To report sales tax in Texas, file a sales and use tax return with the Comptroller of Public Accounts by the 20th day of the month after your reporting period closes, showing total sales, allowable deductions, taxable sales broken out by local jurisdiction, and the tax due at the combined state and local rate of up to 8.25%. Most businesses file through the Comptroller’s Webfile portal and pay by ACH, and a return is required for every period, even one with no sales.
When Your Return Is Due
The Comptroller assigns you a filing frequency based on the tax you collect. Businesses with $1,500 or more in monthly liability file monthly. Those between $500 and $1,500 per month file quarterly. Businesses under $500 per month file annually.1Texas Comptroller. Sales and Use Tax The Comptroller reviews collection history and can move you to a different frequency.
Every return is due on the 20th of the month after the period ends. A monthly filer’s January return is due February 20. Quarterly filers report in April, July, October, and January. When the 20th lands on a weekend or federal holiday, the deadline moves to the next business day.2Texas Comptroller of Public Accounts. Due Dates for Taxes, Fees and Information Reports
Texas does not grant extensions on sales tax returns. The one exception is a governor-declared disaster in your area, and even then relief is considered case by case.3Texas Comptroller. Disaster Relief Information If you had no taxable activity during a period, you still owe a return. A zero-dollar return can be filed through the TeleFile phone system or Webfile.4Texas Comptroller. Requirements for Reporting and Paying Texas Sales and Use Tax
Getting Your Numbers Ready
Start with total gross sales for the period, every transaction included. Subtract non-taxable amounts: sales for resale, exports, and exempt sales. Every subtraction has to be backed by documentation, such as a valid resale or exemption certificate, and the burden of proof for each deduction sits with you as the seller.
You also need to break out taxable sales by the local taxing jurisdiction where each sale was sourced. Returns require you to allocate revenue to the correct city, county, transit authority, or special purpose district. Misallocation moves tax dollars between local jurisdictions and is one of the surer ways to attract audit attention. Your point-of-sale system should capture the transaction location for every sale.
Local sourcing in Texas is not straightforward destination sourcing. For in-person orders placed at your Texas location, local tax follows your place of business regardless of where the customer takes the item. When an order is received at one Texas location and fulfilled from a different Texas location, local tax goes to the fulfillment location. When an order comes in from outside your Texas locations (such as an online order) and ships from your Texas warehouse, the sale sources to that warehouse.5Texas Comptroller. Local Sales and Use Tax Collection – A Guide for Sellers When you ship into a jurisdiction with a higher combined local rate than the rate at your place of business, additional local use tax may be owed on the difference. The Comptroller’s online rate lookup tool verifies the correct combined rate for any Texas address.
Keep all supporting records for at least four years from the date each record was created. Exemption and resale certificates must be kept for at least four years after the last sale they cover.6Legal Information Institute. 34 Texas Admin Code 3.281 – Records Required If an audit or other proceeding is pending, the four-year clock pauses until it resolves.
Calculating What You Owe
Apply the state rate of 6.25% to your total taxable sales.1Texas Comptroller. Sales and Use Tax Then add local tax owed to each jurisdiction where sales were sourced. Local jurisdictions can collectively add up to 2%, so the maximum combined rate is 8.25%.7Comptroller of Public Accounts. Local Sales and Use Tax Frequently Asked Questions
A few deductions reduce your taxable base. Returned merchandise for which you issued a full refund comes out of gross sales. Bad debt is deductible when a purchaser never pays and you already remitted the tax; the unpaid amount must be entered in your books as bad debt and claimed as a deduction on your federal tax return in the same or a later reporting period.8State of Texas. Texas Tax Code TAX 151.426 Bad debt claims must be filed electronically.
Use Tax Belongs on the Same Return
If your business bought taxable items from a seller who didn’t charge Texas tax, common with out-of-state vendors, you owe use tax on those purchases. Report it on the same sales and use tax return in the taxable purchases line. That total covers equipment, supplies, items taken from inventory for business use, and items given away.9Texas Comptroller of Public Accounts. Instructions for Completing Texas Sales and Use Tax Return It combines with your taxable sales to produce the total amount subject to tax.
