A Guide to Texas Sales Tax

Sales tax is a tax which is paid to a governing body for the sale of certain goods and services. It was first enacted in the US in 1921, since then the rate has risen to 6.25. This is a comprehensive guide for online sellers who wish to know all about sales tax in Texas. Here’s are some questions answered for you.

When do you Have Sales Tax in Texas?

You have a sales tax only if you have “Sales tax nexus” which means “significant presence” in a state. The tax is collected by the seller and is remitted to the state and the local tax authorities. The seller here acts as a pseudo-tax collector. You have a sales tax nexus only under the following conditions:

  • If you have an office or place of business
  • If you have an employee present in the state
  • If you have sales, warehouse or storage space.
  • If you have a place of distribution

How Do You Know If What you are selling is Taxable?

To determine if what you’re selling is taxable, just have a look at the following list. Services in Texas may be taxable. Charge sales tax on services in Texas in case you provide:

  1. Amusement services
  2. Cable and Satellite television service
  3. Data processing services
  4. Debt collection services
  5. Motor vehicle parking and storage services
  6. Personal services
  7. Real property services
  8. Construction services if you separately charge for materials
  9. Credit reporting services
  10. Nonresidential real property repair, restoration or remodeling
  11. Personal property repair, restoration or remodeling services
  12. Information services
  13. Internet access services (though the first $25 per account, per month is tax exempt.)
  14. Telecommunications services
  15. Telephone answering services
  16. Utility transmission and distribution services
  17. Security services
  18. Taxable labor (included labor used in the process of making tangible personal property)

This list may be subject to change. Other services not mentioned may not be taxable in Texas. Watch out for the latest list here. If you sell tangible goods, you are eligible for sales tax. In case your products are taxable you need to register for a sales tax permit.

Registering for a Sales Tax Permit in Texas

Those with a sales tax nexus should apply for a sales tax permit.

  • You can register for a Texas sales tax permit at the Texas Comptroller of Public Accounts website online.
  • You may also download a paper Texas sales tax permit application known as form AP-201.

How to Collect Sales Tax in Texas

So if you’ve determined you have sales tax nexus in Texas and what you’re selling is taxable, the next step is to determine how much sales tax to collect. Note that the sales tax rate you collect in Texas depends on whether you are based in Texas or out-of-state.

How Sales taxes are calculated in Texas in 2018?

Please note that state general sales tax rate in Texas is 6.25%. All cities or municipalities are allowed to collect their own rate which may vary by up to 2% in city sales tax.

Every 2018 combined rates are the results of Texas state rate (6.25%), the county rate (0% to 1.5%), the Texas cities rate (0% to 2%), and in some case, special rate (0% to 2%).

How to File and Pay Sales Tax?

  • You may file online at the TxComptrollereSystems site. Payments are remitted through their online system.
  • You can also download a Texas Sales and Use tax return. Keep in mind if you made $10,000 or more in the preceding fiscal year in sales tax payments to Texas, you should file and pay online.

What happens if you don’t collect any sales tax?

If you meet the conditions for collecting sales tax (nexus in Texas and selling taxable goods or services to taxable residents) but however choose not to collect sales tax, you will be held responsible for the tax due. Attempting to contact customers to collect sales tax after the fact is time-consuming and may not be fruitful.

How Often Should You file for sales tax?

It depends upon the total amount of sales tax your business collects.

  • Annual filing: if your business collects less than $83.33 in sales tax per month you may request to file returns on annual basis.
  • Quarterly filing: If your business collects between $83.34 and $1,500.00 in sales tax per month you may file returns on a quarterly basis.
  • Monthly filing: if your business collects more than $1,500.00 in sales tax per month then monthly basis it is.

What are the penalties for Late Filing in Texas?

Texas charges a $50.00 fine for late filing.