose sales and use tax at
imposing less than 2.0% in total local taxes - local sales taxes and use rates ranging from 0.5% to 1.5%.
taxes due. If a sale is consummated at a location in Texas where the
(3) Special purpose districts. Special purpose districts may
total local sales tax rate imposed by the taxing jurisdictions in effect at
impose sales and use tax at rates ranging from 0.125% to 2.0%.
that location does not equal 2.0% according to the provisions of sub-
section (c) of this section, and the item is shipped or delivered to the (4) Transit authorities. Transit authorities may impose
purchaser at a location in this state that is inside the boundaries of a sales and use tax at rates ranging from 0.25% to 1.0%.
different local taxing jurisdiction, additional local use tax may be due
(g) Jurisdictional boundaries, combined areas, and city tax im-
based on the location to which the order is shipped or delivered or at
posed through strategic partnership agreements.
which the purchaser of the item takes possession, subject to the two
percent cap. The seller is responsible for collecting any additional lo- (1) Jurisdictional boundaries.
cal use taxes due on the sale, regardless of the location of the seller in
(A) City boundaries. City taxing jurisdictional bound-
Texas. See subsection (i) of this section. If the seller fails to collect the
aries cannot overlap one another and a city cannot impose a sales and
additional local use taxes due, the purchaser is responsible for accruing
use tax in an area that is already within the jurisdiction of another city.
such taxes and remitting them directly to the comptroller.
(B) County boundaries. County tax applies to all loca-
(i) Example one - if an order is received in person at
tions within that county.
a place of business of the seller, such that the sale is consummated at
the location where the order is received as provided under subsection (C) Special purpose district and transit authority bound-
(c)(1)(A) of this section, and the local sales tax due on the sale does aries. Special purpose districts and transit authorities may cross or
not meet the two percent cap, additional local use taxes are due based share boundaries with other local taxing jurisdictions and may encom-
on the location to which the order is shipped or delivered or at which pass, in whole or in part, other local taxing jurisdictions, including
the purchaser of the item takes possession, subject to the provisions in cities and counties. A geographic location or address in this state may
paragraph (1) of this subsection. lie within the boundaries of more than one special purpose district or
more than one transit authority.
(ii) Example two - if a seller receives an order for a
taxable item at a seller's place of business in Texas, and the seller ships (D) Extraterritorial jurisdictions. Except as otherwise
or delivers the item from an out-of-state location to a location in this provided by paragraph (3) of this subsection concerning strategic part-
state as designated by the purchaser, local sales tax is due based upon nership agreements and subsection (l)(5) of this section concerning the
the location of the place of business of the seller where the order is City of El Paso and Fort Bliss, city sales and use tax does not apply to
received. If the local sales tax due on the item does not meet the two taxable sales that are consummated outside the boundaries of the city,
percent cap, use taxes, subject to the provisions in paragraph (1) of this including sales made in a city's extraterritorial jurisdiction. However,
subsection, are due based upon the location where the items are shipped an extraterritorial jurisdiction may lie within the boundaries of a spe-
or delivered or at which the purchaser of the item takes possession. cial purpose district, transit authority, county, or any combination of
the three, and the sales and use taxes for those jurisdictions would ap-
(e) Effect of other law.
ply to those sales.
(1) Tax Code, Title 2, Subtitles A (General Provisions) and
(2) Combined areas. A combined area is an area where the
B (Enforcement and Collection), Tax Code, Chapter 141 (Multistate
boundaries of a city overlap the boundaries of one or more other local
Tax Compact) and Tax Code, Chapter 151 (Limited Sales, Excise, and
taxing jurisdictions as a result of an annexation of additional territory
Use Tax) apply to transactions involving local taxes. Related sections
by the city, and where, as the result of the imposition of the city tax
of this title and comptroller rulings shall also apply with respect to local
in the area in addition to the local taxes imposed by the existing tax-
taxes. This includes authorities such as court cases and federal law
ing jurisdictions, the combined local tax rate would exceed 2.0%. The
that affect whether an item is taxable or is excluded or exempt from
comptroller shall make accommodations to maintain a 2.0% rate in any
taxation.
combined area by distributing the 2.0% tax revenue generated in these
(2) Permits, exemption certificates, and resale certificates combined areas to the local taxing jurisdictions located in the combined
required by Tax Code, Chapter 151, shall also satisfy the requirements areas as provided in Tax Code, §321.102 or Health and Safety Code,
for collecting and remitting local taxes, unless otherwise indicated by §775.0754. Combined areas are identified on the comptroller's web-
this section or other sections of this title. For example, see subsection site. Sellers engaged in transactions on which local sales or use taxes
(n) of this section concerning prior contract exemptions. are due in a combined area, or persons who must self-accrue and re-
mit tax directly to the comptroller, must use the combined area local
(3) Any provisions in this section or other sections of this
code when reporting the tax rather than the codes for the individual
title related to a seller's responsibilities for collecting and remitting lo-

PROPOSED RULES April 19, 2024 49 TexReg 2453
city, county, special purpose districts, or transit authorities that make real property repair and remodeling job sites, refer to §3.357 of this
up the combined area. title (relating to Nonresidential Real Property Repair, Remodeling,
and Restoration; Real Property Maintenance).
(3) City tax imposed through strategic partnership agree-
ments. (i) Sellers' and purchasers' responsibilities for collecting or ac-
cruing local taxes.
(A) The governing bodies of a district, as defined in
Local Government Code, §43.0751, and a city may enter into a lim- (1) Sale consummated in Texas; seller responsible for col-
ited-purpose annexation agreement known as a strategic partnership lecting local sales taxes and applicable local use taxes. When a sale
agreement. Under this agreement, the city may impose sales and use of a taxable item is consummated at a location in Texas as provided by
tax within all or part of the boundaries of a district. Areas within a dis- subsection (c) of this section, the seller must collect each local sales tax
trict that are annexed for this limited purpose are treated as though they in effect at the location. If the total rate of local sales tax due on the sale
are within the boundaries of the city for purposes of city sales and use does not reach the two percent cap, and the seller ships or delivers the
tax. item into another local taxing jurisdiction, then the seller is required to
collect additional local use taxes due, if any, based on the location to
(B) Counties, transit authorities, and special purpose
which the item is shipped or delivered or at which the purchaser of the
districts may not enter into strategic partnership agreements. Sales
item takes possession, regardless of the location of the seller in Texas.
and use taxes imposed by those taxing jurisdictions do not apply in
For more information regarding local use taxes, refer to subsection (d)
the limited-purpose annexed area as part of a strategic partnership
of this section.
agreement between a city and an authorized district. However, a
county, special purpose district, or transit authority sales and use tax, or (2) Out-of-state sale; seller engaged in business in Texas.
any combination of these three types of taxes, may apply at locations Except as provided in paragraph (3) of this subsection, when a sale is
included in a strategic partnership agreement between a city and an not consummated in Texas, a seller who is engaged in business in this
authorized district if the tax is imposed in that area by the applicable state is required to collect and remit local use taxes due, if any, on orders
jurisdiction as allowed under its own controlling authorities. of taxable items shipped or delivered at the direction of the purchaser
into a local taxing jurisdiction in this state based upon the location in
(C) Prior to September 1, 2011, the term "district" was
this state to which the item is shipped or delivered or at which the
defined in Local Government Code, §43.0751 as a municipal utility
purchaser of the item takes possession as provided in subsection (d)
district or a water control and improvement district. The definition
of this section.
was amended effective September 1, 2011, to mean a conservation and
reclamation district operating under Water Code, Chapter 49. (3) Local use tax rate for remote sellers.
(h) Places of business of the seller and job sites crossed by (A) A remote seller required to collect and remit one or
local taxing jurisdiction boundaries. more local use taxes in connection with a sale of a taxable item must
compute the amount using:
(1) Places of business of the seller crossed by local taxing
jurisdiction boundaries. If a place of business of the seller is crossed by (i) the combined tax rate of all applicable local use
one or more local taxing jurisdiction boundaries so that a portion of the taxes based on the location to which the item is shipped or delivered or
place of business of the seller is located within a taxing jurisdiction and at which the purchaser of the item takes possession; or
the remainder of the place of business of the seller lies outside of the
(ii) at the remote seller's election, the single local use
taxing jurisdiction, tax is due to the local taxing jurisdictions in which
tax rate published in the Texas Register.
the sales office is located. If there is no sales office, sales tax is due to
the local taxing jurisdictions in which any cash registers are located. (B) A remote seller that is storing tangible personal
property in Texas to be used for fulfillment at a facility of a market-
(2) Job sites.
place provider that has certified that it will assume the rights and duties
(A) Residential repair and remodeling; new construc- of a seller with respect to the tangible personal property, as provided
tion of an improvement to realty. When a contractor is improving real for in §3.286 of this title, may elect the single local use tax rate under
property under a separated contract, and the job site is crossed by the subparagraph (A)(ii) of this paragraph.
boundaries of one or more local taxing jurisdictions, the local taxes due
(C) Notice to the comptroller of election and revocation
on any separately stated charges for taxable items incorporated into the
of election.
real property must be allocated to the local taxing jurisdictions based on
the total square footage of the real property improvement located within (i) Before using the single local use tax rate, a re-
each jurisdiction, including the square footage of any standalone struc- mote seller must notify the comptroller of its election using a form pre-
tures that are part of the construction, repair, or remodeling project. scribed by the comptroller. A remote seller may also notify the comp-
For more information about tax due on materials used at residential troller of the election on its use tax permit application form. The remote
and new construction job sites, refer to §3.291 of this title (relating to seller must use the single local use tax rate for all of its sales of taxable
Contractors). items until the election is revoked as provided in clause (ii) of this sub-
paragraph.
(B) Nonresidential real property repair and improve-
ment. When taxable services are performed to repair, remodel, or (ii) A remote seller may revoke its election by filing
restore nonresidential real property, including a pipeline, transmission a form prescribed by the comptroller. If the comptroller receives the
line, or parking lot, that is crossed by the boundaries of one or more notice by October 1, the revocation will be effective January 1 of the
local taxing jurisdictions, the local taxes due on the taxable services, following year. If the comptroller receives the notice after October 1,
including materials and any other charges connected to the services the revocation will be effective January 1 of the year after the follow-
performed, must be allocated among the local taxing jurisdictions ing year. For example, a remote seller must notify the comptroller by
based upon the total mileage or square footage, as appropriate, of the October 1, 2020, for the revocation to be effective January 1, 2021. If
repair, remodeling, or restoration project located in each jurisdiction. the comptroller receives the revocation on November 1, 2020, the re-
For more information about tax due on materials used at nonresidential vocation will be effective January 1, 2022.

