Sales-tax rebate bill aims to curb abuse: Foreign shoppers would have to prove purchases leave US
by Zahira Torres \ Austin Bureau
Posted: 11/25/2010 12:00:00 AM MST

AUSTIN - State Rep. Chente Quintanilla has filed a bill that would make it more difficult for international shoppers to avoid paying sales taxes on items they purchase in Texas.

Texas is the only state on the border that allows foreign shoppers tax refunds, provided a customs broker certifies that the goods are leaving the country. Other states require proof that the retailer or a certified carrier shipped the items across the border.

All of this occurs because the U.S. Constitution restricts state governments from taxing exports to other countries.

Quintanilla, D-El Paso, says he wants proof that wholesale and retail shoppers who purchase items in Texas take them back to Mexico. Otherwise, he said, no sales taxes should be refunded.

In the existing system, Texas allows foreign shoppers to take their goods and their receipts to one of 167 licensed customs brokers. There, the shopper must sign a statement promising that he will take the goods he bought out of the country. With this step, the customer can get a tax refund after 24 hours at the store where he made the purchase.

Proponents of this method say the state's approach encourages international shoppers to buy products in Texas, rather than in neighboring states or their home countries. They say that businesses depend on foreign shoppers to boost sales, and that shoppers spend money on hotels, restaurants and other services for which they do not receive sales-tax refunds.

Opponents say state and local governments are losing tax revenue at a time when Texas faces a budget deficit of up to $24 billion. Just as important, they say, the rebate system is rife with fraud.

A 2003 study by the state comptroller estimated that eliminating fraud could increase local sales-tax revenue by $6.4 million annually and state sales-tax revenue by $23.7 million a year.

After that report, the Texas Legislature, led by Rep. Norma Chávez and Sen. Eliot Shapleigh, both El Paso Democrats, instituted some protections to prevent fraud. But Quintanilla said he is not satisfied that the system is working correctly.

"We found that a lot of people who live here in the United States that are Mexican citizens go and show their Mexican credentials and they get a refund," he said. "It's not right."

Quintanilla said the problem has worsened in recent years because more Mexican citizens have moved to El Paso to escape drug war violence.

According to the state comptroller, foreign shoppers received about $507 million in sales-tax refunds during 2004-09.

That equated to about $6 billion in sales.

In El Paso, international shoppers received about $61.7 million in state and local sales-tax refunds during the same period, according to the comptroller's staff.

Estimates by the comptroller showed that $46.7 million would have gone to the state, about $7.5 million to the city of El Paso and another $7.5 million to the county and the transit system.

County Judge-elect Veronica Escobar said she might be willing to support Quintanilla's bill, pending a review.

Escobar said she wants the state to conduct a study that looks at the benefits, pitfalls and fraud under the current system.

"There is an assumption that there is fraud, but I don't have the data to prove that," she said. "I'd like to see if the comptroller can recommend administrative changes to recover the costs."

Under current law, people caught committing fraud to obtain the sales-tax refund could be charged with a Class B misdemeanor, which calls for up to 180 days in jail and a fine up to $2,000.

Mike Breitinger, executive director of the Central Business Association in El Paso, said changes to Texas' practice would hurt retailers who count on Mexican shoppers.

"Businesses have already taken a lot of hits in this economy," he said. "Some are struggling to stay alive, and something like this doesn't help their confidence to continue."

David Macias, a customs broker, said he could support some tougher regulations to make sure that international shoppers are taking items home.

But, Macias said, Quintanilla's bill is not the right approach.

"I don't understand why Representative Quintanilla didn't seek out some counseling from the business community and the brokerage community," Macias said. "A lot of people that hear about this like to run wild with accusations of abuse without realizing that it really is pretty small."

History of sales taxes and rebates

# 1961: Texas sales tax is enacted.
# 1969: Exports are made exempt from the tax when the goods are shipped to another country by a forwarding agent, a carrier or retailer.
# 1970s: U.S. Customs officials abandon the practice of verifying exports after finding it too difficult to obtain import documentation from Mexican authorities.
# 1985: Federally licensed customs brokers are allowed to handle state sales-tax rebates.
# 1993: The state licenses customs brokers.
# 1999: A 24-hour waiting period for sales-tax rebates is enacted on the border. It is seven days elsewhere.

Refunds and exceptions
# Under Texas law, foreign buyers in Texas can receive a sales-tax refund or be exempted from taxation by providing one of the following:
# Proof that the item was shipped out by the retailer through a federally licensed freight company.
# Export documents from a federally licensed freight company.
# Documentation by a customs broker.
# Import documents from a foreign country.
# A maquiladora exemption certificate.

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