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Texas Sales Tax Guide

By Cristina Garza

🐄🐴🤠 Yeeeehaw! Texas is the second largest state in the union by population, GDP, and land mass. Plus, they have that toast. So running a business in Texas is a go big or go home venture; with a very business friendly legal environment and a relatively high ease of entry there can be stiff competition. This comprehensive Texas State Sales Tax Guide will prepare any of you folks with the grit and tenacity to make a Texas business thrive. Giddyup, pardners!

After reading this guide, you will know:

  • How to contact the Texas Comptroller of Public Accounts
  • How to be prepared for your call with the Texas Comptroller of Public Accounts
  • When to charge sales tax in Texas
  • What goods and products are taxable in Texas
  • When you establish a sales tax nexus with the state of Texas, and the nuances of various thresholds
  • How to register for a sales tax license in Texas
  • How to collect sales tax in Texas
  • How to file and pay sales tax in Texas

Our Texas Sales Tax Guide will give you the confidence to effectively manage your Texas sales tax from beginning to end. If you have any other questions to help you navigate your way through Texas sales tax, we are here for you.

Giddyup, pardners!

 

 


Texas Sales Tax Contacts

 

Texas Sales Tax Contacts

 

✅ Do you want to contact the Texas Department of Revenue?

✅ Are you unsure if you should call them, or email them through their website?

✅ Do you wonder what information you should have ready before you contact them?

 

If you answered “Yes” to any of these questions, you’re in the right place! Read on.

You may contact the Texas Comptroller of Public Accounts by calling 800-252-5555, or emailing at sales.maintenance@cpa.texas.gov to expedite your call.

If you are a glutton for punishment, you may opt to visit a Taxpayer Service Location. You will have to take a ticket and wait.

But who has time for that? Calling is the easiest option.

Before you call or email the Texas Department of Revenue, there are three things you need to have handy or included in the email:

  • Taxpayer Name
  • EIN
  • Sales & Use Tax ID Number

 

If you are calling on behalf of someone else or another business, you need to have one more piece of information.... A signed Texas Power of Attorney 

Why?

If you do not have this, they will not be able to talk to you. This document authorizes the tax authorities in Texas to discuss a third party’s taxes with you.

If you have any more questions, please feel free to contact us so we can assist you with your sales tax needs.

 

 


Texas Sales Tax Registration

 

Texas Sales Tax Registration

 

Do you have to register for a sales tax license in the state of Texas?

To know the answer to this question, you need to ask yourself two questions first.

Do you sell or lease tangible items?

Do you sell taxable services?

If you replied “Yes” to either, you need to register for a Texas sales tax account.

This may seem overwhelming if it is your first time. Just remember, you only need to register for an account one time. And you’ll be super prepared after reading this guide.

A few positive points to start us on the path of obtaining a Texas Sales Tax account! It’s completely free to register and there is no need to renew! 😲🎉 That’s right, you do not ever have to renew once you’ve obtained your [free!] Sales Tax Permit. Give it up for Texas :)

 

The registration process is quite simple

so long as you are prepared.

We are going to walk you through it right now.

You will find out more information on:

  • How and where to register
  • Information needed
  • Cost
  • Other requirements such as a Tax ID or other agencies you may need to register with.

As our clients frequently ask about these topics, we are going to give you all the information we can about these topics.

Before diving in, you may find it easier to gather all the information you have now in one place. As we mentioned, preparation is key.

Being prepared means having any and all information accessible, for when the moment arises. This information includes:

  • Business name
  • Business entity type
  • Description of business activities
  • Date business activities began or will begin
  • Business address and mailing address
  • Business contact information
  • NAICS code that best matches the business
  • Federal Employer Identification Number (FEIN)
  • List of business officers, partners, managing members, and/or trustees
  • Business name
  • Business entity type
  • Description of business activities
  • Date business activities began or will begin
  • Business address and mailing address
  • Business contact information
  • NAICS code that best matches the business
  • Federal Employer Identification Number (FEIN)
  • List of business officers, partners, managing members, and/or trustees

So, let’s get to it!

