Texas Sales & Use Taxes
The state of Texas taxes the sale of tangible goods as well as certain services at the rate of 6.25%. In addition to this tax, local municipalities are allowed to collect additional sales tax. However, regardless of the locale, the combined state and local sales tax on any transaction cannot exceed 8.25%. As such, sales tax for taxable items will always be between 6.25% and 8.25%.
There are some general rules that can help guide you when determining the sales tax due on purchases in Texas. Typically, unless your purchase is being made from a vending machine or unless a sign clearly states sales tax is already included, you should expect the listed price on any given item to be the price prior to sales tax. Further, if you are in a major city in Texas, such as Austin, the sales tax assessed on the purchase of a taxable item will generally be 8.25% though in certain instances it can be less. Outside of the major cities in Texas, there are no general rules as to the tax rate.
Taxable Tangible Goods and Services
Essentially, any physical, movable property that you buy is considered a tangible item. For example, clothing, shoes, and books are all tangible items commonly purchased by consumers in Texas. Further, services can be considered part of a tangible item if they are incidental to the purchase of a tangible item. In other words, if the receipt of a taxable tangible item is the primary benefit of the purchase, the entire purchase will generally be assessed with sales tax.
There are several exemptions to the state sales tax on tangible items. For example, raw vegetables purchased at the grocery store are sales tax exempt. However, you should know these exemptions are often very limited in scope. For instance, those same raw vegetables purchased from a restaurant will generally have sales tax applied. These types of variations can make understanding sales tax exemptions a difficult task, especially for visitors.
In addition to taxing tangible goods, the Texas has determined certain services should be subject to sales tax. A complete listing of services can be found in the Texas Tax Code, but the list includes services like personal services, real property services, and internet services. The service provider is required to collect Texas sales tax if tax is due. As such, consumers can rely on the service provider to understand when tax is due. However, it can be nice to know on the front end if sales tax is required. As such, if you are concerned with whether or not a certain service will be taxed, just ask.
Selling Taxable Goods and Services to Texans
If you decide to sell taxable goods or services from a location in Texas, prior to making your first sell, you need to apply for a sales tax permit with the Texas Comptroller. An application can be filled out on the Texas Comptroller’s website. Once the application has been filled out, the Comptroller registers your company with the state of Texas and mails a Texas Sales Tax certificate to you. This can generally be accomplished within two to three weeks. Afterwards, your company will be responsible for collecting and remitting sales tax for all taxable goods and services sold.
Currently, if you have a business that is located outside of Texas and sell goods to individuals in Texas on-line, by phone, etc., then you are not required to collect sales tax. There is still a tax due to Texas on these purchases, but the burden doesn’t fall on the seller. The purchaser is required to remit use tax on the product purchased if sales tax was not remitted, the product was taxable, the product was received in Texas, and the product was used in Texas.
A Final Thought
If you decide Texas is a place you want to do business, then understanding how the sales tax code applies to your business will be a necessity. However, if you are simply visiting Texas, there isn’t a real need in being concerned with whether or not you have remitted enough sales tax on purchases made. Businesses located in Texas will bear the responsibility of remitting the appropriate amount of sales tax to the state. As such, outside of understanding how much your final bill will be, there isn’t a lot to concern yourself about as a visitor. Just enjoy your visit.