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Plano staff present two sales-tax sourcing tools as options to capture revenue from new construction and business operations
Summary
Economic development staff briefed council on two tools—separated materials sales tax for construction and sales-tax sourcing for qualifying businesses—that neighboring North Texas cities use to capture sales tax revenue; council expressed interest in adding the tools to the city’s “toolbox” and directed staff to bring proposals case by case.
City economic development staff presented two sales-tax sourcing tools the city could use as part of future economic development agreements: (1) separated materials sales tax for new construction materials and (2) sales-tax sourcing for qualifying individual businesses.
Doug McDonald, Plano’s director of economic development, and Andrew Fortune in government relations explained the mechanics and limits of each option and told council the tools are commonly used in North Texas. McDonald said both approaches are intended to capture sales tax revenue that the city does not currently collect on large projects, and staff would bring each use to council individually as part of any incentive negotiation.
Separated materials sales tax: Staff described a process in which contractors issue resale certificates and arrange with the Texas Comptroller’s rules so that sales tax on construction materials can be sourced to the city where the job site is located. McDonald said that arrangement shifts administrative burden to the contractor and the comptroller’s office and that the city can consider sharing a portion of the captured tax as a rebate to offset those administrative costs. He noted the tool applies mainly to new construction (for example, a new hotel or office building) and may not apply to routine renovations or “second-generation” tenant fit-outs, which are often sourced locally under state practice.
Sales-tax sourcing for businesses: Andrew Fortune said the state comptroller’s requirements are evolving but that qualifying places of business—where customers can place orders, call centers or on-site points of sale—can designate on-site and remote sales to a single city under certain rules. He cautioned a simple warehouse/distribution center without customer-facing or order-taking functions generally would not qualify. Staff said agreements would be vetted with the comptroller’s office before any contract is signed.
Council members asked practical and policy questions: Council member Horn asked whether the materials approach applies to reconstruction and whether other jurisdictions use these tools; McDonald replied the method is used by neighboring North Texas cities and that Plano is “a little bit late to the game.” Council member Williams asked how much construction material is subject to sales tax; staff said they did not have that figure on hand but would provide it later. McDonald confirmed any sales captured through separated materials would be subject to Plano’s 1¢ Dallas Area Rapid Transit (DART) sales tax allocation where applicable, which reduces the net benefit compared with non‑DART cities.
Council direction: Council indicated interest in adding both tools to the city’s economic-development “toolbox” for consideration on a project-by-project basis; staff said any use would return to council for approval under the city’s normal economic development agreement process and would be accompanied by finance and audit support as needed.
Staff noted next steps would include preparing project-specific revenue projections, working with finance for auditing assistance if needed, and coordinating with the comptroller before presenting any formal agreement.