 

How do I register to collect sales tax in Texas?

Registering starts with being well prepared so you can avoid half-starts in the registration process where you go back to go find the information. You want to be sure that you have the following information available:

You may already have this information easily accessible in a folder either in hard or soft copy. The next thing is to apply for a sales tax permit in Texas.

So, now you may be asking another frequently asked questions by clients: How do I apply for a sales tax permit in Texas?

You can apply for your sales permit one of two ways:

Here is a video that shows how to use this system.

 

 

 

 

Using Tx Comptroller Webfile site is the fastest way to set up your license.

 

What if I need to update my information?

We’ve got you!

If you are changing the mailing address, all you have to do is complete two forms.

You can also email Texas Tax Help to change your mailing information.

 

Whichever option you choose, the state will take care of the change for you.

 

How much does it cost to register for a Texas sales tax license?

Zero, zilch, zip. In Texas, everything is bigger. Except the registration fees. The toast is for real, though, folks.

 

Do I need a Federal Tax Id Number or EIN to register for a Texas sales tax license?

Yes indeed, you do need a Federal Tax ID (EIN) to register for a Texas sales tax license.

No need to worry, though!

You can easily register for a Federal EIN here.

 

Which agencies in Texas do I need to additionally register with?

Because each business is different, you may wish to contact the Texas Comptroller of Public Accounts as well as any other potential government agencies to verify which ones you are required to register with.

Some potential agencies include:

But this is obviously a non-exhaustive example of the agencies a business may need to inquire about before opening shop. If you’re unsure and need help, we’re always here to chat.

 

*****

 

You’re ready to go!

You are now prepared to register for your sales tax license in Texas because

  • You know how to register for a sales tax preferably online at the Tx Comptroller Webfile site
  • You have all the necessary information easily accessible for the registration process
  • You know what fees to expect
  • You know you need a tax ID or EIN, and how to get one.
  • You have determined what other agencies you may also have to register with.

Registering for your sales tax license will be smooth as long as you are prepared. We suggest keeping all the necessary information organized in one place. You should have it saved in hard-copy and digitally. And do take advantage of the resources available online and through your tax professional.

 

 


Texas Sales Tax FAQ

 

Texas Sales Tax FAQ

By now, you have probably contacted the Texas Comptroller of Public Accounts and possibly even registered for a sales tax license.

Now that you have finished the application process, you want to know when you are required to collect sales taxes. It is quite common for new business owners to have questions about this.

To know when you must collect sales taxes and from whom, we should discuss the basics of taxable goods in the state of Texas by looking at some frequently asked questions from my clients. This will help us illustrate the nuances of when a business needs to charge sales tax in Texas, and when a business doesn’t need to.

Let’s start with the first question…

 

What products are considered taxable or not taxable in Texas?

Businesses want to collect a sales tax on anything taxable in Texas including:

 

It’s important to mention that Texas is one of the few states that taxes web development and hosting services- listed as “data processing services”. We work with a ton of web developers and this fact surprises all of them!

If you are questioning whether or not your services are taxable, check out the Comptroller’s site to dig deeper.

Businesses want to keep in mind the following tax rates when collecting taxes on taxable goods and services:

  • State Sales Tax: 6.25% sales and use tax on all retail sales, leases, and rentals of most goods, as well as taxable services.
  • Local Jurisdiction Sales Tax: 2% sales and use tax for a maximum combined rate of 8.25 percent.
    • Local jurisdiction taxes concern cities, counties, special purpose districts and transit authorities

 

 

The bottom line is …

If you are selling a product or service that does not qualify for an exemption, you need to charge a sales tax.

 

*****

 

Now that we have reviewed what kinds of goods or services are taxable (which includes “data processing services”) you will want to learn about the factors that establish a taxing connection with the state of Texas.

