Rural Stephens County voters to consider county sales tax in November election

October 02

15:24 2024

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By Carla McKeown and Tony Pilkington/Breckenridge Texan

In the upcoming election, voters who live in Stephens County, but outside the Breckenridge city limits, will have a chance to vote on a new sales tax for the county. In order to charge the sales tax, Stephens County will have to create a “County Assistance District” that encompasses only the unincorporated area of Stephens County.

The voters in that area will vote for or against the creation of the district, as well as the proposed tax rate of 2%.

The Stephens County Commissioners voted unanimously on June 22 to propose the tax. At their Sept. 23 meeting, they approved the wording on a “Stephens County Sales Tax Proposal Fact Sheet” to be presented to the community.

County Judge Michael Roach said that, according to information from the State of Texas, over the past three years, the taxable revenue in the unincorporated areas of Stephens County has increased from an average of $686,000 per month in 2021-2022 to $1.1 million per month this year. He said the estimated annual revenue from the proposed sales tax is $272,000-$275,000 but that it could be more.

“This is a conservative number … because when this fact sheet was created, we did not have all the data,” Roach said at the Sept. 23 meeting. “… it doesn’t have big box retailers, like Walmart’s not on here, Amazon’s not on here. … These are brick and mortar, or people who have a tax ID inside Stephens County, not national chains who don’t have an ID within the county, that have a state ID. … So, it’s going to be more than that.”

The funds will be limited to specific uses, such as roads, law enforcement and fire fighting (see the Uses of the Sales Tax Funds section below for more details) and could serve to lower the property tax rate in the county (see the Purpose of the Sales Tax section below for more details). However, the property taxes are not limited to specific uses and can be used for whatever needs the county has.

The state requires that a County Assistance District have a governing board, which can be the commissioners court. According to the order calling for the election, the Stephens County Commissioners Court will be the governing board of the district, if it’s approved by the voters.

Proposed Sales Tax

The proposed Stephens County sales tax is 2%, to be added on top of the State of Texas’ 6.25% sales tax. If approved, the tax will be charged on all taxable items purchased in the unincorporated areas of Stephens County, outside the City of Breckenridge. The proposed sales tax will add 2 cents (.02) to every dollar spent or $2 for every $100 spent in the unincorporated area of the county.

If approved by the voters, it will set the total sales tax charged at 8.25% in the rural areas of the the county, the same as it is in the City of Breckenridge. The proposed sales tax will not apply to the City of Breckenridge, which will continue to have an 8.25% sales tax.

At this time, by law, the highest amount of sales tax Texas shoppers can pay is 8.25%. The State charges 6.25%, and other taxing entities may add their own sales tax in increments ranging from .125% to 2%, depending on the agency and the type of sales tax implemented.

As mentioned above, in order to impose the new tax, Stephens County will need to create a County Assistance District, which will include all areas of the county that are not within the city limits of Breckenridge. The County Assistance District is required because the City of Breckenridge already imposes a 2% sales tax within the city limits and a county-wide tax would put the tax in the city over the allowable limit. The only way a county government can implement a tax in just a part of the county is through the creation of a County Assistance District.

The proposed tax will apply to all purchases made in the district, including online purchases from businesses such as Walmart and Amazon, as well as at all local businesses located in those areas of the county.

As with all sales taxes, the businesses will send the collected tax money to the State of Texas, which will then send the additional 2% to the County.

If approved, the sales tax will go into effect “on the first day of the first calendar quarter occurring after the expiration of the first complete quarter occurring after the date the comptroller receives a copy of the Order of the District’s Governing Body adopting the tax,” according to the order calling for the election.

Current Tax Situation

Currently, Stephens County does not have a sales tax. Businesses that sell taxable items within the county but outside of Breckenridge charge only the State of Texas’ 6.25%. That includes local brick-and-mortar businesses, local online businesses and non-local online or delivery businesses that are required to charge state sales tax.

Shoppers who make purchases in Breckenridge pay an additional 2% sales tax, a portion of which is returned to the City of Breckenridge by the State Comptroller’s office and used for various City expenses, including road repairs.

Residents in the unincorporated areas of Stephens County pay 2% less sales tax than residents who live in Breckenridge when shopping online, and everyone who shops at businesses in the unincorporated areas pays 2% less than customers at shops in the city. For example, if someone who lives in rural Stephens County orders a $100 bag of dog food to be delivered to their house, they will pay about $106.25, including tax. Someone living in Breckenridge will pay $108.25 for the same bag of dog food to be delivered from the same company.

If the voters approve the County sales tax, the tax will be 8.25% throughout the county, regardless of the location.

Purpose of the Sales Tax

In both the June 22 and Sept. 23 meetings, as well as in the “Fact Sheet,” the Commissioners Court says that the money generated from the proposed sales tax would be required by law to reduce the property tax rate in the county.

