In a significant legal victory for the City of Round Rock, Judge Karin Crump of the 250th District Court in Travis County invalidated key portions of the Texas Comptroller Rule 3.334 (34 Texas Administrative Code § 3.334), concerning local sales and use taxes. The Court held that the amended rule, which created a de facto destination-based tax sourcing framework, directly contravened the Texas Tax Code and violated procedural requirements of the Texas Administrative Procedures Act (APA).
Bryan Dotson, senior counsel in Chamberlain Hrdlicka’s Tax Controversy practice in San Antonio, along with lead counsel Cindy Olson Bourland, of Bourland Law Firm P.C., represented the City of Round Rock during the trial of lawsuit, which was consolidated with a lawsuit filed by five other Texas cities—Coppell, Humble, DeSoto, Carrollton and Farmers Branch, against Texas Comptroller Glenn Hegar.
“The ruling is a victory for all Texans,” said Dotson. “At its core, Judge Crump’s decision reinforces the fundamental principle that the Legislature sets the tax policy for the State of Texas. The decision also safeguards the public’s right to participate in the rulemaking process by holding the Comptroller accountable for the procedural shortcomings in adopting the amendments to Rule 3.334.”
The multi-year lawsuit was originally filed in 2021, after the Texas Comptroller adopted amendments to Rule 3.334, introducing definitions and provisions that effectively reallocated sales tax revenue from cities where sellers are located to the cities where the buyers are located. Judge Crump’s ruling declared that key sections of the amended rule conflicted with existing statutes, particularly Sections 321.203 and 323.203 of the Texas Tax Code, which already provide a detailed statutory scheme for determining where sales of taxable items are consummated. Furthermore, the Court determined that the rule adoption violated the APA by failing to substantially comply with its notice and “reasoned justifications” requirements.
About Chamberlain Hrdlicka
Chamberlain Hrdlicka is a diversified business law firm with offices in Atlanta, Houston, Philadelphia, and San Antonio. The firm represents both public and private companies, as well as individuals and family-owned businesses across the nation. The firm offers counsel in appellate law, bankruptcy, commercial and probate litigation, construction law, corporate, employee benefits, energy and maritime law, ERISA, estate planning and administration, intellectual property, international and immigration law, labor and employment, privacy and data security, real estate, securities and finance, tax controversy and tax planning.
