Is Texas Charging A Hidden Tax To Local Governments & Citizens?

Introduction.

I fully understand that all local governments (counties, cities, transit authorities and special districts) in Texas are subdivisions of the state. One way to look at that fact is say everything you have, children, is because we gave it to you out of our generosity. Be grateful, stop complaining and leave me alone.

But that is not how I see it.

Local governments are taking a beating from the State in many ways. In small General Law cities (under 5,000 population), the State says we will give you the Charter. You can’t do anything unless the State law says you can. In Home Rule cities (mostly those over 5,000), the State says you can do anything you want unless the State law specifically says you can’t.

Perhaps with at least some justifiable reasons, the State continues to take away local control from cities. Their actions are actually pretty insulting in that the treatment is as if the cities aren’t accountable to the local voters. Again, you are too dumb and evil to be trusted, local governments, so we have to step in to throttle you back as we see fit for the sake of your citizens.

The net result involves several areas of constraints, but the biggest is revenue caps. If we can cut off your oxygen, local governments, we can reform you into good soldiers in our self-professed image.

It’s Two-Faced.

This blog is about an example of how the State is two faced. The mantra is taxes are bad. Actually, that translates into your taxes are bad, local governments, but ours are okay. In fact, here is a deal for you, ungrateful local governments, we will let you charge a sales tax up to 2.00%. This will be added to the State sales tax of 6.25%. Oh, by the way, even though we are collecting sales taxes for us anyway, we will collect and remit your portion. For this privilege, we will charge you 2.00% of your take. We will call it a service fee.

A fee implies there is some rational nexus (logical connection) to the effort it takes to provide a service. Logic would say that the State should charge the local governments about 2.00%/8.25% of the actual cost of the service. The State would recognize (in a logical business setting) that the State’s portion to bear is 6.25%/8.25%.

If the amount paid by local governments is well above the cost of services, then it is a tax.

Whoa, buddy! There goes that nasty word.

So are you saying, Lewis, that the State is taxing the local governments and their citizens?

Well, Let’s See.

Do we want to look at the State’s true cost of service first or the amount that is taxed by the State to the local governments?

I have tried to get the actual cost of service for the Sales Tax Division from the Comptroller’s Web site. It does not appear to be separated. There may be a good reason for that. If you can get me a good number, please send it to me.

Meanwhile, let’s approach this junior high story problem a different way. How much are local governments paying to the State for collecting the local portion of sales tax? I am so glad you asked, because I happen to have that number to the penny.

In the last 12 months, the local governments have paid the State $164,148,777 to handle those collections. In a fair cost allocation model that would mean the entire cost is $164,148,777 divided by 2.00% times 8.25% or $677,113,707.

Do you think it costs the State $677,113,707 to collect sales taxes every year?

I don’t either. To say that is a lot of money is the understatement of the century.

Conclusion.

So, if our State leaders are so emphatic about cutting taxes for the citizens of Texas, as all of their campaign rhetoric states as well as the continuing mantra they chant to local governments, why not do the noble thing:

1)     Determine the real cost of service for sales tax collections.

2)     Charge local governments for their proper share, which is the simple calculation of 2.00% divided by 8.25%.

Otherwise, the State of Texas is imposing a tax disguised as a cost-based fee to the citizens of Texas.

Below is the recap of the annual tax charged to local governments along with the Top 50 payers.

ENTITY	GROSS COLLECTIONS	2% SERVICE FEE
GRAND TOTAL	$8,207,438,785	$164,148,777
HOUSTON MTA	$706,588,797	$14,131,776
HOUSTON	$649,877,508	$12,997,550
DALLAS MTA	$549,512,086	$10,990,242
SAN ANTONIO	$326,024,050	$6,520,481
DALLAS	$286,439,874	$5,728,797
AUSTIN MTA	$224,847,374	$4,496,947
AUSTIN	$207,111,910	$4,142,238
SAN ANTONIO MTA	$139,467,030	$2,789,341
FORT WORTH	$139,043,247	$2,780,865
ARLINGTON	$103,856,316	$2,077,126
EL PASO	$84,544,840	$1,690,897
PLANO	$79,127,702	$1,582,554
FRISCO	$76,561,830	$1,531,237
AMARILLO	$76,188,475	$1,523,770
CORPUS CHRISTI	$73,886,344	$1,477,727
FORT WORTH MTA	$69,078,582	$1,381,572
ROUND ROCK	$67,996,147	$1,359,923
LUBBOCK	$66,316,817	$1,326,336
IRVING	$66,009,062	$1,320,181
FORT WORTH CRIME CTRL DIST	$65,433,451	$1,308,669
SAN ANTONIO ATD	$63,220,054	$1,264,401
MCALLEN	$61,739,232	$1,234,785
MIDLAND	$54,979,855	$1,099,597
SUGAR LAND	$53,198,028	$1,063,961
GRAND PRAIRIE	$51,143,821	$1,022,876
MCKINNEY	$46,632,047	$932,641
EL PASO COUNTY	$45,826,233	$916,525
MESQUITE	$43,412,130	$868,243
GRAPEVINE	$42,358,646	$847,173
CONROE	$42,325,549	$846,511
EL PASO CTD	$41,951,196	$839,024
ABILENE	$41,233,710	$824,674
TYLER	$40,309,897	$806,198
ODESSA	$39,931,872	$798,637
BEAUMONT	$39,684,062	$793,681
LAREDO	$39,468,031	$789,361
ALLEN	$37,741,460	$754,829
WACO	$37,621,206	$752,424
BROWNSVILLE	$37,556,119	$751,122
LEWISVILLE	$35,782,795	$715,656
CARROLLTON	$35,274,253	$705,485
RICHARDSON	$33,472,183	$669,444
COPPELL	$33,098,877	$661,978
CORPUS CHRISTI MTA	$32,885,321	$657,706
PASADENA	$32,755,524	$655,110
MIDLAND COUNTY	$32,588,281	$651,766
ECTOR CO HOSP DIST	$31,148,828	$622,977
BRAZORIA COUNTY	$31,121,946	$622,439
DENTON	$30,871,972	$617,439
LONGVIEW	$30,430,549	$608,611