Can a city that has adopted a Municipal Crime Control District sales tax repeal the Section 323.208 exemption for telecommunications services and tax them under that local tax?

Subject

Municipal Crime Control Districts — Telecommunications Services Exemption

Plain-English summary

A city ("City A") had adopted a Municipal Crime Control District sales tax under Article 2370c-4, V.A.T.S. and Section 323.105, Tax Code. The city asked whether it could repeal the exemption for telecommunications services found in Section 323.208, Tax Code, and start taxing those services under the crime control district's local sales tax.

The Comptroller's staff answer: "a qualified yes." A municipal crime control district can only tax telecommunications services if the city itself already subjects those services to tax under its own local sales tax (Section 321.210, Tax Code). If the city does not tax telecommunications services, the crime control district cannot tax them either.

The reasoning rests on the statutory link between a crime control district and the city (or county) that created it. Under Article 2370c-4, § 1.05A, a municipal crime control district has the same relationship to its city as a county crime control district has to its county. Section 323.105(c), Tax Code, provides that an item, transaction, or service taxable in a county under one local sales tax is taxable under the crime control district tax, and if it's not taxable under the other local tax, it's not taxable under the crime control district tax either -- there can be no "variations" between what the two entities tax. The memo applies that same logic to municipal crime control districts and their host cities.

What this means for you

Cities considering repealing the telecommunications exemption for a crime control district

Before repealing the Section 323.208 exemption for a Municipal Crime Control District sales tax, confirm whether the city itself already taxes telecommunications services under its own municipal sales tax (Section 321.210, Tax Code). If the city does not tax those services, the crime control district legally cannot tax them either -- repeal alone won't create authority to tax telecommunications services that the city doesn't already tax.

Telecommunications providers and their tax/accounting teams

Whether a crime control district's local sales tax applies to your telecommunications services in a given city turns on whether that city's own general sales tax already covers those services. Check the city's local sales tax treatment first, not just the crime control district's rate schedule.

Accountants and tax professionals advising local governments

This letter treats municipal crime control districts as bound by the same "no variation" rule the Comptroller applies to county crime control districts under Section 323.105(c): the taxability of an item or service must match between a jurisdiction's general local sales tax and its crime control district sales tax.

Common questions

Q: Can a city just repeal the Section 323.208 exemption to start taxing telecommunications services through its crime control district?
A: Not by itself. Repealing the exemption only allows taxation if the city already taxes telecommunications services under its own local sales tax per Section 321.210, Tax Code.

Q: What if the city doesn't currently tax telecommunications services?
A: Then the crime control district cannot tax them either, according to this memo -- the two taxes must align.

Q: Does this rule apply only to telecommunications services, or more broadly?
A: The memo frames it as a general principle borrowed from Section 323.105(c) (county crime control districts): a crime control district's taxable items and services cannot vary from what's taxable under the base local sales tax of the city or county that created it.

Citations and references

Statutes:

• Tex. Tax Code § 323.208 (local sales tax exemption for telecommunications services)
• Tex. Tax Code § 323.105 (crime control district sales tax; ties taxability to the underlying local sales tax)
• Tex. Tax Code § 321.210 (municipal sales tax treatment of telecommunications services)
• Article 2370c-4, § 1.05A, V.A.T.S. (authorizing municipal crime control districts)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=
• Opinion: https://star.comptroller.texas.gov/view/9604L1404E01

Original ruling text

DATE: April 16, 1996

TO: Bob Bearden and Jim Edwards, Local Government

FROM: Richard Craig

SUBJECT: Municipal Crime Control Districts Telecommunications Exemption
Section 323.208, Tax Code

CITY A tin ** recently adopted a Municipal Crime Control District
Sales tax under the provisions of Article 2370c-4, V.A.T.S. and Section
323.105, Tax Code. They now have asked whether or not they may repeal the
exemption of telecommunications services found in Section 323.208, Tax Code,
and subject those services to this local sales tax.

I believe that the answer is "a qualified yes". That is, they may do so if
the city itself already subjects those services to sales tax. If the city
does not, they may not. My reasoning for this answer is as follows:

Under Section 1.05A of Article 2370c-4, V.A.T.S., a municipality like CITY A
can create a crime control district in its jurisdiction in the same manner as
a county can. It goes on to provide that a municipal crime control district
has the same relationship with the city as a county crime control district
has with the county.

Under Subsection 323.105(c), it is provided that retailers cannot be required
to use allocation and reporting methods for this tax that are different than
the regular County Sales tax. It continues: "An item, transaction or service
that is taxable in a county under a sales or use tax authorized by another
section of this chapter is taxable under this section. An item, transaction
or service that is not taxable in a county under a sales or use tax authorized
by another section of this chapter is not taxable under this section."

The same reasoning is applicable in the case of a municipal crime control
district as well as a county crime control district. If the city taxes it
under Section 321.210, Tax Code, the crime control district must tax it as
well. If it does not, they cannot. There can be no "variations" in what is
taxable between these two entities.

I hope that this answers their question. If I can be of further assistance,
please let me know.

NOTE: Previous Accession Number 9604138L