 

We are going to go over the following frequently asked questions:

  • Is Texas an Origin or Destination Sales Tax State?
  • What creates Sales Tax Nexus in Texas?
  • What is the economic threshold in Texas?
  • Does Amazon have fulfillment centers in Texas?
  • Does Texas have Click-Through Nexus?

 

Why do you need to know this information? It is very important for any business owner to be fully informed on the various requirements to collect and remit sales taxes where they do business.

In addition to considering whether the good is taxable, business owners like yourself must be aware of the ways they can establish a taxing connection with the state. By going over these common questions that our clients ask, you will be better able to assess whether your business has established such a connection with the state of Texas.

 

Is Texas an origin or destination sales tax state?

Texas is Origin Based Sales Tax State.

This means that you charge a Texas sales tax based on the seller’s location, which is easier because it never changes unless the seller goes to a trade show or fair to sell their products.

 

 

Protip: Charge Texas sales tax based on the location of the seller.

 

 

To make managing your tax responsibilities easier, you should set up your eCommerce and Point of Sale software to appropriately charge sales taxes based on the type of sales tax state each one is. If you do not collect sales tax when you were supposed to, you risk under or over collecting which can have tax implications at the time of filing a return.

Now that we know that Texas is an Origin Based sales tax state, we need to also consider other criteria that could trigger a sales tax requirement at the point of sale.

Texas recognizes several thresholds to trigger sales tax requirements, which can be explained using these four commonly asked questions:

  • What creates a sales tax nexus in Texas?
  • Does Amazon have fulfillment centers in Texas?
  • Does Texas have Economic Nexus?
  • Does Texas have a click-through Nexus?

Don’t get overwhelmed! After we finish discussing these four questions in more detail, you will feel more confident in recognizing if your business meets any of the criteria triggering a tax connection with Texas.

After explaining the basics we will go over the variety of thresholds recognized by the state of Texas that constitute a sales tax nexus.

 

 

What creates sales tax nexus in Texas?

Before answering this question, we want to stress one thing:

If you create a sales tax nexus with Texas, you are subject to sales tax.

What is a sales tax nexus again?

Sales Tax Nexus is also known as "sufficient business presence.” It means your business has established enough of a connection with the state to trigger a sales tax requirement. You then have to comply with the sales tax regulations in that state.

What if your main headquarters are in another state? You may still have to charge pay sales tax to the Texas Comptroller of Public Accounts even if you never step foot in Texas. For businesses located in Texas are not the only ones capable of creating a sales tax nexus with Texas. Out of state businesses are capable of the same.

So, how do you create a Sales Tax Nexus in Texas?

 

There are a few ways a business can create nexus in Texas.

  • If the business has presence such as an office, manufacturing plant, or warehouse in Texas
  • If independent contractors/salespeople are soliciting business in the state
  • If your products are delivered in Texas with a company vehicle
  • If the client has products stored in an Amazon warehouse in the state

If you are still scratching your head and wondering if you have sales tax nexus, you can fill out Form AP-114 Texas Nexus Questionnaire and the state can help determine whether or not you have nexus. If you are on the fence, we highly recommend going directly to the state to get their determination.

 

 

Does Amazon have fulfillment centers in Texas?

Yes, Amazon has twelve fulfillment centers in Texas. If your products are stored in one of them, you want to know.

For your convenience, here are the addresses of the Amazon fulfillment centers in Texas:

  • 940 W Bethel Rd, Coppell TX 75019
  • 700 Westport Pkwy, Fort Worth TX 76177
  • 15201 Heritage Pkwy, Fort Worth TX 76177 (2 warehouses)
  • 2601 W. Bethel Rd, Dallas TX 75261
  • 944 W. Sandy Lake Rd, Coppell TX 75019
  • 3351 Balmorhea Dr, Dallas TX 75241
  • 10550 Ella Blvd, Houston TX 77038
  • 31555 Highway 90 E, Brookshire TX 77423
  • 6000 Enterprise Ave, Schertz TX 78154
  • 1401 E McCarty Ln, San Marcos TX 78666
  • 14900 Frye Rd, Fort Worth TX 76155

So, why do you want to know this? You want to know this if you sell your products on Amazon or are recognized as an Amazon FBA (Fulfillment by Amazon). When Amazon stores your products in one of its fulfillment centers in any state including Texas, this may trigger a sales tax requirement. If Amazon is storing your products in a warehouse in Texas, you have created a taxing connection with the state of Texas.

