The Texas sales and use tax is a 6.25 percent state tax on most retail sales of goods and a defined list of services, plus up to 2 percent in local tax for a combined maximum of 8.25 percent.1Texas Comptroller of Public Accounts. Sales and Use Tax The use tax half applies at the same rate when you buy a taxable item from an out-of-state seller who did not collect Texas tax. Both are governed by Tax Code Chapter 151.2State of Texas. Texas Code Tax Chapter 151 – Limited Sales, Excise, and Use Tax What follows covers what’s taxed, the rate math, use tax on out-of-state purchases, obligations for remote sellers and marketplaces, the main exemptions, and how permits, filing, and penalties work.
What Gets Taxed
The broadest category is tangible personal property. If you can see it, weigh it, or touch it, and you buy it at retail in Texas, it’s taxable unless a specific exemption applies. Furniture, electronics, building materials, and clothing all count (clothing outside the annual holiday, discussed below).
Taxable Services
Texas taxes a specific list of services rather than services generally. The main ones are data processing, credit reporting, telecommunications, information services, security services, insurance services, and real property repair or remodeling on nonresidential structures.3Texas Comptroller of Public Accounts. Taxable Services The nonresidential line matters: remodeling a commercial office is taxable on the full charge, while residential repair and remodeling generally is not.
Cloud Software and SaaS
Software as a Service falls under data processing. Only 80 percent of the sales price of a SaaS subscription is subject to tax, versus 100 percent for traditional software installed locally. A business using cloud software across multiple states can allocate the price by share of benefit received in Texas, which can shrink the taxable portion further.
Shipping and Delivery Charges
If the item is taxable, the delivery charge tied to that sale is taxable too. A $500 sofa with a $50 delivery fee means tax on the full $550.4Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions When the sale itself is exempt under a valid resale or exemption certificate, the associated shipping charge is exempt too.
How the Rate Works
Every taxable transaction starts at the 6.25 percent state rate. Cities, counties, transit authorities, and special purpose districts can each add their own levy on top, with the combined state-plus-local rate capped at 8.25 percent.1Texas Comptroller of Public Accounts. Sales and Use Tax Most metro areas hit or come close to the cap; some rural locations sit below it.
Which Local Rate Applies
For in-person sales, local tax generally follows the seller’s place of business. For phone, internet, and mail orders, the rate depends on where the order is received and where it’s fulfilled. If both happen at the same Texas location, that location’s local rate applies. If the order comes in from outside Texas and ships from a Texas warehouse, the warehouse’s local rate applies.5Texas Comptroller of Public Accounts. Local Sales and Use Tax Collection – A Guide for Sellers Sourcing errors are a common audit trigger because small percentage differences compound across thousands of transactions.
The Flat 1.75 Percent Option for Remote Sellers
Out-of-state sellers can elect a flat 1.75 percent local use tax rate instead of tracking every Texas delivery address. Combined with the 6.25 percent state rate, that produces an 8 percent total. The Comptroller publishes the rate each January in the Texas Register. Only remote sellers whose sole Texas activity is soliciting sales from outside the state qualify. Texas-based businesses and marketplace providers cannot use it. You elect the flat rate on registration or by filing Form 01-799.6Texas Comptroller of Public Accounts. Remote Sellers
Use Tax on Out-of-State Purchases
Use tax closes what would otherwise be an obvious loophole. When you buy a taxable item from an out-of-state seller and no Texas tax was collected, you owe use tax on the storage, use, or consumption of that item in Texas at the same rate as the sales tax.2State of Texas. Texas Code Tax Chapter 151 – Limited Sales, Excise, and Use Tax
If you paid sales or use tax to another state on the same purchase, Texas credits that amount and you only owe the difference. Pay 5 percent to another state on a $1,000 item and you owe Texas 1.25 percent plus any local use tax on that purchase.2State of Texas. Texas Code Tax Chapter 151 – Limited Sales, Excise, and Use Tax Consumers technically owe use tax on untaxed purchases, though enforcement has historically focused on businesses. Now that most large online retailers collect Texas tax at checkout under the economic nexus rules, the situations where a consumer needs to self-report have shrunk.
Remote Sellers and Marketplaces
Since 2019, an out-of-state seller must collect and remit Texas tax once it crosses an economic nexus threshold of $500,000 in total Texas revenue over the previous 12 calendar months. That figure includes all taxable and nontaxable goods and services shipped into Texas, plus handling, transportation, and installation fees, and it counts marketplace sales and resale or exempt sales.7Texas Comptroller of Public Accounts. Remote Sellers and Marketplace Frequently Asked Questions
Marketplace providers such as Amazon, Etsy, and eBay carry their own duty. If the provider owns or operates the marketplace and processes payments for third-party sellers, it must collect, report, and remit both state and local tax on every sale through the platform and certify to its sellers that it is doing so. Once that certification is in place, the individual seller is off the hook for collection on marketplace sales but still must keep records for at least four years.8Texas Comptroller of Public Accounts. Marketplace Providers and Marketplace Sellers
Two details catch sellers off guard. A Texas-based business selling through a marketplace still needs its own sales tax permit and must file returns even when the marketplace is collecting. A remote seller whose only Texas sales flow through a certified marketplace provider does not.8Texas Comptroller of Public Accounts. Marketplace Providers and Marketplace Sellers
Common Exemptions
Resale
If you’re buying goods to resell, you can give the seller a completed Form 01-339 (Texas Sales and Use Tax Resale Certificate) instead of paying tax on the purchase.9Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions Tax gets collected when the goods are ultimately sold to the end consumer. Using a resale certificate to buy items for personal use is a fast route to audit liability.
