Tug of war brewing over streamlined sales taxes

Drive to the furniture store.

Check out some sofas in Grapevine. Slap down a credit card, and ship the sofa to your Hurst home.

Which city gets the sales tax?

Right now, it’s Grapevine. But a new sales tax model gaining momentum would shift the revenue to the community where an item is delivered.

It’s called streamlined sales tax, and states see it as a way to capture revenue lost to online sales, a growing retail segment. Some local governments and consumers are wary.

“A change in the law would hurt Grapevine fairly critically,” said Bill Gaither, Grapevine’s administrative services director. “It’s going to be substantial.”

Statewide, it would mean a big switch, but the state could capture $415 million in lost sales tax revenue from online sales, according to the state comptroller’s office. The change would affect any item delivered — furniture, appliances, electronics and even pizza — but not items purchased at a store or taken home by the consumer.

State legislators passed several bills concerning sales tax changes last session but balked at switching from point-of-sales collection to destination collection. Most expect the issue to make another appearance during the next legislative session.

Streamlined sales tax aims to establish a national uniform standard for collecting sales taxes, opening the door to interstate sales tax collection, currently not allowed because of Supreme Court rulings in the 1950s and 1960s.

“It has the good-government goal of making tax systems easier to understand,” said Billy Hamilton, state deputy comptroller. “And the longer goal of putting us in a position where we can argue to Congress that now we have a system that isn’t burdensome to retailers so we can go after those remote sellers.”

Grapevine this week released a $3,500 study by Kasner & Associates of Addison predicting how such changes would affect the city, which has a solid base of sales tax-producing businesses. Just looking at the top 100 community businesses, Grapevine could lose between $1.8 million and $2.3 million annually under the concept, according to the study. Include all businesses, and those numbers jump to $2.4 million and $3.1 million.

The study does not factor in revenue gained from switching to destination collection, although city officials roughly estimate Internet sales would bring in $180,000.

“Whether it’s a million or $2 million, it still hurts, big-time,” Gaither said.

A community’s commercial makeup would have a big impact on whether Internet sales would cover the revenue lost from destination collection, said Alan Cass, Arlington budget and risk manager. “We have a lot of tourism coming in, and those are taxes which would stay here,” he said.

The impetus for streamlining stems from the confusing and complex way states collect sales taxes. Nationally, there are more than 7,000 sales-taxing jurisdictions — all with varying tax levels, sales tax requirements and taxable products, said Jon Krull, executive director of CASTLE, the Coalition for Appropriate Sales Tax Law Enforcement. Founded in 2003, the statewide organization includes local governments as affiliates, such as Hurst and North Richland Hills.

“In Texas, a drink that has greater than 50 percent orange juice is orange juice and not taxable. But in Florida, it has to be 90 percent orange juice to be orange juice,” said Jon Kroll, CASTLE executive director. “It’s very difficult for a retailer to know that this drink that is 70 percent orange juice is not taxable in Texas, but it is in Florida.”

Several other states, like Kansas and Ohio, have already adopted the streamlined model. Kansas was the first to switch from origin to destination collection, but several months later it called a moratorium after retailers raised a ruckus.

Congress agreed to consider passing a law requiring all businesses with remote sales to collect sales taxes. But first, enough states must adopt the streamlined model to meet certain population levels.

Still, some people — especially at the local level — remain unconvinced that simplified is truly better. Many communities could lose large chunks of revenue, said Frank Sturzl, executive director of the Texas Municipal League. “It could potentially do more damage to cities than good,” Sturzl said.

Nearly a third of Hurst’s revenue comes from sales tax, said Finance Director Anita Thetford said. Projections for this fiscal year include $17 million in sales tax revenue, and officials estimate the community would lose about $2 million and gain $250,000 from Internet sales, she said.

Sales tax changes would be “devastating,” she said.

Others see it as an additional tax.

“It is streamlining a path to your wallet,” said Max Pappas, director of policy for FreedomWorks, a nationwide grassroots organization promoting lower taxes and smaller government. “It threatens to be a de facto national sales tax.”

But many people are in favor of the idea in some form or another.

“It would benefit consumers and cities and businesses if there were a simplified streamline sales tax regime, but only if it was fair to everyone,” Kroll said.

Sales tax

A new sales tax model gaining momentum would shift the revenue to the community where an item is delivered. It’s called streamlined sales tax, and states see it as a way to capture revenue lost to online sales.

Consumers: Buyers would pay sales tax on Internet and catalog purchases.

Big businesses: Typically favor a simplified sales tax because sales tax laws vary from state to state.

Small businesses: Could be costly for mom and pop shops because owners would have to collect information such as where customers live.

State: Stands to capture up to $415 million from online sales.

Local government: Some cities would gain revenue, while others would lose it.

SOURCES: Texas Comptroller’s Office, city of Grapevine, Coalition for Appropriate Sales Tax Law Enforcement and the Texas Municipal League

Ellena F. Morrison, (817) 685-3888