Should you collect sales tax in Texas?
Sales tax is levied when you earn revenues on goods or services your customers provide. However, you will collect the sales tax if you determine the nexus in Texas. Nexus is the presence that may come physically or economically.
Physical nexus is typically created when your business has a store, warehouse, or any office location in Texas. An economic nexus is intertwined when you cross paths with threshold limits as already stipulated by the state. These thresholds are based on revenue.
Let’s explore if your business has a Physical nexus in Texas.
A physical nexus is integrated when your business is engaged in the following in Texas:
- Delivering items using owned, leased, or company vehicles in Texas.
- Having a temporary or permanent location in Texas.
- Employing or retaining any contractor, including an agent, representative, or salesman, by whatever name is called.
- Using or owning tangible personal property (including computer software) in Texas.
- Having a distribution place in Texas.
You may also refer to the Texas Revenue Department advisory to know more about business activities that may create a physical nexus within the state.
Is it constituting an Economic nexus in Texas?
You must comply and register under sales tax rules if you are a remote seller or a remote marketplace provider and your business sales exceed $500,000 per year during the previous calendar year.
Kindly visit the department website for detailed, precise guidance on remote sellers and remote marketplace providers.
How can you Register for Sales tax in Texas?
You can apply for a sales tax permit in Texas via the state’s eSystem portal . Once you apply online for sales tax registration, receiving the license generally takes 2-3 weeks. You must qualify for the age limit 18 to apply for sales tax registration. Otherwise, the legal guardians or parents can also apply on behalf of a minor.
Form AP-201 must be filed to apply for a sales tax permit in Texas. You can use fax at 512-936-0010 or email at sales.applications@cpa.texas.gov.
Additionally, before applying for a new tax account number, make sure you have the following information handy:
- 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.
- Social security number of each officer or director.
- NAICS code
In general, getting a sales tax permit in Texas is no fee.
Is your product or services liable to Sales tax in Texas?
Tangible Property: Texas sales tax is imposed on all retail sales, leases, or rentals of goods and taxable services. Tax collection is done by the seller and remitted to the state directly.
Services: Many services are taxable in Texas, which include communication services, fabrication, utilities, hotel stays, dry cleaning, etc. For more information, click here.
Digital Product: Texas charges sales tax on digital products. So, you must collect sales tax if you sell digital products such as software, streaming services, e-books, etc. Here is what Texas says about digital transactions.
SAAS: SAAS is software that allows users to connect to the cloud and use it over an internet connection. SAAS is considered sort of data processing services and 20% exempt from sales tax. Review the Texas Revenue Department advisory.
The state provides certain exemptions from the sales tax levy, such as food for home consumption, prescription drugs, manufacturing equipment, etc. Please click here to see what exemptions are covered.
To know what services are included under the ambit of sales tax, see the list of taxable services stated by the Texas Comptroller of Public Accounts.
How should you collect and calculate state taxes in Texas?
Collecting and computing accurate sales tax to be remitted to the state may not involve those boisterous efforts as the sales tax is origin-based in Texas, which means you must collect taxes at the rate where your business is located. However, if you are not based in Texas and make any sales to a Texas-based buyer, you’ll have to collect and remit the sales tax.
However, any default may lead to severe concerns, penalties, or fines by the state. That is what TaxDo is here for you! Our specialized sales tax calculator and professional services will simplify your job and lighten your compliance burden.
Texas has a base sales tax rate of 6.25%, followed by the local tax rates, which vary based on the cities and municipalities. You may visit the sales tax rates page on the Texas Comptroller of Public Accounts.
Below is the simple formula you can use to calculate your sales tax collection on each merchandise sold:
Sales Tax collectible = Sale value * (6.25% plus local tax rate)
Do you need to collect sales tax on Shipping Charges?
Shipping charges can be delineated separately in the sale invoice raised to the customer or dissipated within the selling price of items sold. Whatever the case, you’ll need to collect the sales tax on the total value, including shipping charges. Here is what the state says about delivery charges.
How should you file sales tax in Texas?
There are multiple options to file your sales tax in Texas:
- eSystems: You can file and remit the sales tax electronically through their eSystems site.
- Downloadable forms: You can download the sales tax return form and file it through mail at one of their offices.
- TeleFile: You can file by phone if you do not have any taxes or sales to report.
- TaxDo: Let us manage all your tax compliances. We will handle all the calculations, payments, remittances, and filings.
Similarly, you can pay the sales tax using any mode, including EFT or credit card, via eSystems, EDI, or TEXNET. However, you can also pay by check if your sales tax liability is less than $10,000.
Note: If you had collected and remitted the sales tax below $50,000 during the last fiscal year, you may file the sales tax in a paper form. However, make sure that paper returns are postmarked on or before the due date to consider the filed promptly.
Filing frequencies and due dates
Filing frequency is decided based on the size of your business. The Texas Comptroller of Public Accounts will determine your filing frequency, which can be Monthly, Quarterly, or Annual. Generally, for large companies, it is monthly. You must file the sales tax on the 20th of the following month or quarter based on your filing frequency.
Monthly filers will file the sales tax by the 20th of next month. Quarterly filers would file by the 20th of the month following the end of the relevant quarter. Similarly, yearly filers would file on 20th January following the end of the applicable fiscal year.
Note: If the due date is a holiday or weekend, the next business day would be considered the final due date. This link will take you to the official Texas government advisory, where you can see what the state says about sales tax filing due dates.
Are there any fines or penalties for default in filing or paying sales tax?
The state levies a penalty amounting to 5% of sales tax due if paid or filed after the due date but within 30 days from the end of the due date. If you delay more than 30 days in paying after the due date, the penalty would be 10%. Additionally, a penalty of $50 is levied on each report filed after the due date.
Interest is charged if you pay after 60 days of the due date. However, assigning your tax burden to TaxDo would not result in you paying any penalty or interest. We will adhere to the due dates. Please review the guidelines the Texas Revenue Department issued for penalties and interest.
Sales tax holiday in Texas
The Texas sales tax holiday applies to Clothing, Footwear, School Supplies, Backpacks, etc. The sales tax holiday would start from 9th August (12:01 a.m.) to 11th August (11:59 p.m.) for 2024. For detailed information, refer to the Texas Revenue Department advisory here.