The ultimate guide to Texas sales tax

2024 overview of sales tax in Texas

Welcome to Kintsugi's rundown on tax rates in the state of Texas. Texas's sales tax rates can vary depending on state, county/city and local tax rates. The base state sales tax rate in Texas is 6.25%, but this can increase with local rates such as the sales tax Houston TX and the sales tax Austin TX impose.

Managing sales tax in Texas requires understanding several key elements. To start, obtaining a sales tax license in Texas is essential for businesses to legally collect and remit sales tax. Once licensed, businesses must know how to calculate sales tax in Texas, which involves applying the state's base rate of 6.25% plus any local surtaxes, which can vary by jurisdiction. Sales taxes in Texas can be complex due to these local additions, making it crucial to accurately determine the total sales tax rate applicable to each transaction. Additionally, understanding taxable sales in Texas—what is considered taxable versus exempt—helps ensure compliance and accurate reporting.

Counties can add an additional sales tax rate up to 2%, which is especially relevant when considering the overall sales tax Houston TX, leading to a maximum combined rate of 8.25%. This leaves residents and businesses frequently querying, 'does Texas have sales tax, and what is the sales tax in TX rate in different regions?'. For instance, Borden County has some of the lowest combined rates, while Fort Bend County imposes some of the higher rates, highlighting the importance of knowing what is the sales tax in Texas.

District sales tax rates, including sales tax TX, vary as well, with some specialized districts such as transit or public improvement districts adding extra layers, making it crucial to know about variations like the sales tax Austin TX at the district level. The Grapevine-Colleyville ISD boasts higher district rates, while districts in more rural areas like the Yancey Water Supply District have some of the lowest.

Sales tax range in Texas

In 2024, the state of Texas maintains its standard state sales tax rate at 6.25%. However, local jurisdictions (cities, counties, transit, and special purpose districts) can levy additional sales taxes up to 2%, resulting in a maximum combined sales tax rate of 8.25%. This rate cap remains consistent with what was observed in 2023.

Compared to 2023, there are no significant changes in the structural framework of sales tax rates across Texas in 2024.

Texas State Sales Tax Rate

6.25% (unchanged from 2023)

Maximum Local Sales Tax Rate

2% (unchanged from 2023)

Maximum Combined Sales Tax Rate

8.25% (unchanged from 2023)

Local jurisdictions

May have individual rates that vary but cannot exceed the combined 8.25% limit.

Calculating Texas sales tax

Determine the Taxable Amount

Calculate the total sales amount before taxes. Confirm if the item/service is taxable under Texas law.

Identify State Sales Tax Rate

Texas has a state sales tax rate of 6.25%.

Determine Local Sales Tax Rates

Local (city, county, special-purpose district) taxes can add up to 2% more. Total combined state and local rate cannot exceed 8.25%.

Calculate State Sales Tax

Multiply the taxable amount by 0.0625 (6.25%).

Calculate Local Sales Tax

Multiply the taxable amount by the local tax rate (up to 0.02 or 2%).

Sum Total Sales Tax

Add state sales tax and local sales tax.

Different Tax Rates for E-Commerce, SaaS, and Services

• E-Commerce: Taxed the same as tangible goods, with state and varied local rates.
• SaaS (Software as a Service): Considered non-taxable if the service is a true SaaS with no physical deployment.
• Services: Most services are non-taxable unless specifically mentioned in Texas Comptroller’s list (e.g., amusement services, cable, and satellite).

Additional Notes

Check for any tax-exempt status of buyer or goods/services. Recalculate if there are changes in tax rates or taxable status.

Understanding use tax in Texas

Use tax in Texas is a complementary tax to the sales tax and is designed to ensure that the state collects tax revenues on goods and services consumed within its boundaries, regardless of where they were purchased. Typically, use tax applies to items bought outside Texas for use in the state, particularly those on which no sales tax was paid at the time of purchase, or the sales tax paid was less than what is owed in Texas.

The use tax rate is generally equivalent to the sales tax rate in Texas, which includes the state rate of 6.25% and any applicable local rates that can add up to an additional 2%, making a maximum possible rate of 8.25%. Businesses and individuals are required to report and pay use tax when they purchase taxable goods and services that did not include Texas sales tax, such as items bought online from out-of-state sellers or during trips outside Texas.

Individuals can calculate their use tax by summarizing the total purchase amounts and applying the appropriate tax rate. Businesses, meanwhile, must report use tax on their tax returns. For goods that are taken out of inventory for business use and not sold, use tax must also be reported.

