Texas Sales Tax Guide 2024: Compliance, Rates, and Regulations for Ecommerce Businesses 

Sales tax at a glance

‍

Texas sales tax rates & calculations in 2023

The Texas sales tax rate is 6.25% statewide. Local jurisdictions can add up to 2% in additional sales taxes for a maximum possible rate of 8.25%.

You can use this formula to calculate Texas sales tax:

Sales tax = (State tax rate + local tax rate) x taxable purchase.

For example, if you purchase a taxable item for $100 in a location with a 1.5% local rate, the sales tax would be:

• State rate: 6.25%
• Local rate: 1.5%
• Taxable purchase: $100
• Calculation: (6.25% + 1.5%) x $100 = $7.75

Recent tax changes in Texas

The Texas sales taxes have remained the same. 

FAQs

What's the difference between destination-based and origin-based sales tax states?

Texas is an origin-based state, meaning sellers charge tax based on where their ecommerce business is located. Destination-based states require sellers to charge tax based on the customer is location. 

Is the Texas sales tax destination-based or origin-based?

Texas is an origin-based sales tax state. Sellers collect tax based on the rates where their ecommerce business is located.

Is Texas a streamlined sales tax state?

Texas is not a Streamlined Sales Tax State. 

The Streamlined Sales Tax Project (SSTP) aims to simplify sales tax collection across states that adopt its Streamlined Sales and Use Tax Agreement (SSUTA), and Texas still needs to join the SSTP or implement the SSUTA. 

Sales tax nexus and registration

Texas considers a seller to have nexus if they have:

• If your e-commerce store has over $500,000 in Texas sales in the last 12 months, you must collect state and local taxes.
• Having a physical location or representatives in Texas also mandates tax collection.
• Marketplace providers facilitating sales with Texas revenue over $500,000 are also liable for tax collection.

How to register for sales tax in Texas?

To register for sales tax in Texas, you can visit the Texas Comptroller Registration Page. You will need to provide the following information:

• Business information including activities, ownership, addresses, and contacts
• Owner IDs like Social Security Numbers or Taxpayer Identification Numbers
• NAICS industry code
• Details on physical and online sales presence
• Sales volume estimates
• Supplier information

Once you have registered for a sales tax permit, you must collect and remit sales tax on all of your sales in Texas. You can do this using a sales tax software program or manually calculating and remitting the sales tax.

Registration requirements for online sellers in Texas

If you are an online seller, you must register for sales tax in Texas if you meet the following criteria:

• You have more than $500,000 in sales of tangible personal property in Texas in the current or prior calendar year.
• You have a physical presence in Texas, such as a store, warehouse, or office.
• You actively target Texas customers by advertising in Texas media or having a website accessible to Texas customers.
• The marketplace you use to sell your products has a physical presence.

Cost of registration for a Texas sales tax license

There is no cost to register for a sales tax permit in Texas. However, you may be required to pay a security deposit. This is done to ensure taxes are paid in case of business closure. The amount of security will be determined at the time you apply.

Agencies to register within Texas

To fully comply with sales tax requirements in Texas, businesses may need to register with the following agencies:

• Texas Comptroller of Public Accounts - Issues sales tax permits and handles sales tax registration and filing. Register online at comptroller.texas.gov.
• Texas Secretary of State - For registering your ecommerce business entity and obtaining a certificate of authority to transact in Texas. It can be done online at sos.texas.gov.
• Local Municipalities - Cities, counties, and special districts may require additional local business licenses and permits. Check requirements with your local city hall, county administration office, or special district department.

FAQs

Do I need a Texas seller's permit if I'm only a wholesaler?

You need a Texas seller's permit anytime you want to sell in Texas. This applies to Wholesalers just as it applies to retail businesses. 

Do I need a Texas seller's permit if I only sell temporarily in the state?

Yes, you need a Texas seller's permit if you only sell temporarily in the state. If you sell tangible personal property in Texas for more than 90 days in a calendar year, you must register for a seller's permit and collect sales tax on all of your sales.

