Some Home Furnishings Association members in Texas aren’t happy about a proposed tax swap that one retailer compared to “playing games.”
Gov. Greg Abbott, joined by Lt. Gov. Dan Patrick and House Speaker Dennis Bonnen (pictured above), unveiled a plan April 10 to raise the statewide sales tax from 6.25 percent to 7.25 percent and use the additional revenue “to buy down property tax rates for all Texas homeowners and businesses.”
The three top leaders see the tax swap as a means of slowing what they called “skyrocketing property taxes.”
“In 2017, Texans paid $59.4 billion in property taxes, up from $40.3 billion in 2010 and $22.5 billion in 2000, state records show,” the Fort Worth Star-Telegram reported April 10.
Some furniture retailers, however, are wary of the proposed tax swap, predicting that higher sales-tax rates will widen the price advantage enjoyed by out-of-state online sellers.
“Property taxes are high, but so is our sales tax, and it gives people one more reason to go shop online especially since we have such a high threshold for the online sales tax law, which means more lost revenue,” said Brad Schweig, vice president of operations for HFA member Sunnyland Furniture in Dallas.
Later this year, Texas will begin requiring out-of-state online sellers to collect sales taxes on purchases by Texas residents – but the law will exempt their first $500,000 in sales.
“This will affect brick-and-mortar stores in Texas negatively if the internet tax threshold is not reduced to zero,” Chris Pfeiffer, owner of Homestead House Furniture in Conroe, said. “Pushing the sales tax to 9.25 percent only increases the pressure to buy products online to avoid paying sales tax,” he added, referring to a 7.25 percent statewide rate plus as much as 2 percent more in local taxes in some areas.
Last year in South Dakota v. Wayfair, the U.S. Supreme Court ruled that states could require online sellers to collect and remit sales taxes even if they did not have a physical presence in the taxing states. Most states, including Texas, have moved to take advantage of the opportunity to increase revenues.
The decision delivered a victory to brick-and-mortar retailers, which lose business to online competitors that don’t collect sales taxes from their customers. The disparity gives online sellers an automatic price advantage. So, the Wayfair ruling helps level the playing field. But it tilts again when a seller is given an exemption on initial sales – a highest-in-the-country threshold of $500,000 for Texas.
Brick-and-mortar retailers also pay property taxes, so easing those levies would help, but some don’t see the tax swap as even.
It doesn’t make sense to Schweig.
“If a tax increase is really needed — for example, the gas tax — then let’s do the right thing instead of playing games like this,” he said.
If the Texas House and Senate pass tax swap legislation, the proposal then would go to voters for their approval in a statewide referendum.