According to the Texas Tax Code Sec. 26.041, the money the sales tax generates will be used to calculate the county’s “No New Revenue” tax rate. According to the Texas Comptroller of Public Accounts’ Truth in Taxation webpage, the “No New Revenue” tax rate “enables the public to evaluate the relationship between taxes for the prior year and for the current year, based on a tax rate that would produce the same amount of taxes if applied to the same properties taxed in both years.”

However, the County Commissioners are not required to use the “No New Revenue” tax rate when creating a budget for the county and proposing a tax rate to fund that budget. In addition to the “No New Revenue” tax rate, they also calculate the “Voter Approval” tax rate, which is more than the “No New Revenue” tax rate and requires the rate be approved by a majority of the voters in an election.

For example, this year, Stephens County Commissioners voted unanimously to approve a 5.16% increase in the property tax rate, which is more than the “No New Revenue” rate, without voter approval. The recently approved property tax rate is set at $0.67280 per $100 valuation, which is an increase of $0.03300 (3.3 cents) — 5.16 percent — over last year’s tax rate, which was $0.63980 per $100 valuation. That is less than one-quarter of one cent ($0.00248) less than the “Voter Approval” tax rate ($0.67528/$100 valuation). This year’s approved property tax rate is $0.03666 — or about 3⅔ cents — more than the “No New Revenue” tax rate.

In response to Facebook comments regarding the proposed sales tax, County Judge Michael Roach responded by stating, “…by law, the sales tax is factored by the assessor collector each year and automatically lowers property taxes.” And, in response to a comment about how taxes never decrease, Roach said, “… a governmental body can continue to raise taxes and negate any benefit the sales tax would have.”

If approved by the voters, any reduction in the property tax rate would be applied across the entire county, not just to the residents in the unincorporated areas.

Use of the Sales Tax Funds

Although the County Judge and Commissioners say in the “Fact Sheet” that their purpose in proposing a sales tax for the unincorporated areas of Stephens County is to lower property taxes, the specific use of the funds is dictated by state law. However, the order calling for the election, states that the purpose of the proposed sales tax would be to assist the county in performing the following functions within the unincorporated areas of the county:

• construction, maintenance, or improvement of roads or highways;
• provision of law enforcement and detention services;
• maintenance or improvement of libraries, museums, parks or other recreational facilities;
• provision of services that benefit the public health or welfare, including the provision of firefighting and fire prevention services; or
• promotion of economic development and tourism.

Those approved uses are spelled out in Texas’ Local Government Code, Sec. 387.003.

Official Stance on the Sales Tax

The county judge said the County is not taking a position for or against the proposed tax and is putting out the information for the voters to decide on.

“So all we’ve said was, you know, the county does not have a position per se,” Roach said at the Sept. 23 meeting. “This was just an opportunity to lower property taxes by sales, not on the backs of the property owners themselves. And so this uses the robust nature of a growing economy in the unincorporated areas of our county. And, if the … voters in the unincorporated areas want this, they can vote yes; if they prefer not to, that’s no problem, too.”

At the July 22 County Commissioners meeting, Precinct 3 Commissioner Will Warren said he is against the tax but was going to vote for the proposal to put the issue to a public vote. “I don’t like
it. I don’t want it, but I think that (the voters) need to decide that for themselves,” Warren said. “That’s just me.”

In that same meeting, Precinct 1 Commissioner David Fambro said, “This is just to make the decision whether … it gets put on the ballot, not for us to actually do it. So it still has to go out to vote in November, and it has to be approved by the voters for it to actually go into effect. … I say, put the facts out there, let the voters decide, because this is one of the few things that, as a court, we don’t have the final decision over. But, it gives everybody the opportunity to put their input down.

“It’s the only thing I’ve seen the last three years, I haven’t seen anything else that comes in that has the potential to lower property tax. This is the only thing I’ve seen,” Fambro explained.

According to the meeting agenda, Fambro was the commissioner who requested the sales tax proposal be considered by the commissioners court, and he made the motion to call for the election on the proposed sales tax.

Comparisons to Other Counties

With so many options for Texas counties to implement taxes, finding one that directly compares to Stephens County isn’t easy.

According to the Comptroller’s website, there are 125 Texas counties with a countywide sales tax in place. Most were set up in the 1980s and ’90s, and they’re for the maximum allowed 0.5% for that type of tax. In most of those situations, the counties’ sales tax also applies to residents in the municipalities in those counties.

There are also counties that have other types of special purpose districts set up to collect taxes, such as Emergency Services Districts, which can be used only to fund emergency services in the county.

