Texas Court Rules in Favor of Local Government Over Sales Tax Sourcing Change

Erik Wallin
August 18, 2022

Texas Tax Rule 3.334 modified to the definition of “place of business” as it applies to local sales and use tax sourcing. It would have required that sales personnel be present at a location for it to be considered a “place of business” for sales tax purposes. If the location only housed a computer server, IP address, domain name, website or software application it would not qualify. See Sales and Use Tax. This change, if allowed to take effect, would represent a novel and complex requirement for Texas businesses.

In September 2021, litigation filed by the City of Round Rock against the Texas Comptroller, resulted in a temporary hold (injunction) being placed on the regulation. See City of Round Rock, Texas v. Hegar (Cause No. D-1-GN-21-3203).

Recently, in Coppell v. Hegar and Round Rock v. Hegar, a Texas District Court held that Texas failed to follow its own requirements in enacting its new rule. In short, unless the rule is re-amended or re-adopted (using proper procedures) by Texas, this change will not take effect.

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Erik Wallin

Erik Wallin is a Senior Tax Counsel on the Tax Research Team at Sovos Compliance. Erik has been with Sovos Compliance since 2011, and his main areas of focus are on U.S. Transaction Tax Law which includes special expertise in the taxation of technology and the taxation mechanisms that apply throughout the Colorado home rule jurisdictions. Erik is a member of the Massachusetts Bar, has a B.A. from York College of Pennsylvania, a J.D. from New England School of Law, and an LL.M. in Taxation from Boston University.
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