2018-085 Sales Tax OverviewDate: July 13, 2018 Report No. 2018-085
INFORMAL STAFF REPORT
TO MAYOR AND CITY COUNCIL
SUBJECT:
The purpose of this report is to provide the City Council with details regarding the City’s sales
tax rates, their intended use, and other options available.
BACKGROUND:
The total sales tax rate in the City of Denton is currently 8.25%. Of that rate, 6.25% is allocated
to the State of Texas, 1.5% is allocated to the City of Denton, and 0.5% is allocated to the
Denton County Transit Authority (DCTA). The table below lists the FY 2017 estimated sales tax
revenue generated in the City of Denton by category:
Sales Tax Revenue Recipient Estimated Sales Tax Revenue from the
City of Denton
State of Texas (6.25%) $153.3 million
City of Denton (1.5%) $36.8 million
DCTA (0.5%) $12.3 million
Estimated Total $202.4 million
Texas has both a state and a local option sales tax. The state sales tax, called the Limited Sales
and Use Tax, was first enacted in 1961 by the 57th Texas Legislature, to be effective September
1, 1961. Although it was not the first sales tax in Texas (before that time there had been a sales
tax on certain items such as motor vehicles, gasoline, cigarettes, etc.), the 1961 Limited Sales
and Use Tax was the first broad-based tax in the state. The tax rate initially set in 1961 was 2%
of the retail sales price of all tangible personal property not specifically exempted. The
legislature changed the rate to 3% in 1968, 3.25% in 1969, 4% in 1971, 4.125% in 1984, 5.25%
in 1986, 6% in 1987, and 6.25% in 1990.
In 1968, City of Denton voters approved the adoption of a 1% municipal sales tax rate. Voters
increased that rate by 0.5% in 1994 for property tax relief. Denton’s total sales tax rate for
municipal operations has been 1.5% since 1994. In 2004 voters approved an increase of 0.5% for
the DCTA, bringing the total local option rate to its current level of 2% which is the maximum
per Texas Tax Code 321.
Revenue from the City’s 1% sales and use tax and 0.5% municipal sales tax for property tax
relief goes to the General Fund and can be used for any lawful purpose. The 0.5% sales tax for
metropolitan and rapid transit authorities is restricted to transit expenses and is revenue to the
DCTA.
DISCUSSION:
A modification to any component of the City’s current local option sales tax rate (2%) would
require a ballot proposition. This could be initiated at the discretion of the City Council or
through a petition signed by at least 20% of voters who cast ballots in the most recent regular
Date: July 13, 2018 Report No. 2018-085
municipal election. Should residents want to modify a portion of the current local option sales
tax rate (1% regular rate, 0.5% propert tax relief rate and/or 0.5% transit rate) and replace that
portion of the rate with an alternate allowable purpose, a joint proposition could be used on a
single ballot to reduce one rate and add another rate.
For example, a ballot could call for the repeal of the 0.5% transit portion of the local option sales
tax and then add a 0.25% for Type A Economic Development and 0.25% for 4 Type B Economic
Development. Staff would note that in this scenario, the City would have to repay its portion of
DCTA’s current outstanding debt and negotiate terms for existing DCTA facilities/infrastructure
located within the City limits.
Other examples may involve the repeal of the 0.5% for property tax relief or the 1% regular rate
portion of the loal option sale tax. In either scenario, the City’s General Fund would see a
revenue shortfall. For FY 2018-19, each 0.5% is approximately $12 million or the equivalent of
12 cents on the property tax rate. For a $200,000 single family home, this is approximately $240
per year.
Please do not hesitate to contact me if you have any further questions about the city’s sales tax.
ATTACHMENTS:
Texas Comptroller of Public Accounts – Guide on Local Sales Tax Options
STAFF CONTACT:
Antonio Puente, Jr., Director of Finance
(940)-349-7283
Antonio.Puente@cityofdenton.com
Glenn Hegar
Texas Comptroller of
Public Accounts
This publication is intended as a general guide and not as a comprehensive resource on the subjects covered.
It is not a substitute for legal advice.