What's taxable and exempt

Texas imposes a 6.25% sales tax on most retail sales, leases, and rentals of most goods and taxable services. Local jurisdictions can also add a 2% sales and use tax for a maximum combined sales tax of 8.25% in Texas.

Exemptions from sales tax in Texas

The following are some exemptions from sales tax in Texas:

• Unprepared grocery foods - milk, eggs, meat, fruits, vegetables, baking ingredients
• Bakery items from a bakery
• Water and natural juice
• Baby food and formula
• Dairy - butter, cheese, yogurt
• Medicines and supplements - prescription, over-the-counter medicines, dietary supplements
• Newspapers

FAQs

Are groceries taxable in Texas?

Groceries are exempt from sales tax in Texas. For instance, sugar, flour, bread, milk, eggs, etc., are exempt from sales tax. However, non-food items like paper products, pet products, and others are charged a sales tax. 

Is clothing taxable in Texas?

Clothing is taxable in Texas. Even on a sales tax holiday, the clothing item must be under $100 to qualify for an exemption.

Are digital products taxable in Texas?

Yes, digital products, such as software, music, and movies, are taxable in Texas. This includes both downloadable and streamable products. 

Is software-as-a-service (SaaS) taxable in Texas?

Software-as-a-service (SaaS) is taxable in Texas. Apart from the local sales taxes that apply to all taxable goods and services, Texas does not have a specialized tax on SaaS or other cloud computing services. However, SaaS is still subject to the state's 6.25% sales and use tax if accessed within Texas. The tax is applied to the subscription fees or other charges for using the SaaS.

Are services taxable in Texas?

Many services are taxable in Texas. This includes services such as restaurant meals, haircuts, car repairs, dry cleaning, hotel stays, rental cars, and tickets to sporting events and concerts. However, some services  such as medical and financial services, are exempt from sales tax in Texas.

Excise & discretionary taxes

Excise taxes are levied on specific goods or services. These discretionary taxes are imposed by local governments in Texas or any other state, and the rates can vary from city to city. In Texas, the maximum local sales tax rate is 2%, while cities can also levy additional taxes on hotel occupancy, mixed beverages, and other goods and services at their discretion. Let's look at some of the local sales taxes.

Excise taxes in Texas (alcohol, tobacco, gasoline, fuel, and marijuana)

Except for gasoline, Texas adds a “Sin” tax on the rest of the items. Here are the excise tax rates in Texas. 

Alcohol

• Beer tax: $6 per 31-gallon barrel (19.4 cents per gallon)
• Liquor tax: $2.40 per gallon
• Malt liquor (ale) tax: 19.8 cents per gallon
• Wine tax: 20.4 cents per gallon for wine up to 14% alcohol, 40.8 cents per gallon for over 14% alcohol, 51.6 cents per gallon for sparkling wine
• Mixed beverage tax: An additional 8.25% mixed beverage sales tax on alcoholic beverages for on-premise consumption. This tax is in addition to the regular sales tax.

Tobacco

• Cigarette tax: $1.41 per pack of 20 cigarettes
• Cigar and tobacco products tax: various rates based on weight and price

Gasoline/fuel: 20c per gallon since 1991.

Marijuana: The controlled substance tax was repealed in 2015. It was previously $3.50 per gram of marijuana.

Food and beverage tax in Texas

Prepared food and beverages sold at restaurants, bars, concessions, food trucks, etc., are subject to the regular Texas state sales tax rate, which is currently 6.25%. This includes dine-in, takeout, and delivery. Unprepared food items from a grocery store are generally exempt from sales tax.

Remote sellers in Texas

Texas defines a remote seller as a seller that does not have a physical presence in the state. This includes online sellers that ship goods to Texas residents.

• With the Wayfair decision in 2018, Texas now requires remote sellers to collect and remit sales tax if they meet certain economic nexus thresholds. The current economic nexus thresholds in Texas are:

• Gross revenue from sales into Texas exceeds $500,000 in the previous 12 months
• Number of separate sales transactions into Texas exceeds 200 in the previous 12 months

• Apart from the state tax of 6.25%, remote sellers can collect and remit 1.7% tax across all the states, making it easier to collect taxes. You can collect 7.95% tax across Texas for your remote sales. 

