Gun “discrimination” can cost you government contracts in Texas

If you refuse to do business with the gun industry, Texas won’t do business with you. In 2021, Texas enacted a bill to prohibit governmental entities from contracting with companies that discriminate against the firearm and ammunition industry. The prohibition applies to contracts between a governmental entity and a company with at least 10 full-time employees (excluding sole proprietorships), where the government contract is valued at $100,000 or more. In the wake of the devastating Uvalde school shooting, will this new Texas law face legal challenges from companies committed to cutting ties with the gun industry?

SB 19, passed by the Texas Legislature in 2021, prohibits governmental entities from contracting with certain companies that discriminate against the firearm and ammunition industries.[1]  

The prohibition applies to contracts between a governmental entity and a company with at least 10 full-time employees, where the contract is valued at $100,000 or more, paid wholly or partly from funds of the governmental entity.[2] Sole proprietorships are excluded from the definition of “company,” which means that the prohibition does not apply to contracts between governmental entities and sole proprietorships.[3]

Where the prohibition applies, the company is required to certify in writing that:

• it does not have a practice, policy, guidance, or directive that discriminates against a firearm entity or firearm trade association; and
• it will not discriminate during the term of the contract against a firearm entity or firearm trade association.[4]

“Discriminat[ion] against a firearm entity or firearm trade association” is defined as:

• refusing to engage in the trade of any goods or services with the entity or association based solely on its status as a firearm entity or firearm trade association;
• refraining from continuing an existing business relationship with the entity or association based solely on its status as a firearm entity or firearm trade association; or
• terminating an existing business relationship with the entity or association based solely on its status as a firearm entity or firearm trade association.[5]

“Discriminat[ion] against a firearm entity or firearm trade association” does not include:

• the established policies of a merchant, retail seller, or platform that restrict or prohibit the listing or selling of ammunition, firearms, or firearm accessories; and
• a company’s refusal to engage in the trade of any goods or services, decision to refrain from continuing an existing business relationship, or decision to terminate an existing business relationship:
  • to comply with federal, state, or local law, policy, or regulations or a directive by a regulatory agency; or
  • for any traditional business reason that is specific to the customer or potential customer and not based solely on an entity’s or association’s status as a firearm entity or firearm trade association.[6]

Certain contracts are exempt from the certification requirement. No certification is required where the governmental entity contracts with a sole-source provider or does not receive any bids from a company “that is able to provide the written verification required by [Tex. Gov’t Code § 2274.002(b)].”

Also exempt are contracts entered into in connection with or relating to the issuance, sale, or delivery of tax and revenue anticipation notes or the administration of matters related to the notes. if the Comptroller determines that compliance with the prohibition is likely to prevent an issuance, sale, or delivery that is sufficient to address the general revenue cash flow shortfall forecast or the administration of matters related to the notes. Before making such a determination, the Comptroller is required to do the following: (i) survey potential respondents or bidders to a solicitation for such a contract to determine the number of qualified potential respondents or bidders that are able to provide the written verification regarding the discrimination against a firearm entity or firearm trade association; and (ii) evaluate the historical bidding performance of qualified potential bidders.[7]

Although the statute provides that the prohibition applies to contracts between governmental entities and companies with 10 or more employees, regardless of industry, the original impetus for the bill was the Texas Legislature’s concern that “large banks and other financial institutions in our country have quietly enacted policies to restrict gun sales and exert pressure on the firearm industry.” It was “unacceptable” to the legislature that “these institutions hold our money and attempt to use financial pressure to infringe our Second Amendment rights.”

Shortly after the law took effect on September 1, 2021, Texas Attorney General Ken Paxton requested that all bond counsel submit a standing letter confirming that the company (including its wholly-owned subsidiaries, majority-owned subsidiaries, parent companies, and affiliates) do not have a practice, policy, guidance, or directive that discriminates against a firearm entity or firearm trade association. Dozens of banking institutions, including local companies like the First State Bank of Uvalde, and multinational corporations like Barclays, have submitted the standing letter in the last year.

No company has challenged the constitutionality of this new Texas law in court, yet. In the wake of the devastating Uvalde school shooting, and ongoing gun violence across the United States, the law is likely to face legal challenges from companies committed to cutting ties with the gun industry.

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[1] Tex. Gov’t Code §§ 2274.001-2274.003.

[2] Tex. Gov’t Code § 2274.002(a).

[3] “‘Company’ means a for-profit organization, association, corporation, partnership, joint venture, limited partnership, limited liability partnership, or limited liability company, including a wholly owned subsidiary, majority-owned subsidiary, parent company, or affiliate of those entities or associations that exists to make a profit. The term does not include a sole proprietorship.” Tex. Gov’t Code § 2274.001(2).

[4] Tex. Gov’t Code § 2274.002(b).

[5] Tex. Gov’t Code § 2274.001(3)(A).

[6] Tex. Gov’t Code § 2274.001(3)(B).

[7] Tex. Gov’t Code § 2274.003.