JANUARY 2018
1
FOR MORE INFORMATION,
VISIT OUR WEBSITE
Comptroller.Texas.Gov
RECEIVE ECONOMIC
DEVELOPMENT TAX HELP
BY EMAIL AT
econ.dev@cpa.texas.gov
SALES TAX OPTIONS FOR CITIES
SALES AND USE TAX
(Increments of 0.125 percent) – Most cities
in Texas have this form of sales tax. It may be
mposed by any incorporated city. Revenues are
deposited into the city’s general revenue fund
and may be used for any lawful purpose. (
i
– This form of tax may be imposed by any • Type B
incorporated city. Revenues must be turned over
to a development corporation formed to act on
behalf of the city to carry out programs related
to a wide variety of projects including business
development and public parks.
Tax
Code, Chap. 321.)
SALES TAX FOR ECONOMIC DEVELOPMENT*
(Increments of 0.125 percent) – Two options are
available for a city to adopt this tax:
• Type A – This form of tax may be imposed by most
incorporated cities. (There are exceptions in certain
counties with mass transit systems). Revenues must
be turned over to a development corporation formed
to act on behalf of the city to carry out programs
related to industrial development, business infrastruc-
ture and the promotion of new and expanded busi-
ness enterprises that create or retain primary jobs.
For more detailed information, see the
Comptroller’s Economic Development Sales Tax
brochure (PDF). (Loc. Govt. Code, Chap. 501-505.)
STREET MAINTENANCE SALES TAX
(Increments of 0.125 percent) – All cities are
authorized to hold an election to adopt a sales
tax to repair and maintain existing city streets. For
most cities, the tax expires after four years unless
a new election is held to reauthorize the tax. The
revenue from this tax may be used only to maintain
and repair existing city streets and sidewalks. For
more detailed information, see the Comptroller’s
Street Maintenance Sales Tax brochure (PDF).
(Tax Code, Chap. 327.)
MUNICIPAL DEVELOPMENT CORPORATION*
(0.125, 0.25, 0.375 or 0.5 percent) – A city may
create a municipal development corporation to
undertake projects that provide job training, early
childhood education, after-school programs, schol-
arships, literacy promotion and other projects.
The Comptroller’s
online sales tax rate
tool locates all sales tax
rates in effect for any
Texas address.
LOCAL SALES TAX OPTIONS
A city, county or special purpose district may adopt a sales tax provided the combined
rate of all local sales taxes would not exceed 2 percent at any location within its territorial
limits. All local sales taxes require voter approval.
* This tax is actually imposed by a board, district or
authority created by and for the benefit of a city or
county.
22
FOR MORE INFORMATION,
VISIT OUR WEBSITE
Comptroller.Texas.Gov
RECEIVE ECONOMIC
DEVELOPMENT TAX HELP
BY EMAIL AT
econ.dev@cpa.texas.gov
LOCAL SALeS TAx OPTIONS
more than 5,000 or by a county with a population
of more than 130,000. The governing body in a
municipality or commissioners court may specify
the number of years (5, 10, 15 or 20) the district
would be continued. Revenues from the sales tax
may be used to finance a wide variety of crime
control and prevention programs. (Loc. Govt.
Code, Chap. 363, and Tax Code, Sec. 323.105.)
VENUE TAX “STADIUM BILL”
(Increments of 0.125 percent) — This sales tax is
one of several revenue options available to a city or
county to fund sports and community “venue” proj-
ects. Multiple cities and counties in any combina-
tion may join to form a venue district under Chapter
335, Local Government Code, as well. Some exam-
ples of a “venue” are a stadium, convention center,
park or economic development-type facility. (The
rate for a county imposing the tax is capped at
one-half of one percent.)
For more detailed information, see the
Comptroller’s Sports and Community Venue Tax bro-
chure (PDF). (Loc. Gov. Code, Chap. 334 and 335.)
METROPOLITAN AND RAPID TRANSIT
AUTHORITIES/MUNICIPAL TRANSIT
DEPARTMENTS*
(0.25, 0.5, 0.75 or 1 percent) – In certain instances,
authorities may be created to levy a sales tax to
provide transportation services in participating cities.
These are not offered statewide to all cities and are
Voters in the city may authorize adoption of a
sales tax to fund activities of the corporation.
(Loc. Govt. Code, Chap. 379A.)