Earlier this year, Donley County in the Texas Panhandle proposed three separate County Assistance Districts for collecting sales tax. That election was held in May, and only one of the three was approved by the voters. The proposed district most similar to Stephens County’s proposal was for a 2% sales tax in all of the county’s unincorporated areas and was defeated by a vote of 111-101, according to the Clarendon Enterprise. The City of Hedley voters also turned down a proposal for a district that would have instituted a 1% sales tax in the city to help fund the Donley County Sheriff’s Department. That proposal was defeated 42-11. The voters in the City of Howardwick approved a County Assistance District, 40-12, with a 1% sales tax to assist law enforcement.

In 2021, voters in Midland County voted against a proposal to create a district to raise the tax rate in the unincorporated areas to the maximum 8.25%. Midland County already has a countywide 0.5% sales tax rate in place.

Young County has a countywide half-cent sales tax that was put in place in 1989. The cities of Newcastle, Olney and Graham have an additional 1.5% sales tax rate, making the total sales tax in those communities 8.25%

Likewise, Palo Pinto County has a half-cent, countywide sales tax that was implemented in 1988. Several cities in that county have additional sales taxes. In Shackelford County, the City of Albany has a 2% sales tax, like Breckenridge does, and the county does not have a sales tax, according to the Comptroller’s website. A similar situation exists in Eastland County; several of the municipalities in the county have sales tax, but the county does not, based on various Comptroller reports.

In the counties without a county-imposed sales tax or other special district sales tax, businesses in unincorporated areas charge only the state sales tax and residents in the rural areas pay only the state sales tax when they shop from home.

Pros and Cons

A sales tax would benefit Stephens County and its residents by adding revenue to the county’s budget and potentially reducing the property tax rate.

“This could provide long-term relief for property owners by shifting part of the county’s revenue source away from property taxes and towards sales tax,” the Fact Sheet states.

The sales tax will provide the county with long term fiscal health, diversifying the county’s revenue stream through sales tax to provide more financial stability, Roach said.

“One of the things that we’ve talked about here, too, is that we cannot rely on the goose that’s laid the golden egg in Stephens County for years, and that’s oil and gas…,” Roach said at the Sept. 23 meeting. “… they’re not drilling any new wells in Stephens County. They’re plugging more than they’re drilling. We just know that’s a fact of life.”

Some of the opponents to the proposed sales tax have expressed a general opposition to increasing taxes of any kind.

The sales tax will increase the cost of purchases that shoppers make in the county at stores, restaurants and other businesses that sell taxable goods and services, including online businesses that already charge state sales tax. Counties cannot tax natural gas and electricity use for residential customers, but businesses may be charged sales tax on such services; and, therefore, business expenses could go up if the sales tax is approved. Other services, such as trash collection, may be taxed and consumer costs will increase if the proposal is approved by the voters.

According to a recent Texas Tribune article, sales taxes are a more volatile way to fund the government because they’re more vulnerable to economic downturns and shifts in consumer spending.

Additionally, although the property tax rates may be reduced if the county sales tax is implemented, that won’t necessarily benefit renters who live in the county. Although renters indirectly pay property taxes through their rent, they don’t pay property taxes directly; therefore, any savings to a renter is dependent on the property owner passing along the cost reduction.

That Texas Tribune article also says that the burden of paying sales tax falls harder on lower-income households because sales taxes make up a higher share of their income than they do for households higher up the income ladder.

In 2019, a Texas House bill that proposed raising the state sales tax rate by 1% to 7.25% was postponed and never approved. One of the points made by those in opposition to the proposed sales tax increase was that it would affect poorer citizens more than others, according to a Texas Tribune article about the issue.

The Ballot

The proposed county sales tax will be on the Nov. 5 ballot (with early voting starting Oct. 21). Roach explained in the Sept. 23 meeting that when voters go to the polls, they will be asked if they live in Breckenridge or outside the city limits. Those who live in Breckenridge will receive the standard ballot, which will include all of the local, state and federal political races, depending on their county precinct. Those who live in the unincorporated areas of Stephens County will receive a special ballot that includes the proposed tax.

According to the order calling for the election regarding the creation of a County Assistance District and the sales tax, the ballot will state:

“Authorizing the creation of the Stephens County Assistance District No. 1, and the imposition of a sales and use tax at the rate of 2% for the purpose of financing the operations of the district.”

A vote “For” the proposition will be a vote to add a 2% tax on all taxable sales in the unincorporated areas of Stephens County, increasing the overall sales tax in that area to 8.25%.

A vote “Against” the proposition will be a vote to keep the sales tax in the unincorporated areas of Stephens County at the state rate of 6.25%.

Cutline, top photo: Stephens County Judge Michael Roach, right, talks to the county commissioners at the Sept.23 meeting. Also pictured, from left, are Will Warren, Mark McCullough and David Fambro. (Photo by Tony Pilkington/Breckenridge Texan)