Do I Need a Sales Tax Permit in Texas?

A Texas sales tax permit, issued by the state comptroller, authorizes a business to collect sales and use tax. This permit is a legal requirement for companies engaged in specific activities within Texas. It serves as the mechanism for companies to charge customers the appropriate sales tax and then remit those funds to the state. This guide provides clarity on the requirements and processes for securing a Texas sales tax permit.

Determining Your Sales Tax Responsibility

Your requirement to obtain a sales tax permit hinges on whether your business has “nexus” in Texas. Nexus is the legal connection between a business and a state that obligates the business to register to collect and remit sales tax. This connection can be created through either a physical presence or significant economic activity within the state.

You have a physical presence if you maintain a location like an office, warehouse, or distribution center in Texas. This also extends to having employees, agents, or representatives within the state who conduct business on your behalf, such as selling products or performing services. Even temporary business activities, like attending trade shows to solicit sales or making three or more sales of taxable items in a 12-month period, can create a physical presence nexus.

For businesses without a physical footprint in Texas, nexus can be established through economic activity, known as “economic nexus.” This primarily affects remote sellers, such as online retailers. Texas law requires an out-of-state business to get a sales tax permit if its total revenue from sales of taxable goods and services into Texas exceeds $500,000 in the preceding 12 calendar months.

To illustrate, consider an out-of-state online business that sells handmade crafts to customers across the U.S. If that business generates $40,000 in sales to Texas customers in a year, it falls below the economic nexus threshold and would not be required to obtain a permit based on sales volume alone. However, if another online retailer sells electronics and generates $700,000 in revenue from Texas customers in the last 12 months, it has exceeded the $500,000 threshold and must register for a Texas sales tax permit.

Taxable Goods and Services in Texas

Having nexus in Texas is the first part of the equation; the second is whether you are selling items that are subject to sales tax. A sales tax permit is only necessary if your business sells taxable goods or services. If your sales are entirely of non-taxable items, a permit is not required even if you have nexus.

In Texas, the general rule is that all tangible personal property is subject to sales tax unless a specific exemption applies. Tangible personal property is defined as physical items that can be touched. This category includes most retail products, such as furniture, electronics, clothing, and vehicles. The tax applies to the sale, lease, or rental of these goods.

Unlike some states, Texas only taxes a specific, enumerated list of services. If a service is not on this list, it is not taxable. Taxable services include telecommunications, data processing, security, real property repair and remodeling, amusement, and cable television services. For example, a company that provides IT support by managing a client’s database would be selling taxable data processing services.

Certain sales are exempt from Texas sales tax, which can affect the need for a permit if all of a business’s sales fall into an exempt category. A common exemption is for sales for resale, where a business purchases inventory that it intends to sell to an end-user. To make these purchases tax-free, the buyer must provide the seller with a valid Texas Resale Certificate. Other exemptions include sales to government agencies, certain nonprofit organizations, and sales of most food products for home consumption.

Information and Documents for Your Application

Gathering the necessary information before you begin will streamline the application process. The state requires specific information about your business structure, its owners, and its activities. Required items include:

• A federal taxpayer identification number, which is a Federal Employer Identification Number (FEIN) for most businesses or a Social Security Number (SSN) for sole proprietors.
• The legal name of the business and any assumed name or “doing business as” (DBA) name.
• Full names, titles, and Social Security Numbers for all owners, partners, or corporate officers.
• The physical and mailing addresses for the business.
• The North American Industry Classification System (NAICS) code for your primary business activity.
• The date your business first started making sales or became engaged in business in Texas.

The Application Process

The primary and most efficient method for applying is through the Texas Comptroller’s eSystems portal, using the Texas Online Tax Registration Application. This online system guides you through a series of questions where you will input the information you previously collected. For those who prefer or need to file by paper, Form AP-201, the Texas Application for Sales and Use Tax Permit, can be completed and mailed to the Comptroller’s office.

When using the online portal, you will create a user profile and then navigate to the option for registering a new business. After you have entered all the data and reviewed it for accuracy, you can submit the application electronically.

There is no fee to apply for or receive a Texas sales tax permit. Online applications are typically processed much faster, often allowing you to receive your sales tax permit number within a few days. Mailed paper applications, however, can take several weeks to be processed. Upon approval, the Comptroller’s office will mail you the physical sales tax permit, which must be displayed at your place of business.