Texas Sales Tax Permit Overview

Essentially, when you start any business in Texas, you must get a sales tax permit. This is a permit you apply for to allow you to sell services or products and collect sales tax on behalf of the state. The main objective of this permit is to enable the Comptroller’s office to take charge of the entire process of collecting and submitting sales tax returns to the state. It is a trust fund tax because you receive it and then send it to the state.

Who needs a sales tax permit in Texas?

Any business that has nexus in Texas requires a Texas sales tax permit to operate. Nexus’ is just a decorative way of referring to “presence” or ‘commercial connection’ in a state. The Texas administration considers a business to have tax nexus if it has any of the following within the state:

• Place of business or office
• Employees or representatives
• A distribution center
• Storage or warehouse
• Sample or salesroom
• A notable amount of sales in Texas in a year. This is also referred to as economic nexus. It is triggered by any economic activity, i.e., a certain amount of sales ($500,000 in Texas) within 12 months

What is taxable in Texas?

Services: Services refer to various problem solvers like landscapers, architects, lawyers, and so on. The exact definition is broad, and many exceptions apply. You can confirm with the Comptroller’s office to determine if your service is taxable.

Tangible Products: These are physical items. The state taxes almost all tangible goods, but there are some exemptions. To be clear about which items are exempted from tax, also check with the revenue department.

Digital Products: These are items that are accessed or delivered electronically through the web. E-Books and Media streaming services are good examples of these, but some rules also apply. Confirm with the revenue department to be sure.

Software: Sometimes referred to as SaaS or software as a service, these are cloud-based products mainly accessed by online clients. Sometimes people refer to digital services even as SaaS. Be as it may, Texas taxes these products.

If you sale over the internet, should you collect sales tax on your sales?

If your business has nexus in Texas, you will have to register and start collecting sales tax on all taxable products regardless of the shipping or order placement method. You will be required to collect tax in the home state of the business as well as where the customer resides if it’s different. For example, if your business is based in Texas, and you make a sale to a customer in Texas, your company has nexus, and you will have to collect sales tax on the transaction. Similarly, if a business from another state is shipping a product to a client in Texas, they must collect sales tax if they have nexus in Texas.

Also, if you are selling over the internet using fulfillment stores such as Amazon FBA, you will have nexus for sales tax in Texas if the fulfillment house is located in Texas. The presence of inventory in Texas technically creates a commercial connection’ not only for income tax but also for sales tax purposes. Be aware of affiliate nexus, economic nexus, and click-through nexus laws that establish a seller’s presence in Texas without the seller’s physical presence in the state.

Registering for a Sales Tax Permit in Texas

You can easily apply for a sales tax permit online through the Comptroller’s site here. Similarly, you can download the application form and mail it to:

Comptroller of Public Accounts

111 E. 17th St.

Austin, TX 78774-0100

What do you need to register?

• Business owners’ social security number
• Federal employer’s ID numbers or partnership social security numbers
• Corporation’s file number from the secretary of state
• Corporation social security numbers of every director or officer
• NAICS (North American Industrial Classification System)
• All applicants must be 18 years and above. Guardians or parents can apply on behalf of a minor.

What is the Cost for Applying for a Sales Permit?

Currently, applying for a sales tax permit in Texas if free. However, you may be required to have a security bond.

• Turnaround Time: 2-3 weeks
• Renewals: No Renewals Needed

When will you file sales tax?

The state will assign you a filing date and frequency when you apply for the permit. How often you file will depend on the total amount of sales tax you collect in a particular period. It can either be annually, quarterly, or even monthly. But generally, Texas usually follows this rule of thumb:

• $0 to $83.33 Annually
• $83.34 to $1500.00 Quarterly
• Above $1,500.01 Monthly

Returns are generally due on the 20th of every month following the financial reporting period. If the due date falls on a holiday or weekend, it is pushed to the next business day.

Collecting Sales Tax in Texas

Sales tax rates in Texas vary depending on the location of the company, the client as well as the tax levels that apply to the specific areas. Now, the state-wide tax, in general, is 6.35 percent in Texas. There are also other levels in local jurisdictions. Texas utilizes the origin-based tax system, which is slightly less complicated. If you have a local business, you will charge a sales tax rate depending on your location. So that would be 6.35 per cent plus any other local taxes that may apply. Also, if the company is not in Texas, but has nexus, it will charge only the 6.35 per cent rate.

Sales Tax Holidays

Another intricate part of the Texas sales tax system is tax holidays. During this period, you will be required not to charge any sales tax. Customers will also expect you not to charge them. Confirm with the state’s site for the current holidays.

Penalties

If a business misses a payment deadline or filing, some penalties may apply. You can also check the state’s site for the current penalty fees in Texas.

Discounts

Finally, on a lighter note, your business could be eligible for tax discounts in the state. The discounts and waivers are designed to save sellers some money as a way of recognizing them for complying with all the sales tax regulations.