MUNICIPAL DEVELOPMENT DISTRICT*
(0.125, 0.25, 0.375 or 0.5 percent) – Cities may
hold an election in all or part of a city, including
the extraterritorial jurisdiction, to create a municipal
development district and adopt a sales tax to fund
the district. The district may undertake a variety of
projects including a convention center, civic cen-
ter, auditorium and other projects eligible for Type
B Corporations under Chapter 505 of the Local
.) Government Code. (Loc. Govt. Code, Chap. 377
FIRE CONTROL, PREVENTION, AND EMERGENCY
MEDICAL SERVICES (EMS) DISTRICTS*
(0.125, 0.25, 0.375 or 0.5 percent) – Cities with a
population between 25,000 and 550,000 or more
than 1.9 million may create an EMS district. The
district may include all or any part of a city. The
district may finance the operation of a fire control,
prevention and EMS program. (Loc. Govt. Code,
Chap. 344 Tax Code, Sect. 321.106, and .)
MUNICIPAL SALES TAX FOR
PROPERTY TAX RELIEF
(Increments of 0.125 percent) – This “additional
sales tax” may be imposed by most incorporated
cities (there are exceptions in certain counties with
rapid transit systems). Revenues are deposited into
a city’s general revenue fund. Cities adopting this
form of local sales tax must reduce the effective
and rollback property tax rates within the city.
For more detailed information, see the Comptroller’s
Using Sales Tax To Reduce The Property Tax Rate
brochure (PDF). (Tax Code, Chap. 321.)
SALES TAX OPTIONS FOR CITIES & COUNTIES
CRIME CONTROL AND PREVENTION DISTRICT*
(Increments of 0.125 percent up to 0.5 percent
maximum rate) — This sales tax may be imposed
by a city located in a county with a population of
Local sales tax rates
may not exceed a
combined 2 percent.
3
FOR MORE INFORMATION,
VISIT OUR WEBSITE
Comptroller.Texas.Gov
RECEIVE ECONOMIC
DEVELOPMENT TAX HELP
BY EMAIL AT
econ.dev@cpa.texas.gov
LOCAL SALeS TAx OPTIONS
generally found in metropolitan areas. Cities may
opt to join and, in some cases, withdraw from an
authority with voter approval. The tax rate is gener-
ally implemented in 0.25-percent increments under
Transportation Code, Sect. 453.401. (Tax Code,
Chap. 322 and Transportation Code, Chap. 451,
452, and 453.)
SALES TAX OPTIONS FOR COUNTIES
COUNTY SALES TAX FOR
PROPERTY TAX RELIEF
(0.5 or 1 percent) – This sales tax may be imposed
by most by most counties also imposing an ad
valorem tax. Revenues are deposited into a coun-
ty’s general revenue fund. The rate is 0.5 percent,
except in counties with no territory within the
limits of a municipality where the rate is 1 percent.
Hospital districts also may impose this sales tax,
but at different rates.
For more detailed information, see the
Comptroller’s Using Sales Tax To Reduce The
Property Tax Rate brochure (PDF). (Tax Code,
Chap. 323.)
COUNTY ASSISTANCE DISTRICT*
(Increments of 0.125 percent) – Counties may hold
an election in all or part of the county, to create
one or more county assistance districts and adopt a
sales tax to fund the districts. A district may under-
take a variety of projects including roads or high-
ways; provision of law enforcement and detention
services; the maintenance or improvement of librar-
ies, museums, parks or other recreational facilities;
or other services that benefit the public welfare.
For more detailed information, see the
Comptroller’s County Assistance District Sales Tax
brochure (PDF). (Loc. Govt. Code, Chap. 387.)
EMERGENCY SERVICES DISTRICT (ESD)*
(Increments of 0.125 percent) – Counties may hold
an election in all or part of the county, to create
one or more emergency services districts and
adopt a sales tax to fund the districts. Funds may
be used to hire emergency personnel, contract with
other entities to provide emergency services, and/
or purchase equipment and facilities. (Health and
Safety Code, Chapters 775.)
* This tax is actually imposed by a board, district or
authority created by and for the benefit of a city or
county.
Sales taxes paid on
purchases this month
are generally remitted
to the Comptroller next
month and allocated to
local taxing entities the
following month.
WE’RE HERE TO HELP!
If you have questions or need information, contact us:
This publication is intended as a general guide and not as a comprehensive resource on the subjects covered. It is not a substitute for legal advice.
Glenn Hegar
Texas Comptroller of Public Accounts
For more information, visit our website
Comptroller.Texas.Gov
Receive economic development tax help by email at econ.dev@cpa.texas.gov
Texas Comptroller of Public Accounts 111 East 17th StreetAustin, Texas 78711-1440
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Publication 96-1708 • Revised January 2018