 

PROTIP: You create sales tax nexus by holding your goods in a warehouse (including one of Amazon’s) in the State of Texas.

 

 

Considering Amazon has many fulfillment centers throughout the United States, you may feel overwhelmed with determining your tax obligations in Texas as well as in other states.

We can help you with this process of identifying where your products are stored and what are the resulting tax implications.

We often use A2X + Wherestock to find out where our clients' inventory is currently being held and shipped from. This helps us determine what our clients need to do to be in compliance with any tax laws, including those in Texas.

 

 

Does Texas have economic nexus?

Yes! Going into effect January 2019 (but enforced starting October 2019), Texas now has economic nexus thresholds which require out-of-state businesses with significant enough presence to register to collect and remit sales tax.

Out-of-state sellers with revenues above $500,000 will be taxed going forward, though the Wayfair Rule Updates indicate a grace period for enforcement:

To allow time for remote sellers to prepare for these changes, the amendments postpone the permitting and tax collection requirements for remote sellers until Oct. 1, 2019. The initial 12 calendar months for calculating a remote seller’s Texas revenues will be July 1, 2018, through June 30, 2019.

 

 

Does Texas have click-through nexus?

No, Texas does not have click-through nexus. 

 

Is Texas a streamlined sales tax state?

No. Some states have implemented this program, but Texas is not one of them. At least not yet!

 

*****

It’s time to wrap it up.

As long as you know if your products are considered taxable goods and if you reached any thresholds that create a sales tax nexus with the state of Texas, you will be able to confidently and effectively handle your business’ tax obligations.

Having this information accessible will help you handle your tax needs more efficiently in less time.

 

 


 

Collecting Sales Tax in Texas

 

Collecting Sales Tax In Texas

 

Once you recognize your business has established a sales tax nexus with the state, you may have some questions about how to go about collecting sales taxes.

Many clients tend to ask me the following four questions:

  • How do I collect Texas sales tax?
  • Who is eligible for Texas Sales Tax Exemptions?
  • What should I do if my customer is exempt from sales tax in Texas?
  • What happens if I lose a Texas sales tax exemption certificate?

After reading this, you will be better equipped to collect Texas sales taxes.

 

 

How do I collect Texas sales tax?

Because Texas is an Origin Based Sales Tax State, you collect Texas sales taxes based on the seller’s address. If the seller’s address is within the state of Texas, you must collect Taxes sales taxes. Your Point of Sale or eCommerce software can manage collection easily for you.

 

 

What are the current Texas sales tax rates?

At the time of this writing, the state of Texas imposes a 6.25 percent state sales and use tax on:

Local jurisdictions may impose up to a 2 percent sales and use tax.

Keep in mind, buyers and sellers should know that local taxes can not exceed 8.25 percent when combined.

Sales Tax Rates change all of the time- and can vary by what is being sold! It's best to use the Sales Tax Rate Locator to search for sales tax rates by address for the most up to date and accurate information.

 

 

What is exempt from Texas sales tax?

Common Texas sales tax exemptions are offered for the necessities of life which includes most food and health-related items.

Some other items exempt from sales tax:

  • goods for resale, such as wholesale items
  • Newspapers
  • Containers
  • previously taxed items
  • certain goods used for manufacturing

In addition to goods, sellers want to keep in mind who can enjoy a tax exemption. They include:

  • Government entities
  • Religious, educational, charitable, and public service organizations

There are too many specific exemptions to mention all of them here. Be sure to give the list there a look to make sure you’re not missing out on an exemption relevant to your business (or reach out to us and we can help! :p).

 

 

Who is eligible for Texas sales tax exemptions?

