Texas Sales Tax Handbook

RATE OF SALES TAX:

6.25%

LOCAL & COUNTY MAXIMUM RATES:

2.00%

What are the taxable goods and services?

The first step in sales tax compliance is determining if the items or services your firm offers are taxable in Texas.

Traditional Products and Services

Physical goods, such as furniture, household appliances, and automobiles, is subject to sales tax in Texas.

Prescription and nonprescription drugs, food, and fuel are all tax-free.

In Texas, several services are subject to sales tax. Visit the Texas Comptroller of Public Accounts website for a comprehensive list of taxable services.

Digital Products and Services

A digital item or service is anything that is supplied electronically, such as a music downloaded from iTunes or a movie bought from Amazon.

Businesses in Texas are not required to collect sales tax on the sale of digital products or services. There is one exception to this policy: Texas firms are required to collect sales tax on pre-written computer software sold online.

How to Register for Sales Tax in Texas

If you have concluded that you must charge sales tax on part or all of the products and services that your company sells, the next step is to apply for a seller’s licence.

This enables your company to collect sales tax on behalf of the municipal and state governments.

You will need the following information to register:

Type of Entity (LLC, Corporation, Sole Proprietorship etc.)
Personal data of company owners, partners, officials, and/or members (SSN, address, etc.)
Information about business (EIN, address, etc.)
NAICS Codes are used to categorize businesses. (You may do an NAICS Code Lookup to locate the NAICS Code for LLC that corresponds to your industry.)
Texas Secretary of State filing number for a company (if applicable)

A Resale Certificate might help you save money.

When acquiring items for resale, your firm does not have to pay sales tax if you obtain a resale certificate, also known as a reseller’s permit.

Sales Tax Collection

After obtaining your seller’s licence and starting your company, you’ll need to figure out how much sales tax to charge various consumers. It is critical for company owners to collect the right rate of sales tax to avoid penalties and the danger of expensive audits.

When computing sales tax, consider the following types of transactions:

Store Sales Shipping Within-State Sales Outside-State Sales

Retail Sales

For conventional company owners who sell products or services on-site, calculating sales tax is simple: all sales are taxed at the rate determined by the store’s location.

Here’s an illustration of how this situation may look:

In Corpus Christi, Texas, Mary owns and operates a bookshop. Because books are taxed in Texas, Mary charges her clients a fixed rate of 8.250% on all transactions. This includes the 6.250% Texas sales tax, the 1.000% Aransas Pass County sales tax, the 0.500% Aransas city tax, and the 0.500% Mary local district tax.

Sales inside the state

The state of Texas has a scheme known as origin-based sales taxation. This implies that items sent inside Texas are taxed based on the seller’s address. This regulation applies to sales taxes levied by the state, county, and city.

Consider the following scenario:

Steve operates his own eBay electronics company from his home in Tyler, Texas. A buyer from San Antonio discovers Steve’s eBay website and buys a $350 set of headphones. Steve uses the Texas State sales tax rate of 6.25%, plus 1.000% for Aransas Pass County, 0.500% for the City of Aransas, and 0.500% for his business’s local tax district, when computing the sales tax for this transaction. As a result, the total amount of sales tax is $28.88.

Out-of-State Purchases

Texas firms must only pay sales tax on out-of-state transactions if they have a presence in other states.

Nexus indicates that the company has a physical presence in another state.

Common nexus types include:

A physical place, such as an office, retail shop, or warehouse.
An employee who works from home or as a roaming sales representative.
An affiliate marketer
Dropshipping from a third-party vendor.
A temporary physical site, such as a festival or fair booth.

Submit Your Sales Tax Return

You’re ready to submit your sales tax return now that you’ve obtained your Texas seller’s permit and understand how to charge the correct amount of sales tax to all of your customers. You avoid penalties and fines, be sure to meet all filing dates.

How to File a Claim

Businesses in Texas are required to file sales tax forms and make sales tax payments online.

How Frequently Should You File?

The frequency with which you must submit is determined by the total amount of sales tax collected by your firm.

Annual filing: If your company collects less than $83.33 in sales tax each month, you should submit returns on an annual basis.
Quarterly filing: If your company receives between $83.34 and $1,500.00 in sales tax each month, you should seek to submit quarterly reports.
Monthly filing: If your company receives more than $1,500.00 in sales tax each month, you must submit monthly returns.

Deadlines for Filing

The deadline for all Texas sales tax returns is the 20th of the month, unless it is a weekend or federal holiday, in which case the deadline is postponed to the following working day.

Penalties for Filing Late

Late filing in Texas carries a $50.00 fee.