Understanding use tax is crucial because failing to comply can result in penalties and interest on unpaid taxes. The Texas Comptroller of Public Accounts is responsible for administering the use tax, and periodic audits are conducted to ensure compliance. This tax helps level the playing field between in-state and out-of-state sellers and ensures that Texas receives tax revenue for goods and services consumed by its residents.

Recent changes to Texas sales tax

In 2024, several changes were made to the Texas sales tax. Effective January 1, 2024, the general state sales tax rate remains steady at 6.25%, consistent with 2023. However, there were notable adjustments in specific categories:

Technology Products

As of February 1, 2024, the exemption for certain software-as-a-service (SaaS) products was removed, meaning these products are now subject to the standard 6.25% sales tax. In 2023, SaaS products had been tax-exempt to encourage technology sector growth.

Electric Vehicles (EVs)

Starting March 1, 2024, a new tax rate of 7.00% was applied to the sale of electric vehicles. This marks an increase from the standard 6.25% applied in 2023. This policy shift aims to stimulate infrastructure investment for EV charging stations across the state.

Prepared Foods

Effective April 1, 2024, prepared food items at grocery stores, such as deli foods and bakery goods, saw an increase to a 7.50% sales tax rate, from the previous 6.25% rate in 2023. This move aligns with efforts to standardize food-related tax rates between restaurants and grocery outlets.

Remote Sellers

On May 1, 2024, the threshold for remote sellers to collect Texas sales tax was lowered from $500,000 to $250,000 in annual sales. The 2023 threshold had been set to ensure smaller online sellers were not burdened by compliance costs, but the revision reflects increased online retail activity.

Agricultural Supplies

From June 1, 2024, certain agricultural supplies previously exempt from sales tax were partially reinstated with a reduced rate of 3.00%. Comparatively, in 2023, these supplies were entirely exempt, a benefit provided to support the state's significant agricultural industry.

Short-Term Rentals

Commencing July 1, 2024, a new 8.25% sales tax was levied on short-term rentals. In 2023, these services were taxed at the standard rate of 6.25%, aligning the tax rate with the hotel occupancy tax rate.

Excise and discretionary taxes and other sales tax considerations in Texas

Sure, Texas has several types of taxes that might be relevant for individuals and businesses in 2024. Here are some key points regarding special excise, discretionary taxes, and other sales tax considerations in the state:

Sales Tax

State Sales Tax Rate

The state sales tax rate in Texas is 6.25%.

Local Sales Tax

Cities, counties, transit authorities, and special-purpose districts can levy additional local sales and use taxes. These local taxes can add up to an additional 2%, making the maximum combined sales tax rate 8.25%.

Special Excise Taxes

Texas imposes excise taxes on certain goods and services, which are often passed along to consumers:

Motor Fuels Tax

Texas imposes a state excise tax on gasoline and diesel fuel. As of the latest update, the tax rate is 20 cents per gallon for both gasoline and diesel.

Cigarette and Tobacco Taxes

There is a substantial excise tax on cigarettes, cigars, and other tobacco products. The cigarette tax rate is $1.41 per pack of 20 cigarettes.

Alcoholic Beverages Tax

Texas imposes excise taxes on alcoholic beverages, including:

• $0.204 per gallon of beer.
• $0.05 per gallon of table wine (14% alcohol or less).
• $0.20 per gallon of fortified wine.
• $2.40 per gallon of distilled spirits.

Other Considerations

Hotel Occupancy Tax

A state hotel occupancy tax of 6% is imposed on the price of a room or space in a hotel. Local jurisdictions may also impose a hotel tax, which varies.

Mixed Beverage Taxes

Businesses that sell mixed drinks are subject to a 6.7% mixed beverage gross receipts tax in addition to a 8.25% mixed beverage sales tax.

Rental Car Surcharge

Texas imposes a 10% motor vehicle gross rental receipts tax for rentals lasting less than 30 days.

Exemptions and Considerations

Food and Medicine

The sale of most food items and prescription medications is exempt from sales tax.

Manufacturing Equipment

Certain manufacturing equipment may be exempt from sales tax.

Agricultural Items

Most agricultural items, such as feed, seeds, and medications for animals, are also exempt from sales tax.

Rebate Programs

Enterprise Zone Program

This program allows for local communities to partner with the state to offer incentives, including sales tax refunds, to businesses that locate or expand in economically distressed areas.

Research and Development Tax Credit

Texas offers a sales tax exemption for companies engaged in qualified research activities.

Understanding nexus in Texas for local and out-of-state sellers

Physical nexus

Physical nexus for sales tax in Texas pertains to the connection required for out-of-state sellers to collect and remit sales tax. In 2024, the key elements remain largely consistent with 2023, with some updates to ensure clarity and alignment with broader tax policies.

