Sanctuary TX Sales Tax:
What Businesses Must Know

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 and should be considered by both quarterly, monthly, and yearly filers to avoid unexpected liabilities.

Compared to 2023, there are no significant changes in the structural framework of tx 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%, but 'how much is sales tax in Texas' including local taxes? Understanding what is sales tax in Texas can reveal it can go up to 8.25%.

Determine Local Sales Tax Rates

Local (city, county, special-purpose district) taxes can add up to 2% more, impacting the total sales tax Texas buyers might pay, especially considering tx sales tax regulations. 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 using a rate locator. Recalculate if there are changes in tax rates or taxable status.

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 important for both quarterly and yearly filers:

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, which should be noted by quarterly filers and monthly filers. 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.

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.

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.

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.

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.

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.

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.