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HB4072 is the wrong approach for Texas and will hurt small businesses

A bill that is progressing through the Texas legislature proposes making the largest change to Texas sales tax policy in 50 years. If passed the result will do lasting damage to economic development in Texas and  will hurt any small businesses that deliver products or services to its customers.

HB4072 sounds relatively simple when first described. It shifts sales tax on all in-state purchases to a “destination basis”. Whenever a product or service is purchased in Texas and is delivered to another location in Texas, it requires sales taxes to be collected and reported based on where the item is delivered.

This apparent simplicity is deceptive, and upon further review becomes complicated in the extreme. Right now, a small business with only one place of business collects and remits sales tax on all orders at the rate of their location. In other words, a business in Round Rock delivering a product to San Marcos still tracks and collects sales tax at the rate in Round Rock. This system keeps tax collection simple for the small business. It is a policy developed and designed to encourage business startup and support entrepreneurs. It has served Texas well for decades.

Under HB4072 the same example business in Round Rock would need to collect sales tax for that order at the rate applied in San Marcos, or any other location in Texas. Texas has more sales tax jurisdictions than any other state (more than 1,600). The vast majority of sales tax collections are made from over 600,000 Texas businesses, many of them small businesses employing ten or fewer people. These are the same businesses that just survived the 2020 economic shut down and are only now returning to some sense of normalcy. HB4072 would force a small business in Round Rock to know, track, and assess sales tax for every location within Texas.

A few examples: Your favorite local pizza delivery business will need to know if the pizza is delivered across sales tax jurisdiction lines. If you order unique hair care products from your local stylist to be shipped to your home, that business needs to assess sales tax at the rate where you live. An entrepreneur making custom candles or aroma bath products will need to track 1,600 sales tax jurisdictions for any order shipped to a location in Texas. This will be the same for custom manufactured jewelry, construction products, some services provided at your home or business, and on, and on.

A reasonable taxpayer might ask what the tax implications will be for communities across Texas. The answer is disappointing in the extreme. Even proponents of this legislation have acknowledged in the House Ways and Means committee, the largest proposed change to sales tax policy has not been comprehensively analyzed to measure the impact to Round Rock, or any city in Texas, or for your particular industry.

The Round Rock Chamber is strongly against HB4072. It will unnecessarily burden small businesses at a time when they are recovering form the worst economic downturn since the great depression. The chamber has been working with pro-business groups in the central Texas region, and across the state to explain the impacts to legislators. We are grateful that Senator Schwertner and Representative Talarico have supported the chamber’s efforts from the beginning, and they continue to lead their colleagues who have not been as informed on HB4072’s anti-business impacts.

The chamber encourages local businesses to be informed and engaged. If your business delivers products or services that are currently subject to sales tax, then you may need to begin tracking more than 1,600 different tax rates across Texas and may be subject to audit and fines if a mistake is made.  Research this legislation and contact your senator and representative with your concerns.