Texas Sales Tax on Services: Taxable Categories, Rates, and Permits

Texas sales tax on services applies only to 16 categories of services that the legislature specifically listed in Tax Code Section 151.0101. The state rate is 6.25 percent, and local jurisdictions can add up to 2 percent more, for a combined maximum of 8.25 percent.¹ If a service isn’t on the list, it isn’t taxed. That enumeration approach is the single most important thing to understand, because it flips the usual instinct: most professional labor in Texas carries no sales tax at all, and the categories that do are specific.

The 16 Taxable Service Categories

Section 151.0101 groups taxable services into these categories:²

Amusement services (movie theaters, concerts, sporting events, amusement parks)
Cable television, satellite TV, and streaming video
Credit reporting
Data processing
Debt collection on delinquent accounts
Information services (news, financial data, market research)
Insurance services (appraisal, inspection, adjustment)
Motor vehicle parking and storage
Nonresidential real property repair, restoration, or remodeling
Personal property maintenance, remodeling, or repair
Personal services (massage, Turkish baths, tanning, tattooing)
Real property services (landscaping, surveying, structural pest control)
Security services (guard, alarm monitoring, armored car, investigations)
Telecommunications
Telephone answering services
Utility transmission and distribution

Laundry, cleaning, and garment services are also taxable under these provisions.² Each category covers a range of specific activities, and being wrong about your category can mean years of uncollected tax owed later with penalties on top.

Services That Are Not Taxable

Because the tax applies only to the listed categories, a lot of common service work is exempt. Fees paid to physicians, attorneys, architects, engineers, and certified public accountants carry no sales tax because none of those professions appear in Section 151.0101.² Management consulting, advertising, marketing strategy, and web design that doesn’t involve data processing also fall outside the tax.

Personal grooming is another area people misread. Haircuts, barbering, and styling are not taxable, even though “personal services” like massage and tanning are. The difference is enumeration: grooming simply isn’t on the list. If a salon sells shampoo or styling tools along with a haircut, though, the products are taxable even when the service isn’t.

Construction, Repair, and Remodeling

The rules for work on real property depend on two questions: is the property residential or commercial, and is the work new construction or a repair?

Labor to repair or remodel residential real property is not taxable. Residential property here includes single-family homes, apartments, condominiums, nursing homes, and retirement homes.³ Hotels don’t count as residential. Work on a hotel is treated as nonresidential and is taxable.

New construction labor is not taxable either, regardless of whether the structure is residential or commercial. Building new structures, completing unfinished buildings, and initial finish-out all qualify as non-taxable construction labor.³ Materials incorporated into a project remain taxable, though. Contractors working under a separated contract that breaks out labor and materials must still collect tax on the materials portion, based on the job site location.⁴

Where the tax clearly applies is nonresidential repair and remodeling. Fixing the roof on an office building, refinishing floors in a retail store, or remodeling a restaurant kitchen: the entire charge for labor and materials is taxable.

The 80 Percent Rule for Data Processing and Information Services

Two of the 16 categories get a partial break. Under Tax Code Section 151.351, 20 percent of the charge for data processing and information services is exempt, so tax applies to only 80 percent of the invoice.⁵ On a $10,000 data processing bill at a combined 8.25 percent rate, the tax runs against $8,000, saving the customer $165.

Data processing covers any service where a provider uses a computer to enter, store, search, compile, manipulate, or retrieve a customer’s data. Payroll processing, check preparation, word processing, and data entry all qualify.⁶ Information services cover the delivery of specialized knowledge, such as newsletters, financial data feeds, and market research delivered electronically or in print.

SaaS and Cloud Software

Software as a service is taxable in Texas. The Comptroller treats SaaS as a data processing service because the customer is using the provider’s hardware and software to process or store data.⁷ Internet hosting where a customer stores data on a provider’s servers also qualifies. Subscription fees for cloud accounting, project management, and similar tools are subject to the sales tax, with the 80 percent rule reducing the taxable portion.

Local Rates and Where Tax Is Owed

The state rate is fixed at 6.25 percent. Cities, counties, transit authorities, and special purpose districts can add up to 2 percent combined, so the total maxes out at 8.25 percent.¹ Which local rate applies depends on the service and where it’s performed.

