On Aug. 15, 2021, the Waxahachie Sun addressed certain information, or more accurately described as misinformation, disseminated through a Facebook post made by Mr. Travis Smith regarding sales tax derived from food trucks and what governmental entity ultimately receives the tax. Mr. Smith, a first-term member of the Waxahachie City Council, unequivocally stated that sales tax derived from food truck operations is distributed back to the local governmental entity where the food truck was registered rather than to where the sale was made. I, along with others including food truck operators, responded the statement was simply incorrect. Rather, it was pointed out that all types of vendors must report to the Texas Comptroller the amount of sales, where the sales occurred, the applicable sales tax rate and the amount of sales tax owed. This information is used to determine the distribution of collected sales tax to the place where the sale occurred. Mr. Andrew Branca, the author of the article, confirmed that with the Texas Comptroller.
Mr. Smith did not respond to those who told him he was wrong. Rather, he diverted the topic in that Facebook post to maintain that while a food truck operator may be legally required to report their taxes they routinely do not so if they use PayPal or Venmo. I do not know the factual basis that allows for the casting of such a wide net disparaging those who use such methods of payment nor was that information included in the post.
An understanding of the use of a Payment Settlement Entity, or PSE, would recognize they are not just for PayPal-type transactions. A PSE is a financial institution that serves as a merchant exchange for third-party electronic payment services no matter if payment is by credit or debit card or via PayPal or Venmo. The payment data is all collected the same no matter what electronic method is used. It does not alleviate the legal obligation for a business to report all sales to the Texas Comptroller no matter the method of payment nor does it give one a tool allowing a vendor to easily dodge reporting that information.
Mr. Smith doubled down on his position this past Friday through another Facebook post. He complained how the Sun and Mr. Branca “beat him up” in the article that was “slamming [his] take and competency” on the topic. He included in his Facebook post a snapshot of IRS Form 1099-K that is used to report the gross amount of sales of any type through the use of a PSE. This form does not capture information for sales tax purposes and definitely is not a replacement for the Texas sales and use tax return that vendors are obligated by law to file. The copy of the Form 1099-K that is sent to the states is for state income tax purposes and not state sales tax purposes. The Texas Comptroller assumes that the majority of sales are done by credit card and so the Form 1099-K is sometimes used as a way to estimate the accuracy of an entity’s reported gross sales in an audit. However, gross sales reported may or may not be subject to sales tax. Therefore, if the inclusion of Form 1099-K in this latest post is to provide support for the allegations made against vendors who use PayPal or Venmo then it fails on all counts.
Mr. Smith castigates the Sun and Mr. Branca on questioning his competency on this topic. I believe that he has now done that himself not once but twice on providing erroneous information and unsubstantiated claims. A governmental representative should not make unsubstantiated allegations against hard-working citizens who are valuable to our business community and a news outlet that dares to fact check the statements made by the representative.
Patrick Souter is an attorney and Waxahachie resident. Contact him at firstname.lastname@example.org.