If your business sells taxable goods or services in Texas, then yes, your business needs to pay sales tax in Texas — meaning you must collect it from customers and send it to the Texas Comptroller of Public Accounts. The state rate is 6.25%, and local jurisdictions can add up to 2% more, so the combined rate tops out at 8.25%.1Texas Comptroller of Public Accounts. Sales and Use Tax Whether you actually owe depends on three things: whether you have a legal connection to Texas, what you sell, and how much you sell into the state.
When Texas Considers Your Business Connected Enough to Owe
Texas Tax Code Section 151.107 sets out when a business has “nexus” — the connection that triggers a collection duty.2State of Texas. Texas Tax Code 151.107 – Retailer Engaged in Business in This State There are two ways to get there.
You Have a Physical Presence in Texas
Any Texas location counts, permanent or temporary. An office, a warehouse, a distribution center, a storage unit, a showroom, even a booth at a trade show. So does a single employee, sales representative, or agent working in the state on your behalf.3Texas Comptroller of Public Accounts. Engaged in Business The statute is written broadly. If a person is in Texas selling, delivering, or taking orders for you, you have nexus.2State of Texas. Texas Tax Code 151.107 – Retailer Engaged in Business in This State
You Cross the $500,000 Remote Seller Threshold
No Texas location? You still need a permit once your total Texas revenue passes $500,000 in the previous twelve calendar months.3Texas Comptroller of Public Accounts. Engaged in Business That figure includes everything sold into Texas: taxable, exempt, and nontaxable sales combined. Once you cross it, you have to register by the first day of the fourth month after the month you went over.
You Sell Through a Marketplace
Amazon, eBay, Etsy, and similar platforms are treated as marketplace providers under Texas Tax Code Section 151.0242, which makes the platform responsible for collecting and remitting sales tax on your sales through it.4Texas Comptroller of Public Accounts. Marketplace Providers and Marketplace Sellers The marketplace should provide written certification that it’s handling collection. If it doesn’t, the liability stays with you.
One catch that trips up sellers running both a marketplace shop and their own website: marketplace sales still count toward the $500,000 threshold. If your combined sales pass that number, you need a permit and must collect tax on the sales you make outside the marketplace, even though the marketplace is still collecting on its own transactions.5Texas Comptroller of Public Accounts. Remote Sellers and Marketplace Frequently Asked Questions Sellers below the threshold whose only Texas connection is inventory sitting in a marketplace warehouse don’t need a permit, provided the marketplace has certified it will handle the tax.
What Texas Actually Taxes
Most tangible goods sold at retail are taxable: furniture, electronics, clothing, building materials, and the like. What surprises many business owners is how many services Texas also taxes.
Taxable Services
Data processing has one of the widest reaches. If you enter, store, format, or manipulate a customer’s data by computer, that charge is taxable — payroll processing, word processing, document scanning, web page creation with server hosting.6Texas Comptroller of Public Accounts. Data Processing Services Are Taxable Software as a Service generally falls in the same category.
A small carve-out: if taxable data processing makes up 5% or less of a bundled contract and isn’t separately billed, you don’t have to collect tax on it. Above 5%, the entire charge becomes taxable unless you break out taxable and nontaxable portions on the invoice.6Texas Comptroller of Public Accounts. Data Processing Services Are Taxable
Other taxable service categories include amusement services (event tickets, streaming subscriptions), telecommunications, cable television, and credit reporting.