49 TexReg 2454 April 19, 2024 Texas Register
(D) Single local use tax rate. (5) Local tax is due on the sales price of a taxable item, as
defined in Tax Code, §151.007, in the report period in which the taxable
(i) The single local use tax rate in effect for the pe-
item is purchased or the period in which the taxable item is first stored,
riod beginning October 1, 2019, and ending December 31, 2019, is
used, or otherwise consumed in a local taxing jurisdiction.
1.75%.
(6) A purchaser is not liable for additional local use tax if
(ii) The single local use tax rate in effect for the pe-
the purchaser pays local use tax using the rate elected by an eligible re-
riod beginning January 1, 2020, and ending December 31, 2020, is
mote seller according to paragraph (3) of this subsection. The remote
1.75%.
seller must be identified on the comptroller's website as electing to use
(E) Annual publication of single local use tax rate. Be- the single local use tax rate. A purchaser must verify that the remote
fore the beginning of a calendar year, the comptroller will publish no- seller is listed on the comptroller's website. If the remote seller is not
tice of the single local use tax rate in the Texas Register that will be in listed on the comptroller's website, the purchaser will be liable for ad-
effect for that calendar year. ditional use tax due in accordance to paragraph (4) of this subsection.
(F) Calculating the single local use tax rate. The single (j) Items purchased under a direct payment permit.
local use tax rate effective in a calendar year is equal to the estimated
(1) When taxable items are purchased under a direct pay-
average rate of local sales and use taxes imposed in this state during the
ment permit, local use tax is due based upon the location where the
preceding state fiscal year. As soon as practicable after the end of a state
permit holder first stores the taxable items, except that if the taxable
fiscal year, the comptroller must determine the estimated average rate
items are not stored, then local use tax is due based upon the location
of local sales and use taxes imposed in this state during the preceding
where the taxable items are first used or otherwise consumed by the
state fiscal year by:
permit holder.
(i) dividing the total amount of net local sales and
(2) If, in a local taxing jurisdiction, storage facilities con-
use taxes remitted to the comptroller during the state fiscal year by the
tain taxable items purchased under a direct payment exemption certifi-
total amount of net state sales and use tax remitted to the comptroller
cate and at the time of storage it is not known whether the taxable items
during the state fiscal year;
will be used in Texas, then the taxpayer may elect to report the use tax
(ii) multiplying the amount computed under clause either when the taxable items are first stored in Texas or are first re-
(i) of this subparagraph by the rate provided in Tax Code, §151.051; moved from inventory for use in Texas, as long as use tax is reported
and in a consistent manner. See also §3.288(i) of this title (relating to Direct
Payment Procedures and Qualifications) and §3.346(g) of this title.
(iii) rounding the amount computed under clause (ii)
of this subparagraph to the nearest .0025. (3) If local use tax is paid on stored items that are subse-
quently removed from Texas before they are used, the tax may be re-
(G) Direct refund. A purchaser may request a refund
covered in accordance with the refund and credit provisions of §3.325
based on local use taxes paid in a calendar year for the difference be-
of this title and §3.338 of this title (relating to Multistate Tax Credits
tween the single local use tax rate paid by the purchaser and the amount
and Allowance of Credit for Tax Paid to Suppliers).
the purchaser would have paid based on the combined tax rate for all
applicable local use taxes. Notwithstanding the refund requirements (k) Special rules for certain taxable goods and services. Sales
under §3.325(a)(1) of this title (relating to Refunds and Payments Un- of the following taxable goods and services are consummated at, and
der Protest), a non-permitted purchaser may request a refund directly local tax is due based upon, the location indicated in this subsection.
from the comptroller for the tax paid in the previous calendar year, no
(1) Amusement services. Local tax is due based upon the
earlier than January 1 of the following calendar year within the statute
location where the performance or event occurs. For more information
of limitation under Tax Code, 111.104 (Refunds).
on amusement services, refer to §3.298 of this title (relating to Amuse-
(H) Marketplace providers. Notwithstanding subpara- ment Services).
graph (A) of this paragraph, marketplace providers may not use the
(2) Cable services. When a service provider uses a cable
single local use tax rate and must compute the amount of local use tax
system to provide cable television or bundled cable services to cus-
to collect and remit using the combined tax rate of all applicable local
tomers, local tax is due as provided for in §3.313 of this title. When
use taxes.
a service provider uses a satellite system to provide cable services to
(4) Purchaser responsible for accruing and remitting local customers, no local tax is due on the service in accordance with the
taxes if seller fails to collect. Telecommunications Act of 1996, §602.
(A) If a seller does not collect the state sales tax, any (3) Florists. Local sales tax is due on all taxable items sold
applicable local sales taxes, or both, on a sale of a taxable item that by a florist based upon the location where the order is received, regard-
is consummated in Texas, then the purchaser is responsible for filing less of where or by whom delivery is made. Local use tax is not due on
a return and paying the tax. The local sales taxes due are based on deliveries of taxable items sold by florists. For example, if the place of
the location in this state where the sale is consummated as provided in business of the florist where an order is taken is not within the bound-
subsection (c) of this section. aries of any local taxing jurisdiction, no local sales tax is due on the
item and no local use tax is due regardless of the location of delivery.
(B) A purchaser who buys an item for use in Texas from
If a Texas florist delivers an order in a local taxing jurisdiction at the
a seller who does not collect the state use tax, any applicable local use
instruction of an unrelated florist, and if the unrelated florist did not
taxes, or both, is responsible for filing a return and paying the tax. The
take the order within the boundaries of a local taxing jurisdiction, local
local use taxes due are based on the location where the item is first
use tax is not due on the delivery. For more information about florists'
stored, used, or consumed by the purchaser.
sales and use tax obligations, refer to §3.307 of this title (relating to
(C) For more information about how to report and pay Florists).
use tax directly to the comptroller, see §3.286 of this title.

PROPOSED RULES April 19, 2024 49 TexReg 2455
(4) Landline telecommunications services. Local taxes due §321.105, any city that adopted a local sales and use tax effective Oc-
on landline telecommunications services are based upon the location of tober 1, 1979, or later is prohibited from imposing tax on the residential
the device from which the call or other transmission originates. If the use of natural gas and electricity. See §3.295 of this title.
seller cannot determine where the call or transmission originates, local
(B) Imposition of tax allowed in certain cities. Cities
taxes due are based on the address to which the service is billed. For
that adopted local sales tax prior to October 1, 1979, may, in accor-
more information, refer to §3.344 of this title (relating to Telecommu-
dance with the provisions in Tax Code, §321.105, choose to repeal the
nications Services).
exemption for residential use of natural gas and electricity. The comp-
(5) Marketplace provider sales. Local taxes are due on troller's website provides a list of cities that impose tax on the residen-
sales of taxable items through a marketplace provider based on the lo- tial use of natural gas and electricity, as well as a list of those cities that
cation in this state to which the item is shipped or delivered or at which do not currently impose the tax, but are eligible to do so.
the purchaser takes possession. For more information, refer to §3.286
(C) Effective January 1, 2010, a fire control, preven-
of this title.
tion, and emergency medical services district organized under Local
(6) Mobile telecommunications services. Local taxes due Government Code, Chapter 344 that imposes sales tax under Tax Code,
on mobile telecommunications services are based upon the location of §321.106, or a crime control and prevention district organized under
the customer's place of primary use as defined in §3.344(a)(8) of this Local Government Code, Chapter 363 that imposes sales tax under Tax
title, and local taxes are to be collected as indicated in §3.344(h) of this Code, §321.108, that is located in all or part of a municipality that im-
title. poses a tax on the residential use of natural gas and electricity as pro-
vided under Tax Code, §321.105 may impose tax on residential use of
(7) Motor vehicle parking and storage. Local taxes are due
natural gas and electricity at locations within the district. A list of the
based on the location of the space or facility where the vehicle is parked.
special purpose districts that impose tax on residential use of natural
For more information, refer to §3.315 of this title (relating to Motor
gas and electricity and those districts eligible to impose the tax that do
Vehicle Parking and Storage).
not currently do so is available on the comptroller's website.
(8) Natural gas and electricity. Any local city and special
(2) Telecommunication services. Telecommunications ser-
purpose taxes due are based upon the location where the natural gas
vices are exempt from all local sales taxes unless the governing body
or electricity is delivered to the purchaser. As explained in subsection
of a city, county, transit authority, or special purpose district votes
(l)(1) of this section, residential use of natural gas and electricity is
to impose sales tax on these services. However, since 1999, under
exempt from all county sales and use taxes and all transit authority sales
Tax Code, §322.109(d), transit authorities created under Transporta-
and use taxes, most special purpose district sales and use taxes, and
tion Code, Chapter 451 cannot repeal the exemption unless the repeal
many city sales and use taxes. A list of the cities and special purpose
is first approved by the governing body of each city that created the
districts that do impose, and those that are eligible to impose, local
local taxing jurisdiction. The local sales tax is limited to telecommuni-
sales and use tax on residential use of natural gas and electricity is
cations services occurring between locations within Texas. See §3.344
available on the comptroller's website. For more information, also refer
of this title. The comptroller's website provides a list of local taxing
to §3.295 of this title (relating to Natural Gas and Electricity).
jurisdictions that impose tax on telecommunications services.
(9) Nonresidential real property repair and remodeling ser-
(3) Emergency services districts.
vices. Local taxes are due on services to remodel, repair, or restore
nonresidential real property based on the location of the job site where (A) Authority to exclude territory from imposition of
the remodeling, repair, or restoration is performed. See also subsection emergency services district sales and use tax. Pursuant to the provi-
(h)(2)(B) of this section and §3.357 of this title. sions of Health and Safety Code, §775.0751(c-1), an emergency ser-
vices district wishing to enact a sales and use tax may exclude from the
(10) Residential real property repair and remodeling and
election called to authorize the tax any territory in the district where the
new construction of a real property improvement performed under a
sales and use tax is then at 2.0%. The tax, if authorized by the voters
separated contract. When a contractor constructs a new improvement
eligible to vote on the enactment of the tax, then applies only in the
to realty pursuant to a separated contract or improves residential real
portions of the district included in the election. The tax does not apply
property pursuant to a separated contract, the sale is consummated at
to sales made in the excluded territories in the district and sellers in the
the job site at which the contractor incorporates taxable items into the
excluded territories should continue to collect local sales and use taxes
customer's real property. See also subsection (h)(2)(A) of this section
for the local taxing jurisdictions in effect at the time of the election un-
and §3.291 of this title.
der which the district sales and use tax was authorized as applicable.
(11) Waste collection services. Local taxes are due on
(B) Consolidation of districts resulting in sales tax
garbage or other solid waste collection or removal services based on
sub-districts. Pursuant to the provisions of Health and Safety Code,
the location at which the waste is collected or from which the waste is
§775.018(f), if the territory of a district proposed under Health and
removed. For more information, refer to §3.356 of this title (relating
Safety Code, Chapter 775 overlaps with the boundaries of another
to Real Property Service).
district created under that chapter, the commissioners court of each
(l) Special exemptions and provisions applicable to individual county and boards of the counties in which the districts are located may
jurisdictions. choose to create a consolidated district in the overlapping territory. If
two districts that want to consolidate under Health and Safety Code,
(1) Residential use of natural gas and electricity.
§775.024 have different sales and use tax rates, the territory of the
(A) Mandatory exemptions from local sales and use tax. former districts located within the consolidated area will be designated
Residential use of natural gas and electricity is exempt from most lo- as sub-districts and the sales tax rate within each sub-district will
cal sales and use taxes. Counties, transit authorities, and most special continue to be imposed at the rate the tax was imposed by the former
purpose districts are not authorized to impose sales and use tax on the district that each sub-district was part of prior to the consolidation.
residential use of natural gas and electricity. Pursuant to Tax Code,
(4) East Aldine Management District.

