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The Ultimate Guide To Texas Sales Tax

Welcome to our handy guide on Texas sales tax. We'll walk you through everything you need to know, from the specific sales tax rates in different counties and cities across Texas to answering some of the most common questions. Plus, we'll guide you on how to efficiently collect and file your sales tax in Texas.

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What is Nexus?

You'll need to collect sales tax in Texas if you have nexus there. There are two main ways that sellers can be tied to a state when it comes to nexus: physical, or economic.

Physical nexus means having enough tangible presence, or activity in a state to merit paying sales tax in that state.

Economic nexus means passing a states' economic threshold, for total revenue, or the number of transactions in that state.

Calculating Nexus in Texas

Physical Nexus

If your business has a tangible presence in Texas, like a shop, warehouse, or office, you've got physical nexus. This presence means you're on the hook for state taxes such as sales tax and franchise tax, just like any local business.

Economic Nexus

Economic nexus isn't about where your business is located, but about how much business you do in Texas. Crossing the $500,000 sales mark in Texas? That triggers economic nexus, making you subject to Texas sales tax laws, no matter where you're physically based.

Affiliate Nexus

Got a connection with a Texas-based business, like a subsidiary or supplier? That's affiliate nexus. Businesses with such affiliations need to be mindful of Texas tax laws, ensuring they're compliant with state tax obligations.

Click-Through Nexus

Online referrals can create click-through nexus. If you have agreements with Texas residents sending customers to you via website links, and sales exceed $10,000 in a year, you've entered click-through nexus territory in Texas.

Marketplace Nexus

Selling through online marketplaces like Amazon, which have a Texas presence, can establish marketplace nexus. Think of it as having a digital booth in a vast Texas online market. This setup broadens your customer reach and simplifies shipping within Texas, but also brings tax obligations.
Did you know logo

Texas exempts holiday ornaments sold for less than $5,000, because everything's bigger in Texas, including holiday cheer.

Sales Tax Registration in Texas

How to Get Your Texas Sales Tax Permit

Getting your business set up for sales tax in Texas is an essential step in your entrepreneurial journey. Let's walk through the process.
  1. Check if Registration is Needed: First things first, determine if your business has a sales tax nexus in Texas. This could be due to a physical presence, crossing the economic threshold, or other nexus criteria.
  2. Gather Your Info: Before diving in, make sure you have all the necessary details at hand. This includes your business name, addresses, Social Security number or Federal Employer Identification Number (EIN), and information about your business partners or officers.
  3. Registering Your Business: You can register online using the Texas Comptroller’s Webfile system or by mailing in the Texas Application for Sales and Use Tax Permit, found on the Comptroller’s website.
  4. Wait for Confirmation: After submitting your application, it’ll take some time for processing—up to three weeks for online submissions and six to eight weeks if mailed.
  5. Stay Compliant: Once registered, it’s crucial to keep up with collecting the right amount of sales tax, filing returns timely, and keeping accurate records.

Cost of Registering for a Texas Sales Tax License

Great news—there’s no fee to register for a Texas sales tax license. That's one less expense to worry about.

Federal Tax ID for Texas Sales Tax License

Yes, you’ll need a Federal Tax ID Number or EIN. It’s essentially the ID number for your business, required for the registration.

Other Texas Registrations to Consider

Your business might also need to say howdy to other Texas agencies, depending on what you're selling or the services you offer. This could include the Texas Alcoholic Beverage Commission for alcohol sales or the Texas Department of Agriculture for farming and food production. Make sure you cover all bases to comply with Texas regulations.

Guide to collecting sales tax in Texas

Is Texas an Origin or Destination Sales Tax State?

Texas follows the destination-based model for sales tax. This means you apply the sales tax rate based on where your customer is located, not where you're selling from. So, if you're shipping goods from Austin to San Antonio, you charge San Antonio's sales tax rate.

What Sales are Subject to Sales Tax in Texas?

In the Lone Star State, you're generally going to collect sales tax on tangible goods—like electronics or clothing—and on certain services, such as landscaping or data processing. If it's a physical item or a taxable service, chances are you need to collect sales tax on it in Texas.

Is Software as a Service (SaaS) Taxed in Texas?

Yep, SaaS falls under taxable services in Texas. If you're offering SaaS, remember to include sales tax when billing your Texas customers.

What is Exempt from Texasne Sales Tax?

Texas does have its oasis of tax-exempt items and services. Common exemptions include most grocery food items, prescription drugs, and certain medical and real estate services.

Who is Eligible for Texas Sales Tax Exemptions?

Sales tax exemptions in Texas are available to a variety of entities. Non-profits, educational institutions, government agencies, resellers, and manufacturers using raw materials in their products often qualify.

What To Do If Your Customer is Exempt from Sales Tax in Texas?

If you're dealing with a tax-exempt customer in Texas, you'll need to collect a completed Texas Sales and Use Tax Exemption Certificate from them. Keep this form handy in your records—it's your proof of exemption in case of an audit.

What if You Lose a Texas Sales Tax Exemption Certificate?

Losing an exemption certificate? No panic needed. Just reach out to the customer who gave it to you for a replacement. Remember, Texas requires you to keep these documents for four years, so it's important to keep them safe and organized.
Did you know logo

Texas doesn’t tax cowboy boots, keeping the state’s traditional footwear a fine choice!

Steps for Filing a Texas Sales Tax Return

Just like planning a barbecue, knowing when to file and pay sales tax in Texas depends on your situation. Here’s how it works:

Monthly Filing

If you collect $1,500 or more in sales tax in a quarter, you’re filing monthly. These returns are due by the 20th of the following month.

Quarterly Filing

If your monthly collection is less than $500, or the quarterly total is less than $1,500, you file quarterly. Quarterly due dates are April 20, July 20, October 20, and January 20.

Annual Filing

If you collect less than $1,000 in sales tax over the year, you may file annually, with the Comptroller's authorization. Annual returns are due by January 20 of the following year.

What If a Filing Date Falls on a Weekend or Holiday?

If your filing date lands on a weekend or holiday, relax – the Texas Comptroller extends your due date to the next business day.

How to File a Texas Sales Tax Return

Filing your Texas sales tax return is like planning a route for a road trip. Follow these steps:
  1. Gather Your Records: Round up all sales records, including taxable and non-taxable sales, and exemptions.
  2. Calculate Your Tax Due: Work out the total tax due, remembering Texas uses destination-based rates.
  3. File the Return: File online via the Texas Comptroller's Webfile system. Or, if you prefer the traditional way, use Form 01-117 and mail it in.
  4. Make the Payment: Pay online through Webfile or send a check with your mail-in return.
  5. Keep Accurate Records: Keep copies of your filed return and all related documents for future reference.

Penalties for Late Filing in Texas

Missing a filing deadline in Texas can result in penalties. You're looking at a 5% penalty for being up to 30 days late, and up to 50% if you're 60 days late after a deficiency notice.

Sales Tax Incentives in Texas

Yes, Texas offers incentives like a welcome shade in the summer heat. Programs like the Texas Enterprise Zone Program provide tax refunds in specific areas, and the Manufacturing Exemption offers a break on machinery and equipment. Always check with the Comptroller for the latest incentive opportunities.

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Top 5 Tips for Filing Sales Tax in Texas

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