Construction and Repair Work
Building type controls the answer. Repairing, remodeling, or restoring a commercial property — offices, warehouses, retail spaces, restaurants — is taxable on the total job price.7Texas Comptroller of Public Accounts. Real Property Repair and Remodeling Residential repair and remodeling labor is not taxable, though the contractor still owes tax on materials. New construction labor is not taxable either, regardless of building type; the contractor pays tax on supplies and doesn’t charge the customer tax on the labor.8Legal Information Institute. 34 Texas Administrative Code 3.357 – Nonresidential Real Property Repair, Remodeling, and Restoration
Common Exemptions
Groceries — bread, milk, eggs, fruit, vegetables — are exempt. Prepared food, candy, and soft drinks generally are not. Prescription drugs, insulin, over-the-counter medicines with an FDA Drug Facts panel, and a broad list of medical devices and health care supplies are exempt.9Texas Comptroller of Public Accounts. Grocery and Convenience Stores
Buying inventory for resale? You don’t pay sales tax on those purchases. Give the supplier a completed Texas Sales and Use Tax Resale Certificate (Form 01-339), and tax collection moves down the chain to your end customer.10Texas Comptroller of Public Accounts. Texas Sales and Use Tax Resale Certificate Keep those certificates on file. If the Comptroller audits and the paperwork is missing, you owe the tax yourself.
Federal and Texas government entities are automatically exempt from tax on their purchases. Nonprofits with IRS exemption letters under Internal Revenue Code Sections 501(c)(3), (4), (8), (10), or (19) can apply for exempt status with the Comptroller.11Texas Comptroller of Public Accounts. Nonprofit and Exempt Organizations – Purchases and Sales When selling to any exempt buyer, collect and keep a copy of the exemption certificate.
Use Tax: The Obligation Most Businesses Miss
Sales tax isn’t the whole picture. If your business buys taxable goods or services from a seller that didn’t charge Texas sales tax — a common situation with out-of-state online purchases — you owe use tax at the same rate you would have paid in sales tax.12Texas Comptroller of Public Accounts. Use Tax It’s the state’s backstop against uncollected revenue.
If you already hold a sales and use tax permit, report use tax on Line 3 (“Taxable Purchases”) of your regular return. Without a permit, file Form 01-156 separately. Businesses owing less than $1,000 in use tax for the year can wait until January 20 of the following year to file. Hit $1,000 in any month and the return is due by the 20th of the next month.12Texas Comptroller of Public Accounts. Use Tax
Getting a Sales and Use Tax Permit
You apply through the Texas Online Tax Registration Application on the Comptroller’s website. The form asks for your business’s legal name, physical address, and NAICS code.13Texas Comptroller of Public Accounts. Texas Online Tax Registration Application Sole proprietors provide a Social Security number; corporations and partnerships supply a Federal Employer Identification Number along with Social Security numbers for officers, directors, or partners.
Once processed, the Comptroller issues a permit that must be posted at your place of business.14Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions There’s no fee. You cannot legally collect sales tax without one.
Filing and Paying
The Comptroller assigns a filing frequency — monthly, quarterly, or annually — based on how much tax your business is expected to collect. Filing is done through the state’s eSystems/Webfile portal.15Texas Comptroller of Public Accounts. File and Pay Returns and payments are due by the 20th of the month following the reporting period.1Texas Comptroller of Public Accounts. Sales and Use Tax
What It Costs to Miss a Deadline
Penalties stack:
- Late filing: $50 for each report filed after the due date, even if no tax is owed.
- Payment 1 to 30 days late: 5% of tax due.
- Payment more than 30 days late: 10% of tax due.
- After a formal Notice of Tax Due: an additional 10%, bringing the total to 20%.
Interest starts on the 61st day after the due date, at prime plus one percent annually.16Texas Comptroller of Public Accounts. Penalties for Past Due Taxes17Texas Comptroller of Public Accounts. Interest Owed and Earned A business that owes $10,000 and pays 45 days late faces the $50 filing penalty plus $1,000 in payment penalty before interest even begins.
Buying an Existing Business Changes the Calculation
If you’re buying a Texas business instead of starting one, the seller’s unpaid sales tax can become yours. Texas Tax Code Section 111.020 makes the buyer liable for the seller’s past-due taxes, up to the full purchase price.18Texas Comptroller of Public Accounts. Buying an Existing Business
The protection is a Certificate of No Tax Due from the Comptroller, requested before closing. Buyer and seller jointly submit Form 86-114. No fee. If no audit is needed, the Comptroller typically responds within 10 business days; if an audit is required, up to 90 days. Close without the certificate and any unpaid tax the seller owes is your problem.18Texas Comptroller of Public Accounts. Buying an Existing Business