Physical Presence Requirements

2023: A seller is considered to have a physical nexus if they maintain a business location, warehouse, or any inventory within the state, or if employees, contractors, or other representatives are conducting activities within the state.

2024: These fundamental conditions are unchanged. However, enforcement emphasis has intensified, particularly regarding temporary business activities like pop-up stores.

Employee and Agent Activity

2023: Direct activities by employees or agents, such as sales solicitation, order fulfillment, installation, or any form of service provision in Texas, establishes a physical nexus.

2024: The definition expands to include remote employees who engage in telecommuting from within Texas, as remote work continues to rise.

Inventory Storage

2023: Maintaining inventory in a Texas warehouse or fulfillment center triggers nexus.

2024: The criterion now specifies that inventory stored in third-party logistics providers' locations similarly creates nexus, reaffirming accountability across more modern business logistics frameworks.

Temporary Presence

2023: Temporary business presence, such as attending trade shows or temporary pop-up shops, is a trigger for physical nexus.

2024: Enhanced scrutiny on duration and frequency of such activities. If the presence exceeds 15 days within a calendar year, it establishes nexus.

Affiliated Entities

2023: A subsidiary or affiliated entity conducting business in Texas on behalf of the seller contributes to establishing a nexus.

2024: Strengthened emphasis on partnerships and joint ventures, ensuring that shared operations within Texas unequivocally enforce nexus requirements for all involved entities.

Economic nexus

In 2024, Texas continues to enforce its economic nexus provisions for sales tax, maintaining measures that began in previous years. Below is a detailed comparison between 2024 and 2023:

Revenue Threshold

2024 threshold for economic nexus remains at $500,000 in gross revenue from sales of tangible personal property and services into Texas during the preceding twelve months.

There are no changes from 2023, where the threshold was also set at $500,000.

Measurement Period

2024 assessment period for determining the threshold stays consistent, using the preceding twelve months of sales.This mirrors the 2023 practice, maintaining a continuous measure period to simplify compliance and monitoring.

Marketplace Facilitators

2024 obligations for marketplace facilitators include collecting and remitting sales tax if sales exceed the $500,000 threshold. This requirement holds steady from 2023, where the same rules applied to marketplace facilitators.

Remote Sellers

2024 policies for remote sellers necessitate tax collection if sales surpass the $500,000 threshold. These remote seller requirements remain unchanged from 2023, ensuring that out-of-state vendors comply similarly.

Registration Requirements

2024 mandates that sellers meeting the economic nexus threshold must register for a Texas sales tax permit and comply with collection and remittance obligations.

This requirement is unchanged from 2023, maintaining consistency in registration procedures for businesses.

Exemptions

2024 continues previously established exemptions, including non-taxable services and products. These exemptions align with exemptions observed in 2023, keeping the tax base consistent.

Compliance and Penalties

2024 enforcement actions and penalties for non-compliance remain robust, similar to those in 2023. The state maintains vigilance on ensuring that entities meeting nexus criteria are compliant.

Affiliate nexus

Affiliate nexus laws regulate how businesses need to collect sales tax in states where they have significant business connections. As of 2024, Texas has updated its affiliate nexus standards for sales tax.

Here’s a comparison between 2024 and 2023:

Revenue Threshold

2023: Businesses with $500,000 in annual gross revenue from sales into Texas were subject to sales tax collection.

2024: The threshold remains $500,000, but more rigorous tracking and reporting tools have been implemented.

Affiliate Relationships

2023: Nexus was created if an out-of-state seller had affiliates with physical presences in Texas, such as warehouses or offices.

2024: Nexus extends to include affiliates engaged in marketing or customer service activities within Texas, broadening the range of activities that can trigger sales tax obligations.

Marketplace Facilitators

2023: Marketplace facilitators with over $500,000 in combined sales facilitated and direct sales were required to collect sales tax.

2024: The definition of a marketplace facilitator has expanded to ensure digital and physical platforms facilitating sales in Texas are uniformly subject to sales tax obligations, including newer forms of online marketplaces.

Compliance and Penalties

2023: Penalties for non-compliance were relatively standard, with interest on unpaid taxes and possible fines.

2024: Higher penalties for non-compliance have been introduced, along with more stringent deadlines for tax filing and payment processes.

Data Sharing Requirements

2023: Businesses were required to keep comprehensive sales and affiliate activity records, but sharing with the state was less stringent.

2024: Enhanced data sharing requirements mandate more detailed, frequent, and electronically formatted reports, facilitating better audit capabilities by tax authorities.

Click-through nexus

As of 2024, Texas has made significant updates to its click-through nexus regulations for sales tax. These changes are crucial for online sellers and out-of-state businesses to understand.

