Do you need to collect and remit sales tax in Texas?
There are two types of sales tax designations in Texas:
- Franchise Tax is a privilege tax on taxable entities doing business in Texas. This applies to Limited Liability Companies (LLCs), corporations, banks, etc…, and includes in-state and remote sellers with either physical or economic nexus in Texas. If you have a business that is considered a taxable entity, you will need to file both franchise tax and sales and use tax.
- Sales and Use Tax applies to in-state business, as well as remote sellers with a total annual Texas revenue of $500,000 or more. This number includes taxable and nontaxable sales on tangible personal property and services into Texas. If you are a remote seller and do not reach the $500,000 economic threshold in the previous calendar year, you do not have to collect and remit sales and use tax in Texas according to their safe harbor rule.
Both tax designations are only applicable if a business has nexus in Texas.
Do you have sales tax nexus in Texas?
So, what exactly is nexus? If a business has nexus, it means it has significant physical or economic presence in a state. What is significant enough depends upon each state’s tax laws and regulations.
Physical sales tax nexus in Texas
A few of the qualifications of physical nexus are:
- Selling tangible personal property
- Leasing or renting tangible personal property
- Selling taxable services in Texas
Texas defines tangible personal property as “personal property that can be seen, weighed, measured, felt or touched or that is perceptible to the senses.”
Taxable services are less clear cut. Every state has their own rules on what services are taxable and which are exempt. A few examples of taxable services in Texas are:
- Cable television
- Data processing
- Telecommunication services
If you need a more thorough list, you can find it here.
Economic sales tax nexus in Texas
Businesses with economic nexus are most often remote sellers who have revenue from Texas sales of $500,000 or more in the past 12 months. Something to remember is that this dollar amount includes taxable and nontaxable sales or services.
Are marketplace facilitators required to collect and remit sales tax in Texas?
Marketplace facilitators (or Marketplace Providers) that are engaged in business in Texas must collect, report and remit sales and use tax on behalf of their sellers. This means that if you sell through a marketplace facilitator, you are not responsible for the taxes made on sales through that marketplace. However, marketplace providers must register through Texas before they can legally collect and remit your taxed sales for you. If you are concerned whether a marketplace facilitator is registered with Texas, ask for proof of certification.
Note: If your business sells through a marketplace facilitator but has an LLC (Limited Liability Companies), is a corporation or a partnership, or is otherwise considered to be a taxable entity, you must still file Texas Franchise tax.
What platforms are marketplace facilitators?
Some platforms considered marketplace facilitators are:
Not sure what a marketplace facilitator is? A marketplace facilitator is an online platform that allows customers to purchase goods or services from various vendors in one convenient location. These platforms can benefit businesses by increasing product visibility and attracting a larger customer base. Additionally, marketplace facilitators often have the legal responsibility to collect and remit sales tax on behalf of sellers, which can help ease the sales tax burden for businesses.
Filing Texas Sales Tax
Before you can file Texas sales and use taxes, you must apply for a Texas sales tax permit. This permit can be obtained one of two ways:
Apply for a sales tax permit via eSystems
To apply for a sales tax permit online, you must create an account on the Texas Comptroller eSystems website. You will need to provide social security numbers or federal employer identification numbers, your Texas corporation’s file number from the Texas Secretary of State (if your business is a taxable entity), and an NAICS (North American Industrial Classification System) code.
Apply using a paper form
Form AP-201 is provided for businesses who do not wish to apply for a permit via the online system. Note: if you are a sole owner, partner, officer or director of a business and do not have a social security number, you must apply for a sales tax permit using the paper form.
Once completed, the form can be emailed to [email protected] or fax 512-936-0010.
The estimated wait time for a sales tax permit to process is 2-3 weeks. Once you have a permit, you can report and pay your Texas sales and use tax one of four ways:
What filing option you choose will depend upon the amount of taxes paid in the preceding state fiscal year (September 1st – August 31st), how many jurisdictions you file in, and personal preference.
Find more information on each filing method here.
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When are sales tax returns due in Texas?
Shortly after you’ve completed your sales tax registration, you will be sent a sales tax permit from the Texas Comptroller. This permit also lists your filing frequency. This information is critical in telling you when your returns are due, how often they are due, and what sales you need to report.
Understanding Filing Frequencies
Like most other states, Texas assigns a filing frequency to each registered sales taxpayer. These filing frequencies—or reporting periods—refer to how often that business must file and pay their sales tax returns. The more sales tax a business collects, the more often it files.
New taxpayers are initially assigned a monthly or quarterly filing frequency. If you collect very little sales tax, this frequency may be adjusted to annual in the future.
Why Different Frequencies Exist
The state sets different filing frequencies for several reasons:
- Efficiency: to maximize the efficiency of tax collection and decrease administrative loads and costs associated with processing returns.
- Cash Flow: to ensure a steady flow of revenue to the state while also considering potential cash flow impacts on businesses.
- Compliance: to balance the need for oversight with the administrative burden on busineses.
- Business Structure: to accommodate businesses of different sizes, transaction volumes, and tax collection.
Texas Filing Frequencies
Texas uses three sales tax filing frequencies: annual, quarterly, and monthly. Your assigned frequency is noted in the letter you receive from the Texas Comptroller when you register for your sales tax permit.
Annual
Businesses with lower Texas sales tax collected can be assigned an annual filing frequency. This frequency is granted to taxpayers that have a previous record of timely filed returns and an annual reported liability of under $1,000.
Annual sales taxpayers only file once per year, before or by January 20th, and will report all sales and tax collected in Texas from January-December of the preceding year.
Quarterly
A more common frequency, especially for medium-sized businesses, is quarterly filing. If your business collects less than $1,500 in sales tax per quarter, you are assigned a quarterly filing frequency. The reporting periods are as follows:
- Quarter 1: January 1 – March 31
- Quarter 2: April 1 – June 30
- Quarter 3: July 1 – September 30
- Quarter 4: October 1 – December 31
Each return is due before or by the 20th of the month following the quarter-end. So quarter 1 will be due by April 20th, quarter 2 by July 20th, and so on.
Monthly
Larger businesses collecting more than $1,500 in sales tax per quarter are required to file monthly sales tax returns. As the name implies, monthly sales taxpayers file and pay their sales tax returns every month. January returns are due before or by February 20th, February returns are due by March 20th, and so on.
Regardless of the frequency, it is important to note that if the 20th falls on a weekend or federal holiday, the due date is extended to the next business day.
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