49 TexReg 2456 April 19, 2024 Texas Register
(A) Special sales and use tax zones within district; (B) pursuant to the obligation of a bid or bids submitted
separate sales and use tax rate. As set out in Special District Local prior to the effective date of any local tax if the bid or bids and contract
Laws Code, §3817.154(e) and (f), the East Aldine Management entered into pursuant thereto are at a fixed price and not subject to
District board may create special sales and use tax zones within the withdrawal, change, or modification because of the tax.
boundaries of the District and, with voter approval, enact a special
(2) Annexations. Any annexation of territory into an exist-
sales and use tax rate in each zone that is different from the sales and
ing local taxing jurisdiction is also a basis for claiming the exemption
use tax rate imposed in the rest of the district.
provided by this subsection.
(B) Exemptions from special zone sales and use tax.
(3) Local taxing jurisdiction rate increase; partial exemp-
The sale, production, distribution, lease, or rental of; and the use, stor-
tion for certain contracts and bids. When an existing local taxing ju-
age, or other consumption within a special sales and use tax zone of; a
risdiction raises its sales and use tax rate, the additional amount of tax
taxable item sold, leased, or rented by the entities identified in clauses
that would be due as a result of the rate increase is not due on the sale,
(i) - (vi) of this subparagraph are exempt from the special zone sales
use, storage, or other consumption in this state of taxable items used:
and use tax. State and all other applicable local taxes apply unless oth-
erwise exempted by law. The special zone sales and use tax exemption (A) for the performance of a written contract executed
applies to: prior to the effective date of the tax rate increase if the contract may
not be modified because of the tax; or
(i) a retail electric provider as defined by Utilities
Code, §31.002; (B) pursuant to the obligation of a bid or bids submitted
prior to the effective date of the tax rate increase if the bid or bids and
(ii) an electric utility or a power generation company
contract entered into pursuant thereto are at a fixed price and not subject
as defined by Utilities Code, §31.002;
to withdrawal, change, or modification because of the tax.
(iii) a gas utility as defined by Utilities Code,
(4) Three-year statute of limitations.
§101.003 or §121.001, or a person who owns pipelines used for
transportation or sale of oil or gas or a product or constituent of oil or (A) The exemption in paragraph (1) of this subsection
gas; and the partial exemption in paragraph (3) of this subsection have no
effect after three years from the date the adoption or increase of the tax
(iv) a person who owns pipelines used for the trans-
takes effect in the local taxing jurisdiction.
portation or sale of carbon dioxide;
(B) The provisions of §3.319 of this title apply to this
(v) a telecommunications provider as defined by
subsection to the extent they are consistent.
Utilities Code, §51.002; or
(C) Leases. Any renewal or exercise of an option to
(vi) a cable service provider or video service
extend the time of a lease or rental contract under the exemptions pro-
provider as defined by Utilities Code, §66.002.
vided by this subsection shall be deemed to be a new contract and no
(5) Imposition of city sales tax and transit tax on certain exemption will apply.
military installations; El Paso and Fort Bliss. Pursuant to Tax Code,
(5) Records. Persons claiming the exemption provided by
§321.1045 (Imposition of Sales and Use Tax in Certain Federal Military
this subsection must maintain records which can be verified by the
Installations), for purposes of the local sales and use tax imposed under
comptroller or the exemption will be lost.
Tax Code, Chapter 321, the city of El Paso includes the area within the
boundaries of Fort Bliss to the extent it is in the city's extraterritorial (6) Exemption certificate. An identification number is re-
jurisdiction. However, the El Paso transit authority does not include quired on the prior contract exemption certificates furnished to sellers.
Fort Bliss. See Transportation Code, §453.051 concerning the Creation The identification number should be the person's 11-digit Texas tax-
of Transit Departments. payer number or federal employer's identification (FEI) number.
(m) Restrictions on local sales tax rebates and other economic The agency certifies that legal counsel has reviewed the pro-
incentives. Pursuant to Local Government Code, §501.161, Section 4A posal and found it to be within the state agency's legal authority
and 4B development corporations may not offer to provide economic to adopt.
incentives, such as local sales tax rebates authorized under Local Gov-
ernment Code, Chapters 380 or 381, to persons whose business consists Filed with the Office of the Secretary of State on April 8, 2024.
primarily of purchasing taxable items using resale certificates and then TRD-202401427
reselling those same items to a related party. A related party means a
Jenny Burleson
person or entity which owns at least 80% of the business enterprise to
which sales and use taxes would be rebated as part of an economic in- Director, Tax Policy
centive. Comptroller of Public Accounts
Earliest possible date of adoption: May 19, 2024
(n) Prior contract exemptions. The provisions of §3.319 of this For further information, please call: (512) 475-2220
title (relating to Prior Contracts) concerning definitions and exclusions
apply to prior contract exemptions. ♦ ♦ ♦
(1) Certain contracts and bids exempt. No local taxes are TITLE 43. TRANSPORTATION
due on the sale, use, storage, or other consumption in this state of tax-
able items used: PART 3. MOTOR VEHICLE CRIME
(A) for the performance of a written contract executed PREVENTION AUTHORITY
prior to the effective date of any local tax if the contract may not be
modified because of the tax; or

PROPOSED RULES April 19, 2024 49 TexReg 2457
APPENDIX D
TITLE 34. PUBLIC FINANCE Jenny Burleson
Director, Tax Policy Division
PART 1. COMPTROLLER OF PUBLIC Comptroller of Public Accounts
ACCOUNTS Effective date: July 4, 2024
Proposal publication date: April 19, 2024
CHAPTER 3. TAX ADMINISTRATION For further information, please call: (512) 475-2220
SUBCHAPTER O. STATE AND LOCAL SALES ♦ ♦ ♦
AND USE TAXES 34 TAC §3.334
34 TAC §3.334 The Comptroller of Public Accounts adopts new §3.334, con-
The Comptroller of Public Accounts adopts the repeal of §3.334, cerning local sales and use taxes, without changes to the pro-
concerning local sales and use taxes, without changes to the posed text as published in the April 19, 2024, issue of the Texas
proposed text as published in the April 19, 2024, issue of the Register (49 TexReg 2442). The rule will not be republished. The
Texas Register (49 TexReg 2440). The rule will not be repub- comptroller adopts new §3.334 to replace the existing §3.334
lished. The comptroller repeals existing §3.334 to replace it with that the comptroller is repealing. The new §3.334 includes the
new §3.334. The repeal of §3.334 will be effective the date the text of existing §3.334, with the addition of subsection (b)(6) and
new §3.334 takes effect. supporting definitions.

Brief explanation of the rulemaking. In addition to soliciting written comments, the comptroller held
a public hearing on May 9, 2024. The comptroller received oral
It has been called to the comptroller's attention that the October and/or written comments regarding adoption of the rule from the
27, 2023, notice of proposed rulemaking did not contain a state- following persons:
ment of fiscal implications for small businesses or rural commu-
nities as required by Government Code, Chapter 2006. See (48 John Christian, Ryan, LLC, against the rule.
TexReg 6340) (October 27, 2023). Therefore, the comptroller re- TJ Gilmore, Mayor of the City of Lewisville, against the rule.
peals the adopted rule as proposed in the October 27, 2023, no-
tice of proposed rulemaking. The comptroller is simultaneously Jim Harris, on behalf of the Coalition for Appropriate Sales
readopting the text of the rule effective on January 5, 2024, with Tax Law Enactment (CASTLE) and its members, the cities
amendments, under the same number and title, with the repeal of Coppell, Farmers Branch, Grand Prairie, Humble, Kilgore,
to be effective as of the date the adopted rule. Lancaster, and Lewisville, against the rule.

Comments John Kroll, HMWK, against the rule.

The comptroller received comments from James Harris on behalf Mike Land, City Manager of the City of Coppell, against the rule.
of the Coalition for Appropriate Sales Tax Law and its members, Wes Mays, Mayor of the City of Coppell, against the rule.
the cities of Coppell, Carrollton, Desoto, Farmers Branch, Hum-
ble, Kilgore, Lancaster, and Lewisville, in favor of the repeal of Stephan L. Sheets, Attorney for the City of Round Rock, against
all revisions to the rule, starting with the version adopted in May the rule.
2020. The comptroller addresses the criticisms of the revisions Rich Whitehead, Mayor of the City of Helotes, against the rule.
in §3.334 in the preamble of the new §3.334, which the comp-
troller will adopt to be effective concurrently with this repeal. Summary of the Principal Reasons For and Against Adoption of
the Rule
Statement of the statutory or other authority under which the rule-
making is adopted. The comptroller's principal reason for adoption of the rule is to
provide guidance to taxpayers and auditors regarding the appli-
The repeal is adopted under Tax Code, §§111.002 (Comp- cation of the local sales and use tax consummation statutes.
troller's Rule; Compliance; Forfeiture), 321.306 (Comptroller's
Rules), 322.203 (Comptroller's Rules), and 323.306 (Comptrol- The principal reasons alleged against adoption are: that the rule
ler's Rules), which authorize the comptroller to adopt rules to is not needed, that the rule will hurt cities and taxpayers, that the
implement the tax statutes. rule is a departure from prior comptroller policy, that the stated
reasons for adoption have no factual basis, that the rule is incon-
Sections or articles of the code affected. sistent with the local sales and use tax consummation statutes,
The repeal affects Tax Code, §151.0595 (Single Local Tax Rate and that the notice of rulemaking did not comply with the require-
for Remote Sellers); Tax Code, Chapter 321, Subchapters A, B, ments of the Administrative Procedure Act.
C, D, and F; Tax Code, Chapter 322; and Tax Code, Chapter The subsequent discussion provides the reasons for adopting
323. the rule without changes related to the comments received.
The agency certifies that legal counsel has reviewed the adop- Summary of the Factual Bases for the Rule - Background
tion and found it to be a valid exercise of the agency's legal au-
thority. In January 2020, the comptroller initiated rulemaking to update
its local sales and use tax rule. The comptroller subsequently
Filed with the Office of the Secretary of State on June 14, 2024. adopted amendments in 2020, 2023, and 2024. (49 TexReg
53) (January 5, 2024), (48 TexReg 391) (January 27, 2023), (45
TRD-202402640 TexReg 3499) (May 22, 2020). The amendments implemented
House Bill 1525, 86th Legislature, 2019, which placed local sales
and use tax collection responsibilities on marketplace providers.

ADOPTED RULES June 28, 2024 49 TexReg 4797
The amendments also implemented House Bill 2153, 86th Leg- Ultimately, the statutory test is a combination of elements --
islature, 2019, which set a single local use tax rate that remote whether a facility is an established outlet, office, or location op-
sellers may elect to use. The amendments also expanded the erated by a seller for the purpose of receiving orders for taxable
local sales tax collection responsibilities of sellers based on the items. The statutory references to an "established outlet, office,
United States Supreme Court decision in South Dakota v. Way- or location," operation "by the retailer or the retailer's agent or
fair, Inc., 138 S. Ct. 2080 (June 21, 2018). These amendments employee," and "receiving orders for taxable items" all suggest
have been noncontroversial. that the presence of sales personnel is a reasonable criterion
for evaluating whether a facility is a "place of business."
The rulemaking made other revisions to the text, which are now
the subject of litigation in Cause No. D-1-GN-21-003198, City of Subsection (a)(18) defines "place of business of the seller" as
Coppell, Texas, et al. v. Glenn Hegar, in the 201st District Court follows:
of Travis County Texas. The Plaintiff cities claim that the agency
"(18) Place of business of the seller - general definition--A place
did not comply with the rulemaking procedures in Government
of business of the seller must be an established outlet, office, or
Code, §2001.024 and Government Code, Chapter 2006. The
location operated by a seller for the purpose of receiving orders
comptroller initiated this rulemaking to address those claims by
for taxable items from persons other than employees, indepen-
proposing the readoption of the rule, with amendments, along
dent contractors, and natural persons affiliated with the seller. An
with a more complete statement of the elements required by
'established outlet, office, or location' usually requires staffing by
Government Code, §2001.024 and Government Code, Chapter
one or more sales personnel. The term does not include a com-
2006.
puter server, Internet protocol address, domain name, website,
The comptroller is addressing comments received in the current or software application. The 'purpose' element of the definition
rulemaking, as well as the prior local tax rulemakings in 2020, may be established by proof that the sales personnel of the seller
2023, and 2024. The orders adopting the prior rulemakings are receive three or more orders for taxable items at the facility dur-
available for inspection in the Texas Register, and contain addi- ing the calendar year. Additional criteria for determining when a
tional explanations that augment this document. location is a place of business of the seller are provided in sub-
section (b) of this section for distribution centers, manufacturing
Summary of the Factual Bases for the Rule - Subsection (a)(18)
plants, storage yards, warehouses and similar facilities; kiosks;
- The definition of "place of business of the seller."
and purchasing offices. An outlet, office, facility, or any location
Local sales and use taxes are generally sourced to where a sale that contracts with a retail or commercial business to process
or use is "consummated." Tax Code, §321.203 and §321.205. for that business invoices, purchase orders, bills of lading, or
There are about three dozen sourcing provisions. Id. And, there other equivalent records onto which sales tax is added, including
are three potential locations where local sales tax can be soured: an office operated for the purpose of buying and selling taxable
the location where the order was received, the location where the goods to be used or consumed by the retail or commercial busi-
order was fulfilled, and the location where the order was deliv- ness, is not a place of business of the seller if the comptroller
ered to the customer. Id. The sourcing outcome can be affected determines that the outlet, office, facility, or location functions or
by whether an order is placed in person at, received at, or ful- exists to avoid the tax legally due under Tax Code, Chapters 321,
filled at a seller's "place of business" in Texas. 322, and 323 or exists solely to rebate a portion of the tax im-
posed by those chapters to the contracting business. An outlet,
Tax Code, §321.002(3)(A) uses 82 words to define "place of busi-
office, facility, or location does not exist to avoid the tax legally
ness of the retailer":
due under Tax Code, Chapters 321, 322, and 323 or solely to
"(3)(A) 'Place of business of the retailer' means an established rebate a portion of the tax imposed by those chapters if the out-
outlet, office, or location operated by the retailer or the retailer's let, office, facility, or location provides significant business ser-
agent or employee for the purpose of receiving orders for taxable vices, beyond processing invoices, to the contracting business,
items and includes any location at which three or more orders are including logistics management, purchasing, inventory control,
received by the retailer during a calendar year. A warehouse, or other vital business services."
storage yard, or manufacturing plant is not a 'place of business
The first sentence of subsection (a)(16) states: "A place of busi-
of the retailer' unless at least three orders are received by the
ness of the seller must be an established outlet, office, or lo-
retailer during the calendar year at the warehouse, storage yard,
cation operated by a seller for the purpose of receiving orders
or manufacturing plant."
for taxable items from persons other than employees, indepen-
The term "place of business of the retailer" is a term of art be- dent contractors, and natural persons affiliated with the seller."
cause the term is more limited than its plain and ordinary mean- This definition tracks the statutory definition but adds a qualifier
ing. Many business activities can be conducted at a location from the prior rule that allows a facility to make in-house cour-
without that location becoming a "place of business" for local tesy sales without becoming a place of business.
tax sourcing. The definition specifically includes the concept of
The second sentence of the definition of "place of business of
receiving orders for taxable items. For example, the corporate
the seller" in subsection (a)(16) states: "An 'established out-
headquarters of a company may not be a "place of business" if no
let, office, or location' usually requires staffing by one or more
orders are received there. Additionally, a location is not a "place
sales personnel." The word "usually" clarifies that the presence
of business" simply because it receives orders. If that were the
of sales personnel is not an absolute requirement, but rather,
case, the legislature could have defined the phrase with those
an important factor that will often determine whether an outlet,
very few words, which can be counted on one hand. And, the
office, or location is a "place of business." In subsequent sub-
final sentence indicates that business locations such as ware-
sections of the rule, the comptroller describes some examples.
houses, storage yards, and manufacturing plants may not be
"places of business." The comptroller is adding the sales personnel language to pro-
vide an objective criterion for buyers, sellers, and auditors to con-
sider. Does a facility have sales personnel? If it does, it is likely

