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

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