The Limited Sales, Excise, and Use Tax is Texas’s main consumption tax, codified at Chapter 151 of the Texas Tax Code. The state charges 6.25% on most retail sales of goods and on a defined list of services, and cities, counties, transit authorities, and special-purpose districts can add up to 2% more, capping the combined rate at 8.25%.1Texas Comptroller of Public Accounts. Sales and Use Tax The word “limited” in the name is doing real work: the tax reaches only what the legislature has specifically included or has not expressly exempted.
The local portion follows the location of the sale, not the seller’s address. A retailer shipping goods to a buyer in a city with the full 2% local rate collects 8.25%, even if its warehouse sits somewhere with a lower local rate. The Comptroller publishes rate-lookup tools for checking any Texas address.
What the Tax Covers
The default rule is that every sale of tangible personal property is taxable unless an exemption applies. Tangible personal property means physical items you can see, weigh, or touch: clothing, electronics, furniture, building materials, and so on. The burden of proving an exemption falls on the buyer, who must give the seller proper documentation such as an exemption or resale certificate.
Taxable Services
Texas Tax Code Section 151.0101 lists 16 categories of taxable services. The ones that catch the most businesses off guard include data processing (word processing, web hosting, data storage, and similar computer-based work), laundry and garment services, and the repair or remodeling of nonresidential real property like offices, restaurants, and manufacturing facilities.2Texas Comptroller of Public Accounts. Taxable Services Cable television and streaming video programming are also on the list. If your business provides any of these services, you are responsible for collecting the appropriate state and local tax.
Software, Streaming, and Internet Access
Texas treats software-as-a-service as a taxable data processing service, and the Comptroller explicitly includes application service providers in that category. Streaming video and video-on-demand are taxable as cable television services. Internet access itself is no longer taxable as of July 1, 2025, after Senate Bill 1405 removed it from the list of taxable services.2Texas Comptroller of Public Accounts. Taxable Services If a provider bundles internet access with a taxable service like telecommunications, tax applies to the full charge unless the provider can show a reasonable allocation between the taxable and nontaxable portions.
Common Exemptions
Groceries intended for home preparation (flour, bread, milk, eggs, fruits, vegetables, and similar items) are not taxable. Prepared food, snacks, and soft drinks sold ready-to-eat generally are, which is why a convenience store register taxes some items on the same receipt and not others.3Texas Comptroller of Public Accounts. Grocery and Convenience Stores
Healthcare items are broadly protected. Prescription drugs, insulin, and over-the-counter medicines labeled with a Drug Facts panel as required by the FDA are exempt.3Texas Comptroller of Public Accounts. Grocery and Convenience Stores Prosthetic devices, braces, hearing aids, and orthopedic devices are exempt by law, along with related supplies and replacement parts.4Texas Comptroller of Public Accounts. Tax Exemptions for People with Disabilities Some therapeutic devices require a prescription to qualify, so sellers should check whether documentation is needed for specific items.
Buyers can also be exempt based on who they are. Nonprofit organizations and government agencies generally don’t owe sales tax on purchases supporting their primary mission, provided they present valid exemption certificates. Retailers buying inventory for resale can issue a resale certificate to purchase goods tax-free, so the tax is collected only once at the final sale to the consumer.5Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions
The Use Tax Half
Use tax closes the gap when you buy something without paying Texas sales tax. If you purchase goods from an out-of-state seller, from an online retailer that didn’t collect Texas tax, or if you take an item out of your own resale inventory for personal use, you owe use tax on that purchase. The rate matches the combined sales tax rate that would have applied to a local purchase.
Businesses report use tax on their regular sales tax returns. The short-form return has a specific line for taxable purchases on which no sales or use tax was collected.6Texas Comptroller of Public Accounts. Texas Sales and Use Tax Return – Short Form Consumers owing use tax on individual high-value purchases pay the Comptroller directly. Marketplace facilitator laws have cut down on untaxed online purchases, but use tax still comes up often for business-to-business transactions and purchases from smaller out-of-state vendors.
Who Has to Collect
A business only has the legal duty to collect Texas tax if it has nexus with the state. Nexus comes in two forms, and either one triggers the obligation.
