Texas sales tax is both origin-based and destination-based, depending on who is selling. If the seller has a location in Texas, local tax is sourced to the seller’s place of business (origin). If the seller is out of state, or the sale runs through a marketplace like Amazon or Etsy, local tax is sourced to the buyer’s Texas address (destination).1Cornell Law Institute. 34 Texas Administrative Code 3.334 – Local Sales and Use Taxes The state rate is 6.25% either way, and local jurisdictions can add up to 2% more for a combined ceiling of 8.25%.2Texas Comptroller of Public Accounts. Sales and Use Tax
Origin Sourcing for In-State Sellers
When a Texas seller ships to a Texas buyer, the local portion of the tax is tied to the seller’s location. Run a single storefront in Austin and ship an order to Houston, and you charge the Austin local rate. The city, county, transit authority, and any special purpose district where your business sits receive the revenue.3Texas Comptroller of Public Accounts. Local Sales and Use Tax Collection – A Guide for Sellers
The 6.25% state rate applies to every sale regardless. What origin sourcing simplifies is the local piece: one seller, one set of local rates, no need to look up rates by delivery address.
Sellers With Multiple Texas Locations
If you operate more than one qualifying place of business in Texas, the sourcing depends on where the order is received and where it is fulfilled.
- Walk-in orders source to the location where the customer places the order, even if a different store ships the item.4State of Texas. Texas Code TAX 321.203 – Consummation of Sale
- Phone, online, or mail orders fulfilled at a Texas location source to the fulfilling location, not the location that took the order.3Texas Comptroller of Public Accounts. Local Sales and Use Tax Collection – A Guide for Sellers
- Orders received at a place of business but shipped from a warehouse or other non-qualifying location source to the place of business that received the order.
- Orders neither received nor fulfilled at a place of business source to where the buyer receives the item.
The Comptroller’s guide illustrates the second rule: if Store A takes a phone order and Store B ships it, the sale is consummated at Store B, and Store B’s local jurisdiction gets the tax. A warehouse that only stores and ships inventory, with no staff taking customer orders, does not count as a place of business. Neither do servers, websites, or software.3Texas Comptroller of Public Accounts. Local Sales and Use Tax Collection – A Guide for Sellers That matters because it stops sellers from parking a shipping facility in a low-tax jurisdiction and claiming the sale happens there.
Shipping to a Higher-Rate Jurisdiction
Origin sourcing has one qualification. If you ship a taxable item to a Texas jurisdiction whose combined local rate is higher than your own, you must collect the additional local use tax to make up the difference.3Texas Comptroller of Public Accounts. Local Sales and Use Tax Collection – A Guide for Sellers The 2% local ceiling still applies, so what you collect is the gap between your local rate and the buyer’s, capped at 2% total.
The adjustment runs one way. If the buyer sits in a lower-rate jurisdiction, you still charge your own rate and keep the difference for your own locals. If your local rate is already at 2%, or matches the buyer’s, no adjustment is needed. This is the one moment an in-state seller has to look at the delivery address.
Destination Sourcing for Out-of-State Sellers
A seller with no Texas location follows the opposite rule. The local rate is based on where the Texas customer receives the item, and every delivery address carries its own combination of city, county, transit authority, and special purpose district taxes. A remote seller shipping to fifty different Texas cities can face fifty different local rates.
Collection is not automatic. Texas only requires an out-of-state seller to obtain a permit and collect tax once total Texas revenue exceeds $500,000 in the preceding twelve calendar months, measured on gross sales of taxable and nontaxable goods and services and including shipping, handling, and installation charges.5Texas Comptroller of Public Accounts. Remote Sellers There is no separate transaction-count trigger. Once you cross the threshold, collection must begin no later than the first day of the fourth month after the month you exceeded it.
Remote sellers who would rather not track individual local rates can elect a flat 1.75% single local use tax rate on all Texas sales, under Tax Code Section 151.0595.6State of Texas. Texas Code Section 151.0595 – Single Local Tax Rate for Remote Sellers Two restrictions apply: the seller must have no place of business in Texas, and marketplace providers collecting for third-party sellers cannot use it.5Texas Comptroller of Public Accounts. Remote Sellers New remote sellers can choose the flat rate on their permit application; existing ones switch by filing Form 01-799, effective at the start of the next reporting period.
Marketplace Sales Are Destination-Sourced
Sales made through a marketplace like Amazon, Etsy, or eBay are sourced to the buyer’s Texas address regardless of where the third-party seller is located.4State of Texas. Texas Code TAX 321.203 – Consummation of Sale Under Section 151.0242, the marketplace provider takes on the collection and remittance duties of a seller and must certify to each third-party seller that it has done so. The seller then excludes those marketplace sales from its own return.7State of Texas. Texas Code TAX 151.0242 – Marketplace Providers and Marketplace Sellers
A marketplace provider that qualifies as a remote seller still has to meet the $500,000 economic nexus threshold, based on total sales made through the platform, before collection kicks in.8Texas Comptroller of Public Accounts. Remote Sellers and Marketplace Frequently Asked Questions
Two Situations That Follow Their Own Rule
Selling at a fair, trade show, festival, or from a food truck creates a temporary place of business at the event location, and the tax rate is based on that address rather than your home base. Every vendor selling, taking orders, or promoting sales at a Texas event needs a Texas sales tax permit, including out-of-state vendors coming in for the event. Texas does not offer a temporary permit.9Texas Comptroller of Public Accounts. Tax Policy News If you work multiple events around the state, expect a different local rate at each stop; the Comptroller’s sales tax rate locator will identify the correct one by address.
Data processing and internet hosting are taxable services in Texas (with the first 20% of the charge exempt), and they are sourced by where the customer uses the service rather than by strict origin or destination.10Cornell Law Institute. 34 Texas Administrative Code 3.330 – Data Processing Services When a customer uses the service both inside and outside Texas, only the Texas portion is taxable. When the service supports a specific business segment, it is used where that segment operates; when it supports general operations, it is used at the customer’s principal place of business. For the local portion, the same consummation rules that govern physical goods apply.