The default is origin-based sourcing. You collect local tax based on your place of business.⁴ Several service categories override that default with destination-based rules:

Amusement services are taxed where the event or performance takes place
Nonresidential real property repair and remodeling is taxed at the job site
Motor vehicle parking and storage is taxed where the parking occurs
Waste collection is taxed where the waste is picked up
Landline calls are taxed where the call originates; mobile service is taxed at the customer’s primary place of use

Local rates vary meaningfully. A roofing contractor based in a low-rate area who repairs a commercial building in a high-rate city collects at the job-site rate, not the rate at the home office.⁴

Use Tax When Nobody Charges You

If you buy a taxable service from a vendor who doesn’t charge Texas sales tax, you owe use tax at the same rate directly to the Comptroller. This comes up most often with out-of-state providers who have no Texas presence and no obligation to collect.⁸

If you already hold a Texas sales tax permit, report the amount on Line 3 (Taxable Purchases) of your regular return. No separate form. Without a permit, you file Form 01-156, the Texas Use Tax Return. Owe less than $1,000 for the year and it’s due January 20 of the following year. Cross $1,000 and the obligation turns monthly, due the 20th of the month after you cross the threshold.⁸

Remote Sellers and Marketplaces

Out-of-state businesses selling taxable services into Texas face a $500,000 economic nexus threshold. If total Texas revenue from tangible goods and services (taxable or not) exceeds $500,000 in the preceding 12 calendar months, the seller must obtain a Texas sales tax permit and start collecting.⁹ That figure includes handling fees, shipping charges, and even sales for resale. Below the threshold, a safe harbor applies and collection isn’t required.

Marketplace platforms that facilitate third-party sales into Texas must collect and remit on behalf of their sellers. Sales made through a marketplace that handles the tax generally don’t count toward the seller’s own nexus threshold. Sales made outside the marketplace still count and may require independent registration.⁹

Getting a Permit

Any business selling taxable services in Texas needs a sales tax permit before collecting. There’s no application fee. Registration goes through the Texas Online Tax Registration Application on the Comptroller’s website.¹⁰ The application asks for your business structure, identifying information such as a Social Security number or Employer Identification Number (an EIN isn’t strictly required), and details about the services you provide.¹¹

The permit must be displayed at your place of business. Collecting sales tax without a valid permit is illegal, and so is claiming tax-exempt purchaser status using a permit you don’t have. If the business closes or you stop offering taxable services, close the permit with the Comptroller rather than letting it go dormant.

Resale Certificates

When you buy a taxable service solely to resell it to your own customers, you can give your supplier a resale certificate (Form 01-339) and buy tax-free, then collect the sales tax when you resell to the end user.¹² The certificate requires your 11-digit Texas sales tax permit number, a description of what you’re buying, and the type of business you run.

Misusing a resale certificate is a criminal offense. Knowing at the time of purchase that you’re buying for your own use rather than resale carries penalties ranging from a Class C misdemeanor to a second-degree felony, depending on the amount of tax evaded.¹² Sellers accepting a certificate should verify it, because an invalid certificate leaves the seller liable for the uncollected tax.

Filing, Discounts, and Penalties

Permitted businesses file periodic returns through the Comptroller’s Webfile system. The Comptroller assigns a filing frequency (typically monthly or quarterly) based on expected sales volume, and reports and payments are due by the 20th of the month following the reporting period.¹ A quarterly filer covering January through March files by April 20.

Timely filers earn a 0.5 percent discount on the tax due. Monthly and quarterly filers can claim an additional 1.25 percent prepayment discount on top of that.¹³ The discount disappears entirely if the report or payment is a single day late.

Late penalties stack:¹⁴

1 to 30 days late: 5 percent of the tax owed
More than 30 days late: 10 percent
After a formal Notice of Tax Due: an additional 10 percent, for 20 percent total

On top of the percentage penalty, the Comptroller adds a flat $50 penalty for each late report, even when no tax is due. Statutory interest starts accruing on the 61st day after the original due date at a rate the Comptroller sets annually.¹⁴ Filing a zero-dollar return on time avoids the $50 penalty and keeps the account current.

Keep sales and use tax records for at least four years unless the Comptroller authorizes earlier destruction in writing. That covers invoices, exemption and resale certificates, and purchase records.¹⁵ Audit lookback periods usually match that window, so tossing records early is a fast way to turn a routine audit into an expensive one: when the auditor can’t verify an exemption claim because the certificate is gone, the tax gets assessed as if the exemption never applied.

1
Texas Comptroller of Public Accounts. Sales and Use Tax
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Texas Comptroller of Public Accounts. Taxable Services
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Texas Comptroller of Public Accounts. Real Property Repair and Remodeling
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Texas Comptroller of Public Accounts. Local Sales and Use Tax Collection – A Guide for Sellers
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State of Texas. Texas Code Tax Code 151.351 – Information Services and Data Processing Services
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Texas Comptroller of Public Accounts. Data Processing Services Are Taxable
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Cornell Law Institute. 34 Texas Admin Code 3.330 – Data Processing Services
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Texas Comptroller of Public Accounts. Use Tax
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Texas Comptroller of Public Accounts. Remote Sellers and Marketplace Frequently Asked Questions
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Texas Comptroller of Public Accounts. Texas Online Tax Registration Application
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Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions – Obtaining a Sales Tax Permit
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Texas Comptroller of Public Accounts. Sales and Use Tax Resale Certificate / Exemption Certification
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Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions – Report and Pay
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Texas Comptroller of Public Accounts. Penalties for Past Due Taxes
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Texas Comptroller of Public Accounts. Records – Texas Sales and Use Tax Frequently Asked Questions