Your business needs to pay sales tax in Texas if it sells taxable goods or services and has either a physical presence in the state or more than $500,000 in Texas sales over the previous twelve months. The state rate is 6.25%, and local jurisdictions can add up to 2% more, so the combined rate you collect from a customer can reach 8.25%.1Texas Comptroller of Public Accounts. Sales and Use Tax Whether you actually owe depends on three things: what you sell, where you (or your inventory, employees, and agents) are located, and how much revenue you pull from Texas customers.
When Your Business Has to Collect Texas Sales Tax
The legal trigger is called nexus. Texas Tax Code Section 151.107 sets out two kinds, and crossing either one means you need a permit before you make another sale.2State of Texas. Texas Tax Code 151.107 – Retailer Engaged in Business in This State
Physical Presence
You have physical nexus if any part of your business operation sits in Texas, permanently or temporarily. An office, warehouse, distribution center, sales room, storage facility, or a trade show kiosk all count.3Texas Comptroller of Public Accounts. Engaged in Business One employee, sales rep, or agent working in the state on your behalf also triggers it. The statute is written broadly on purpose: if a person is in Texas selling, delivering, or taking orders for you, you have nexus.2State of Texas. Texas Tax Code 151.107 – Retailer Engaged in Business in This State
$500,000 in Texas Sales
Businesses with no Texas footprint still need a permit once they exceed $500,000 in total Texas revenue during the previous twelve calendar months.3Texas Comptroller of Public Accounts. Engaged in Business That number counts everything sold into Texas, including exempt and nontaxable sales. After you cross the threshold, you have to register by the first day of the fourth month after the month in which you exceeded it.
What Texas Taxes
Most tangible goods are taxable: furniture, electronics, clothing, building materials, and the rest of what retail usually covers. Services are where owners get surprised.
Taxable Services
Data processing is one of the widest categories. If you enter, store, format, or manipulate a customer’s data on a computer, the charge is taxable. That covers payroll processing, word processing, document scanning, and building web pages with hosting.4Texas Comptroller of Public Accounts. Data Processing Services Are Taxable Software as a Service is treated as data processing too. Amusement services (event tickets, streaming subscriptions), telecommunications, cable television, and credit reporting are also taxable.
Construction and Repair Work
Repair, remodeling, or restoration labor on commercial property (offices, warehouses, retail spaces, restaurants) is taxable on the total job price.5Texas Comptroller of Public Accounts. Real Property Repair and Remodeling Residential repair and remodeling labor is not taxable, though the contractor still owes tax on the materials. New construction labor is not taxable either, regardless of building type; the contractor pays tax on supplies and does not charge the customer tax on labor.6Legal Information Institute. 34 Texas Administrative Code 3.357 – Nonresidential Real Property Repair, Remodeling, and Restoration
What’s Exempt
Food for human consumption is exempt. Groceries like bread, milk, eggs, fruits, and vegetables are not taxable, though prepared food, candy, and soft drinks usually are. Prescription drugs, insulin, over-the-counter medicines labeled with an FDA Drug Facts panel, and many medical devices and health care supplies are also exempt.7Texas Comptroller of Public Accounts. Grocery and Convenience Stores
If you buy inventory for resale, you don’t pay tax on those purchases. Give your supplier a completed Texas Sales and Use Tax Resale Certificate (Form 01-339), and the obligation moves downstream to when the end customer buys.8Texas Comptroller of Public Accounts. Texas Sales and Use Tax Resale Certificate Keep every certificate on file. The Comptroller will ask for them during an audit, and missing paperwork means you owe the tax yourself.
Federal and Texas government entities are automatically exempt. Qualifying nonprofits can apply for exempt status with the Comptroller.9Texas Comptroller of Public Accounts. Nonprofit and Exempt Organizations – Purchases and Sales When you sell to any exempt buyer, collect and keep a copy of their exemption certificate.
If You Sell Through Amazon, eBay, or Etsy
Marketplace providers are required to collect and remit Texas sales tax on your sales through their platforms under Texas Tax Code Section 151.0242.10Texas Comptroller of Public Accounts. Marketplace Providers and Marketplace Sellers The marketplace should give you a written certification confirming it’s doing so. Without that certification, the obligation stays with you.
One trap for sellers who use both a marketplace and their own website: marketplace sales still count toward the $500,000 threshold. If your combined sales clear $500,000, you need a permit and must collect tax on the sales you make off the marketplace, even though the marketplace is handling tax on sales through its platform.11Texas Comptroller of Public Accounts. Remote Sellers and Marketplace Frequently Asked Questions
Use Tax on What Your Business Buys
Sales tax is only half of the obligation. If your business buys taxable goods or services from a seller that doesn’t charge Texas sales tax, which happens often with out-of-state online vendors, you owe use tax at the same rate.12Texas Comptroller of Public Accounts. Use Tax
If you already hold a sales and use tax permit, report use tax on Line 3 (“Taxable Purchases”) of your regular return. If you don’t have a permit, file Form 01-156 separately. Businesses that owe less than $1,000 in use tax for the year can wait until January 20 of the following year. Hit $1,000 in any single month and the return is due by the 20th of the next month.12Texas Comptroller of Public Accounts. Use Tax
How to Get a Sales and Use Tax Permit
Apply through the Texas Online Tax Registration Application on the Comptroller’s website. The form asks for your business’s legal name, physical address, and NAICS code.13Texas Comptroller of Public Accounts. Texas Online Tax Registration Application Sole proprietors provide a Social Security number. Corporations and partnerships need a Federal Employer Identification Number plus Social Security numbers for officers, directors, or partners.
There is no fee for the permit. Once it’s issued, post it at your place of business.14Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions You cannot legally collect sales tax without one.
Filing Returns, Deadlines, and Penalties
The Comptroller assigns you a monthly, quarterly, or annual filing frequency based on how much tax you’re expected to collect. Returns are filed through the state’s eSystems/Webfile portal, and the return and payment are due by the 20th of the month after the reporting period ends.15Texas Comptroller of Public Accounts. File and Pay1Texas Comptroller of Public Accounts. Sales and Use Tax
The On-Time Discount
File and pay on time and you keep 0.5% of the tax you collected.1Texas Comptroller of Public Accounts. Sales and Use Tax Monthly and quarterly filers can claim an additional 1.25% prepayment discount on top of that.16Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions
What Late Costs You
Penalties stack:
- A $50 penalty for each report filed after the due date, even if no tax is owed.
- 1 to 30 days late on payment: 5% of the tax due.
- More than 30 days late: 10% of the tax due.
- After a formal Notice of Tax Due: another 10%, bringing the total to 20%.
Interest starts accruing on the 61st day after the due date, at the prime rate plus one percent annually.17Texas Comptroller of Public Accounts. Penalties for Past Due Taxes18Texas Comptroller of Public Accounts. Interest Owed and Earned On $10,000 of tax paid 45 days late, that’s a $50 filing penalty plus a $1,000 payment penalty before any interest.
If You’re Buying an Existing Texas Business
A seller’s unpaid sales tax can follow the business to you. Under Texas Tax Code Section 111.020, the buyer is liable for the seller’s past-due taxes up to the full purchase price.19Texas Comptroller of Public Accounts. Buying an Existing Business
Before closing, request a Certificate of No Tax Due. The buyer and seller submit Form 86-114 jointly. There’s no fee. The Comptroller typically responds within 10 business days if no audit is needed, or up to 90 days if an audit is required. Close without the certificate and any unpaid taxes the seller left behind become yours.19Texas Comptroller of Public Accounts. Buying an Existing Business