Physical nexus is the traditional kind: a warehouse, office, or employees in Texas. Economic nexus, established by the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair, lets Texas require collection from remote sellers based purely on sales volume. In Texas, a remote seller that exceeds $500,000 in total Texas revenue during the preceding twelve calendar months must get a permit and begin collecting state and local use tax. That $500,000 threshold includes taxable and nontaxable sales of tangible personal property and services into Texas, plus handling and shipping charges. Once you cross it, you have until the first day of the fourth month after the month you exceeded it to start collecting.7Texas Comptroller of Public Accounts. Remote Sellers
If you sell through a platform like Amazon, eBay, or Etsy, the marketplace provider (not you) is generally responsible for collecting and remitting Texas sales and use tax on those sales. Under Texas Tax Code Section 151.0242, a marketplace provider engaged in business in Texas takes on all the rights and duties of a seller for transactions made through its platform.8Texas Comptroller of Public Accounts. Marketplace Providers and Marketplace Sellers The provider must certify to each seller that it is handling collection, and must report and remit to the Comptroller. You still need to track your sales and keep documentation showing the provider collected on your behalf, and if you also sell through your own website or a physical location, you handle those sales yourself.
Getting a Permit
Any business selling taxable goods or services in Texas needs a sales tax permit before its first sale. There is no fee, though the Comptroller may require a security bond depending on the circumstances.9Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions
The application is Form AP-201. It asks for your Social Security number or federal Employer Identification Number, your NAICS code, and the physical address of every location where you conduct business. You can submit online, by mail, by email, or by fax. Plan on roughly four weeks from the date the Comptroller receives a complete application; incomplete ones take longer.10Texas Comptroller of Public Accounts. Form AP-201 Sales Tax Application
Once issued, the permit must be displayed conspicuously at each place of business.11State of Texas. Texas Tax Code Chapter 151 – Limited Sales, Excise, and Use Tax The Comptroller assigns a filing frequency (monthly, quarterly, or yearly) based on expected tax volume. Monthly filers’ returns are due on the 20th of the month following the reporting period.1Texas Comptroller of Public Accounts. Sales and Use Tax
Penalties for Late Filing or Payment
Missing a deadline costs you two ways. The Comptroller assesses a flat $50 penalty on each report filed after the due date. If you pay the tax itself late, you owe a 5% penalty on the amount due if you pay within 30 days, and 10% if you are more than 30 days late.1Texas Comptroller of Public Accounts. Sales and Use Tax These stack, and interest accrues separately on unpaid balances.
The penalty structure under Texas Tax Code Section 151.703 establishes a $1 minimum penalty, but in practice the $50 late-filing penalty is the real floor. The worst trouble comes from collecting tax from customers and failing to remit it. That is treated far more harshly than simple miscalculation, and it cuts off eligibility for certain relief programs.
Keeping Records
Texas requires businesses to keep all records related to sales and use tax for at least four years, and you cannot destroy them earlier without written authorization from the Comptroller.12Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions The four-year window matches the Comptroller’s standard audit lookback, so incomplete records when an auditor shows up leave you little room to dispute adjustments.
Common audit triggers include inconsistencies between sales tax returns and federal income tax filings, sudden drops in reported taxable sales, and amended returns that significantly reduce tax owed. The Comptroller can extend the lookback period when fraud or significant underreporting is suspected. Clean records (invoices, exemption certificates, resale certificates, and purchase documentation) are the most effective protection during an audit.
Voluntary Disclosure if You’re Already Behind
If your business has been selling in Texas without collecting or remitting tax, the Comptroller’s Voluntary Disclosure Program offers a path back into compliance with reduced consequences. The Comptroller waives statutory penalties and, in most cases, interest on taxes you should have collected but didn’t.13Texas Comptroller of Public Accounts. Voluntary Disclosure Program The catch: you have to come forward before the Comptroller contacts you. Once the state reaches out first, the program is off the table.
The standard lookback is four years from the date you first contact the Comptroller’s office. One important exception: there is no time limit on the lookback for taxes you actually collected from customers but never remitted.13Texas Comptroller of Public Accounts. Voluntary Disclosure Program For remote sellers who crossed the economic nexus threshold without realizing it, or businesses that expanded into Texas without understanding their obligations, voluntary disclosure is almost always a better outcome than waiting for an audit notice.