How to Add Sales Tax in Texas: From Permit to Payment

Texas sales and use tax applies to the retail sale, lease, or rental of most goods and certain services within the state. Businesses engaged in taxable activities in Texas are responsible for collecting this tax from their customers and remitting it to the Texas Comptroller of Public Accounts.

Understanding Texas Sales and Use Tax

Sellers typically collect sales tax from purchasers at the time of sale, acting as agents for the state. The collected tax money then belongs to the state, not the business.

Use tax complements sales tax, applying when a taxable item is purchased or used in Texas without sales tax being collected. This often occurs with online purchases from out-of-state vendors. The buyer is responsible for reporting and paying the use tax directly to the state. The use tax rate is the same as the sales tax rate that would have applied had the item been purchased within Texas.

Most tangible personal property is subject to sales tax unless specifically exempted. Services are generally exempt unless explicitly listed as taxable. Examples of taxable services include amusement services, data processing, debt collection, information services, real property repair and remodeling, and security services. Groceries, medicines, and purchases for resale with a valid certificate are typically exempt from sales tax.

Obtaining a Sales Tax Permit

Any business or individual selling taxable goods or services in Texas must obtain a Texas Sales and Use Tax Permit. This permit is sometimes referred to as a seller’s permit or sales tax number.

The application process can primarily be completed online through the Texas Comptroller of Public Accounts website.

To apply, you will need to provide specific information about your business. This includes your business’s legal name, address, and contact information, as well as the type of business entity. You will also need your Social Security Number (SSN) or Federal Employer Identification Number (EIN), and for corporations, the file number from the Texas Secretary of State. Information regarding your business activity, projected monthly taxable sales, and the start date of sales will also be requested. A security bond may be required after review of the application.

Calculating and Collecting Sales Tax

Texas sales tax has two main components: a statewide rate and local rates. The state sales and use tax rate is 6.25 percent on all retail sales, leases, and rentals of most goods and taxable services. Local taxing jurisdictions, such as cities, counties, special purpose districts, and transit authorities, can impose an additional sales and use tax of up to 2 percent. This means the maximum combined sales tax rate in Texas can reach 8.25 percent.

For sales of tangible personal property within Texas, the correct local sales tax rate is generally determined by the point of origin, meaning the seller’s business location. For certain services or interstate sales, the destination-based sourcing rule applies, meaning the tax rate is based on the buyer’s location. Businesses must accurately track each customer’s address to apply the correct local tax.

When collecting tax, show the sales tax as a separate line item on the customer’s invoice or receipt. Businesses can calculate tax using point-of-sale systems, accounting software, or sales tax tables. If a sale includes both taxable and non-taxable components, and the taxable portion exceeds 5% of the total charge, the entire charge is presumed taxable unless clearly separated on the invoice. If a customer presents a valid exemption certificate, such as for a sale for resale or a sale to a tax-exempt organization, sales tax should not be collected. The state also observes annual sales tax holidays for specific items, like certain clothing and school supplies in August.

Reporting and Paying Sales Tax

Businesses holding a Texas sales tax permit are required to file sales tax returns regularly and remit the collected tax to the Texas Comptroller of Public Accounts. The filing frequency (monthly, quarterly, or annually) depends on sales volume. Most businesses are required to file quarterly.

Sales tax returns and payments are generally due by the 20th of the month following the end of the reporting period. Even if no sales tax was collected during a period, a “zero return” must still be filed.

The Texas Comptroller’s online filing system, WebFile, is the recommended method for filing returns and making payments. Businesses typically log in, access their sales tax return, and enter details such as total sales, taxable sales, and taxable purchases for the period. Payments can be made electronically through methods like Electronic Funds Transfer (EFT) or credit card. Failing to file or pay on time can result in penalties, including a $50 penalty for late filing and additional penalties of 5% or 10% of the tax due for late payments. Interest may also be charged on past-due taxes, typically beginning 61 days after the due date.

Maintaining Sales Tax Records

Businesses must maintain accurate and complete sales tax records for compliance and in case of an audit by the Texas Comptroller’s office. Records must reflect all gross receipts from sales, leases, taxable services, and taxable labor, as well as all purchases of taxable items. Retain any exemption certificates accepted from customers as proof for not collecting tax on a sale.

These records should be kept for a minimum of four years. If an audit or legal proceeding is pending, retain relevant records until the matter is resolved. Record-keeping helps substantiate reported figures and claimed deductions, preventing potential tax assessments, penalties, or interest charges.