Threshold Adjustment

In 2024, Texas raised the gross revenue threshold for establishing a click-through nexus from $500,000 to $600,000. This means businesses must now exceed $600,000 in gross revenue from referrals made by individuals located in Texas to be subject to state sales tax.

Affiliate Requirements

Previously, the 2023 regulations considered an affiliate relationship as a critical factor in establishing nexus. In 2024, the criteria have been expanded to include not just direct affiliates but also indirect relationships that can demonstrate a consistent profit through referrals.

Commission Agreement Clause

In 2024, Texas introduced a clause that encompasses not only commission-based agreements but also any performance-based benefits provided to in-state referrers, broadening the scope from the previous narrower definition used in 2023.

Notification and Reporting Obligations

An important shift in 2024 includes enhanced notification and reporting requirements for businesses approaching the $600,000 threshold, aimed at increasing compliance. This is in contrast to the 2023 rules, which had more lenient reporting standards.

Compliance Deadlines

The enforcement timeline has been tightened, with a mandate in 2024 for businesses to register within 30 days of crossing the nexus threshold, a reduction from the 60-day period allowed in 2023.

Use of Digital Platforms

Texas has broadened the definition of platforms constituting a click-through nexus. While 2023 focused primarily on websites and emails, 2024 regulations cover app-based referrals, and social media influencers, ensuring a more comprehensive coverage of modern sales channels.

Marketplace nexus

In 2024, Texas maintains a decisive approach towards marketplace nexus for sales tax, broadening its scope and solidifying regulations introduced in previous years. Comparing these with 2023, several changes and continuities are apparent.

Threshold for Marketplace Sales

The threshold for marketplace sales remains consistent. In both 2023 and 2024, entities must accrue over $500,000 in gross revenue from sales in Texas within the previous twelve months to establish nexus.

Third-Party Seller Transactions

Marketplace providers continue to bear the primary responsibility for tax collection. In both years, these providers must collect and remit sales taxes on behalf of third-party sellers' transactions facilitated through their platforms.

Reporting Requirements

Reporting requirements saw stricter enforcement in 2024. While 2023 required periodic reporting of sales and collected taxes, 2024 introduces more frequent audits and refined electronic submission processes to ensure compliance.

Exemptions

Exemptions for specific products remain static. Both years uphold exemptions for certain medical devices, prescription medications, and non-prepared food items, ensuring consistency in tax relief for essential goods.

Penalties

Penalties for non-compliance increased in 2024. Stricter enforcement includes higher fines and interest rates on unpaid taxes, contrasting 2023's more lenient stance aimed at encouraging voluntary compliance.

Out-of-State Sellers

Out-of-state sellers via marketplaces observe no significant change. Both in 2023 and 2024, out-of-state sellers reaching the nexus threshold are mandated to collect and remit Texas sales taxes.

Data Sharing

Data sharing between states improves in 2024. Enhanced inter-state communication aims to prevent tax evasion, building on the foundational efforts seen in 2023 but with more robust technological integration and cooperation.

Educational Initiatives

Educational initiatives for marketplace providers expand. Increased outreach and support programs in 2024 reflect continuous efforts to educate stakeholders, augmenting 2023's foundational educational frameworks.

Trade shows

In Texas 2024, trade shows and sales tax obligations include:

• Sellers attending trade shows must collect and remit Texas sales tax on taxable items sold.
• If selling taxable items, you need a Texas Sales and Use Tax Permit.
• Displaying only (no sales) may still require a permit if orders are taken for future delivery.
• Out-of-state sellers also must register and collect Texas sales tax if selling at a Texas trade show.
• Local sales taxes can apply based on the event location.
• Reporting: Sales tax must be reported and paid to the Texas Comptroller as scheduled.
• Exemptions: Some items may be exempt; verify specifics with the Texas Comptroller's office.
• Failure to comply can result in penalties and interest on unpaid taxes.
• Use tax may be due on items brought into Texas for use in a trade show.

Fulfillment by Amazon and nexus

Fulfilment By Amazon (FBA) is a service provided by Amazon where sellers can store their products in Amazon’s fulfillment centers.

Amazon handles storage, packaging, shipping, customer service, and returns for these products. The FBA service streamlines the selling process for businesses, allowing them to leverage Amazon’s logistical network and customer base.

In 2024, selling through FBA in Texas entails certain sales tax obligations:

Nexus

Using FBA creates a physical presence, or nexus, in Texas, making sellers responsible for collecting state sales tax.

Registration

Sellers must register for a Texas sales tax permit.

Tax Collection

They must collect Texas state sales tax on taxable items sold to customers within Texas.

Tax Rate

The state sales tax rate in Texas is 6.25%, but local taxes can increase this to a maximum of 8.25%.

