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.
Sales Tax Rate
Physical NexusIf 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 NexusEconomic 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 NexusGot 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 NexusOnline 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 NexusSelling 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.
Texas exempts holiday ornaments sold for less than $5,000, because everything's bigger in Texas, including holiday cheer.
How to Get Your Texas Sales Tax Permit
Cost of Registering for a Texas Sales Tax LicenseGreat 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 LicenseYes, 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 ConsiderYour 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.
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.
Texas doesn’t tax cowboy boots, keeping the state’s traditional footwear a fine choice!
Monthly FilingIf 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 FilingIf 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 FilingIf 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
Penalties for Late Filing in TexasMissing 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 TexasYes, 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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