Agriculture
Farm and ranch operations receive broad exemptions covering livestock, feed, seeds, fertilizers, pesticides, and machinery used exclusively in agricultural production. The exemption extends to equipment for building or maintaining farm roads and water facilities.2State of Texas. Texas Code Tax Chapter 151 – Limited Sales, Excise, and Use Tax “Exclusively” is the operative word: equipment split between farm and non-farm use can lose the exemption.
Manufacturing
Manufacturers don’t pay sales tax on materials that become an ingredient or component of a product made for sale. The exemption also covers equipment directly used in manufacturing when it causes a chemical or physical change to the product being produced.2State of Texas. Texas Code Tax Chapter 151 – Limited Sales, Excise, and Use Tax Supporting equipment like pollution control, power generation, and cooling towers tied to exempt production equipment can also qualify.
Nonprofits and Religious Organizations
Certain nonprofits, religious groups, charitable entities, and volunteer fire departments can apply to the Comptroller for exemption on purchases necessary to their exempt purpose.10Texas Comptroller of Public Accounts. Tax Exemptions for Qualified Organizations Eligible categories include 501(c)(3) organizations, parent-teacher associations, booster clubs, youth sports organizations, and educational institutions. The exemption is not automatic. Each organization applies and receives approval.
Occasional Sales by Individuals
Cleaning out the garage doesn’t turn you into a taxpayer. Individuals without a sales tax permit qualify for the occasional sale exemption as long as they stay within two limits: no more than two taxable items sold in a 12-month period regardless of price, or total sales of $3,000 or less per calendar year on items originally bought for personal use. You cross into needing a permit only when you exceed both. People buying items intending to resell them, or paying a fee to sell at flea markets or craft shows, don’t qualify at all.11Texas Comptroller of Public Accounts. Garage Sales and Occasional Sales
The Annual Sales Tax Holiday
Once a year, qualifying clothing, footwear, school supplies, and backpacks priced under $100 per item are exempt from both state and local tax. The 2026 holiday runs August 7 through August 9.12Texas Comptroller of Public Accounts. Sales Tax Holiday There’s no cap on how many qualifying items you buy, but each item must be under $100 including any delivery charge. A $105 pair of shoes doesn’t qualify even if other shoes on the same receipt do.
Getting a Permit and Filing Returns
Any business that sells or leases taxable goods or services in Texas needs a sales tax permit before the first sale. There’s no fee, and the Comptroller estimates two to three weeks for processing. You can apply online or use paper Form AP-201.13Texas Comptroller of Public Accounts. Texas Online Tax Registration Application14Texas Comptroller of Public Accounts. Texas Application for Sales Tax Permit and/or Use Tax Permit The application asks for a federal EIN (or SSN for sole proprietors), NAICS code, physical business location, and contact information for all owners, partners, or officers. Missing details are the most common reason applications stall.
The Comptroller assigns each permit holder a filing frequency (monthly, quarterly, or annual) based on tax volume and can adjust it as sales change. Most businesses file electronically through Webfile; paper filing is available if you collected less than $50,000 in tax during the preceding state fiscal year. At $50,000 or more, electronic filing is required.15Texas Comptroller of Public Accounts. Requirements for Reporting and Paying Texas Sales and Use Tax
Filing and paying on time earns a 0.5 percent timely filing discount on the tax due. Monthly and quarterly filers can add a 1.25 percent prepayment discount by prepaying the estimated tax for the next reporting period.16Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions Each discount is modest, but losing them by filing a day late still stings over a year of returns.
Penalties, Interest, and Records
Missing a filing deadline brings a $50 penalty on the late return plus a percentage penalty on the unpaid tax: 5 percent if paid within 30 days of the due date, 10 percent after that.1Texas Comptroller of Public Accounts. Sales and Use Tax Interest on past-due tax starts accruing 61 days after the due date. For 2026 the annual rate is 7.75 percent, calculated as the prime rate published in the Wall Street Journal on the first business day of the year plus one percent, and it changes annually.17Texas Comptroller of Public Accounts. Interest Owed and Earned
Fraud sits in its own tier. If the Comptroller determines that a failure to pay or file was fraudulent or intended to evade tax, an additional 50 percent penalty applies and the ordinary four-year statute of limitations on assessments no longer protects the taxpayer.
Every permit holder must keep records of all sales and use tax transactions for at least four years.18Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions That covers invoices, receipts, resale and exemption certificates, and documentation supporting any exemption claim. Exemption certificates specifically must be retained for four years after the last sale covered by the certificate.19Legal Information Institute. Texas Code 34 Tex Admin Code 3.281 – Records Required; Information Required Destroying records early requires written authorization from the Comptroller. In an audit, when documentation is missing, the Comptroller’s estimate of what you owe stands, and that estimate rarely favors the taxpayer.