Even though some goods are taxable under Texas law, some buyers are exempt from paying the sales taxes depending on:

  • The type of buyer
  • The manner in which the buyer intends to use the goods

Example: Wholesalers are merchants who are exempt, according to the Texas Comptroller of Public Accounts, from paying sales tax because they buy products with the intention of reselling them. Other groups are also exempt:

  • government agencies
  • non-profit organizations
  • religious groups

 

 

What should I do if my customer is exempt from sales tax in Texas?

As a business owner, you will eventually encounter a tax-exempt buyer. As the seller, you are responsible for collecting the tax exemption certificate, just as you would be responsible for collecting the sales tax. You want to make sure you keep a copy on file, in the event of an audit by the tax authorities. Otherwise, you could be responsible for paying taxes that you otherwise would not have been required to (spooky foreshadowing for our next question).

 

 

What happens if I lose a Texas sales tax exemption certificate?

This is a really serious matter! For retailers, it is crucial that you keep a copy of the certificate on file so you can verify the buyer’s tax exemption status. If you can not verify this because you lost a copy of the certificate, you are still liable to pay the sales tax as the retailer.

There is no reason to worry if you are working with us. We will be sure to keep your sales tax exemption certificates safe and sound in our shared Box.com account.

 

 

Does Texas have a sales tax holiday?

There are four annual sales tax holidays you may want to remember:

 

 

*****

 

Now you know should feel prepared to collect the required sales taxes exempting that and those that and who are not taxed. Once again, remember to document anytime you do business with a buyer who has a certificate of exemption. Being prepared and organized makes collecting and sales tax and filing a return in Texas easy, as well as answering to any potential audits.

  

 

 


Filing and Paying Sales Tax in Texas

 

Filing and Paying Sales Tax in Texas

 

It is time to talk about filing and paying your sales taxes in Texas. In this section, I am going to cover the following frequently asked questions from my clients:

  • When is Texas sales tax due?
  • What are the Texas sales tax thresholds?
  • What if a Texas sales tax filing date falls on a weekend or holiday?
  • How do I file a Texas Sales Tax Return?
  • How do I correct a Texas sales tax return?
  • What happens if I don’t collect sales tax?
  • What happens if I file or pay my sales tax return late?
  • Do I need to file a return if I don’t collect any sales tax in Texas?
  • If I close my business, do I need to file a final sales tax return?
  • Does the Texas Comptroller of Public Accounts offer a discount for filing on time?

By the time you finish reading this, you will feel confident enough to file and pay your Texas sales tax.

 

When is Texas sales tax due?

The Texas Comptroller of Public Accounts requires all sales tax filing to be completed on the 20th of the month, following the assigned filing period.

 

 

What are the Texas sales tax thresholds?

There are three thresholds you need to know about.

  1. Monthly Liability Threshold: greater than $1,500.01 average monthly tax liability
  2. Quarterly Liability Threshold: $83.34 - $1,500.00 average monthly tax liability
  3. Annual Liability Threshold: $0.00 - $83.33 average monthly tax liability

Not sure how to determine your tax filing frequency?

You can review your eCommerce or Point of Sale Software to see the volume of sales you have generated.

Don't worry though! The state will let you know when your due dates change. :)

Watch your mail for a letter from the State of Texas so that you don't miss any deadlines.

 

What if a Texas sales tax filing date falls on a weekend or holiday?

You can file and pay your taxes on the next business day, typically the Monday following the weekend or the day after the holiday. But remember, filing early is always better than to risk being late.

 

 

How do I file a Texas sales tax return?

Paper: Complete form 01-114 long form (PDF) or 01-117 short form (PDF). Please see forms for long v. short form criteria. Enclose payment and mail to:

Comptroller of Public Accounts

PO Box 149355, Austin TX 78714-9355.

 

Electronic: File online at Texas Comptroller eSystems and submit payment via EFT.

 

Here’s a video on how to file a Texas sales tax return.

 

 

How do I correct a Texas sales tax return?

