Texas is a large state with a complicated system of sales and use tax. Texas retailers, as well as out-of-state merchants selling to Texas customers, will do well to familiarize themselves with the requirements and regulations for Texas sales tax. If you are required to collect sales tax in the state, be diligent of taxation rules and their applicable rates.
Texas sales tax varies by location. There is a statewide sales tax of 6.25%. In addition, local taxing jurisdictions such as counties, cities, special purpose districts or transit authorities, can impose a sales tax of up to 2%, for maximum tax rate of 8.25%.
Texas has a few transit authorities, departments and districts that impose their own sales and use tax. Find those rates and districts here.
Texas is an origin-based state for in-state retailers, meaning that a retailer should charge its local rate on all in-state orders. Out-of-state sellers are expected to use the tax rate at the destination of the order, which make calculation more difficult due to the variety of taxes and rates across the state.
A sales tax nexus is a term that means that a retailer as a significant presence within a state. If you have nexus in Texas, you are required to collect and remit sales tax on your business’s orders.
A business with a physical presence within the state of Texas will have nexus. That means if you have an office (even if it’s only a home office) within the state, you must collect sales tax on retail sales.
Other activities that create Texas sales tax nexus are:
For a complete list of activities that may cause your business to have nexus in Texas, please refer to this web page maintained by the state of Texas.
If you are unsure whether your business is required to collect sales tax, consult with a tax attorney or other licensed professional.
Tangible personal property sold within the state of Texas is subject to sales tax.
In addition, certain services are also taxable. At the time of this writing, these services are:
If you are engaged in business in Texas and subject to collecting Texas sales tax, you must register for a tax permit. According to their website, you should allow 2-3 weeks for this process. Click here to a seller’s permit through the online application process. You can also update your existing account from this page.
Check out the Texas Comptroller’s site for more information:
Electronic filing for sales tax is required for businesses that have paid $10,000 or more in the preceding fiscal year. Electronic filing may be done through WebFile, a part of the state’s eSystems portal. It may also be done via Electronic Data Interchange (EDI). To find out more about filing electronically, visit the Texas Comptroller website. They even have a series of instructional videos about how to use WebFile.
If you’ve paid less than $10,000 in the prior fiscal year, you may file a paper report, but electronic method is encouraged.
If you have a sales tax permit and no taxable sales to report you may also report via Telefile.
Once a business’s sales tax application has been approved, it will receive a letter with instructions on how often it must file a sales tax return. Returns may be due monthly, quarterly, or yearly.
Monthly Filers: Due on the 20th of the following month.
Quarterly Filers: Due on the 20th of the month following the end of the quarter
|January – March (Q1)||April 20|
|April – June (Q2)||July 20|
|July – September (Q3)||October 20|
|October – December (Q4)||January 20|
Annual Filers: Due on January 20 for the previous year’s taxes.
If a due date falls on a Saturday, Sunday or legal holiday, the deadline is extended until the next business day.
The state of Texas charges both penalties and interest for late sales tax reports and payments. The penalties are as follows:
After 60 days beyond the due date, unpaid taxes are also charged interest. The interest rate changes yearly and is the prime rate plus 1%. You can visit this page to look up the current year’s rate and for instructions on calculating the interest due.
When permitted, taxpayers can claim discount of 0.5% of tax reported and paid on time. Those who prepay can also claim a 0.5% discount plus 1.25% for prepaying.
AccurateTax’s TaxTools products completely handle all aspects of Texas’s sales tax rate lookup and calculation for all destinations within the state of Texas, and all special tax classes such as prepared food. Configuring sales tax on your ecommerce store has never been easier. Contact us for more information or register for a free trial of the TaxTools software.
You can also use our free sales tax calculator to look up the rate for any address in the state of Texas.