The Houston MTA transit tax is a 1% local sales and use tax that funds METRO’s bus, light rail, and paratransit service. Businesses operating inside METRO’s service area collect it on the same transactions that are subject to Texas state sales tax, then remit it to the Texas Comptroller of Public Accounts along with the rest of the sales tax they collect. Voters originally authorized the levy when the transit authority was confirmed in 1978, and it has been layered onto the state’s 6.25% base rate ever since.1METRO. Debt Obligations
The 1% Rate and the 2% Local Cap
The transit tax is a flat 1% on the purchase price of taxable goods and services. It sits inside the same 2% ceiling that limits all local sales tax in Texas, so the transit rate shares space with city, county, and special purpose district taxes wherever those overlap. Because the state charges 6.25%, the maximum combined rate at any single Texas location is 8.25%.2Texas Comptroller of Public Accounts. Sales and Use Tax
In most of Houston proper, the arithmetic reaches the full 8.25%: 6.25% state, 1% city, and 1% METRO. In some smaller member cities the total lands slightly below that depending on what other local taxes are already in place. If adding the transit tax to existing local levies would break the 2% cap, the transit portion is effectively squeezed into whatever room remains.
Who Has to Collect It
METRO’s service area covers the City of Houston, large parts of unincorporated Harris County, and 14 smaller member municipalities known as the Multi-Cities.3METRO. About METRO Those cities are:
- Bellaire
- Bunker Hill Village
- El Lago
- Hedwig Village
- Hilshire Village
- Humble
- Hunters Creek Village
- Katy
- Missouri City
- Piney Point Village
- Southside Place
- Spring Valley Village
- Taylor Lake Village
- West University Place
If your place of business sits inside those boundaries, you collect the 1%. The Comptroller assigns the Houston MTA a local reporting code of 3101990, which is how the transit authority’s share is identified on the return.4Texas Comptroller of Public Accounts. Transit Sales and Use Tax
How Location Determines the Tax
Texas uses origin-based sourcing for local sales tax. In practice, that means a sale is taxed based on where the seller’s place of business is, not where the customer lives. A store inside the METRO area collects the 1% on every in-store sale regardless of where the buyer drove from.5Texas Comptroller of Public Accounts. Local Sales and Use Tax Collection – A Guide for Sellers
Shipping changes the picture. When a seller delivers a taxable item into a jurisdiction with a higher combined local rate than the seller’s own location, the seller must collect the additional local use tax to make up the difference. The reverse also applies: a METRO-area seller shipping to a location with a lower local rate collects only the destination rate. Total local tax on any single transaction still cannot exceed 2%.5Texas Comptroller of Public Accounts. Local Sales and Use Tax Collection – A Guide for Sellers
Temporary selling spots follow the same logic. If a flea market or trade show takes place inside METRO boundaries, sales made there carry the 1%.
Remote and Out-of-State Sellers
A seller with no Texas location has to start collecting once total Texas revenue crosses $500,000 in the preceding 12 calendar months. That threshold counts gross revenue from all tangible personal property and services sold into Texas, taxable or not, and it includes shipping and handling.6Texas Comptroller of Public Accounts. Remote Sellers and Marketplace Frequently Asked Questions
Once over the threshold, a remote seller picks one of two methods for local tax. Collect the actual combined local rate at each shipping address, or elect a single local use tax rate of 1.75% on all Texas sales. The Comptroller sets that single rate annually as a weighted average of local taxes collected statewide.7Texas Comptroller of Public Accounts. Online Orders – Texas Purchasers and Sellers
What’s Taxable and What Isn’t
The transit tax rides on the state sales tax base. If the state taxes an item or service, the 1% applies. If the state exempts it, so does METRO. Retail sales of tangible personal property (electronics, furniture, clothing, building materials) are in. Texas taxes 16 specific service categories, including telecommunications, cable television, data processing, credit reporting, debt collection, and certain repair and maintenance work. Internet access service came off the taxable list effective July 1, 2025.8Texas Comptroller of Public Accounts. Taxable Services
Broad exemptions carry through to the transit portion:
- Most grocery food for human consumption is exempt, though prepared food, candy, and soft drinks may still be taxable.
- Drugs dispensed on a licensed practitioner’s prescription are exempt, and insulin is exempt with or without a prescription.9Texas Administrative Code. 34 Texas Administrative Code 3.284 – Drugs, Medicines, Medical Equipment, and Devices
- Legal, medical, and accounting services fall outside the 16 taxable service categories, so no sales or transit tax applies.
- Purchases for resale are exempt when the buyer provides a valid resale certificate.
One trap catches businesses often: if you buy untaxed items from an out-of-state vendor and use them inside the METRO area, you owe use tax at the same 1% transit rate. You self-report it on the same sales tax return.
Filing and Paying
All sales tax returns, transit portion included, go through the Texas Comptroller of Public Accounts. The main channel is Webfile, reached through the Comptroller’s eSystems portal. Webfile accepts electronic check payments, which can be post-dated to the due date, and it accepts Visa, Mastercard, American Express, and Discover. Credit card payments carry a processing fee of $1.00 for payments up to $100, or 2.25% plus $0.25 for anything over that.10Texas Comptroller of Public Accounts. File and Pay
Paper filers use Form 01-114, the standard Texas Sales and Use Tax Return, mailed with a check. Multi-location businesses or those reporting to multiple local jurisdictions must use the long form. A single-location business reporting to only one set of local entities may qualify for the short form, Form 01-117.11Texas Comptroller of Public Accounts. Texas Sales and Use Tax Forms
Filing Frequency
The Comptroller assigns a filing frequency based on how much tax a business collects and notifies each permit holder of the schedule. Monthly filers submit returns by the 20th of the month after each reporting period. Smaller liabilities may be assigned quarterly or annual schedules.
Electronic Filing Thresholds
If your business paid $50,000 or more in sales and use tax during the preceding state fiscal year (September 1 through August 31), you must file electronically. At $10,000 or more, you must pay electronically. At $500,000 or more, payments must go through TEXNET, the state’s electronic payment network. Failing to file electronically when required adds a 5% penalty on top of any other late penalties.10Texas Comptroller of Public Accounts. File and Pay
The Timely Filing Discount
Texas lets you keep a small slice of the tax you collect for filing on time. File the return and pay by the due date and you can claim 0.5% of the tax due. Businesses that prepay their estimated liability can claim an additional 1.25% on top of the 0.5%.2Texas Comptroller of Public Accounts. Sales and Use Tax The discount is forfeited entirely if the return is late.
Penalties for Late Filing
Penalties escalate quickly and apply to the full amount due, including the 1% transit portion:
- 1 to 30 days late: 5% penalty on the unpaid tax.
- More than 30 days late: 10% penalty.
- After a Notice of Tax Due is issued: an additional 10%, bringing the total to 20% of the unpaid balance.
A flat $50 fee is added for every late report, even one showing zero tax due. Interest accrues on the unpaid balance as well.12Texas Comptroller of Public Accounts. Penalties for Past Due Taxes Between the lost timely filing discount and the compounding penalties, a single missed deadline on a moderate bill can cost several hundred dollars. Filing on time with an estimated amount and amending later is almost always cheaper than filing late with exact numbers.