April 1, 2022, Number 13

Download the full .pdf version here: TML Legislative Update Number 13

house committee hearing on sales tax sourcing set for april 21st

The House Ways and Means Committee has announced it will hold a public hearing on an interim charge relating to local sales tax sourcing on April 21 at 10 a.m. The committee has been directed to take up the following charge:

Evaluate the impact of shifting to destination sourcing for local sales and use tax purposes, including the benefits of reduced taxpayer confusion. Monitor the implementation of the Comptroller's amendments to 34 Tx. Admin. Code §3.334, relating to local sales and use taxes, and the Comptroller's Sales Tax Rate Locator. Make recommendations for legislation to improve Texas' local sales and use tax sourcing.

Breaking down the interim charge, there are two separate components of interest to cities. The first is evaluating the implementation of recent rule changes (located in 34 Tex. Admin. Code Sec. 3.334) that would impact the sourcing of local sales taxes on internet orders. The recent rule change impacting internet orders provides that orders not received by sales personnel, including orders received via a shopping website or software application, are received at a location that is not a place of business in the state. The ultimate impact of this change is that, under the provisions governing where a sale is consummated, online purchases may change from being sourced to a seller’s place of business in Texas to the delivery location. The new rule provides that orders received by a shopping website or shopping application are sourced to the location where the order is fulfilled or the delivery location, depending on the exact circumstances.

As we reported in the Legislative Update in late 2021, two separate lawsuits were filed by multiple Texas cities against the comptroller to prevent the specific rule changes dealing with local sales tax sourcing for internet orders from going into effect. The comptroller and plaintiff cities in those lawsuits have agreed to a temporary injunction delaying the effective date of the rule impacting the sourcing of local sales taxes on orders not received by sales personnel, including orders received by a shopping website or shopping software application. Instead of going into effect on October 1, 2021, as originally planned, the effective date of the rule is delayed until there is a final hearing on the merits of the cases or further order from the court. The trial dates have been set for May 22, 2022 and June 13, 2022, respectively.

The other component of the sales tax charge is for the committee consider a complete shift to destination-based local sales tax sourcing. This would mean that local sales taxes would generally get sourced to the location where the purchaser takes possession of an item. This represents a more significant shift in sales tax sourcing laws than the change on internet order sourcing in Rule 3.334, which primarily changes sourcing for internet orders that aren’t fulfilled at a place of business of the seller. A complete shift over to destination sourcing would mean that even when an order is fulfilled at the place of business of the seller, local sales taxes still may not be sourced to the location of the place of business, as they generally are under the current framework.

The House Ways and Means Committee unanimously approved a bill during the 2021 legislative session that would have provided for destination sourcing of local sales, but that bill never made it to the House floor for a vote. City officials across the state were divided on the proposal because, as is common with changes to sales tax sourcing regulations, some cities stood to gain sales tax revenue to the detriment of other cities, who have relied on the existing sales tax sourcing structure to attract and retain businesses to their communities.   

Also of interest to city officials, the committee will take up this interim charge on property tax relief at the same committee hearing:

Study and consider methods of providing additional property tax relief, including the use of $3 billion in available American Rescue Plan Act funds that were held for future tax relief by the 87th Legislature, and other sources of revenue. Explore options to reduce business property tax burdens and options for limiting the growth of property tax bills.

More information about the April 21 hearing, including information about how the public can watch the hearing, register to testify at the hearing, and submit comments to the committee electronically, can be found in the hearing notice, here.

federal infrastructure bill update

In November 2021, the federal Infrastructure Investment and Jobs Act (IIJA) was signed into law. The IIJA is altogether a $1.2 trillion bill that will invest in the nation’s core infrastructure priorities including roads, bridges, rail, transit, airports, ports, energy transmission, water systems, and broadband.

The League will monitor state and federal agencies and work with the National League of Cities (NLC) to access the latest information relating to the IIJA. We will be providing periodic updates in the Legislative Update on resources for Texas cities on how to access IIJA funding for local infrastructure projects.   

Department of the Interior (DOI)

The DOI recently announced that it is accepting applications to fund WaterSMART drought resiliency projects. DOI estimates that it will provide funding for approximately 15 to 21 projects during this round, and eligible applicants include Texas city governments. In order to be eligible for funding, projects must be at least two or three years from completion, and the recipient must fund 50 percent or more of the project costs. Applications are due to DOI by June 15, 2022. More on this program, including the Notice of Funding Availability, can be found here.