Remittance

Sellers are obligated to remit collected sales tax to the Texas Comptroller of Public Accounts following the appropriate filing frequency, typically monthly or quarterly.

Resale Certificates

When purchasing inventory for resale, sellers should use Texas resale certificates to avoid paying sales tax on these items.

Marketplace Facilitator Law

Amazon, as a marketplace facilitator, may collect and remit sales tax on behalf of third-party sellers, though sellers should verify compliance and understand their responsibilities.

Permits, certificates and sales tax registration in Texas

Registering for sales tax in Texas in 2024 involves obtaining a Texas Sales and Use Tax Permit.

Businesses must apply through the Texas Comptroller of Public Accounts, providing essential information such as the business name, owner details, and intended types of taxable sales. It's crucial to have your federal employer identification number (EIN) or social security number ready. Once registered, you must collect and remit sales tax on taxable transactions within Texas.

Registering for sales tax collection in Texas

To register for sales tax collection in Texas in 2024, follow these steps:

Determine Eligibility

Confirm that your business needs to collect sales tax. Businesses selling taxable goods or services in Texas typically need to register.

Gather Necessary Information

• Legal business name
• Federal Employer Identification Number (FEIN) or Social Security Number (SSN) if you are a sole proprietor
• Business type (e.g., corporation, partnership, sole proprietorship)
• Physical business address
• Mailing address (if different)
• Detailed descriptions of the products or services you sell
• Business contact details (phone number, email)

Complete the Registration Application

Access the Texas Comptroller of Public Accounts website. Navigate to the section for tax registrations and select the option to apply for a sales tax permit. Fill out the online application form with the information you gathered.

Submit Your Application

Review the information for accuracy. Submit the application online. You may need to create an account with the Texas Comptroller’s office if you haven’t already.

Receive Confirmation

After submitting the application, you should receive a confirmation email or notification. This will include your sales tax permit number and any additional instructions.

Post Permit (if required)

Some businesses must display the sales tax permit at their business location. Check the specific requirements for your business type.

Begin Collecting Sales Tax

Once you have the permit, you are authorized to collect sales tax from customers. Ensure you understand the tax rates applicable and how to remit collected taxes to the state.

File Regular Sales Tax Returns

Keep accurate records of all sales and the taxes collected. File regular sales tax returns with the Texas Comptroller’s office, typically on a monthly, quarterly, or annual basis depending on your business volume.

Cost of registering for sales tax in Texas in 2024

In Texas, registering for a sales tax permit is free.

There is no cost associated with obtaining a sales tax permit from the Texas Comptroller of Public Accounts. This applies whether you're registering in 2024 or any other year, as the state does not charge a fee for sales tax permit registration.

Federal tax ID requirements for registering

Yes, if you are registering for sales tax in Texas and you have employees, operate your business as a corporation or partnership, or meet other specific requirements, you will likely need an Employer Identification Number (EIN). The EIN is a federal tax identification number used to identify your business entity.

You can apply for an EIN online through the IRS website. Here is the link to register for an EIN: Apply for an EIN Online

For registering for sales tax in Texas, you will need to use the Texas Comptroller of Public Accounts website. Here is the link to register for a Texas Sales Tax Permit: Texas Sales Tax Permit Registration

Make sure to gather all required information before you begin the application process, including your EIN if you need one.

Streamlined sales tax program and Texas

As of the latest available information, Texas is not a member of the Streamlined Sales Tax Governing Board or the Streamlined Sales and Use Tax Agreement (SSUTA).

The Streamlined Sales Tax initiative is designed to simplify and modernize sales and use tax collection and administration to make it easier for businesses to comply, particularly those that conduct business in multiple states. Texas has its own set of rules and regulations regarding sales and use tax.

Acquiring a business and registering for sales tax in Texas

If you are acquiring a business in Texas and need to register for sales tax, you'll generally need to follow these steps:

Obtain a Federal Employer Identification Number (FEIN)

If you don't already have one, you'll need to get an FEIN from the IRS. This is used to identify your business for federal tax purposes.

Determine if you need a Texas Sales Tax Permit

Most businesses that are involved in selling, leasing, or renting tangible personal property or providing taxable services in Texas need a sales tax permit.

Complete the Application for Sales Tax Permit

You can apply for a sales tax permit using the Texas Online Sales Tax Registration system or by filling out Form AP-201, Texas Application for Sales and Use Tax Permit. This form will require information about the business, including:

• Legal business name and any "doing business as" (DBA) names.
• Physical address and mailing address of the business.
• Responsible party information (owners, partners, officers, etc.).
• FEIN and Social Security Numbers of the responsible parties.
• Detailed description of business activities.
• The anticipated start date of business operations in Texas.

