Houston's new $5 monthly garbage fee will include an 8.25% sales tax, city officials say

Houston's new $5 monthly garbage fee will include an 8.25% state sales tax, city officials said. Council members reviewed how the fee is structured this week and raised the issue.

Council member Amy Peck raised the issue at the Sept. 29 Budget & Fiscal Affairs meeting, saying she noticed the sales tax built into the $5 fee.

"In all of the briefings and models presented to us, I don't recall us ever talking about a sales tax as being part of it," Peck said. "The models presented to us showed $24 million yearly going to the combined utility system."

Peck said that once the 8.25% sales tax is included, the fee would actually put about $22.17 million into the Combined Utility System.

Eric Nguyen, a representative from the city attorney's office, said state law requires municipalities to charge sales tax on certain services they provide, including garbage collection.

"State law basically says that if you provide garbage collection services, as a municipality, you are required to impose sales tax, and then collect it, remit it to the state, which then distributes and remits it to the tax entities, including the state," Nguyen said.

Peck pushed back, arguing the city had not sold the charge to residents as a tax but as an administrative collection fee. She said the city is not offering a service but charging an administrative fee to run the department.

Nguyen said the Texas Comptroller's office responded that sales taxes are due when governmental entities provide garbage collection services.

The fee was approved in June as part of Houston's $7.5 billion budget for fiscal year 2026-27. City officials said at the time that the new $5 monthly administrative fee would help close the city's budget gap and address problems in the Solid Waste Department.

The fee was estimated to generate about $24 million annually. It will help fund the move of the Solid Waste Department into the Combined Utility System, which also funds water and sewer services.

At the regular City Council meeting on Sept. 30, finance director Melissa Dubowski told reporters that the sales tax will now be a fixed part of the fee. The fee is expected to rise to $10 in fiscal year 2028-29.