Department of Transportation (DOT)

DOT recently announced $2.9 billion in funding for major infrastructure projects of regional or national significance. This round of funding combines three discretionary grant programs into one multimodal discretionary grant opportunity for applicants, including Texas cities. The three component grant programs are:

• Up to $1 billion for the National Infrastructure Project Assistance Program, which is designed to fund major projects that are too large or complex for traditional funding programs. According to DOT, eligible projects could include: “highway, bridge, freight, port, passenger rail, and public transportation projects of national and regional significance.  These could be bridges or tunnels connecting two states; new rail and transit lines that improve equity and reduce emissions; and freight hubs integrating ship, train and truck traffic while improving environmental justice.”
• $1.55 billion for the Infrastructure for Rebuilding America Program, which generally provides grants to rebuild infrastructure and create jobs by funding highway and multimodal freight and rail projects. Projects include those that “will improve safety, generate economic benefits, reduce congestion, enhance resiliency, and hold the greatest promise to eliminate supply chain bottlenecks and improve critical freight movements.”
• Roughly $300 million for the Rural Surface Transportation Grant Program, which supports projects to improve and expand the surface transportation infrastructure in rural areas. According to DOT, eligible projects include “highway, bridge, and tunnel projects that help improve freight, safety, and provide or increase access to an agricultural, commercial, energy, or transportation facilities that support the economy of a rural area.”

The deadline for applications is May 23, 2022. Interested city officials can find more information, including the Notice of Funding Availability, here.

u.s. supreme court finds that censuring an elected official does not violate the first amendment

In Houston Community College System v. Wilson, the United States Supreme Court unanimously held that an elected official did not have a First Amendment retaliation claim against the board on which he served when the board verbally censured him. 

Wilson was an elected trustee on the board for the Houston Community College System (HCC). While a trustee, he filed numerous lawsuits against the board, arranged robocalls to constituents of other trustees, and hired a private investigator to surveil another trustee. The board censured Wilson and imposed penalties on Wilson, including declaring him ineligible for election for the 2018 calendar year. Wilson sued HCC, claiming that the censure violated his First Amendment rights. The Fifth Circuit Court of Appeals found that Wilson had standing to pursue his claim for the verbal censure. HCC appealed.

The Court reversed the Fifth Circuit, holding that Wilson did not have a First Amendment cause of action based on the HHC board’s verbal censure. Writing for the majority, Justice Gorsuch detailed the history of verbal censures among governmental bodies, including in the U.S. House and U.S. Senate. The Court found no prior examples of a court finding that a censure violates the First Amendment. The Court said that elected officials are expected to bear a degree of criticism about their service from both their constituents and their peers and still be able to exercise their free speech rights even after that criticism. 

Although the Court held that the censure in Wilson’s case did not violate the First Amendment, it left the door open to a future censure or punishment violating the First Amendment, depending on the facts. Specifically, the Court said: 

Our case is a narrow one. It involves a censure of one member of an elected body by other members of the same body. It does not involve expulsion, exclusion, or any other form of punishment. It entails only a First Amendment retaliation claim, not any other claim or any other source of law. The [b]oard’s censure spoke to the conduct of official business, and it was issued by individuals seeking to discharge their public duties.

Going forward, Texas cities now know that a verbal censure of an elected official is not a violation of that official’s First Amendment rights. However, the Court provided neither an answer nor guidance about whether other disciplinary measures may give rise to any liability. A city council looking to censure an elected official beyond a verbal reprimand should consult with its city attorney prior to doing so.

texas supreme court issues 49th emergency order of the covid-19 pandemic

With its 49th Emergency Order of the COVID-19 pandemic, the Texas Supreme Court has renewed and amended its 47th Emergency Order. The most significant change is that a provision which allowed municipal courts to suspend or modify trial-related and pretrial hearing deadlines has not been included in this newest order. Courts are still authorized to modify certain procedures and deadlines in child-protection cases and allowed to continue to use reasonable efforts to hold some proceedings remotely. This order is effective April 1 and expires June 1. The complete Order can be found here.

treasury releases webinar on reporting guidance for neu's

Last week, the U.S. Treasury Department hosted a webinar on State and Local Fiscal Recovery Fund (SLFRF) reporting compliance specifically for non-entitlement units of local government (NEUs), which are those typically serving populations of less than 50,000. NEUs are subject to the first reporting deadline to submit the Project and Expenditure Report on April 30, 2022. Interested city officials can find the presentation and webinar online.

Treasury has created a dedicated webpage for NEUs which includes pertinent information including the final rule and the Compliance and Reporting Guidance on SLFRF funds.   

In addition, Treasury encourages all NEU recipients to access the Treasury Portal as soon as possible in order to confirm their accounts, designate SLFRF reporting roles, and submit the required agreements and supporting documentation to Treasury prior to the submission of the first Project and Expenditure Report. An NEU User Guide has been created to assist recipients with logging into Treasury's Portal.

disclaimer

TML member cities may use the materials herein for any purpose. No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the Texas Municipal League.