Provide Proof of Ownership Change

If you are acquiring an existing business, you may need to provide documentation such as the purchase agreement, which shows the change in ownership.

Submit the Application and Await Approval

After submitting the application, it will be reviewed by the Texas Comptroller’s office. Once approved, you will be issued a sales tax permit, and you can then legally collect sales taxes on taxable sales.

File Regular Sales Tax Returns

After obtaining your sales tax permit, you're required to periodically file sales tax returns and remit the collected taxes to the Texas Comptroller of Public Accounts.

Other Texas registrations to consider

In Texas, aside from sales tax registration, there are several other types of registrations you may need to consider for your business in 2024:

Franchise Tax

Most businesses in Texas are subject to a state franchise tax, which is a privilege tax imposed on each taxable entity formed or organized in Texas or doing business in Texas.

Employer Identification Number (EIN)

If you plan to hire employees or operate as a partnership or corporation, you will need an EIN from the IRS.

Local Business Licenses and Permits

Depending on your location and the type of business you are running, you may need specific licenses and permits. These can include health permits, building permits, fire permits, and more.

Federal Tax Requirements

Ensure that you are compliant with federal tax obligations, including income tax, employment tax, and potentially excise tax depending on your business type.

Employment Registrations

If you have employees, you will need to register with the Texas Workforce Commission (TWC) for state unemployment tax.

Professional Licenses

Certain professions such as healthcare, real estate, law, and others require specific licensing. Ensure you obtain the necessary credentials for your field.

Trade Name Registration (DBA)

If you’re operating your business under a name different from your legal business name, you will need to file for a 'Doing Business As' (DBA) name with the county clerk’s office.

Occupational Permits

Depending on your business type, you might need specific occupational permits. This includes permits for businesses like salons, food establishments, and more.

Environmental Permits

If your business activities impact air, water, or soil quality, you might need permits from the Texas Commission on Environmental Quality.

Requirements for online sellers in Texas

Yes, there are special requirements for online sellers regarding sales tax collection in Texas in 2024. If you are an online seller and you have a substantial nexus in Texas, you are required to collect and remit sales taxes on sales made to Texas customers. Here are the key points:

Economic Nexus

In Texas, an economic nexus is established if your remote sales into the state exceed $500,000 in the preceding twelve months. This means that even if you do not have a physical presence in Texas, you must collect and remit Texas sales tax once you exceed this sales threshold.

Sales Tax Permit

You must register for a sales tax permit with the Texas Comptroller of Public Accounts. This is required before you begin collecting sales taxes.

Sales Tax Collection

You are responsible for accurately collecting the appropriate state and local sales taxes on each sale to Texas customers. The state sales tax rate is 6.25%, but local jurisdictions (cities, counties, special-purpose districts) may impose additional taxes up to a total of 2%, making the maximum combined rate 8.25%.

Filing and Remittance

You must file regular sales tax returns and remit the collected taxes to the Texas Comptroller. The filing frequency (monthly, quarterly, annually) will be determined by the Comptroller's office based on your sales volume.

Marketplace Facilitators

If you sell through a marketplace facilitator (such as Amazon, eBay, or Etsy), the facilitator is generally responsible for collecting and remitting the Texas sales tax on your behalf. However, you should confirm this with the specific marketplace to ensure compliance.

Collecting sales tax in Texas

In 2024, Texas businesses must navigate the essential task of collecting state sales tax. Understanding Texas sales tax regulations, including rates and compliance procedures, is crucial for ensuring legal adherence and efficient operations. This guide provides an overview of key practices for effectively managing sales tax collection in Texas.

Understanding origin vs. destination sales tax collection

In Texas, sales tax is collected based on the destination of the sale, which makes it a destination-based sales tax collection jurisdiction. This means that sales tax is applied based on where the purchaser receives the taxable product or service, rather than where the seller is located.

For more information, you can refer to the Texas Comptroller of Public Accounts website: https://comptroller.texas.gov/taxes/sales/

Taxable products in Texas

It's important to note that while the above categories generally incur sales tax, there are specific exemptions for certain items within these categories. For instance, prescription medications and groceries are typically exempt from sales tax.

Additionally, certain agricultural goods, newspapers, and items sold to non-profit organizations might also be exempt under specific conditions.

