Collecting Sales Tax in Texas: An Overview for Small Business Owners
Businesses that make their products or services available for sale in Texas can unwittingly be held liable for Texas sales or use tax. This means that anyone—a business or an individual—offering products or services for sale in the state of Texas, whether online, in their living room, or through brick-and-mortar stores, is generally responsible for collecting sales tax from their customers. In turn, they have an obligation to remit any collected sales tax to the Texas Comptroller of Public Accounts.
Any person who collects a tax holds the tax “in trust” for the benefit of the state and may be held liable for the full amount of the tax collected plus any accrued penalties and interest. In Texas, individuals and business owners are generally legally responsible for knowing whether they need a Texas sales and use tax permit, determining which products are subject to tax, and for collecting and remitting the tax and applicable local tax to the Texas Comptroller.
Experienced Texas Sales Tax Lawyers for Local and Online Sellers
Not every business offering products or services in Texas is required to collect and remit sales tax. The seller must have a sufficient nexus to the State of Texas. Out-of-state sellers, however, often satisfy this requirement. Navigating sales tax regulations in each of the 50 states can put a significant burden on small business owners. Fortunately, the tax attorneys at Freeman Law are available to help with Texas sales tax compliance. Call us today at (214) 984-3410 or contact us online for a free sales tax consultation.
Nexus Triggers for Collecting Sales Tax in Texas
Since the Supreme Court’s decision in South Dakota v. Wayfair, Inc., 138 S.Ct. 2080 (2018), Texas has added an economic nexus rule to its nexus determination. In light of this change, many out-of-state sellers must determine whether they are responsible for registering with the Texas Comptroller for a Texas sales and use tax permit and collecting Texas sales or use tax. As mentioned above, this depends on whether you have a legal nexus to the State of Texas. You may need to register with the state of Texas, as well as collect and remit sales tax to the state of Texas, if any of the following are true:
- The business has a substantial physical presence in the state;
- The seller stores its inventory in the State of Texas, such as in an Amazon warehouse, whether the items ship in or out of state;
- A business affiliate or third party is soliciting sales in Texas on behalf of a remote seller;
- A remote seller has over $500,000 in annual revenue derived from the sale of goods and/or services in Texas
- Items were sold or advertised at a trade show or convention in Texas even if for only a day; or
- The online products were designed, developed, or shipped from within Texas
Anyone who has nexus with Texas must register with the Texas Comptroller and collect and remit sales tax.
Overview of Texas Sales Taxes
Determining whether sellers have nexus to Texas is only step one. Not all goods and services are taxed in Texas. Depending on the situation, some products and services are nontaxable and in other situations they may be classified as tax exempt. Sellers are responsible for charging the proper amount of sales tax on each good sold or service provided, keeping a detailed accounting of such taxes, and remitting the proper amount of tax to the Texas Comptroller.
With certain exceptions, the sale of tangible goods is subject to sales tax in Texas. In addition, the following services may require the payment and collection of sales tax:
- Shipping and delivery charges
- Real Estate
- Telephone, internet, and information
- Property repair, restoration, and labor
- Debt collection
- Utility distribution and transmission
- Construction and labor charged separately from materials
- Data processing services
- Cable and TV
This list merely provides a list of common examples. Other services may be subject to sales tax as well.
Medical, educational, emergency assistance, nonprofit animal shelters (not rescues), and certain wellness services are generally exempt from taxation. Bartered-for goods and services may also be subject to taxation in Texas, as determined by the overall value of the service bartered for.
In Texas, the state sales tax rate is 6.25%, and localities may charge an additional local rate up to 2%. As a result, the total sales and local tax in Texas is generally 8.25%.
Call Us Today to Discuss Your Situation with an Experienced Tax Attorney
If a seller has a nexus to Texas, it must register for a sales tax permit with the Texas Comptroller. The business need not be physically present in Texas, and the taxes charged on each item or service may vary depending on the city and/or county of delivery. Over or undercharging sales tax in Texas may result in substantial tax liability.
Our experienced Texas tax attorneys at Freeman Law are available to provide guidance with Texas tax matters. Whether you’re opening a local boutique or own a major warehouse, we’re passionate about helping businesses succeed in Texas. Contact our experienced tax attorneys for a consultation today at (214) 984-3410 or contact us online.
Freeman Law works with tax clients across all industries, including manufacturing, services, technology, oil and gas, financial services, and real estate. State and local tax laws and rules are complex and vary from state to state. As states confront budgetary deficits due to declining tax revenues and increased government spending, tax authorities aggressively enforce state tax laws to recapture lost revenues.
At Freeman Law, our experienced attorneys regularly guide our clients through complex state and local tax issues—issues that are frequently changing as states seek to keep pace with technology and the evolution of business. Staying ahead requires sophisticated legal counsel dedicated to understanding the complex state tax issues that confront businesses and individuals. Schedule a consultation or call (214) 984-3410 to discuss your Local & State tax concerns and questions?