Prepaid sales tax rates for fuel products in Texas

Here are the prepaid sales tax rates for fuel products in Texas:

• Gasoline: 20 cents per gallon
• Diesel fuel: 23 cents per gallon
• Liquefied gas: 15 cents per gallon
• Liquefied gas used as motor fuel: 20 cents per gallon

The prepaid rates apply when the fuel is purchased wholesale for resale. The taxes are paid upfront by the distributor.

When fuel is sold at retail to end consumers, the regular state and local sales tax rates apply on top of the prepaid tax that has already been collected.

For example, if gasoline is sold for $3 per gallon at a retail gas station, the taxes would be:

• 20 cents prepaid tax
• 6.25% state sales tax on $3 = 19 cents
• 2% local sales tax on $3 = 6 cents

For a total tax of 45 cents per gallon. The prepaid tax allows Texas to collect a fixed amount per gallon upfront from distributors. The sales tax is then collected on the retail price when sold to consumers.

Discretionary taxes in Texas (local sales taxes)

Texas allows cities, counties, transit agencies, and special districts to impose local discretionary sales taxes up to 2% on top of the statewide 6.25% rate. This means that total sales tax can reach 8.25% in some metro areas.

 Sellers must collect both state and local taxes based on the buyer's location. Out-of-state sellers are impacted by economic nexus laws. Staying current on varying local rates is challenging but address-level rate lookup software can help optimize compliance.

Collecting sales tax in Texas

Let's look at how you can collect taxes as an ecommerce seller in Texas.

How to collect sales tax in Texas if you are not based in Texas (Out-of-State)

Even if you do not have a physical presence in the state, you must register with CDTFA if you're considered "engaged in business" in Texas. You can voluntarily register to collect and pay use tax for your Texas customers.

There are five common ways to be considered as “engaged in business”:

• Having a physical location in Texas like an office, warehouse, etc.
• Having representatives, agents, or contractors working in Texas.
• Receiving rental payments on property located in Texas.
• Owning or leasing real or personal property in Texas.
• Having over $500,000 in sales delivered to Texas.

There are specific rules for convention shows, voluntary disclosure, prepaid mobile services, Texas Tire Fee, and more. 

You can register for a seller's permit online using CDTFA's online registration services. Once you obtain the seller's permit in Texas, you are free to do business in the state and begin collecting sales tax even if you're not physically based in Texas.

Should you collect sales tax on shipping charges in Texas?

Online sellers selling taxable items in Texas must collect sales tax on shipping charges. However, if the product being sold is exempt from sales taxes, you do not need to collect sales tax on shipping. 

For instance, if you sell an office desk for $800 and require a transport and assembly fee of $200, you need to collect sales tax on the total $1000. If the buyer provides you with an exemption certificate for the office desk, you do not need to collect the sales tax on shipping as the office desk is also exempt from taxes. 

Filing & paying sales taxes

Sales taxes are collected by businesses on selling goods and services in Texas. Businesses then remit those taxes to the state government. The filing frequency for businesses depends on the total sales.

Filing Texas Sales Tax Returns

• Frequency of Filing: Depending on your sales volume, returns must be filed either monthly, quarterly, or annually.
• Components of the Return: The returns should detail your total sales, taxable sales, and the sales tax collected.
• Online Filing: Returns can be conveniently filed through the Texas Comptroller's website.
• Zero Return: Even if no tax is due for a specific period, a "zero return" must still be filed.

Paying Texas Sales Tax

• Payment Timing: The sales tax collected must be remitted when filing the return.
• Payment Methods: Payments can be made online or sent via mail along with a paper return.
• Late Penalties: Failure to file or pay on time will result in penalties.

Sales tax return filing schedule and due dates in Texas

Texas sales tax returns are due on the 20th of the month following the reporting period. Returns can be filed and paid online or by mail.