49 TexReg 4798 June 28, 2024 Texas Register
a "place of business" -- an established outlet, office, or location order. The physical locations of computer servers that receive
operated by a seller for the purpose of receiving orders for tax- website orders are often random, variable, and uncertain. The
able items. If the facility does not have sales personnel, it is likely best way to treat computer servers consistently and coherently
not a "place of business." is to uniformly recognize that they are not "established" places
of business of the seller.
The reference to sales personnel is also consistent with the gen-
eral objectives of the local tax statute. "It is a fundamental prin- The fourth sentence of the definition of "place of business of the
ciple of statutory construction and indeed of language itself that seller" in subsection (a)(16) states: "The 'purpose' element of
words' meanings cannot be determined in isolation but must be the definition may be established by proof that sales personnel
drawn from the context in which they are used." TGS-NOPEC of the seller received three or more orders for taxable items at the
Geophysical Co. v. Combs, 340 S.W.3d 432, 441 (Tex. 2011). facility during the calendar year." This language is consistent with
The context for the "place of business" definition is not limited to the statutory language that a "'place of business of the retailer' ...
the consummation statutes. It also extends to the sales tax per- includes any location at which three or more orders are received
mit requirement. The requirement of a sales tax permit for each by the retailer during a calendar year."
"place of business" suggests that presence of sales personnel is
The remaining sentences of the definition of "place of business
a reasonable factor to consider.
of the seller" are noncontroversial.
The third sentence in the definition of "place of business" in
Mr. Gilmore, Mr. Kroll, Mr. Land, and Mr. Mays do not be-
subsection (a)(16) states: "The term does not include a com-
lieve that this definition simplifies local tax sourcing. However,
puter server, Internet protocol address, domain name, website,
the comptroller is under no illusions that the definition will elim-
or software application." This sentence is consistent with the
inate all ambiguities. In some instances, the determination will
concept that a "place of business" usually requires the presence
depend upon the particular facts. But in many instances, it will
of personnel to receive the order. Even a broad, every-day us-
be clear. And, the rule also makes clear that mere hardware
age of the term "place of business" does not include computer
installations are not "places of business of the seller." To that ex-
servers, Internet protocol addresses, and websites. Many sell-
tent, the rule will help taxpayers understand how the comptroller
ers house their computer servers at a co-location facility or rent
interprets and intends to apply the statute.
computer server space at a managed hosting site. An ordinary
person would not consider the physical locations of these com- Summary of the Factual Bases for the Rule - Subsection (b)(5) -
puter servers to be places of business of the seller. Similarly, A facility without sales personnel is usually not a "place of busi-
an ordinary person would not perceive an Internet protocol ad- ness of the seller."
dress, a domain name, or a website as an "established outlet,
Subsection (b)(5) provides:
office, or location" so as to constitute a place of business in or-
dinary usage. And, in this statutory context, which is narrower "(5) A facility without sales personnel is usually not a 'place of
than ordinary usage, the comptroller has concluded that the leg- business of the seller.' A vending machine is not an 'established
islature could not have intended that the receipt of an order by outlet, office, or location,' and does not constitute a 'place of busi-
an automated mechanical device would make the device an "es- ness of the seller.' Instead, a vending machine sale is treated as
tablished outlet, office or location operated by the retailer." a sale by an itinerant vendor. See subsections (a)(10) and (c)(6)
of this section. However, a walk-in retail outlet with a stock of
In addition to being a reasonable interpretation of the statute and
goods available for immediate purchase through a cashier-less
consistent with precedent, the comptroller's interpretation that
point of sale terminal at the outlet would be an 'established out-
computer servers and the software applications that run on the
let, office, or location' so as to constitute a 'place of business of
servers are not places of business, is a practical interpretation
the seller' even though sales personnel are not required for ev-
that will facilitate uniformity and ease of administration for tax-
ery sale. A computer that operates an automated shopping cart
payers and auditors. Website orders can be received at multiple
software program is not an 'established outlet, office, or location,'
physical addresses - any locations that have Internet access. A
and does not constitute a 'place of business of the seller.' A com-
website order is sent to an Internet protocol (IP) address. An
puter that operates an automated telephone ordering system is
IP address is not a permanent physical address. It is a series of
not an 'established outlet, office, or location,' and does not con-
numbers assigned to a device, such as a computer server. Web-
stitute a 'place of business of the seller.'"
sites may use dynamic IP addresses that are assigned by the
network upon connection and that change over time. The public Subsection (b)(5) provides examples of the application of the
IP address of a website may simply be routing orders to differ- definition of "place of business of the seller," and the factual
ent, private IP addresses. Load balancers may change the IP bases for subsection (b)(5) are the same as the for the definition.
addresses that communicate with customers. Conversely, mul- In addition, the treatment of vending machines is consistent with
tiple websites may be hosted at a single IP address. the treatment of vending machines in prior versions of the rule.
The computer server receiving an order may belong to the seller Reasons Why the Comptroller Disagrees With Commenters'
or it may belong to a third party. The computer server may be sit- Submissions and Proposals - Subsections (a)(10) and (b)(5).
uated on the seller's premises, it may be situated at a co-location
Some commenters asserted that a "place of business" does not
facility operated by a third party, or it may be situated at a web
have to be operated for the purpose of receiving orders for tax-
hosting facility operated by a third party. The computer server
able items. According to the comments submitted by CASTLE:
may be one of multiple servers that serve the same website from
different physical addresses as part of a cloud distribution net- "The statutory definition of 'place of business,' Tax Code,
work. The computer server may route the order to multiple other §321.002(3)(A), describes five different place of business cat-
servers for load balancing purposes. Conversely, a single com- egories: established outlets; established offices; established
puter server may serve multiple websites. Also, the seller may locations operated by the retailer or the retailer's agent or
or may not know the physical address of the server receiving the employee for the purpose of receiving orders for taxable items;

ADOPTED RULES June 28, 2024 49 TexReg 4799
any location at which three or more orders are received by the retailer's employee in the definition of "place of business of the
retailer during a calendar year; and warehouses, storage yards, retailer."
or manufacturing plants that receive three or more orders in
As previously stated, the comptroller is adding the sales person-
a calendar year. Tax Code, §321.002(a)(3)(A). The first two
nel language to provide an objective criterion for buyers, sellers,
categories need not have as a purpose receipt of orders and do
and auditors to consider. Does a facility have sales personnel?
not need to receive orders to be a place of business."
If it does, it is likely a "place of business" -- an established outlet,
CASTLE further commented that the function of an "established office, or location operated by a seller for the purpose of receiv-
office" is "business." This interpretation would mean that any fa- ing orders for taxable items. If the facility does not have sales
cility operated by a seller for a business purpose would be a personnel, it is likely not a "place of business." This objective cri-
"place of business" -- executive offices, administrative offices, terion is supported by the previously explained legislative history
research and development laboratories, maintenance facilities, of the statute.
vehicle garages, etc. The comptroller rejects this interpretation
Mr. Sheets, citing former §3.334(h)(3)(B), commented that "the
as unreasonable. The 1979 legislation, which adopted the def-
prior version of Rule 3.334 recognized that an Internet order is
inition of "place of business," required each "place of business"
received at a place of business while the proposed amendments
to have a sales tax permit. See 66th Legislature, 1979, Ch. 624,
cause Internet orders to be received nowhere."
§3. That requirement is now in Tax Code, §321.303. It is unrea-
sonable to think that the legislature intended that a maintenance The comptroller responds that the comment overstates the effect
facility would be required to have a sales tax permit. A more of the prior rule and misunderstands the effect of the adopted
reasonable interpretation is that a "place of business," whether rule. Prior to the 2020 amendments, §3.334(h)(3)(B) provided:
it is an outlet, office, or location, "must be operated by a seller
"(B) Order received at a place of business in Texas, fulfilled at
for the purpose of receiving orders for taxable items," as the rule
a location that is not a place of business. When an order that
requires.
is placed over the telephone, through the Internet, or by any
Mr. Mays and other commenters also alleged that there is no means other than in person is received by the seller at a place
reason for the comptroller to amend its rule. But, CASTLE's in- of business in Texas, and the seller fulfills the order at a loca-
terpretation of the "purpose" requirement illustrates the need for tion that is not a place of business of the seller in Texas, such as
clarification. The CASTLE interpretation may work at cross-pur- a warehouse or distribution center, the sale is consummated at
poses with other commenters who claim the right to source all the place of business at which the order for the taxable item is
their sales to their "single place of business." If every taxpayer received."
facility with a business purpose is in fact a "place of business" as
(41 TexReg 260, 265) (2016) (former 34 TAC §3.334(h)(3), em-
CASTLE suggests, many of these commenters may have mul-
phasis added); (39 TexReg 9597, 9606) (2014) (former 34 TAC
tiple places of businesses. The adopted rule states the comp-
§3.334(h)(3), emphasis added).
troller's interpretation, and sets the stage for a definitive court
resolution of the conflict between competing commenters. The former language only meant that a place of business may
receive an order through the Internet, or any other method of
Mr. Christian commented on the portion of the definition of "place
communication except in-person communication. For example,
of business" that excludes orders from "employees, independent
a sales representative at a place of business in Texas could re-
contractors, and natural persons affiliated with the seller." He
ceive an order through the Internet in the form of a VOIP call or
commented that the language was "extra-statutory." The comp-
an email. But, the former language did not mean that every In-
troller disagrees. The language has been in the rule since 2014,
ternet order is automatically received at a place of business, as
when it was adopted without adverse comment. It allows a fa-
illustrated by the following comptroller rulings before and after
cility to make in-house courtesy sales to workers at the facility
the comptroller adopted §3.334 in 2014.
without the facility becoming a place of business. Courtesy sales
to workers are insufficient to conclude that a facility was estab- Comptroller Letter Ruling (STAR Accession No.) 200510723L
lished for the purpose of receiving orders. (2005) stated:
Mr. Christian and other commenters observed that the statutory "The location of the server does not create a 'place of business'
definition of "place of business" does not mention sales person- for purposes of local tax collection."
nel. However, an agency rule need not be limited to parroting the
And Comptroller Letter Ruling (STAR Accession No.)
words of the statute. The courts have said that a rule may not
200605592L (2006) similarly stated:
impose additional burdens, conditions, or restrictions in excess
of or inconsistent with the relevant statutory provisions. State "The location of the server does not create a 'place of business'
Office of Pub. Util. Counsel v. Pub. Util. Comm'n of Tex., 131 for purposes of local tax collection."
S.W.3d 314, 321 (Tex. App.--Austin 2004, pet. denied). The
And Comptroller Letter Ruling (STAR Accession No.)
implication of that statement is that a rule may impose burdens,
201906015L (2019) similarly stated:
conditions, or restrictions that are consistent with the relevant
statutory provisions. E.g., id. at 342 (court approved "formulaic "COMPANY operates **************'s online marketplace (Web-
means" not specified in the statute). Previous tax cases have ap- site) and various apps used by Texas customers to make online
proved comptroller rules that articulated requirements that were orders. ... Orders placed on the Website or through COMPANY's
not explicitly stated in the statute. Perry Homes v. Strayhorn, apps and processed and routed by servers are not received at a
108 S.W.3d 444, 448 (Tex. App.--Austin 2003, no pet.); DuPont place of business."
Photomasks, Inc. v. Strayhorn, 219 S.W.3d 414, 422 (Tex.
Furthermore, the adopted rule does not mean that Internet or-
App.--Austin 2006, pet. denied). The reference to sales per-
ders are received "nowhere." Internet orders, such and VOIP
sonnel in the rule is consistent with the statutory reference to a
calls and emails may be received at a place of business. And
under subsection (b)(5), an Internet order received by an auto-

