If you live in Texas or run a business there, you need to know about Texas sales tax. This guide answers common questions about Texas sales tax rates, exemptions, permits, and more.
Texas sales tax is a consumption tax applied to goods and services at the point of sale. Businesses are required to collect and remit this tax to the Texas Comptroller’s office. Understanding the rules helps businesses avoid penalties and legal issues.
1. Understanding Texas Sales Tax
What is Texas sales tax?
- Sales tax is a percentage added to the price of goods and services at checkout.
- The state sales tax rate is 6.25%.
- Cities, counties, and special districts can add up to 2% more.
- The total sales tax rate cannot be more than 8.25%.
Texas has a destination-based sales tax system, meaning the sales tax rate is determined by where the buyer is located, not where the seller is located. Businesses need to calculate the correct tax rate based on the buyer’s shipping address or store location.
2. Who Needs a Texas Sales Tax Permit?
Do I need a sales tax permit?
- You must get a sales tax permit if you sell taxable goods or services.
- This includes online and physical stores.
- You do not need a permit if you only sell tax-exempt items.
Even if you operate an e-commerce business and sell products to Texas customers, you may be required to collect Texas sales tax. Businesses with a physical presence (nexus) in Texas must register for a permit.
How do I apply for a Texas sales tax permit?
- Go to the Texas Comptroller’s website.
- Fill out the application.
- There is no fee for a permit.
- Once approved, you will receive a Sales Tax Permit Number that must be displayed at your place of business.
3. Taxable Goods and Services
Texas taxes most tangible goods but not all services. Some services are taxable, while others are exempt.
Which goods and services are taxable?
| Category | Taxable? |
| Clothing and electronics | Yes |
| Groceries | No |
| Prepared food | Yes |
| Prescription medicines | No |
| Car repair services | Yes |
| Medical devices | No |
| Construction services | Yes |
If you sell both taxable and non-taxable items, you must ensure you only charge sales tax on taxable goods and services. Keeping accurate sales records helps avoid issues during a tax audit.
4. Collecting and Remitting Sales Tax
How do I collect sales tax?
- Charge the correct sales tax rate based on the buyer’s location.
- Show the sales tax amount on receipts and invoices.
- Ensure the sales tax is separately stated from the item price.
How do I pay sales tax to Texas?
- Log in to the Texas Comptroller’s website.
- Report your total sales and tax collected.
- Pay by the due date to avoid penalties.
When is sales tax due?
- Monthly filers: 20th of each month.
- Quarterly filers: 20th of April, July, October, January.
- Yearly filers: January 20th.
Businesses with higher revenues may be required to file and pay monthly, while smaller businesses may be eligible for quarterly or annual filing.
5. Use Tax Explained
What is use tax?
- A tax on out-of-state purchases where no sales tax was collected.
- If you buy online from another state and no sales tax is charged, you must pay use tax.
How do I pay use tax?
- Report it on the Texas sales tax return.
- Pay the same rate as the local sales tax.
Use tax prevents tax evasion by ensuring businesses and consumers pay the correct tax on out-of-state purchases.
6. Resale Certificates
What is a resale certificate?
- A document that lets businesses buy goods tax-free for resale.
How do I get one?
- Download the Texas Sales and Use Tax Resale Certificate from the Comptroller’s website.
- Fill it out and give it to your supplier.
- Keep a copy for your records in case of an audit.
7. Sales Tax on Shipping and Delivery Charges
Is shipping taxable in Texas?
- Yes, if the item you are shipping is taxable.
- No, if the item is tax-exempt.
If shipping and handling charges are combined into the price of a taxable good, the full amount is taxable.
8. Special Circumstances
What if I sell my business?
- You must notify the Texas Comptroller and file a final tax return.
Do out-of-state sellers need to collect Texas sales tax?
- Yes, if they have a sales tax nexus in Texas.
What is a Texas sales tax holiday?
- Certain items are tax-free on specific days.
- Example: Back-to-school tax-free weekend.
Tax holidays are designed to help consumers save money on necessary purchases.
9. Record-Keeping and Audits
How long should I keep sales tax records?
- At least four years.
What happens in a sales tax audit?
- The Texas Comptroller’s office checks your sales tax payments.
- Keep detailed records to avoid fines.
10. Resources and Assistance
Where can I get help?
If you have questions or concerns, it’s best to consult a tax expert to avoid mistakes that could lead to penalties.
Conclusion
Texas sales tax can be complicated, but knowing the rules helps businesses stay compliant. Always check with the Texas Comptroller for updates or seek expert advice if needed.
Understanding the Texas sales tax system ensures that you remain legally compliant and avoid unnecessary fines. Whether you’re a small business owner, online seller, or retailer, following the right procedures will make tax filing easier and stress-free.