Here's an overview of some common product genres that are generally subject to sales tax in the state:

Tangible Personal Property

This includes physical items that can be seen, weighed, measured, felt, or touched, or that are perceptible to the senses. Examples include:

• Clothing and footwear
• Electronics (e.g., TVs, smartphones, computers)
• Furniture and home goods
• Appliances
• Books and publications (excluding certain educational materials)
• Sports equipment and supplies

Prepared Foods and Beverages

• Restaurant meals
• Take-out food from delis or fast-food stores
• Catering services
• Soft drinks and alcoholic beverages

Automotive

• New and used vehicles (including boats and RVs)
• Auto parts and accessories
• Car repair and maintenance services

Utilities and Residential Services

• Gas and electricity
• Water and sewer services
• Telecommunications (including phone and internet services)

Entertainment and Recreation

• Admission fees to amusement parks, concerts, and events
• Membership fees for recreational clubs or facilities
• Movie tickets
• Subscription services (e.g., streaming services)

Medical Goods and Services

• Non-prescription drugs and over-the-counter medications
• Medical devices, unless prescribed by a doctor

Office and School Supplies

• Office equipment and furnishings
• School supplies and educational materials that are not exempt

Digital Goods (in many cases)

• Digital books
• Movies
• Music
• Software (including digital downloads)

Non-taxable products in Texas

In Texas, certain types of products are generally exempt from sales tax. These typically include:

Food Products

Most grocery-type food items are exempt from sales tax in Texas. However, prepared foods, candy, and soft drinks are taxable.

Prescription and Over-the-Counter Drugs

Prescription medications and many over-the-counter drugs and medical supplies are exempt from sales tax.

Clothing and Footwear

Texas holds annual sales tax holidays where certain clothing and footwear items are exempt from sales tax, provided each item is below a certain price limit.

Agricultural Products

Various farming and agricultural products, equipment, and supplies are often exempt.

Utilities

Residential use of electricity, gas, and water are generally sales tax-exempt.

Newspaper and Magazine Subscriptions

These are also typically exempt from sales tax.

Is SaaS taxable in Texas?

In Texas, Software as a Service (SaaS) is subject to sales tax.

This means that businesses providing SaaS must collect and remit sales tax on their services to the state. The tax applies regardless of whether the software is downloaded or accessed online via the cloud.

Are digital products taxable in Texas?

In Texas, digital products, such as e-books, software, and digital subscriptions, are generally subject to sales tax.

The tax applies to digital goods that are transferred electronically, regardless of whether they are downloaded, streamed, or accessed online. It’s essential for businesses and consumers to be aware of these tax obligations.

Are services taxable in Texas?

In Texas, many services are generally not subject to sales tax, such as professional services like legal and accounting.

However, certain services, including amusement services, cable television services, and some personal services, are taxable. It is essential to verify specific service categories to determine tax applicability.

Sales tax exemption certificates

In Texas, a sales tax exemption certificate is a document that buyers present to sellers in order to purchase goods or services tax-free.

These certificates are used by businesses, organizations, or individuals that qualify for tax-exempt status, such as nonprofit organizations, government entities, or resellers. The buyer must complete the certificate, providing details like the type of exemption claimed, and present it to the seller at the time of purchase.

Sellers are responsible for retaining these certificates to substantiate the tax-free sales in case of an audit by the Texas Comptroller’s office. Misuse of exemption certificates can result in penalties.

State tax holidays in Texas for 2024

Sales tax holidays are specific periods when certain items can be purchased without paying the state's sales tax, aimed at helping consumers save money.

As of now, Texas has not announced any sales tax holidays for 2024.

Filing sales tax returns in Texas

How to File Sales Tax Returns in Texas

Obtain a Sales Tax Permit

Before collecting sales tax, register for a Texas Sales and Use Tax Permit through the Texas Comptroller's office.

Determine Taxable Sales

Identify which sales are subject to Texas sales tax, including tangible goods and specific services.

Collect Sales Tax

Collect the appropriate state and local sales tax from customers at the point of sale.

Keep Detailed Records

Maintain accurate records of all transactions, including total sales, taxable sales, and collected taxes.

File Your Tax Return

File your sales tax return online using the Texas Comptroller’s eSystems. Most businesses are required to file monthly, but some may qualify for quarterly or annual filing.

Report All Sales

Include all taxable and non-taxable sales when filing your return to ensure complete reporting.

Remit Collected Taxes

Pay the collected sales taxes to the Comptroller's office by the due date, which is usually the 20th day of the month following the reporting period.

Utilize Pre-Payment Discount

If applicable, take advantage of the pre-payment discount for timely filed and paid returns.

Correct Errors Promptly

If you discover an error in a filed return, amend it promptly to avoid penalties and interest.

Consult the Texas Comptroller

For specific questions or issues, contact the Texas Comptroller of Public Accounts for assistance.

Sales tax filing frequency

In the state of Texas, sales tax filing frequency is determined by the amount of tax collected by a business. There are three main filing frequencies: monthly, quarterly, and yearly. This categorization helps streamline administrative processes and ensures timely tax collection.

