Mayor Craig Morgan writes a monthly column for the Round Rock Leader.
The 87th session of the Texas Legislature opened last week, setting off months of decision-making in our state’s Capitol.
Although many of the issues discussed will have little bearing on cities across the state, the amount that do are not insignificant. During the 2019 session, more than 300 of the 1,400 bills and resolutions that were signed into law directly impacted local city government in some way. Unfortunately, many of these bills acted to limit the control we have locally to decide what’s right for our own communities — a dangerous trend that municipal leaders have been fighting over the past few years. Texas is a large state with cities that have unique traits and needs, and one-size-all approaches tend to have unintended consequences.
Cities represent the level of government closest to the people. Residents experience the benefits of our services every day, from the delivery of their drinking water, to the roads they drive on and public safety that they can rely on. It’s important we have the ability and flexibility to provide these services in a consistent, quality manner that our residents have come to expect.
One of the most important issues for our community this legislative session will be modifications to local sales and use tax rules. Currently, 2 percent of sales tax on everything sold within Round Rock stays local to better residents’ quality of life and lower their cost of living. However, a new rule could mean that some sales tax revenue generated by Round Rock businesses would benefit the city on the receiving end of the sale.
Dell Technologies is the city of Round Rock’s largest sales tax generator, contributing to our public safety, transportation network, parks, library and more. Dell’s move to Round Rock in the early 1990s was made possible through a Chapter 380 agreement, which is a section of the Local Government Code that authorizes cities to offer incentives to businesses to encourage economic development. Over the first 25 years of the agreement, Round Rock has collected $245 million in municipal sales tax revenues and $123 million through a voter-approved half-cent sales tax that is dedicated solely to property tax relief. In addition, the city’s Type B Economic Development Corporation has collected $120 million to build infrastructure, such as roads, to encourage future economic development.
It’s safe to say that our economic development agreement with Dell has played a huge role in the affordable quality of life we’re able to offer residents.
In February 2020, I spoke in opposition to proposed changes to a sales tax sourcing rule by the Texas comptroller’s office. The rule proposed sending sales tax revenue from internet purchases to the buyer’s location instead of the seller’s place of business. The change meant that almost all of Dell’s local sales taxes will be redistributed to the location in Texas where orders are delivered. The rules as initially proposed could reduce Round Rock’s revenues from sales tax by catastrophic levels.
Although the rules adopted in May do not appear to be as damaging as earlier versions, they will still have a notable negative impact to the city’s revenues when they go into effect on Oct. 1, 2021. We will continue to seek changes to the rules during this legislative session before the October effective date to preserve these revenues, which fund basic services, capital projects and property tax relief for our citizens.
We understand that some changes to sales tax rules are needed to comply with legislation passed last session in response to the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc., which held that states may charge tax on purchases made from out-of-state sellers. However, without more practical solutions, this state-level decision could have serious unintended impacts for our local community and the value of the services we are able to provide.
The good news is that other Texas cities are working shoulder to shoulder with us in this battle. Also fighting with us is state Sen. Charles Schwertner, who was instrumental in organizing several of his fellow senators in support of Round Rock and many other adversely impacted cities in this state, and state Rep. James Talarico, who asked many important questions of several testifying witnesses and made a clear case for Round Rock and Dell at the Ways & Means Committee hearing.
There’s too much at stake not to fight this proposal every step of the way, and I look forward to working with our legislators and the comptroller to devise solutions that will avoid serious impacts on the basic, every day services that make us proud to call Round Rock home.