49 TexReg 4800 June 28, 2024 Texas Register
mated shopping cart is received somewhere - at the computer general standard that is applicable to all situations, as well as to
server -- but, that somewhere is not a "place of business of the automated website orders and fulfillment warehouses.
seller."
The adopted standard comports with the ordinary usage of the
Summary of the Factual Bases for the Rule - Subsections (b)(1) terms, as evidenced by the fact that the standard has been
and (c)(7) - Distributions centers, manufacturing plants, storage approved by twenty-four states under the Streamlined Sales Tax
yards, and warehouses, and when and where an order is "re- Agreement. The adopted standard will also promote uniformity
ceived." with those states that have elected or will elect origin-based
sourcing.
Subsection (b)(1) provides:
Reasons Why the Comptroller Disagrees With Commenters'
"(1) Distribution centers, manufacturing plants, storage yards,
Submissions and Proposals - Subsections (b)(1) and (c)(7).
warehouses, and similar facilities.
Most of the commenters are concerned with the effect of the sub-
(A) A distribution center, manufacturing plant, storage yard,
sections on fulfillment warehouses and similar facilities. Sub-
warehouse, or similar facility operated by a seller for the pur-
section (b)(1)(A) provides: "Forwarding previously received or-
pose of selling taxable items where sales personnel of the
ders to a facility for fulfillment does not make the facility a place
seller receive three or more orders for taxable items during the
of business." Subsection (c)(7) similarly provides: "The location
calendar year from persons other than employees, independent
where an order is received ... means the physical location ...
contractors, and natural persons affiliated with the seller is a
where an order is initially received ... and not where the order
place of business of the seller. Forwarding previously received
may be subsequently accepted, completed or fulfilled."
orders to the facility for fulfilment does not make the facility a
place of business. Subsection (c)(7) explicitly limits receipt to the location where the
order is initially received, ruling out intermediate and final loca-
(B) If a location that is a place of business of the seller, such as
tions where an order might be accepted, completed, or fulfilled.
a sales office, is in the same building as a distribution center,
Subsection (c)(7) also explicitly states the criteria for determining
manufacturing plant, storage yard, warehouse, or similar facility
when an order is received: "An order is received when all of the
operated by a seller, then the entire facility is a place of business
information from the purchaser necessary to the determination
of the seller."
whether the order can be accepted has been received by or on
And subsection (c)(7) provides: behalf of the seller."
"(7) The location where the order is received by or on behalf of CASTLE commented that the modifier "initially" is not present in
the seller means the physical location of a seller or third party the portion of definition of "place of business" that refers to the lo-
such as an established outlet, office location, or automated order cation at which orders are "received." CASTLE, and Kyle Kasner
receipt system operated by or on behalf of the seller where an in a previous rulemaking proceeding, also commented that the
order is initially received by or on behalf of the seller and not consummation statute in Tax Code, §321.203 sometimes refers
where the order may be subsequently accepted, completed or to where the retailer "first receives" the order, implying that an
fulfilled. An order is received when all of the information from order can be "received" at more than one place.
the purchaser necessary to the determination whether the order
CASTLE also argued that the dictionary defines "receive" as "to
can be accepted has been received by or on behalf of the seller.
take into one's possession, to take delivery of a thing, to get, or
The location from which a product is shipped shall not be used
to come by," and a fulfillment warehouse cannot fulfill an order
in determining the location where the order is received by the
unless it gets or comes by the order. This argument may seem
seller."
reasonable in the abstract, but not in context. When the statute
The text of subsection (c)(7) is taken from Section and its legislative history are considered as a whole, the proper
3.10.1C5 of the Streamlined Sales and Use Tax Agreement construction is the opposite - a fulfillment warehouse does not re-
(SSUTA). See https://www.streamlinedsalestax.org/docs/de- ceive an order for purposes of the local sales tax statutes merely
fault-source/agreement/ssuta/ssuta-as-amended-through-05- because fulfillment information has been sent to the warehouse.
24-23-with-hyperlinks-and-compiler-notes-at-end.pdf.
With regard to statutory construction, the Texas Supreme Court
In its 2014 rulemaking, the comptroller proposed a definition has stated: "We must analyze statutory language in its context,
of "receive," but deleted the proposed definition in response to considering the specific sections at issue as well as the statute
concerns stated in oral and written comments. See (39 TexReg as a whole. {Citation omitted}. While 'it is not for courts to un-
4179) (May 30, 2014) (proposed rule amendment) and (39 dertake to make laws "better" by reading language into them,'
TexReg 9598) (December 5, 2014) (adopted rule amendment). we must make logical inferences when necessary 'to effect clear
legislative intent or avoid an absurd or nonsensical result that
In its January 2023 rulemaking, the comptroller again declined
the Legislature could not have intended.'" Castleman v. Internet
to adopt a definition of "receive" and instead, addressed the two
Money Ltd., 546 S.W.3d 684, 688 (Tex. 2018), quoting Cadena
circumstances that were most prominently debated - automated
Comercial USA Corp. v. Tex. Alcoholic Beverage Comm'n, 518
website orders and fulfillment warehouses. Subsection (b) of
S.W.3d 318, 338 (Tex. 2017).
the adopted rule articulated the comptroller's interpretation that
an automated website "receives" the order and that a fulfillment Considering the local sales tax statute sections as a whole, the
warehouse does not "receive" the order when it is forwarded from term "received" must be limited to the location where an order
the website to the warehouse. See (48 TexReg 400) (January is initially received. This construction effects the clear legislative
27, 2023). intent and avoids an absurd or nonsensical result that the legis-
lature could not have intended.
Since then, it has become apparent that other circumstances
also require a clear articulation of the comptroller's interpreta- The legislature did not define "receiving," "received," or "order."
tion of the term "received." Thus, the comptroller is adopting a So, the terms must be construed in the context in which they

ADOPTED RULES June 28, 2024 49 TexReg 4801
are used. One context is the definition of "place of business of location where an order is received - the initial location where
the retailer" in Tax Code, §321.002(3)(A). A "place of business all the information necessary for acceptance has been received.
of a retailer" is a location operated "for the purpose of receiving With this clarification, the consummation statute can be applied
orders." One might say, as CASTLE does, that a purpose of a with greater certainty.
fulfillment warehouse is to receive the order because receipt is a
CASTLE commented: "For all practical purposes an order
necessary step in fulfillment. However, one might also reason-
placed on a website is typically received at the same time at
ably say that while a sales office is operated for the "purpose
various locations, including fulfillment centers." However, for
of receiving orders," a fulfillment warehouse without sales per-
the practical purpose of sourcing local tax, there is a single
sonnel is not operated for such a purpose - the purpose is only
location where a website order is initially received - the Web
fulfillment, which does not require the receipt of the entire order
server. According to a report from the group's own expert, Amit
containing price and payment terms. The only necessary infor-
Basu: "...the Buyer places the online order by communicating
mation is delivery information - the product description, quantity,
with a Web server that manages the Seller's Web site. ... The
and delivery location. Because there are at least two reasonable
Web server transmits the order electronically to the Seller's
interpretations, the terms in this context are ambiguous.
e-Commerce software program."
In another context the meaning becomes clearer. That context
Mr. Kroll commented that it may be impossible to determine the
is the consummation statute in Tax Code, §321.203. Consider
location of initial receipt: "Some companies will have multiple
Tax Code, §321.203(d):
redundant server/data center operations spread across multiple
"(d) If the retailer has more than one place of business in this geographic locations." The comptroller agrees. As pointed out
state and Subsections (c) and (c-1) do not apply, the sale is con- in the 2020 rulemaking, a computer server may be situated on
summated at: the seller's premises, it may be situated at a co-location facility
operated by a third party, or it may be situated at a web hosting
(1) the place of business of the retailer in this state where the
facility operated by a third party. The computer server may be
order is received; or
one of multiple servers that serve the same website from different
(2) if the order is not received at a place of business of the retailer, physical addresses as part of a cloud distribution network. The
the place of business from which the retailer's agent or employee computer server may route the order to multiple other servers for
who took the order operates." load balancing purposes. Conversely, a single computer server
may serve multiple websites. The seller may or may not know
Assume a situation in which the retailer has multiple retail stores
the physical address of the server receiving the order. If the
in Texas (more than one place of business in the state), but a
seller does not even know the physical location of the server,
customer calls in an order to a Texas sales office and the order
an ordinary person would not consider the physical location of
is fulfilled from a location outside of Texas, so that Tax Code,
the computer server to be a place of business of the seller. So,
§321.203(c) and (c-1) indisputably do not apply. Also assume
the best way to treat these orders consistently and coherently
that information from the order is forwarded to the retailer's ex-
is to treat them uniformly as being received at locations that are
ecutive office in Texas for approval, to the retailer's Texas credit
not places of business of the seller. If a server is not a "place
office for a credit check, to the retailer's Texas manufacturing fa-
of business" of the seller, then the exact location of the server
cility for assembly, to the retailer's Texas storage lot for bundled
does not have to be determined because the location will not
shipping to a fulfillment center, to the retailer's fulfillment center
determine the sourcing of local sales tax.
for fulfillment to the customer, to the retailer's Texas accounting
office for billing, and to the retailer's Texas controller for collec- The comptroller's application of the statute to fulfillment centers
tion on the account. is also supported by statutory history. Prior to 1979, the consum-
mation statute had no provision for sourcing to where an "order"
In the sense proposed by CASTLE, all these locations "received"
was "received," and the statute provided:
the "order" to complete their assigned tasks. But this interpre-
tation leads to absurd results. If the "order" was "received" at "If the retailer has more than one place of business in the State,
multiple locations, so that each location became a "place of busi- the place or places at which retail sales, leases, and rentals are
ness," it would be impossible to identify the particular location consummated shall be the retailer's place or places where the
where the local tax should be sourced. purchaser or lessee takes possession and removes from the
retailer's premises the articles of tangible personal property, or
Furthermore, Tax Code, §321.203(d) refers to "the place of busi-
if the retailer delivers the tangible personal property to a point
ness ... where the order is received," indicating that there is a
designated by the purchaser or lessee, then the sales, leases,
singular location where the order is received. The most reason-
or rentals are consummated at the retailer's place or places of
able singular location, and perhaps the only reasonable singular
business from which tangible personal property is delivered to
location, is where the information necessary to accept the order
the purchaser or lessee." Acts 1969, 61st Leg., 2nd C.S., Ch. 1.
is initially received as provided in subsection (c)(7). In the ex-
Art. 1 §42.
ample above, the location where the order is received would be
the Texas sales office. In 1979, the Texas Legislature added a definition of "place of
business of the retailer," which was previously undefined. The
This example regarding Tax Code, §321.203(d) also illustrates
definition required that the location be operated "for the purpose
the need for additional clarity. Subsection (b)(1)(A) explicitly pro-
of receiving orders." Acts 1979, 66th Legislature, Ch. 624, Art.
vides that a fulfillment center is not a "place of business" simply
1, §3 (amended Article 1066c(B)(1)). The legislature also added
because orders may be forwarded to the facility for fulfillment.
a sourcing provision based on where the order is received, com-
But subsection (b)(1)(A) does not explicitly eliminate the possibil-
parable to current Tax Code, §321.203(d):
ity that other locations are "places of business," such as locations
where orders are accepted or otherwise completed. Subsection "If neither possession of tangible personal property is taken at
(c)(7) explicitly eliminates those possibilities. There is a single nor shipment or delivery of the tangible personal property is

