Texas Sales Tax Nexus

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Determination of Economic Nexus in Texas (Remote Sellers)

Texas provides a $500,000 “safe harbor” for remote sellers. If your total Texas revenue is $500,000 or more in the preceding 12 calendar months, you are required to obtain a Texas sales and use tax permit and begin collecting and remitting Texas state and local tax.

“Total Texas revenue” is based on gross revenue from both taxable and nontaxable sales of tangible personal property and services into Texas. It also includes separately stated charges like handling, transportation, or installation fees, and it includes sales for resale and sales to exempt entities.

If you exceed the $500,000 safe harbor, you must begin collecting and remitting tax no later than the first day of the fourth month after the month you exceeded the threshold.

Remote Sellers and Use Tax

Texas uses the term remote seller to describe an out-of-state seller whose only activity in Texas is the remote solicitation of sales. Remote solicitation includes sales generated through the internet, telephone, radio or television, and catalogs or flyers.

If you have a physical presence in Texas (for example, a business location, employees, representatives, inventory, or other in-state activities), you may have Texas nexus under different rules and may not be treated as a “remote seller.”

Marketplace Sales in Texas (Important)

Texas has special rules for marketplace sales.

1) Marketplace sales count toward the $500,000 safe harbor.
When calculating whether you exceed the $500,000 threshold, you must include all Texas sales, including sales made through marketplaces, even if the marketplace collects and remits the tax for you.

2) If you only sell through a marketplace, you typically do not need a Texas permit.
If you sell only through one or more marketplace providers, and you receive and accept (in good faith) the marketplace provider’s certification that it will collect and remit Texas tax on your behalf, you are not required to hold a Texas tax permit. However, you must keep required records of marketplace sales for at least four years.

3) If you sell both direct and through marketplaces, your permit requirement depends on the combined total.
If your combined Texas sales (direct + marketplace) exceed $500,000, you are generally required to obtain a Texas permit and collect/remit Texas tax on your direct (non-marketplace) Texas sales. The marketplace provider remains responsible for collecting and remitting tax on the marketplace transactions.

Determination of Physical Nexus in Texas (Engaged in Business)

Texas also uses the concept of being “engaged in business” in the state. You are engaged in business in Texas if any of the following apply:

• You have a temporary or permanent location in Texas that you operate directly or through an agent (such as an office, warehouse, distribution center, storage place, kiosk, sample room, or other place of business).
• You have an employee, agent, representative, canvasser, or solicitor in Texas who sells, delivers, installs, services, or takes orders for taxable items.
• You perform services in Texas using company employees, authorized service agents, or subcontractors.
• You promote or participate in events in Texas where taxable items or services are sold (such as flea markets, festivals, trade shows, arts and crafts shows, and similar events).
• You lease tangible personal property in Texas.
• You own or use tangible personal property (including computer software) in Texas.
• You deliver items into Texas using vehicles that you own, lease, or control.
• You allow a franchisee or licensee to operate under your trade name in Texas and they are required to collect Texas sales and use tax.
• You formed, organized, or incorporated your business in Texas and your internal affairs are governed by Texas law (even if you have no other activity listed).
• You have certain affiliate or related-entity connections in Texas that support delivery, sales of similar products under a similar name, promotion of your sales, or returns processing.
• You conduct business in any other manner in Texas.

Tax Rates

Texas imposes a 6.25% state sales and use tax on most retail sales, leases, and rentals of goods, as well as taxable services. Local taxing jurisdictions can add up to 2.00%, for a maximum combined rate of 8.25%.

Local Use Tax

Local use tax is due based on the Texas location where the order is shipped or delivered when the order is not received or fulfilled from a Texas place of business.

The Single Local Use Tax Rate (Remote Sellers Only)

The single local use tax rate is an alternative local tax rate that remote sellers can elect to use instead of calculating the destination-based local rate for each Texas shipment. The current single local use tax rate is 1.75%.

This option is not available to marketplace providers collecting tax on behalf of marketplace sellers.