Texas sales tax sourcing rules are mostly origin-based: when a seller has a location in Texas, the local city, county, transit, and special district taxes are set by where the order is received, not where the customer lives or where the goods ship from. Remote sellers with no Texas presence work the other way and charge tax based on the delivery address. The state rate is 6.25%, local taxes are capped at 2%, and the combined ceiling for any Texas address is 8.25%.1Texas Comptroller of Public Accounts. Sales and Use Tax
In-Person Sales at a Texas Store
If a customer walks into your Texas store and places an order at the counter, local tax is sourced to that store. It doesn’t matter that the item later ships from a warehouse in another city. Texas Tax Code § 321.203 puts the in-person location at the top of the sourcing hierarchy.2Justia Law. Texas Tax Code Chapter 321 – Municipal Sales and Use Taxes
A seller with only one Texas location sources every retail sale there. A seller with several locations sources each in-person sale to the store where the order was first taken. Furniture ordered at a Dallas showroom and later shipped from a San Antonio distribution center pays Dallas local tax. For a business whose sales all happen face-to-face at one address, sourcing rarely raises hard questions.
Phone, Internet, and Mail Orders
Orders that aren’t placed in person follow a step-down hierarchy, and this is where in-state sellers most often get sourcing wrong.
If a phone call, email, or web order lands at an established Texas place of business, that receiving location is the source, even if a different Texas facility fulfills the shipment.3Texas Comptroller of Public Accounts. Local Sales and Use Tax Collection – A Guide for Sellers If the order is not received at a place of business, sourcing shifts to the location that fulfills it.4Cornell Law Institute. 34 Texas Administrative Code 3.334 – Local Sales and Use Taxes
The distinction matters when a business changes how orders are processed. A Houston call center that takes phone orders shipped from an Austin warehouse sources to Houston. Move that same order flow to an automated website with no Texas sales staff handling it, and Austin becomes the source. Businesses that restructure order intake without revisiting sourcing are the ones that surface in audits.
When none of these apply — for instance, an itinerant vendor with no Texas place of business, or an order received entirely outside the state — the sale is sourced to the Texas location where the customer takes delivery.2Justia Law. Texas Tax Code Chapter 321 – Municipal Sales and Use Taxes
What Counts as a Place of Business
The sourcing hierarchy depends on whether the location receiving the order qualifies as a “place of business.” Under 34 Texas Administrative Code § 3.334, that means a store, office, or other location the seller operates to receive customer orders. It typically must be staffed by sales personnel, and those personnel must receive at least three orders for taxable items during the calendar year.4Cornell Law Institute. 34 Texas Administrative Code 3.334 – Local Sales and Use Taxes
A warehouse that only ships pre-sold goods and never takes orders from customers generally doesn’t qualify on its own. That’s why a pure fulfillment center can end up as the source under the second tier of the hierarchy, but not the first.
Remote Sellers With No Texas Presence
Sellers without a physical presence in Texas use destination-based sourcing: the local tax is set by where the customer receives the goods. Collection is required once total Texas revenue exceeds $500,000 during the preceding twelve calendar months, counting taxable and nontaxable sales of goods and services into Texas plus shipping and handling.5Texas Comptroller of Public Accounts. Remote Sellers
After crossing that line, the seller must obtain a Texas sales tax permit and begin collecting no later than the first day of the fourth month after the month the threshold was exceeded. Cross $500,000 in March, and collection must start by July 1.5Texas Comptroller of Public Accounts. Remote Sellers
The Single Local Use Tax Rate
Rather than track a different local rate for every Texas delivery address, a qualifying remote seller can elect to collect a single local use tax rate of 1.75%.6Texas Comptroller of Public Accounts. Single Local Use Tax Rate Taxpayer Search The rate is published in the Texas Register by January 1 each year and can change, so verify the current figure annually. Remote sellers who prefer precision can instead collect the actual local rate for each destination. Switching methods mid-year creates complications, so most sellers pick one at the start of a reporting period and stay with it.
Sales Made Through a Marketplace
If you sell through Amazon, Etsy, or a similar platform, the marketplace is usually the party collecting and remitting Texas tax on those sales. Texas Tax Code § 151.0242 defines a marketplace provider as anyone who owns or operates a marketplace and processes sales or payments for other sellers, and it puts the collection duties of a seller on the provider for transactions made through the platform.7Texas Public Law. Texas Tax Code 151.0242 – Marketplace Providers and Marketplace Sellers The provider must certify to each seller that it’s handling those duties.
Direct sales you make outside the marketplace stay your responsibility. Platform collection doesn’t cover your own website, a trade show booth, or a phone order taken at your office.
Use Tax Follows Different Sourcing
Local sales tax and local use tax don’t source the same way. Sales tax by an in-state seller sources to the seller’s place of business under the hierarchy above. Local use tax sources to the location where the buyer first stores, uses, or consumes the item.8Cornell Law Institute. 34 Texas Administrative Code 3.346 – Use Tax This most often comes up when a business buys from an out-of-state vendor that doesn’t collect local tax, or when a seller pulls an item from inventory for its own use. Equipment delivered to a Harris County warehouse from an out-of-state vendor owes local use tax to the taxing jurisdictions covering that Harris County address, and the buyer is normally the one reporting and paying it.
The 2% Local Cap and Verifying the Rate
Local sales and use tax is capped at 2% for any Texas address. Cities, counties, transit authorities, and special purpose districts can each levy a piece of that 2%, and a single address may fall inside several of them at once. When combined local rates would exceed the cap, the ceiling applies and certain entities receive a reduced allocation.9Texas Comptroller of Public Accounts. Special Purpose District Sales and Use Tax
Because the mix of overlapping jurisdictions varies block by block, verifying the exact local rate for the sourced address matters more than knowing the city’s headline rate. The Comptroller’s online lookup tools return the full combined local rate for any Texas address, which is the simplest way to avoid under- or over-collecting.
What Sourcing Errors Cost
The Comptroller can audit up to four years back from the date a tax was due. That limit goes away if a return was fraudulent, no return was filed, or the return understated tax by 25% or more.10Cornell Law Institute. 34 Texas Administrative Code 3.339 – Statute of Limitations When an audit finds local tax sent to the wrong jurisdiction, the Comptroller can redirect the revenue and assess the seller for the difference.
Late-payment penalties stack quickly:
- 1 to 30 days late: 5% of the tax due.
- More than 30 days late: 10%.
- After a formal notice: an additional 10%, bringing the total to 20%.
Interest starts on the 61st day after the due date, and a separate $50 penalty applies to each late report even when no tax was owed for that period.11Texas Comptroller of Public Accounts. Penalties for Past Due Taxes For a business operating across multiple jurisdictions with years of misallocated local tax, the combined exposure grows fast. Order logs, shipping records, and screenshots of rate verifications are the cheapest defense if the Comptroller comes asking.