Texas Sales Tax Rates

Total Range for 2024

6.375%–8.25%

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Why do you need to collect sales tax in Texas?

If you’re selling goods and services in Texas then sales tax might apply! To determine your obligation, you need to understand “nexus,” which ties businesses to states for tax purposes.

Two types of nexus exist:

  1. Physical Nexus: Having a physical presence, like an office, warehouse, or employees in Texas, triggers this type. If you do, you likely need to collect sales tax.
  2. Economic Nexus: This kicks in when your sales within Texas exceed a certain economic threshold. Even without a physical presence, surpassing this threshold requires collecting sales tax.

Is what you’re selling taxable in Texas?

Now that you understand the basics of Texas’s sales tax and nexus thresholds, let’s delve into whether your specific products or services are taxable.

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How to register for sales tax in Texas

You have two options to register for a sales tax permit in Texas:

  1. Online Registration: This is the faster and recommended method.
    • Visit the Texas Comptroller of Public Accounts website.
    • Click on “Taxes” and then “Sales Tax Permit Application.”
    • You’ll need to create an account if you’re a first-time user and follow the prompts to register your business.
  2. Paper Application:
    • Download Form AP-201, Texas Application from the Comptroller’s website.
    • Fill out the application with your business information.
    • Mail the application to the address provided on the form or fax it to the designated number.

How to collect sales tax in Texas

  1. Collect the Sales Tax:
  • Once you have your permit, you’re legally obligated to collect sales tax at the appropriate rate for your location on all taxable sales.
  • You can include the sales tax in your advertised prices or add it separately at checkout.
  • It’s a good practice to clearly display the sales tax amount on receipts or invoices.
  1. Keep Accurate Records:
  • Maintain good records of your sales and the amount of sales tax collected for each transaction.
  • These records will be crucial when you file your sales tax returns.
Example:

Let’s say you’re buying a new pair of jeans in Austin, Texas. Here’s how to calculate the sales tax:

  1. Item Price: Jeans = $50.00
  2. Sales Tax Rate: Austin might have a combined rate (state + local) of 8.25% (check the Texas Comptroller’s website for your specific location).
  3. Sales Tax Calculation:
    • Convert the sales tax rate into a decimal: 8.25% = 8.25 / 100 = 0.0825
    • Multiply the sales tax rate by the item price: $50.00 x 0.0825 = $4.13

Total Price: $50.00 (Jeans) + $4.13 (Sales Tax) = $54.13

FAQs

Do you have a physical nexus in Texas?

In Texas, having a physical nexus generally means your business has enough of a physical presence in the state to be required to collect and remit sales tax. Here are the main ways a business can establish physical nexus in Texas:

  • Physical Location: Owning or leasing a storefront, office, warehouse, or any other place of business in Texas creates physical nexus.
  • Employees or Representatives: Having employees, salespeople, or other representatives working in Texas on behalf of your business can also trigger nexus.
  • Inventory Storage: Storing inventory within Texas, even if through a fulfillment service like Amazon FBA, can establish nexus.
Do you have an economic nexus in Texas?

Since 2019, Texas also has economic nexus rules. This means even without a physical presence, you may need to collect sales tax if your business makes more than $500,000 in annual sales from Texas customers.

What is use tax in Texas?

Texas use tax is basically a “catch-up” for sales tax you didn’t pay upfront. Applies to:

  • Out-of-state purchases brought to Texas
  • Online purchases without Texas sales tax collected
  • Tax-exempt items later used for taxable purposes (rare)

You report and pay use tax on your Texas income tax return, at the same combined state and local sales tax rate as your area.

Do you need a seller/reseller permit?

In Texas, you don’t necessarily need a combined “seller/reseller permit.” However, you likely need a Texas Sales and Use Tax Permit. This permit allows you to:

  • Collect sales tax from customers on taxable purchases.
  • Purchase goods tax-free for resale by using a Resale Certificate.

Who Needs a Permit:

  • Any business with a physical presence in Texas (office, warehouse, etc.)
  • Businesses with employees or representatives in Texas
  • Businesses storing inventory in Texas (including fulfillment centers)
  • Businesses exceeding $500,000 in annual sales to Texas customers (economic nexus)
How to get a sales tax permit/license in Texas?

To grab a sales tax permit (aka Texas Sales and Use Tax Permit) in Texas, you have two options:

  1. Online: Head to the Texas Comptroller website (https://comptroller.texas.gov/) and navigate to “Sales Tax Permit Application.” Set up an account if needed and register your business.
  2. Paper: Download Form AP-201 from the same website, fill it out, and mail/fax it in.
When are Texas's Returns Due?

The due date for your Texas sales tax return depends on your filing frequency, which is assigned when you receive your sales tax permit. Here’s a breakdown:

  • Monthly Filers: Due on the 20th of the following month after the reporting period. (Example: September sales tax is due by October 20th)
  • Quarterly Filers: Due on the 20th of the month following the end of the quarter. (Example: 1st Quarter – Jan-Mar; due April 20th)
  • Annual Filers: Due on January 20th for the previous year’s taxes.
How to file sales tax in Texas

There are three main ways to file your Texas sales tax return:

  1. Online Filing (Recommended): This is the fastest and most convenient option.
    • Visit the Texas Comptroller’s eSystems website: [invalid URL removed]
    • Log in using your account credentials (create one if you haven’t already).
    • Select “WebFile/Pay Taxes and Fees.”
    • Choose your sales tax account and follow the prompts to file your return and submit your payment electronically (credit card with fee or electronic check).
  2. File by Mail: You can download Form 01-114, Texas Sales and Use Tax Return, from the Comptroller’s website and mail it with your payment (check or money order) to the designated address.
  3. Third-Party Filing Services: We offer sales tax filing services for a fee. They can handle the entire process for you, including collecting data, preparing the return, and submitting it electronically.
Is anyone exempt from sales tax in Texas?

In Texas, several categories are exempt from paying sales tax on certain purchases. Here’s a general breakdown:

  • Government Agencies: State and local government entities are generally exempt from sales tax when purchasing for official government use.
  • Non-Profit Organizations: Qualifying non-profit organizations, like religious groups and charities, may be exempt from sales tax on purchases used exclusively for exempt purposes.
  • Certain Goods: Texas exempts necessities of life from sales tax, including most unprepared groceries (excluding restaurant meals and prepared foods). Prescription drugs and medical equipment are also exempt.
  • Manufacturing and Production: Companies involved in manufacturing, processing, fabrication, or repair may qualify for exemptions on equipment, replacement parts, and certain materials used directly in production.

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