When you buy from an online retailer and pay a local sales tax, you probably expect the money to benefit your community, right? That’s not always what happens, according to an op-ed by Texas Comptroller Glenn Hegar, published in the Dallas Morning News on Feb. 4.

There’s a loophole in Rule 3.334 that allows businesses and communities to direct the local sales taxes to different locations. Instead of sales taxes going to the community where the buyer lives, or even where the seller is based, Hegar wrote in the Dallas Morning News that some business owners and communities actually make deals that allow cities to acquire the local sales taxes from online sales by setting up a facility supposedly used to process and ship orders. That location would be considered the place of business, although it’s possible that online orders aren’t processed and shipped from any location in Texas.

“In exchange, a business may be rebated those tax dollars – in some cases 75 percent – money that taxpayers across Texas expect to stay in their own communities. Instead, the money is going to a handful of cities and businesses who have these arrangements to fund their budgets and bottom lines,” Hegar wrote in the op-ed.

He wants that to stop and he is proposing a new arrangement that would direct sales taxes from online sales to stay where the buyer lives; that could bring a significant amount of revenue for local governments in the state. His staff is working to determine how many cities, and which ones, are using that loophole to redirect local sales taxes.    

“I don’t fault businesses for trying to boost their bottom line, and I don’t fault cities that enter into these economic development agreements, but my duty is ultimately to the taxpayers,” Hegar wrote. “Taxpayers do not pay local sales tax on internet purchases with the expectation that the revenue is then being distributed to businesses and cities nowhere near their communities.”