49 TexReg 4802 June 28, 2024 Texas Register
made from the retailer's place of business within this State, the facturing plant may not be considered a 'place of business of the
sale, lease, or rental is consummated at the retailer's place of retailer' unless three or more orders are received by the retailer
business within the State where the order is received or if the in a calendar year at such warehouse, storage yard, or manufac-
order is not received at a place of business of the retailer, at the turing plant." Acts 1979, 66th Legislature, Ch. 624, Art. 1, §3. A
place of business from which the retailer's salesman who took typical warehouse, storage yard, or manufacturing plant would
the order operates." almost certainly process more than three orders in a calendar
year. So, this explicit threshold requirement is an additional in-
Acts 1979, 66th Legislature, Ch. 624, Art. 1, §3 (amended Ar-
dication that the legislature did not intend for these facilities to
ticle 1066c(B)(1)(c)). Like current Tax Code, §321.203(d), the
automatically be "places of business" simply because they pro-
legislature referred to "the place of business ... where the order
cessed order information that was previously received at other
is received," contemplating a single location, and not multiple lo-
locations. Instead, the legislature set a low threshold yet still ex-
cations. And like the current statute, the 1979 sourcing statute
pected these facilities to engage in at least some sales activities.
would be unworkable if an "order" could be "received" at multiple
locations where order information might be sent for processing. Mr. Gilmore commented: "This is a major revision to a state
practice that has been in place for more than 50 years." CAS-
The 1979 amendments were originally set to expire on August
TLE commented that the amendment is "inconsistent with his
31, 1981. But, following an October 2, 1980, Interim Report of
{the comptroller's} pre-2019 application of the statutory defini-
the House Ways and Means Committee, the legislature made
tion of 'place of business.'" The comptroller disagrees with these
the 1979 amendments permanent. Acts 1981, 67th Legislature,
comments.
Ch. 838, §1.
First, the comptroller's treatment of fulfillment warehouses goes
Mr. Kroll commented that the comptroller "misremembers
as far back as Comptroller's Decision No. 15,654 (1985), which
the legislative history." The comptroller disagrees. During the
stated (emphasis added):
1979 session of the legislature, a House Study Group analysis
stated that the "bill is necessary to protect the state from pos- "But it seems to the administrative law judge that the legislature
sible consequences of the pending court suits." The analysis was amending the law if not entirely in reaction to the then-pend-
specifically referenced "Dunigan Tool and Supply v. Bullock" as ing case of Bullock v. Dunigan Tool & Supply Co., 588 S.W.2d
one of those suits. The analysis is available at the Legislative 633 (Tex. Civ. App.-Texarkana, writ ref'd n.r.e.), at least partly in
Reference Library website at https://lrl.texas.gov/scanned/hro- reaction to that case. And if that be so, then the legislature did
BillAnalyses/66-0/SB582.pdf. not want warehousing and storage facilities (many of which are
outside city limits) to be the places where sales were consum-
In the Dunigan litigation, sales personnel took orders that were
mated for local sales tax purposes unless orders were actually
forwarded to pipe storage facilities where the orders were ful-
received there by personnel working there, but wanted the of-
filled. At the time of the 1979 legislation, the district court had
fice location out of which the salesman operated to be the place
ruled that the transactions should be sourced to the pipe stor-
where the sales were consummated."
age facilities. Bullock v. Dunigan Tool & Supply Co., 588 S.W.2d
633, 635 (Tex. Civ. App. - Austin, Sept. 6, 1979, writ ref'd CASTLE commented: "The Comptroller misreads the decision."
n.r.e.). Therefore, when the 1979 House Study Group bill anal- But, the text of the decision speaks for itself: "the legislature ...
ysis stated that the bill was intended to protect the state from wanted the office location out of which the salesman operated to
the consequences of the Dunnigan litigation, the analysis meant be the place where the sales were consummated."
that the legislation was intended to reduce the circumstances in
Second, the text of former §3.334(h)(3) indicated that a fulfill-
which transactions would be sourced to fulfillment warehouses,
ment center is not automatically a "place of business" for local
which at the time were often located in rural areas not subject to
sourcing (emphasis added):
local sales tax. The legislature accomplished this objective by
adding a definition of "place of business" that was limited to a "(3) Consummation of sale. The following rules, taken from Tax
location operated "for the purpose of receiving orders," and by Code, §321.203 and §323.203, apply to all sellers engaged in
adding a provision for sourcing transactions to where the order business in this state, regardless of whether they have a place
was received. Acts 1979, 66th Legislature, Ch. 624, Art. 1, §3. of business in Texas or multiple places of business in the state.
Mr. Kasner in a previous rulemaking proceeding commented ...
that the proposed rule reverses the effect of the Dunigan de-
(B) Order received at a place of business in Texas, fulfilled at
cision. He is correct, because the rule attempts to follow the
a location that is not a place of business. When an order that
subsequent legislation, which was intended to reverse the effect
is placed over the telephone, through the Internet, or by any
of the Dunigan decision.
means other than in person is received by the seller at a place
In the subsequent October 2, 1980, Interim Report of the House of business in Texas, and the seller fulfills the order at a loca-
Ways and Means Committee, the committee considered whether tion that is not a place of business of the seller in Texas, such as
to allow the recently adopted statutory definition of "place of busi- a warehouse or distribution center, the sale is consummated at
ness" to expire. The committee described the consequence: the place of business at which the order for the taxable item is
"The location of sale would no longer be tied to permitted outlets, received.
salesmen's locations, or sales offices." Interim Report at 20. The
...
committee understood that the phrase "operated for the purpose
of receiving orders" meant sales activities and not ancillary ac- (D) Order fulfilled within the state at a location that is not a place
tivities necessary to subsequently effectuate the sale. of business. When an order is received by a seller at any location
other than a place of business of the seller in this state, and the
To be clear, under the 1979 legislation and today, a fulfillment
seller fulfills the order at a location in Texas that is not a place
warehouse could be and can be a "place of business." The legis-
of business of the seller, then the sale is consummated at the
lature set a low threshold: "A warehouse, storage yard, or manu-

ADOPTED RULES June 28, 2024 49 TexReg 4803
location in Texas to which the order is shipped or delivered, or sale is consummated at the location in Texas to which the order
the location where it is transferred to the purchaser." is shipped. See §3.334(h)(3)(D). For Scenario One, local sales
and use tax is due based on the location where the order is
(41 TexReg 260, 265) (2016) (former 34 TAC §3.334(h)(3), em-
delivered." STAR Accession No. 201906015L (June 13, 2019)
phasis added); (39 TexReg 9597, 9606) (2014) (former 34 TAC
(emphasis added).
§3.334(h)(3), emphasis added).
Each of these documents, which predate the rulemaking, and
Third, the consummation rules in former §3.334(h)(3) were aug-
which the comptroller indexed and made available for public in-
mented with an explicit provision for fulfillment centers, which
spection on the State Tax Automated Research (STAR) System,
the former rule referred to as "distribution centers" (emphasis
is consistent with the statement in the rule that the location from
added):
which a product is shipped shall not be used in determining the
"(2) Distribution centers, manufacturing plants, storage yards, location where the order is received by the seller.
warehouses, and similar facilities.
Reasons Why the Comptroller Disagrees With Commenters'
(A) A distribution center, manufacturing plant, storage yard, Submissions and Proposals - The use of language from the
warehouse, or similar facility operated by a seller at which the SSUTA in subsection (c)(7).
seller receives three or more orders for taxable items during the
In the rulemaking that adopted subsection (c))(7), the comptroller
calendar year is a place of business.
received comments that are discussed below.
(B) If a salesperson who receives three or more orders for tax-
Mr. Kroll commented: "The Texas Legislature, (the entity with
able items within a calendar year is assigned to work from, or to
constitutional responsibility for the state's Tax Policy), has had
work at, a distribution center, manufacturing plant, storage yard,
nine regular sessions to adopt the SSUTA's preferred origin
warehouse, or similar facility operated by a seller, then the facil-
sourcing model found in SSUTA 3.10.1. The Legislature has
ity is a place of business.
not acted, even in 2013 when then Senator Hegar was chairing
(C) If a location that is a place of business of the seller, such the Senate Finance, Subcommittee on Fiscal Matters with Tax
as a sales office, is in the same building as a distribution center, policy responsibility."
manufacturing plant, storage yard, warehouse, or similar facility
CASTLE similarly commented: "the Legislature, in general, re-
operated by a seller, then the entire facility is a place of business
jected the Comptroller's efforts to become a member and be sub-
of the seller."
ject to the Agreement, and, more specifically, declined to adopt
(41 TexReg 260, 263) (2016) (former 34 TAC §3.334(e)(2), em- the language of 3.10.1 and change the definition of what is a
phasis added); (39 TexReg 9597, 9605) (2014) (former 34 TAC 'place of business.'"
§3.334(e)(2), emphasis added).
Mr. Land commented: "By not adopting the agreement, the
If a distribution center were automatically a "place of business" legislature was rejecting the very language the Comptroller pro-
for local tax sourcing as the Plaintiff cities contend, subpara- poses to adopt..."
graphs (B) and (C) would not be required - there would be no
Clyde Hairston, Mayor of the City of Lancaster, commented:
need for a salesperson or a sales office to "then" make the dis-
"Rule changes refer to the Streamline Sales and Use Tax Agree-
tribution center a "place of business" for local tax sourcing pur-
ment. States participating in this agreement do not seem to have
poses.
similar economic issues as the State of Texas. If the intent of the
Fourth, in addition to its rule, the comptroller distributed Publi- rule change is to position the state to participate in the Sales and
cation 94-105, sometimes called the "Local Sales and Use Tax Use Tax Agreement, further research is needed to better support
Bulletin - Guidelines for Collecting Local Sales and Use Tax," the rationale for this action."
or "Tax Topics - Guidelines of Collecting Local Sales and Use
And, Rolin McPhee, City Manager of the City of Longview, com-
Tax" (Guidelines). These Guidelines were posted on the comp-
mented: "This sentiment runs counter to the story of Texas. Yes,
troller's website and indexed in the comptroller's State Tax Au-
we should look to and learn from other states, but Texas should
tomated Research System. Since at least 2007, the Guidelines
lead and not follow. We should not implement statewide policies
referred to a "location within the state that is not a place of busi-
because 'everyone else is doing it.'"
ness (such as a warehouse or distribution center)." E.g., STAR
Accession No. 200902596L (February 2009). The Guidelines David Bristol, Mayor of the City of Prosper, had similar com-
were intended as a general guide and not as a comprehensive ments.
resource. But, an ordinary reader would not walk away with the
Although the legislature declined to adopt the SSUTA, it would
impression that a taxpayer's fulfillment center was automatically
be an overstatement to suggest that the legislature specifically
a "place of business" for purposes of local tax sourcing.
rejected the language of a single subsection of the SSUTA. As
Fifth, in 2016, the comptroller rewrote the Guidelines to be even CASTLE pointed out: "Therefore, prior to December 31, 2007,
more specific regarding fulfillment centers: "The warehouse from the Legislature had to agree to the quoted 3.10.1 language, as a
which the person ships those items is not a place of business, step in allowing Texas to be subject to the Agreement. But doing
unless the warehouse separately qualifies as a place of busi- so would have required not only that the Legislature radically re-
ness." STAR Accession No. 201606995L (June 1, 2016). vise the statutory definition of 'place of business' but make many
other changes to the sections of the Tax Code addressing sales
And, sixth, in 2019, a comptroller letter ruling discussed ful-
and use tax."
fillment centers, referring to the former rule, then in effect:
"Scenario One: Taxpayer Retailer operates fulfillment centers Texas has a unique, composite consummation statute, in which
in Texas that are not open to the public. ... When an order sales are sometimes sourced to where the order is received,
is received at a location that is not a place of business and is sometimes sourced to where the order is fulfilled, and sometimes
fulfilled in Texas at a location that is not a place of business, the sourced to where the order is delivered. Adoption of the SSUTA

