Hundreds of acres south of the Ronald Reagan Boulevard and Hwy. 29 intersection sit undeveloped, but in a few years the city of Leander anticipates the area to be bustling with commercial activity.
Those parcels of land could be at the center of a bill before the Texas Legislature in the spring.
Leander city leaders are concerned that a portion of sales tax money generated in that area is slated to go to the Liberty Hill Public Library District. Per state tax legislation, the library district would receive 0.25 percent of sales tax revenue collected in that area.
During an Oct. 11 City Council meeting, Leander hired legal counsel to help file a bill in the 2017 legislative session in an attempt to change the state tax code. The move was made in an effort to save Leander millions of lost sales tax dollars in the future, City Manager Kent Cagle said.
Texas tax law and annexed land
In 2015, the city of Leander annexed 212.9 acres of land along the Ronald Reagan corridor. In response, city staffers received a notice from the Texas Comptroller’s Office stating the local sales tax rate in the newly annexed areas would be higher than the maximum 2 percent allowed by state law, Cagle said.
According to the comptroller’s office, Texas imposes a 6.25 percent state sales tax on all retail sales, leases and rentals of most goods and taxable services. Local taxing jurisdictions, such as cities, counties, special-purpose districts and transit authorities, can also impose a sales tax of up to 2 percent—for a maximum combined rate of 8.25 percent.
Leander is also part of the Capital Metro taxing district, so the Leander sales tax rate is: 6.25 percent to the state, 1 percent to Capital Metro and 1 percent to the city.
Portions of Leander’s annexed property overlap with part of the LHPLD, which has the same boundaries as Liberty Hill ISD. Both the city of Leander and the library district collect a local sales tax—Leander’s rate is 1 percent, and the library district’s rate is 0.25 percent. Kevin Lyons, senior press secretary for the Texas Comptroller, said the state department reduced Leander’s sales tax rate from 1 percent to 0.75 percent to lower the local combined rate in the overlapped area.
If an annexation causes the new city limits to overlap another taxing jurisdiction, Section 321.102 of the state tax code allows the comptroller to adjust the local tax rate to maintain a combined 2 percent.
So the sales tax rate for the overlapping areas of land is now: 6.25 percent to the state, 1 percent to Capital Metro, 0.25 percent to the LHPLD and 0.75 percent to the city of Leander.
“We’ve been informed by the state comptroller that we’re going to lose [a quarter] of our sales tax because of this library district,” Cagle said. “[Capital Metro] gets first call on the sales tax revenue, the library district is second and the city is last in line.”
Due to more annexations in 2015 and 2016, the overlapping region between Leander and the LHPLD now totals 687 acres, according to Leander’s planning department.
Cagle said there is currently nothing built in that area of town that generates sales tax revenue, but he said the city is planning for a retail development along the Ronald Reagan corridor.
“We expect it to be very commercial, retail-oriented,” he said.
In December 2015, Leander City Council approved a concept plan and rezoning for a proposed retail center located at the southeast corner of the intersection of Ronald Reagan and Hwy. 29. At the time, an attorney for the developers described the project as a “high-quality destination retail center.”
Economic Development Director Mark Willis said the retail center could become larger than the H-E-B shopping center at Hero Way and US 183.
Aside from the southeast corner of the intersection with Hwy. 29, Willis said there is interest from developers for commercial shops and businesses along Ronald Reagan. He said several are waiting for the population density in that area of town to grow to a level that will support commercial businesses.
“Pretty much what everybody’s watching is how fast the Cold Springs shopping center [on Ronald Reagan] fills up,” he said. “That really is going to tell us how fast [that corridor] develops.”
Cagle said the city is set to lose millions in tax revenue because the quarter-cent sales tax that is now going to the library district will add up over time.
“The first thing is the length of time: forever,” he said. “A [quarter] cent sales tax on the economic activity in that area forever is a lot of money.”
Library district’s services
Leander is one of many municipalities that funds its own library services and does not have a library district. Because the city of Leander’s municipal library now serves the annexed areas, future shoppers in that region would generate sales tax revenue that would fund both the Leander and Liberty Hill libraries, Cagle said.
“We’re proposing a change in the legislation that would allow us to annex those portions of the library district, because we already provide library services,” he said. “Our residents shouldn’t have to pay for two different libraries in two different taxing entities.”
LHPLD Library Director Angela Palmer said the library board would have to discuss the issue at its November meeting.
The LHPLD operates on its 0.25 percent sales tax on sales revenue generated within its boundaries, and Palmer said there is limited business development in Liberty Hill. She said the library has doubled its circulation in the past two years, which she attributes largely to the population growth in Leander.
Residents living within Leander city limits can receive a free library card, although those living outside the city limits must pay an annual fee of $15 for an individual and $25 for a family membership, according to the city’s website. Liberty Hill issues library cards to any Texas resident for free, so Palmer said the LHPLD serves residents living in Leander’s extraterritorial jurisdiction, or ETJ. County residents who live in Leander’s ETJ have city addresses, but pay county taxes and do not receive some city services.
“So we get lots of people coming from Leander to our library, which is fine, because our library is supposed to provide things for citizens—it’s our job,” she said. “But we don’t have the support for that.”
Palmer said she hopes Leander does not go to the Texas Legislature to try to regain its 0.25 percent sales tax rate from the LHPLD.
“It’s something I would definitely not propose, as my budget is strained as it is,” she said. “The sales tax we get within our boundaries is not adequate to the population growth we’re experiencing.”
According to numbers from the Texas Comptroller’s Office, sales tax revenue for the library district grew by nearly 98 percent from 2010-15—from $108,005.29 to $213,609.59.
Cagle said the city will take the issue to the Texas Legislature to prevent citizens from paying double for library services.
“It needs to be resolved; it’s just basic tax equity,” Cagle said. “We shouldn’t have to pay taxes for a service in another city.”
Cagle said Leander aims to push for legislation similar to when a city annexes land that is served by an emergency services district, or ESD.
State statute allows municipal governments to annex land that is served by an ESD and take over an ESD’s taxing authority to provide city emergency services. The city would refund the ESD for any outstanding debt it had issued in the past.
“It happens a lot—cities annex land that’s in an emergency services district, and if that city has a fire department, the same principle applies,” he said. “You shouldn’t have to pay for another fire department in another entity.”
Cagle said a similar solution would make sense for library districts.
During the Oct. 11 City Council meeting, the city approved an agreement with Chuck Rice Group for $45,000 to draft special legislation and get the bill filed in the Texas Legislature.
Kurt Johnson, director of media relations for Chuck Rice Group, said he could not comment on the strategy for the bill. He said he doubts a bill would be ready to file by December, although it could be ready to file in January. The first day of the legislative session begins Jan. 10.
State Rep. Tony Dale, R-Cedar Park, said he discussed the issue with Leander and is willing to help. He said this is an example of what the Legislature will have to address when rapidly growing communities begin to run into each other.
“They have not yet formally asked me to file legislation, but they know that I’m prepared to help them if they ask,” he said. “In their mind it needs to be fixed, so it appears [legislation] may be the only way to solve this problem.”
Because a legislative solution could impact taxing authorities across the state, Dale said he would recommend making the bill as narrow as possible.
Cagle said the city will work closely with Chuck Rice Group and have a presence at the Texas Capitol during this legislative session. He said this is the city’s only solution to regain the future sales tax revenue.
“The impact to the city is going to be millions in the future,” he said. “If we’re not successful this time, we need to try and try again.”
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