Discounts for Filing on Time
Texas rewards on-time filing with a 0.5% discount on the total state and local tax due.10Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions Claim it directly on the return; it reduces the amount you send in.
Monthly and quarterly filers can earn an additional 1.25% by prepaying estimated tax before the regular due date, bringing the combined discount to 1.75%.11Texas Comptroller of Public Accounts. Texas Sales and Use Tax Prepayment Report The prepayment must equal at least 90% of the total tax that will be due for the period, or at least the full amount you paid for the same period in the prior year. Monthly prepayment reports are due on the 15th. Quarterly prepayment deadlines are February 15, May 15, August 15, and November 15. Both the prepayment and the regular return must be filed on time. If you prepay on time but file the return late, you lose both discounts.
Filing Through Webfile
Webfile is the standard way to file. You’ll need your 11-digit Texas taxpayer number and your Webfile number, a code beginning with two letters followed by six digits (for example, RT666666). The code appears on the paper return the Comptroller mails you and on most notices.12Texas Comptroller. Create a Webfile Account Step-by-Step The system walks you through total sales, deductions, and local tax allocation by jurisdiction.
Businesses that paid $50,000 or more in sales and use tax during the preceding state fiscal year must file electronically. Filing on paper when you’re required to e-file adds a 5% penalty.13Texas Comptroller. File and Pay Paper filing on Form 01-117 (the short form) is available below that threshold.14Texas Comptroller of Public Accounts. Texas Sales and Use Tax Return – Short Form 01-117 For a period with no tax due, TeleFile is the fastest route.15Texas Comptroller. TeleFile
Payment options are ACH Debit (the Comptroller pulls funds from your account), ACH Credit (you initiate the transfer), and credit card. Credit card payments run through a third party and usually carry a convenience fee. Once the return and payment go through, the system generates a confirmation number. Keep it with your tax records as proof of filing.
Penalties If You File Late
Missing the deadline triggers an automatic 5% penalty on the unpaid tax if you’re one to 30 days late. After 30 days, the penalty rises to 10%. If you still haven’t paid after receiving a formal Notice of Tax Due, another 10% stacks on top, bringing the total to 20%.16Comptroller of Public Accounts of Texas. Penalties for Past Due Taxes
Interest accrues on top of the penalty from the original due date. The Comptroller sets the annual interest rate based on the prime rate. There is no grace period and no extension unless your county is under a disaster declaration.
If You Sell Through a Marketplace
If your sales go through a platform like Amazon, eBay, or Etsy, the marketplace itself is likely collecting and remitting the tax. Texas law requires marketplace providers engaged in business in the state to collect, report, and remit state and local sales tax on sales made through their platform, and the provider must certify to you in writing that it is doing so.17Texas Comptroller. Marketplace Providers and Marketplace Sellers With that certification in hand, you don’t collect or remit tax on marketplace sales yourself. Without one, you remain responsible until it arrives. Sellers who also make direct sales outside a marketplace still file returns for those non-marketplace transactions.
Mistakes That Attract Auditors
Outdated local rates cause more trouble than sellers expect. Local rates change often, and missing a special purpose district that overlaps your location means every transaction has been off. Update the rate tables in your accounting software whenever local rates change.
Exemption certificate problems come next. Auditors will reclassify an exempt sale as taxable when the certificate on file is expired, incomplete, or missing. Collect the certificate before or at the time of the sale, check that it’s filled out completely, and store it where you can retrieve it quickly.
Watch for mismatches between your returns and your financial statements. Auditors compare the two, and unexplained gaps draw questions. If your income statement shows $500,000 in revenue but your returns account for $400,000, you’ll need documentation for the difference. “Non-taxable” without paperwork will not satisfy an auditor.