We wrote this guide for online sellers who want to know if they even have to bother with sales tax in Texas, and if so, how best to tackle the sales tax situation in the Lone Star State.
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After reading this, you’ll know:
Good news! You only have to begin thinking about Texas sales tax if you have sales tax nexus in Texas.
“Sales tax nexus” is just a fancy way of saying “significant presence” in a state.
Texas considers a seller to have sales tax nexus in the state if you have any of the following in the state:
Here’s exactly what Texas has to say about sales tax nexus.
If you sell on Amazon FBA, you may fall under Texas’s nexus rules due to storing goods in an Amazon fulfillment center, and thus may have sales tax nexus in Texas. Texas is home to multiple Amazon Fulfillment Centers.
To determine whether or not you have items stored in an FBA warehouse in Texas, you can do one of two things:
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You may find that your inventory is stored in one or more of Texas’s Amazon fulfillment centers in this list:
Read here for more about Amazon FBA and sales tax nexus. Here’s a list of all Amazon Fulfillment Centers in the United States.
Texas economic nexus laws don’t take effect until October 1, 2019, but it’s never too soon to begin planning and preparing if you’ll need to register for a sales tax permit. Once this law takes effect, remote sellers with Texas revenues above $500,000 are required to register for a sales tax permit, collect sales tax on sales that ship to Texas, and remit the sales tax to the state. Read more here about economic nexus thresholds in every state and when their laws take effect.
You’ve probably read this far because you realized you have sales tax nexus in Texas. Your next step is to determine if what you’re selling is even taxable.
Services in Texas are sometimes taxable. Charge sales tax on services in Texas if you provide:
In general, other services not mentioned here are not taxable in Texas. That said, this is always subject to change. So check with the Texas Comptroller if you think you may be selling taxable services. Here’s a current list of services taxable in Texas.
Tangible products are taxable in Texas. Charge sales tax to buyers if you sell tangible goods.
If you have sales tax nexus in Texas and your products are taxable, your next step is to register for a sales tax permit.
Sellers with sales tax nexus in Texas must apply for a Texas sales tax permit.
Don’t skip this step! Texas considers it unlawful to collect sales tax in their name without a permit. Go here for more on how to register for a sales tax permit in Texas.
So you’ve determined that you have sales tax nexus in Texas and what you’re selling is taxable. And you’re all set and registered for your Texas sales tax permit(s).
The next step is to determine how much sales tax to collect.
The sales tax rate you collect in Texas depends on whether you are based in Texas or out-of-state.
Texas is an origin-based sales tax state. So if you live in Texas, collecting sales tax is fairly easy. Collect sales tax at the tax rate where your business is located.
You can look up your local sales tax rate with TaxJar’s Sales Tax Calculator or by going to TaxJar.com/mobile on your mobile device.
Example: You live and run your business in Plano, TX, in the 75023 zip code. Your sales tax rate is a total of the following percentages: Texas: 6.25%, Plano: 1%, and the district: 1%, for a total of 8.25%. If you live in Texas, you would charge all of your Texas customers, no matter where in the state they live, that 8.25% sales tax rate.
If you have more than one location in Texas, then you would base the sales tax rate you charge on the point of origin of your sale.
This is where things get trickier for online sellers. Texas wants sellers who made a sale into Texas from outside the state to charge sales tax based on the destination of the item (i.e. the buyer’s ship to address.)
Here’s what they have to say about that: “If a seller receives an order at a place of business located outside of Texas, but delivery or shipment is made to a customer in Texas from a location within the state that is not a place of business (such as a warehouse or distribution center), the seller must collect use tax for the city, county, special purpose district or transit authority where the product is delivered if the seller is engaged in business in the jurisdiction.” (Source: Texas Sales and Use Tax Bulletin, p. 11).
Example: You live in Arkansas, but have sales tax nexus in Texas due to having products stored in the Amazon fulfillment center in Dallas, TX. If you make a sale to a buyer in Round Rock, Texas (78665 zip code) then you would charge sales tax based on the 8.25% sales tax rate in the buyer’s location, Round Rock.
If you are an Amazon pro seller and use Amazon to collect sales tax, be sure you have your Texas sales tax settings entered correctly. Find step-by-step instructions for setting up your Amazon sales tax settings here.
|If you are a…||State tax||County tax||City tax||District tax||Custom rate||Is shipping taxable?||Is gift wrapping taxable?|
|Seller living in Texas||X||X||X||X||N/A||Yes||Yes|
|Seller living outside of Texas||X||X||X||X||N/A||Yes||Yes|
Shipping charges are generally taxable in Texas as long as the goods you are selling are also taxable.
Read a full explanation of sales tax on shipping in Texas here.
When you file and pay Texas sales tax depends on two things: your state-assigned filing frequency and your state’s due dates.
States assign you a filing frequency when you register for your sales tax permit. In most states, how often you file sales tax is based on the amount of sales tax you collect from buyers in the state.
In Texas, you will be required to file and remit sales tax either monthly, quarterly, or annually.
How often you are required to file sales tax in Texas follows this general rule:
Texas sales tax returns are always due the 20th of the month following the reporting period. If the filing due date falls on a weekend or holiday, sales tax is generally due the next business day.
Click here for more info on Texas sales tax filing due dates.
When it comes time to file sales tax in Texas you must do three things:
This video will walk you through manually filing your Texas sales tax return using your TaxJar report:
You have two options for filing and paying your Texas sales tax:
You’ll mail your return to:
Comptroller of Public AccountsP.O. Box 149355Austin, TX 78714-9355
Keep in mind that if you made $10,000 or more in sales tax payments to Texas in the preceding fiscal year, you are required to file and pay online.
There are a few more things you should know about sales tax in Texas:
According to the Texas Comptroller:
“The law imposes a $50 late filing penalty on every report filed after the due date, even if no tax was due for the period or the report was eventually filed.” Source.
They also state:
“If you fail to file a required sales tax report, the Comptroller’s office will send you an estimated billing, with instructions to file a report providing your actual sales data for the estimated period. Please be aware that failure to file or pay a sales tax report may result in collection actions, including, but not limited to, additional late filing penalties, liens, and criminal charges.”
Texas requires that any seller with a sales tax permit file a sales tax return on your due date even if you don’t have any sales tax to report or pay. Failing to file will result in a fine of $50 per filing missed.
Many states understand that collecting sales tax is a difficult burden on merchants, and will provide a discount to help alleviate some of this burden. In Texas, as long as the sales tax is paid on time, a discount is available equal to 0.5% of tax due plus 1.25% of the amount of any prepaid tax you may have paid.
Here are the current Texas sales tax holidays:
Check here for more information about Texas sales tax holidays including how to handle sales tax holidays as an online seller.
And that’s it. You’ve mastered Texas sales tax filing! Now that sales tax is out of the way, you can get back to what you do best — running your business.
For more about Texas sales tax, check out the Texas section of the TaxJar blog.