49 TexReg 4804 June 28, 2024 Texas Register
would require fundamental changes to this composite consum- Tax Code, §321.203 establishes a hierarchy among places
mation statute, which the comptroller is not advocating or pro- of business involved in a transaction, subject to certain ex-
moting. However, there is one area of overlap. Both systems ceptions. The hierarchy is described in a summary chart in
use the receipt of an order as a factor in sourcing. In this area the Comptroller's Guide for Sellers. See https://comptrol-
of overlap, it is entirely appropriate to consider how the SSUTA ler.texas.gov/taxes/publications/94-105.php (Local Sales and
does it. Use Tax Collection - A Guide for Sellers). If an order is fulfilled
from a place of business of the seller in Texas, the sale is
The comptroller has considered the language in the SSUTA and
consummated at that location even if the order is received at
concluded that it is a reasonable and practical method of deter-
another place of business in Texas (except for orders received
mining where and when an order is received. And, the SSUTA
in person). Conversely, an order is consummated at the place
language has the added benefit of being a concept that other
of business of the seller in Texas where the order is received
states have acknowledged, and a concept with which many tax-
only if the order was not fulfilled from a place of business in
payers will already be familiar.
Texas (except for orders received in person). Subsection (c) of
Summary of the Factual Bases for the Rule - Subsection (c) - the comptroller rule reflects this hierarchy.
Application of the consummation rules.
The statutory provision in Tax Code, §321.203(b), for a seller
Subsection (c) states in relevant part: with a single place of business in Texas, is simply a recogni-
tion that the hierarchy is not required in those circumstances.
"The following rules, taken from Tax Code, §321.203 and
The outcome will be the same regardless of whether the order
§323.203, apply to all sellers engaged in business in Texas,
is received, fulfilled, or received and fulfilled from that place of
regardless of whether they have no place of business in Texas, a
business, and regardless of whether the order is placed at that
single place of business in Texas, or multiple places of business
location in person - the sale will be consummated at that place
in Texas."
of business.
The language of subsection (c) tracks the language in the prior
But the place of business must have a discrete connection
2014 and 2016 versions of the rule:
to the sale for the sale to be consummated there. Tax Code,
"The following rules, taken from Tax Code, §321.203 and §321.203(b) cannot reasonably be interpreted to mean that a
§323.203, apply to all sellers engaged in business in this state, sale is consummated at the seller's single place of business in
regardless of whether they have a place of business in Texas or Texas, even if that place of business did not receive the order
multiple places of business in the state." from the customer, did not fulfill the order to the customer, and
was not the location where the order was delivered.
(41 TexReg 260, 265) (2016) (former 34 TAC §3.334(h)(3); (39
TexReg 9597, 9606) (2014) (former 34 TAC §3.334(h)(3)). Suppose a reseller has a single place of business, located in
City A, that consists only of a sales office. The reseller also has
Reasons Why the Comptroller Disagrees With Commenters'
a fully-automated shopping website hosted by a server in City
Submissions and Proposals - Subsection (c).
B that receives and processes an order from a customer in City
Mr. Sheets commented that the rule changes how Internet or- C. The order is then fulfilled from a third-party manufacturer's
ders are sourced for retailers with a single place of business in warehouse in City D and shipped to the customer in City C. To
Texas. However, the language of subsection (c) has the same make the customer in City C pay local sales tax to City A, a ju-
effect as the language in the prior 2014 and 2016 versions of risdiction that had no relation to the customer or the transaction,
the rule - no special treatment for vendors with a single "place of would be an unreasonable reading of the statute that the Leg-
business." islature could not have intended. See, Castleman v. Internet
Money Ltd., 546 S.W.3d 684, 688 (Tex. 2018) (making "logical
Mr. Sheets commented that the rule conflicts with Tax Code,
inferences" necessary "to avoid an absurd or nonsensical result
§321.203(b), which provides:
that the Legislature could not have intended.").
"(b) If a retailer has only one place of business in this state, all
Another rule of statutory construction is that compliance with
of the retailer's retail sales of taxable items are consummated at
the constitutions of this State and the United States is intended.
that place of business except as provided by Subsection (e)."
Government Code, §311.021(a). In the tax arena, as elsewhere,
Tax Code, §321.203(b) describes the consummation principles the United States Constitution requires due process. In tax
for a seller that has only one place of business in the state. In cases, the United States Supreme Court has stated that due
the comptroller's view, those principles are consistent with the process "centrally concerns the fundamental fairness of govern-
treatment of other sellers and do not require special treatment in mental activity." N. Carolina Dep't of Revenue v. The Kimberley
the rule. Rice Kaestner 1992 Family Tr., 139 S. Ct. 2213, 2219, (2019),
quoting Quill v. North Dakota, 504 U.S. 298, 312 (1992).
As a matter of statutory construction, Tax Code, §321.203(b)
should be viewed in the context of the statute as a whole. Castle- The "due course of law" provision of the Texas constitution
man v. Internet Money Ltd., 546 S.W.3d 684, 688 (Tex. 2018). provides protections similar to, and in some instances, greater
When the statute is considered as a whole, the only reasonable than the protections in the federal due process clause. Patel
interpretation is that all retail sales associated with a single place v. Tex. Dep't of Licensing & Regulation, 469 S.W.3d 69, 86-87
of business are consummated at that single place of business, (Tex. 2015) ("the Texas due course of law protections in Article
regardless of whether the order was placed in person there, the I, §19, for the most part, align with the protections found in the
order was received there from a purchaser at another location, or Fourteenth Amendment to the United States Constitution. But,
the order was fulfilled there. But, the statute cannot reasonably ... Section 19's substantive due course provisions undoubtedly
mean that an order with no connection to that place of business were intended to bear at least some burden for protecting indi-
would be consummated there. vidual rights that the United States Supreme Court determined
were not protected by the federal Constitution.").

ADOPTED RULES June 28, 2024 49 TexReg 4805
A statute violates the Texas due course of law protection if the business of the seller. But if a person performs contract tele-
"statute's actual, real-world effect as applied to the challenging marketing from the person's residence, the person will not be
party could not arguably be rationally related to, or is so burden- operating out of a place of business of the seller because the
some as to be oppressive in light of, the governmental interest." residence is not "operated by the seller," as required by subsec-
Id. at 87. tion (a)(16).
The actual, real-world effect of Mr. Sheet's interpretation could Reasons Why the Comptroller Disagrees With Commenters'
not arguably be rationally related to, or is so burdensome as to Submissions and Proposals - Subsection (b)(4).
be oppressive to taxpayers in light of, the governmental inter-
In the rulemaking that adopted subsection (b)(4), Mr. Kroll com-
est in local taxation. Specifically, there is no rational connection
mented that subsection (b)(4) "no longer imputes the order to
or sufficient government interest to make a purchaser in City C
the place of business where the employee is assigned, and that
pay sales tax to City A simply because the vendor arranged its
the new policy does not accurately or easily reflect the mobile
business such that it had a single sales office in City A that had
workforce of today." And Brian Pannell, North America Tax Di-
nothing to do with the transaction.
rector for Dell Inc., commented that subsection (b)(4) deviates
Mr. Sheets commented that procedural due process require- from Tax Code, §321.203(d)(2) and "effectively changes sourc-
ments do not apply because Tax Code, §321.203(b) is the result ing rules for salespersons who are assigned to regional places
of legislative action. However, the comptroller's statutory inter- of business but do their principal work-related activities at other
pretation is based on substantive due process. See, Patel, 469 locations."
S.W.3d at 75.
The comptroller disagrees with these comments. Tax Code,
Mr. Sheets also proposes to add a "special" exception for sell- §321.203(d) does not impute an order to the location where a
ers with a single place of business in Texas. The comptroller salesperson is "assigned." Instead, the statute provides that in
declines to make the proposed revisions for the reasons stated certain circumstances, an order may be imputed to the "place of
in the preceding paragraphs. The City of Round Rock is chal- business from which the retailer's agent or employee who took
lenging the comptroller's interpretation in the pending litigation. the order operates." And, although an order may be imputed to
Again, it is appropriate to state the comptroller's interpretation in a place of business of the retailer if the agent or employee oper-
the rule so that those who disagree may challenge the interpre- ates out of that place of business, the statute does not mandate
tation in court. that an agent or employee be assigned to, or operate out of, a
place of business. If an agent or employee does not operate out
Summary of the Factual Bases for the Rule - Subsection (b)(4)
of a place of business, Tax Code, §321.203(d) has no applica-
- Order received by a salesperson who is not at a place of busi-
tion. And, it would be unreasonable to allow a vendor to source
ness when the salesperson receives the order.
sales to a place of business by merely "assigning" a salesperson
Subsection (b)(4) provides: to that location in the absence of any physical connection.
"(4) An order that is received by a salesperson who is not at a Summary of the Factual Bases for the Rule - Subsection (b)(6)
place of business of the seller when the salesperson receives -small and micro-businesses.
the order is treated as being received at the location from which
The comptroller adds subsection (b)(6) to the former rule:
the salesperson operates. Examples include orders that a sales-
person receives by mail, telephone, including Voice over Internet "If a small business or a micro-business operates a single lo-
Protocol and cellular phone calls, facsimile, and email while trav- cation out of which it conducts all of its business activities, the
eling. The location from which the salesperson operates is the comptroller will presume that the location is a place of business
principal fixed location where the salesperson conducts work-re- of the seller."
lated activities. The location from which a salesperson operates
The comptroller also adds following supporting definitions to sub-
will be a place of business of the seller only if the location meets
section (a):
the definition of a 'place of business of a seller' in subsection
(a)(16) of this section on its own, without regard to the orders "Independently owned and operated business--a self-controlling
imputed to that location by this paragraph." entity that is not a subsidiary of another entity or otherwise sub-
ject to control by another entity, and that is not publicly traded."
Tax Code, §321.203(d) provides for consummation of a local
sale at the place of business "from which the retailer's agent "Micro-business--a legal entity, including a corporation, partner-
or employee who took the order operates." Prior to the 2020 ship, or sole proprietorship, that:
amendment, the rule did not define the location from which a
(A) is formed for the purpose of making a profit;
salesperson operates. The third sentence of subsection (b)(4)
now provides in part: "The location from which the salesperson (B) is independently owned and operated; and
operates is the principal fixed location from which the salesper-
(C) has not more than 20 employees."
son conducts work-related activities..." A physical connection be-
tween the salesperson and the place of business is a reasonable "Small business--a legal entity, including a corporation, partner-
interpretation of the location from which a salesperson operates. ship, or sole proprietorship, that:
The final sentence of subsection (b)(4) clarifies that the princi- (A) is formed for the purpose of making a profit;
pal fixed location from which the salesperson conducts work-re-
(B) is independently owned and operated; and
lated activities may or may not be a place of business of the
seller, depending upon whether the location meets the defini- (C) has fewer than 100 employees or less than $6 million in an-
tional requirements of subsection (a)(16). For example, if an nual gross receipts."
entrepreneur conducts sales operations from the entrepreneur's
The definition of "independently owned and operated business"
residence, the entrepreneur will be operating out of a place of
is taken from Government Code, Chapter 2006, Small Busi-