Paper: Make a copy of the previously filed return, and write ‘Amended Return’ on the top of the form. Cross out and revise the incorrect amounts.

Then mail it off to, you guessed it:

Comptroller of Public Accounts

111 E. 17th St, Austin TX 78774-0100.

 

Electronic: Amend your original return at Texas Comptroller eSystems and submit payment via EFT

 

Here is a video on how to file an amended Texas state sales tax return.

 

 

 

 

 

What happens if I don’t collect sales tax?

If sales tax was not collected but should have been, the business is responsible for the tax due. To prevent having to pay yourself for taxes due, you should make sure that all sales tax collection rates should be set up in each point of sale system. Attempting to contact customers after the point of sale is often not possible.

 

 

Protip: You still owe The Texas Comptroller of Public Accounts for sales taxes if you did not collect them from the buyer.

 

What happens if I file or pay my sales tax return late?

If you file and pay your sales tax return late, you need to be aware of the corresponding penalties and interest.

 

Penalties are imposed initially and further incurred based on how late you are.

At first, you will incur a $50 penalty for each report filed past the due date. If you are between 1-30 days late in paying the taxes, a 5 percent penalty is assessed. Once you are late past 30 days, the penalty increases to 10 percent.

 

Interest is also assessed once you have been late for 61 days. In order to determine how much interest has been incurred on your past-due taxes, visit Interest Owed and Earned section of the Texas Comptroller’s website to do so.

 

 

Do I need to file a return if I don’t collect any sales tax in Texas?

Yes, in Texas a tax return must be filed even if the tax due is zero. When no return is filed, the department considers that to be a "nonfiler" situation. When you don't file a return, you will receive nonfiler billing notices by mail and an automatic account/license closure. You do not want this to happen.

Here’s a handy video on how to File a No Tax Due Information Report.

 

 

If I close my business, do I need to file a final sales tax return?

Yes. You have to file a final sales tax.

You also want to keep in mind your permit is only valid if you are “actively engaged in business as a seller.” It is best to notify the Comptroller if you are not in business anymore so they can cancel your permit. If they find out on their own that you are no longer in business, they could also cancel your permit.

 

 

Does The Texas Comptroller of Public Accounts offer a discount for filing on time?

  • If you file and pay taxes on time, permitted sales taxpayers enjoy a 0.5 percent discount of whatever taxes are due and paid. The discount is only applied to what you pay on time.
  • For those sales taxpayers who prepay, they may claim two discounts:
    • An initial discount of 0.5 percent for timely filing and paying
    • An additional 1.25 percent for prepaying

 

 

*****

 

Now that we covered all our bases for filing and paying sales taxes in the state of Texas, you should feel more at ease about the process.

Some things to remember:

  • Due dates are important. If anything, file and pay your taxes early (such as before a holiday).
  • Determine what payment plan you must follow based on how much sales tax you collect.
  • You can file and pay your taxes, and even amend a return electronically or by mail.
  • Do not forget to collect sales taxes from your buyers or to obtain a copy of their exemption certificate. If you fail to do either of these, you (not the buyer) are liable to pay the sales tax to the state of Texas.
  • Late fees will be applied for filing a tax return late and paying your taxes late.
  • Even if you collect no sales tax, you still need to file a return.
  • You need to file a “Final Sales Tax” when you close your business.

Let’s leave the good news for last (even though I know you will remember this).

  • Texas gives a discount for filing your tax return on time!

Now, you are ready to file and pay your sales tax in Texas. If you have any more questions, feel free to contact us.

 

 

Click here if you think sales tax is boring. Book a meeting.

 


Please note: This blog is for informational purposes only and the information is accurate as of 05/09/2019 If you want legal advice on sales tax law for your business, please contact a Sales and Use Tax professional. Keep in mind that sales tax regulations and laws are subject to change at any time. While we strive to keep our blog current, this blog may be out date by the time you review it.

Last Updated: 05/09/2019

Tags: Sales Tax, Texas