‍

Filing penalties in Texas

Let's look at the filing penalties on what happens if you fail to pay your taxes on time or pay an incorrect amount. 

Late Filing and Payment

• If you don't file your tax report on time, the Comptroller's office will send you a bill based on an estimate. You might also face legal action.
• If you pay your tax 1-30 days late, you get a 5% penalty. If it's more than 30 days late, the penalty is 10%. If you ignore the official notice, another 10% penalty is added, making it 20%.
• Interest starts adding up 61 days after the due date. The rate changes each year.

Additional Penalties

• You'll be charged an extra $50 for each late report, even if you don't owe any tax.

Special Cases

• For International Fuels Tax, the minimum penalty is $50 or 10% of your tax, whichever is higher. Interest starts the day after the due date.
• If you underpay your taxes, you'll get a bill for the remaining amount, along with details on extra penalties and how to appeal.

Collection Actions

• If you refuse to pay, the state can take serious actions like seizing assets, suspending licenses, and even filing criminal charges.
• If you get a notice from a private collection agency, pay the amount in the envelope provided. It goes to the Comptroller's office.

What to Do

• If you're facing collection actions, contact the Comptroller's office immediately.
• Payment plans may be available, but your account will still be considered delinquent.

Reporting Fraud

• If you suspect tax fraud, you can report it to the Comptroller's Enforcement Division.

Attorney General Involvement

• If the Comptroller's office can't collect the tax, the case may go to the Attorney General. At that point, only the Attorney General can make decisions on the case.

When are returns due in Texas?

The due dates for filing sales tax returns and making payments in Texas are synchronized and vary based on the frequency of your filing—monthly, quarterly, or annually.

• Monthly filers must adhere to a schedule that generally requires payments by the 20th of the following month. For example, taxes collected in January are due by February 20th.
• Quarterly filers have deadlines on April 20th, July 20th, and October 20th for the first three quarters, and January 20th for the final quarter.
• Annual filers have until January 20th of the following year to file and pay.

FAQs

I didn't collect any Texas sales tax during this period. Do I still need to file a return?

Yes, you still need to file a “zero return” sales tax return even if you didn't collect any sales tax. This is because you may be eligible for a refund.

Can I get an extension on filing my Texas sales tax return?

No, you cannot ask for an extension in Texas unless a disaster has been declared in your business area. 

Can I amend a Texas sales tax return?

Yes, you can file an amended return in Texas. Simply add a line stating “Amended Return” on top of the return filing form and check “Yes” or item “j” on the form. For instance, if you overpaid $20,000 in a previous filing year and want to adjust the same in this one, fill the amended return with proper filing and documentation to help verify the additional taxes.  

What is the penalty for filing and/or paying Texas sales tax late?

The Texas Comptroller of Public Accounts charges a $50 penalty on each late-filed report. Apart from that, if the tax is paid 1-30 days after the due date, there is a 5% penalty. For taxes paid over 30 days after the due date, there is a 10% penalty.

Audit & appeals process

Let's look at the audit and appeal process in Texas. 

Texas sales tax audit process

The Texas sales tax audit process is as follows:

• The taxpayer provides all the required documentation for the sales tax audit
• The auditor then informs the taxpayer of any tax assessments that may be required based on the information.
• The auditor also checks for any penalty waiver recommendations and interest to be assessed.
• As the taxpayer, you can request a reconciliation or independent audit to appeal any disagreements

Sales tax registration

Registering for sales tax in Texas is a simple online process. 

• Simply visit the Comptroller Tax Registration page
• Click on “Apply for Permit via eSystems” under the New Permit Applicants heading
• On the next page, click Create Profile to start the process of registration

• Provide the business details along with your SSN and company details. 
• Review all details entered and submit the registration form.
• There are no fees for registering for the seller permit

More information

For sales tax filing and appeals in Texas, you would be required to contact:

• Texas Comptroller of Public Accounts
• Website: https://comptroller.texas.gov/
• Tax Line: 800-252-5555