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Learn the fundamentals of sales tax
Do you need to collect sales tax in Texas?
You’ll need to collect sales tax in Texas if you have nexus there. There are two 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.
Do you have physical nexus in Texas?
Texas considers a seller or retailer to have physical nexus if you have any of the following in the state:
- An office or place of business
- An employee present in the state
- A place of distribution
- A warehouse or storage space
- A sales or sample room
- Another place where business is conducted
Here’s exactly what Texas has to say about sales tax nexus.
Do you have economic nexus in Texas?
Effective October 1, 2019, 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.
Is what you’re selling even taxable?
Services in Texas are sometimes taxable. Charge sales tax on services in Texas if you provide:
- Amusement services
- Cable and Satellite television service
- Construction services if you separately charge for materials
- Credit reporting services
- Data processing services
- Debt collection services
- Information services
- Internet access services (though the first $25 per account, per month is tax exempt.)
- Motor vehicle parking and storage services
- Nonresidential real property repair, restoration or remodeling
- Personal property repair, restoration or remodeling services
- Personal services
- Real property services
- Security services
- Taxable labor (included labor used in the process of making tangible personal property)
- Telecommunications services
- Telephone answering services
- Utility transmission and distribution services
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.
Is SaaS taxable in Texas?
SaaS is considered part of a data processing service in Texas and is 80% taxable and 20% exempt from sales tax. (Source)
How to get a sales tax permit in Texas
You can register for a Texas sales tax permit online at the Texas Comptroller of Public Accounts website here. There are a number of educational FAQs on obtaining a sales tax permit at the Texas Comptroller’s office website here, including information on the type of retailer required to hold a Texas sales and use tax permit.
You can also download a paper Texas sales tax permit application (form AP-201) and mail it to:
Comptroller of Public Accounts
111 E. 17th St.
Austin, TX 78774-0100
You need this information to register for a sales tax permit:
- Sole owner’s social security number.
- Partnership social security numbers or federal employer’s identification numbers for each partner.
- Texas corporation’s file number from the Texas Secretary of State.
- All corporations’ social security numbers for each officer or director.
- North American Industrial Classification System (NAICS) code required for all businesses.
- Applicants must be at least 18 years of age. Parents/legal guardians may apply for a permit on behalf of a minor.
It’s free to apply for a Texas sales tax permit. A bond may be required but only after the application is filed and reviewed. Other business registration fees may apply. Contact each state’s individual department of revenue for more about registering your business.
Collecting Sales Tax
The sales tax rate you collect in Texas depends on whether you are based in Texas or out-of-state.
How to Collect Sales Tax in Texas if You are Based in Texas
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. The Texas sales tax rate is 6.25%. The use tax rate is the same as the sales tax rate, and is explained by the Comptroller’s Office here.
You can look up your local sales tax rate with TaxJar’s Sales Tax Calculator.
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.
How to Collect Sales Tax in Texas if you are Not Based in Texas
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).
Should you collect sales tax on shipping charges in Texas?
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 are Returns Due?
When you file and pay Texas sales tax depends on two things: your state-assigned filing frequency and your state’s due dates.
How often will you file sales tax returns in Texas?
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.
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.
Filing Sales Tax
When it comes time to file sales tax in Texas you must do three things:
- Calculate how much sales tax you owe
- File a sales tax return
- Make a payment
How to Calculate How Much Sales Tax You Owe in Texas
Calculating how much sales tax you should remit to the state of Texas is easy with TaxJar’s Texas sales tax report.
All you do is connect the channels through which you sell – including Amazon, eBay, Shopify, Square and more – and we’ll calculate exactly how much sales tax you collected. All the information you need to file your Texas sales tax return will be waiting for you in TaxJar. All you have to do is login.
How to File and Pay Sales Tax in Texas
You have three options for filing and paying your Texas sales tax:
- File online – File online at the “TxComptroller eSystems” site. You can remit your payment through their online system. Click here for a step-by-step guide to filing your Texas sales tax returns.
- File by mail – You can also download a Texas Sales and Use tax return here.
- AutoFile – Let TaxJar file your sales tax for you. We take care of the payments, too. You’ll never have to worry about spreadsheets, calculations or filling out complex sales tax returns.
You’ll mail your return to:
Comptroller of Public Accounts P.O. Box 149355 Austin, 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.