Texas sales and use tax is an important consideration for businesses and consumers purchasing taxable goods and services in the state. Understanding how the tax works can help businesses collect the correct amount, meet filing requirements, and avoid unnecessary penalties. For consumers, knowing when use tax applies can prevent unexpected tax obligations.

What Is Texas Sales Tax?

Texas sales tax is a tax imposed on many retail sales, leases, and rentals of tangible personal property and certain taxable services. Businesses generally collect the tax from customers at the time of sale and then report and remit the collected amount to the Texas Comptroller of Public Accounts.

The statewide Texas sales and use tax rate is 6.25%. Local taxing jurisdictions, including cities, counties, special purpose districts, and transit authorities, may impose additional taxes of up to 2%. Therefore, the maximum combined state and local rate is generally 8.25%.

Because local rates can vary, businesses should verify the applicable rate based on the transaction and location rather than assuming every Texas sale has the same total tax rate.

What Is Use Tax?

Use tax is designed to complement sales tax. It generally applies when taxable goods or services are purchased without Texas sales tax and are later stored, used, or consumed in Texas.

For example, suppose a Texas resident purchases taxable equipment from an out-of-state seller that does not charge Texas tax. If the equipment is brought into Texas and used here, the purchaser may owe Texas use tax.

The use tax rate is generally the same as the sales tax rate: 6.25% state tax plus applicable local taxes, up to the maximum combined rate of 8.25%.

Who Needs a Texas Sales Tax Permit?

Businesses generally need a Texas sales and use tax permit if they are engaged in business in Texas and sell, lease, or rent taxable tangible personal property or provide taxable services.

Certain out-of-state businesses selling to Texas customers may also have permit and collection responsibilities. For example, a remote seller with Texas revenue of $500,000 or more during the preceding 12 months generally must obtain a permit and collect and remit Texas sales or use tax.

There is no fee for obtaining a Texas sales tax permit, although the Comptroller may require a security bond in certain circumstances.

How to Register for a Texas Sales Tax Permit

Businesses can apply for a Texas sales tax permit through the Comptroller's online registration system or by submitting Form AP-201, Texas Application for Sales and Use Tax Permit.

Before applying, businesses should have accurate information about their legal structure, business activities, locations, ownership, and other required details.

Once approved, permit holders have ongoing responsibilities. These generally include collecting tax on taxable sales, paying tax on taxable purchases when required, filing returns on time, making payments, and maintaining adequate records. Businesses generally must file a return even when there are no taxable sales or purchases for the reporting period.

Which Products and Services Are Taxable?

Not every purchase is subject to Texas sales and use tax. Texas taxes many types of tangible personal property and certain services, while specific exemptions may apply.

Taxable services can include certain telecommunications, data processing, amusement, and other services identified under Texas law.

Businesses should carefully determine whether each product or service they sell is taxable. Assuming that all goods or services are taxable—or that none are—can lead to incorrect tax collection and reporting.

Understanding Local Sales Tax

Local sales tax is an important part of Texas tax compliance. The applicable local tax can depend on factors such as where the sale occurs and where taxable items are delivered, stored, used, or consumed.

For many transactions, sellers need to determine the appropriate local tax in addition to the 6.25% state rate. The Comptroller provides a Sales Tax Rate Locator that businesses can use to check rates by address.

Local tax rules can be particularly important for online sellers shipping products to customers in different Texas locations.

Texas Sales Tax and Online Businesses

Selling products online does not automatically remove a business's Texas sales tax responsibilities. Texas sellers may need to collect tax on taxable online sales made to Texas customers.

For Texas sellers, taxable online transactions can also include shipping and delivery charges. The applicable state and local tax requirements depend on the circumstances of the transaction.

Remote sellers meeting Texas's economic threshold may also have registration and collection responsibilities. Businesses selling through websites, marketplaces, or other online channels should review their Texas obligations carefully.

How and When to File

After receiving a Texas sales tax permit, a business is assigned a filing frequency by the Comptroller. Depending on the circumstances, taxpayers may be required to file monthly, quarterly, or according to another assigned schedule.

For example, quarterly filers generally have returns due on April 20, July 20, October 20, and January 20 for the preceding quarters. If a due date falls on a Saturday, Sunday, or legal holiday, the next working day generally becomes the due date.

Businesses should always follow the filing frequency and due dates assigned to their account.

What Happens If You Do Not Collect the Correct Tax?

Businesses are responsible for collecting and remitting the correct amount of sales and use tax. If a seller collects too little tax, the business may become responsible for additional tax, penalties, and interest.

This makes accurate bookkeeping and tax-rate management especially important for businesses with multiple locations or customers throughout Texas.

Recordkeeping Is Essential

Good records are one of the most important parts of sales tax compliance. Businesses should maintain documentation supporting taxable and nontaxable sales, tax collected, exempt transactions, purchases, and tax payments.

Businesses should also keep documentation related to exemption and resale certificates when applicable. Organized records make it easier to prepare accurate returns and respond to questions from tax authorities.

Final Thoughts

Texas sales and use tax can seem complicated, especially for businesses selling online or operating in multiple locations. The key is understanding the difference between sales tax and use tax, determining which transactions are taxable, applying the correct state and local rates, registering when required, and filing returns on time.

The Texas state rate is currently 6.25%, while applicable local taxes can bring the combined rate to as much as 8.25%. Because tax rules and local rates can change, businesses should check the latest guidance from the Texas Comptroller before making tax decisions.