49 TexReg 4806 June 28, 2024 Texas Register
nesses and Rural Communities Impact Guidelines, updated in Subsection (i)(3) implements House Bill 2153, 86th Legislature,
December 2017. 2019, which sets a single local use tax rate that remote sellers
may elect to use.
The definitions of "micro-business" and "small business" are
taken from Government Code, Chapter 2006. The comptroller received no negative submissions or proposals
regarding this subsection.
The comptroller cannot make a location a "place of business" by
rule if the statute does not allow it. But, the agency can presume Summary of the Factual Bases for the Rule - Subsection (k)(5) -
that a location is a "place of business" based on indicative facts, Marketplace sales.
such as a small, independent business that conducts all of its
Subsection (k)(5) implemented House Bill 1525, 86th Legisla-
business operations out of a single location.
ture, 2019, which places local sales and use tax collection re-
Reasons Why the Comptroller Disagrees With Commenters' sponsibilities on marketplace providers.
Submissions and Proposals - Subsection (b)6).
The comptroller received no negative submissions or proposals
Mr. Sheets commented that the subsection does nothing to regarding this subsection.
reduce the adverse economic effects on small and microbusi-
Reasons Why the Comptroller Disagrees With Commenters'
nesses. Mr. Land commented that there is no rational policy
Submissions and Proposals - Public benefits and costs.
reason for treating businesses differently based upon size or
revenue, and Mr. Gilmore questioned the reasoning behind the Mr. Christian commented that there will be a significant fiscal im-
differentiation. CASTLE commented that the presumption is plication for businesses that must invest in reprogramming soft-
contrary to the law and factually unsupported. And, Mr. Chris- ware for enhanced local tax compliance, and the economic cost
tian commented that the presumption should be expanded. to the public must be estimated. Mr. Gilmore, Mr. Land, Mr.
Sheets, and Mr. Mays also commented that the rule will increase
The comptroller responds that the agency routinely uses pre-
business compliance costs.
sumptions in applying statutes, and the courts have honored
them. A word search of the Texas Administrative Code produces The comptroller acknowledges that there may be additional com-
over 60 instances in which the comptroller rules use presump- pliance costs, since it is conceivable that the rule may cause
tions. For example, the Austin Court of Appeals recognized that some vendors to realize that they are noncompliant. If the ven-
"repainting is presumed to be a taxable activity unless the tax- dors come into compliance by changing from single-location re-
payer affirmatively shows that the repainting meets the specific porting to multiple-location reporting, their compliance burden
requisites of maintenance as set out in the rule." GATX Termi- may increase. And if vendors change from multiple-location re-
nals Corp. v. Rylander, 78 S.W.3d 630, 635 (Tex. App. - Austin porting to single-location reporting, their compliance burden may
2002, no pet.); 34 TAC §3.357(b)(8). diminish.
The rational policy reason for special treatment, and the size and The total net economic cost cannot be reliably estimated for
revenue requirements have been mandated by the Texas Legis- reasons explained in the preamble to the proposed rule. The
lature in Government Code, Chapter 2006. And, the parameters comptroller cannot determine the number of vendors that would
are appropriate for the presumption. It is reasonable to assume change from single-location report to multiple-location reporting.
that a small business or a micro-business that operates a single Furthermore, the cost of compliance with the statute cannot be
location out of which it conducts all of its business activities will a factor in the rulemaking because compliance with the statute
receive three or more orders per calendar year at that location, is required with or without the rule.
making that location a place of business of the seller. It is less
Reasons Why the Comptroller Disagrees With Commenters'
reasonable to make that assumption if the business operates
Submissions and Proposals - Revenue Effect
out of more than one location, or if the business is an affiliate of
another, creating the possibility that the order receipt and order The preamble to the proposed rule explained the methodology
fulfillment may occur in different locations. that the comptroller used to estimate the revenue effect. Mr.
Mays, Mr. Sheets, Mr. Gilmore, Mr. Land, and CASTLE all
Summary of the Factual Bases for the Rule - Subsections
commented that the analysis of the revenue impact on cities was
(c)(2)(B)(ii), (d)(2), and (i) - Seller's obligation to collect local
insufficient, but did not identify any errors in the assumptions that
use tax.
the agency used in the estimate.
Subsection (c)(2)(B)(ii) provides that a remote seller that is re-
CASTLE contends that "there must be a dollar amount specific
quired to collect state use tax must also collect local use tax.
to each local government or a dollar amount that can be easily
Subsection (d)(2) and subsection (i) provide that a non-remote
calculated from the methodology used by the Comptroller to gen-
seller is responsible for collecting local use tax regardless of the
erate an estimate." The comptroller responds that Government
location of the seller in Texas. Physical presence in the local ju-
Code, §2001.024 has never been interpreted by any agency or
risdiction is no longer required. These expansions of the local
any court to require individual estimates. There are over 1,700
sales tax collection responsibilities of sellers are based on the
local governments in Texas with a local sales tax. In all prior
United States Supreme Court decision in South Dakota v. Way-
rulemakings, the comptroller has never estimated the loss of or
fair, Inc., 138 S. Ct. 2080 (June 21, 2018).
increase in local sales tax revenue for each local government in
The comptroller received no negative submissions or proposals Texas with a local sales tax. And, the comptroller is unaware of
regarding these subsections. any other agency that has made individual estimates for each
local government.
Summary of the Factual Bases for the Rule - Subsection (i)(3) -
Single local tax option for remote sellers. Furthermore, the statute does not require the comptroller to ar-
ticulate a methodology for individual estimates that the agency
is not required to make. If an individual jurisdiction wants to con-

ADOPTED RULES June 28, 2024 49 TexReg 4807
duct its own investigation, the preamble to the proposed rule ex- applicable where the transactions were formerly sourced, there
plained the data that the jurisdiction would have to obtain, and would be a reduction in aggregate local sales tax levies and con-
the preamble explained how a consultant used the data in his sequent reduction in state service charge revenues under Tax
study. See, (49 TexReg 2440, 2443) (April 19, 2024). Code, §§321.503, 322.303, and 323.503.
CASTLE suggests that the comptroller could develop a sample Statement of the statutory or other authority under which the rule
of local governments. The comptroller responds that Govern- is adopted.
ment Code, §2001.024 does not require sampling. Furthermore,
Tax Code, §§111.002 (Comptroller's Rule; Compliance; Forfei-
an aggregate estimate based on sample of individual jurisdic-
ture), 321.306 (Comptroller's Rules), 322.203 (Comptroller's
tions would do little to tell individual jurisdictions how they would
Rules), and 323.306 (Comptroller's Rules) authorize the comp-
be affected.
troller to adopt rules to implement the tax statutes.
Mr. Sheets suggested that the comptroller could have under-
Sections or articles of the code affected.
taken alternatives, such as making estimates for the top twenty
most populated jurisdictions or making estimates for the cities Tax Code, §151.0595 (Single Local Tax Rate for Remote Sell-
involved in the lawsuit. The comptroller responds that Govern- ers); Tax Code, Chapter 321, Subchapters A, B, C, D, and F; Tax
ment Code, §2001.024 does not require selective, individual es- Code, Chapter 322; and Tax Code, Chapter 323 are affected.
timates.
The agency certifies that legal counsel has reviewed the adop-
The Administrative Procedure Act only requires a fiscal note tion and found it to be a valid exercise of the agency's legal au-
showing "the estimated loss or increase in revenue to the state thority.
or to local governments as a result of enforcing or administering
the rule." Government Code, §2001.024(a)(4)(C). The comp- Filed with the Office of the Secretary of State on June 14, 2024.
troller has done that. In addition, the rulemaking process has TRD-202402641
disclosed the types of cities and taxpayers that may be most
Jenny Burleson
affected - cities receiving substantial tax revenues from fulfill-
ment centers, such as the CASTLE group, and cities receiving Director, Tax Policy Division
substantial tax revenues from taxpayers sourcing all their sales Comptroller of Public Accounts
to a single location, such as the City of Round Rock. Effective date: July 4, 2024
Proposal publication date: April 19, 2024
Reasons Why the Comptroller Disagrees With Commenters'
For further information, please call: (512) 475-2220
Submissions and Proposals - Local employment impact state-
ment. ♦ ♦ ♦
CASTLE commented that the comptroller "fails to provide a
non-conclusory explanation of why the impact cannot be deter-
CHAPTER 5. FUNDS MANAGEMENT
mined." The comptroller disagrees. The explanation is stated in (FISCAL AFFAIRS)
the preamble of the proposed rule.
SUBCHAPTER D. CLAIMS PROCESSING--
Reasons Why the Comptroller Disagrees With Commenters'
Submissions and Proposals - Government growth impact state-
PAYROLL
ment. 34 TAC §5.46
CASTLE comments that the preamble to the proposed rule "fails The Comptroller of Public Accounts adopts amendments to
to discuss in any meaningful way" the government growth state- §5.46 concerning deductions for paying membership fees to
ment required by Government Code, §2001.0221. Comptroller certain state employee organizations, without changes to the
Rule 11.1(d) states that an agency shall "reasonably describe" proposed text as published in the May 3, 2024, issue of the
the effect on government growth. 34 TAC §11.1(d). Historically, Texas Register (49 TexReg 2985). The rule will not be repub-
the reasonable descriptions published by the comptroller, as well lished.
as other agencies, consist of statements of no effect without ex-
planation, and statements of effect with brief explanations. The The amendments add a definition of CAPPS in new subsection
comptroller followed the historical approach in this rulemaking. (a)(1) and renumber the subsequent provisions accordingly.

CASTLE comments that the rule will create or eliminate a gov- The amendments to subsections (b)(1)(C) and (b)(2)(B) add a
ernment program if a local government loses significant local second method of establishing, changing or cancelling a pay-
sales tax revenue. The comptroller responds that the rule it- roll deduction for state employee organization membership fees.
self does not create or eliminate a government program. The These provisions currently allow a state employee to establish,
creation or elimination of local government programs is at the change or cancel a payroll deduction by submitting a written au-
discretion of local governments. thorization form to the employer's human resource officer or pay-
roll officer. The amendments to these provisions also allow a
CASTLE also comments that "the Comptroller has already ad- state employee to establish, change or cancel a payroll deduc-
mitted that there will be a decrease in the fees he receives." The tion by submitting an electronic authorization through CAPPS.
comptroller acknowledges that to the extent that transactions
previously sourced within an incorporated municipality would be The amendments to subsection (b)(2)(D) make a conforming
sourced to an unincorporated area without a cumulative local tax change to require state agencies to notify the affected eligible
rate levied by municipal (pursuant to a limited purpose annexa- organization if a state employee submits an electronic authoriza-
tion agreement), county, and/or special purpose taxing authori- tion form through CAPPS cancelling a payroll deduction for state
ties commensurate with the cumulative local tax rate levied by employee organization membership fees.
the municipal, county, and/or special purpose taxing authorities

49 TexReg 4808 June 28, 2024 Texas Register
Automated Certificate of eService
This automated certificate of service was created by the efiling system.
The filer served this document via email generated by the efiling system
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Kyle Counce on behalf of Kyle Counce
Bar No. 24082862
kyle.counce@oag.texas.gov
Envelope ID: 106158073
Filing Code Description: Brief Requesting Oral Argument
Filing Description: Hancock Cross Appellant Amended Brief
Status as of 9/29/2025 7:22 AM CST

Associated Case Party: City of Coppell, Texas

Name BarNumber Email TimestampSubmitted Status

Richard Phillips 24032833 Rich.Phillips@hklaw.com 9/26/2025 7:45:27 PM SENT

Reed Randel 24075780 Reed.Randel@hklaw.com 9/26/2025 7:45:27 PM SENT

Stephen Fink 7013500 Stephen.Fink@hklaw.com 9/26/2025 7:45:27 PM SENT

James Harris 9065400 jim.harris@hklaw.com 9/26/2025 7:45:27 PM SENT

Case Contacts

Name BarNumber Email TimestampSubmitted Status

Bryan Dotson 24072769 bryan.dotson@chamberlainlaw.com 9/26/2025 7:45:27 PM SENT

Cynthia Bourland 790343 bourland@bourlandlaw.com 9/26/2025 7:45:27 PM SENT

Brandon L.King brandon.king@hklaw.com 9/26/2025 7:45:27 PM SENT

Associated Case Party: Glenn Hegar, in his official capacity as Texas Comptroller of
Public Accounts

Name BarNumber Email TimestampSubmitted Status

Kyle Counce 24082862 Kyle.Counce@oag.texas.gov 9/26/2025 7:45:27 PM SENT

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