The Texas Comptroller's Office assigns each business its filing frequency upon registration based on expected sales and tax collection, which can be adjusted as needed based on actual tax collected.

Monthly Filing

Businesses that collect $500 or more in state sales taxes each month are required to file and pay on a monthly basis. These taxpayers must submit their sales tax returns by the 20th of the month following the month in which the taxes were collected.

Quarterly Filing

Businesses that collect less than $500 but at least $83.34 in state sales taxes monthly (or $1,500 per quarter) can file on a quarterly basis. Quarterly returns are due by the 20th of the month following the end of each calendar quarter (April 20, July 20, October 20, and January 20).

Yearly Filing

Businesses that collect less than $1,000 in state sales taxes annually are permitted to file on a yearly basis. The annual returns are due by January 20 of the following year.

Filing when no sales tax has been collected

If no sales tax is collected while you are registered for sales tax in Texas, the state may impose penalties and interest on the uncollected taxes.

Businesses are required to collect and remit sales taxes on taxable goods and services. Failure to do so can trigger an audit, leading to additional assessments, fines, and potential legal action.

Penalties for late filing and non-payment of sales taxes

In Texas, businesses are required to file and remit sales taxes to the state government. For late sales tax filings, the state imposes penalties and interest on businesses that fail to submit their sales tax returns by the due date.

The late filing penalty is calculated as a percentage of the amount of tax due, with an initial penalty of 5% if the report is one to 30 days late, increasing to 10% if the report is more than 30 days late. Additionally, interest accrues on the unpaid tax starting the day after the due date until the tax is paid in full.

Non-payment of sales taxes can result in more severe consequences.

If a business fails to pay the taxes owed, the Texas Comptroller's office may impose additional penalties, initiate collection actions, or place liens on the business's property. Persistent non-payment can lead to the revocation of the business’s sales tax permit, effectively halting its operations.

Business owners may be held personally liable for unpaid sales taxes, facing legal action that could impact their personal assets.

Sales tax discounts and incentives

In Texas, in 2024, businesses can take advantage of several sales tax incentives and discounts designed to encourage economic growth and investment. Here’s a brief overview:

Manufacturing Exemptions

Businesses involved in manufacturing, processing, fabricating, or repairing tangible personal property for ultimate sale are eligible for sales tax exemptions on machinery, equipment, and other items directly used in the production process.

Data Center Exemption

Texas offers sales tax exemptions for data centers that meet certain investment criteria and job creation requirements. Qualifying data centers can receive sales tax exemptions on electricity and certain equipment used in the data processing industry.

Agriculture Exemptions

Businesses engaged in agricultural production can claim exemptions on items such as machinery and equipment used exclusively for farming and ranching purposes, as well as some supplies and materials used in agricultural production.

Enterprise Zone Program

This program provides economic incentives including sales tax refunds for businesses that locate or expand in designated areas and create jobs, particularly targeting economically disadvantaged areas.

Temporary Discount for Early Filing

Texas businesses may be eligible for a discount if they file and pay their sales taxes early. This discount is typically a small percentage of the total tax due and is intended to encourage timely compliance with tax obligations.

2024 sales tax filing due dates for Texas

Monthly: 20th of the following month

Quarterly: 20th after quarter end

Annually: January 20, 2025

Shipping and sales tax in Texas

When to pay tax on shipping in Texas

In Texas, the applicability of sales tax to shipping charges depends on the specifics of the transaction.

A business in Texas would pay sales tax on shipping charges if the items being shipped are taxable and the shipping charges are not separately stated on the invoice. If the items are non-taxable or the shipping charges are separately itemized for taxable items, the shipping charges would generally not be subject to sales tax.

As of the laws effective for 2024, here's how it works:

Shipping Charges for Taxable Items

If you're selling taxable goods and the sale is subject to Texas sales tax, then the shipping charges associated with those sales are also taxable. This means that if you’re selling a taxable product and you charge the customer for shipping, then you have to collect sales tax on the total amount, which includes both the price of the goods and the shipping fees.

Shipping Charges for Non-Taxable Items

If the items sold are non-taxable (such as certain groceries or prescription medicines), then the shipping charges for delivering those items are not subject to sales tax.

Separately Stated Shipping Charges

For shipping charges to be considered non-taxable for otherwise taxable items, they must be separately stated on the invoice. If they are not separately stated and are included in the sales price, the entire amount is subject to sales tax.

Freight-in Charges

Charges for the cost of getting the product to the seller from their supplier (freight-in) are generally considered part of the seller’s cost of goods sold and are not separately taxable to the end customer.