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Longhorns and barbecue and cowboys, yee-haw! They say everything is bigger in Texas. Hopefully that doesn’t apply to tax rates?!
Are Professional Services Taxable In Texas
If you sell in Lonestar County, you may be able to collect and pay sales tax. How much should you charge, and how much will you owe? Let’s explore the basics of Texas sales tax in this guide
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Texas uses a statewide sales tax rate of 6.25%, but many cities, counties or other local authorities apply additional sales and use taxes ranging from .5 to 2%.
For example, a small town like Francitas only charges 6.75% because its county, Jackson, adds an extra half percent. But a big city like Austin charges a total of 8.25 percent, with one percent from the city and another percent from the city’s public transit authority.
Wherever your customer is, that’s the perfect amount to spend. To know for sure, check the latest list from the Texas Department of Finance. They have a Sales Tax Rate facility that you can use for a specific address!
In this guide, you’ll learn everything you need to know to save time and eliminate the frustration of Texas sales tax compliance.
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Certain types of customers don’t pay Texas sales tax, either. Government agencies, religious organizations, health facilities, and other nonprofits may not be required to pay sales tax.
If you’re confused about whether your goods are subject to sales tax in Texas, we understand. Collecting and remitting the right amount of tax to the government is complicated – especially when you add the economic nexus and the Amazon service to the equation.
Fortunately, you don’t have to go it alone. Sign up for a free trial to see how easy and painless tax collection can be with the right partner by your side.
Stuck on taxes, are your customers? Spend less time on automated tax compliance management. Get back to the business you love! We’ll tell you how
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* Here we like to provide useful information and best practices about taxes, but we are not certified tax advisors. For further assistance, or if in doubt, please consult a professional tax advisor or auditor.
Let the sales tax process be automated from end to end so you can stop wasting time on taxes and get your business back in control. This guide is for businesses that need specific answers to the following Texas Sales and Use Tax topics:
According to the Texas Comptroller of Public Accounts, sales tax nexus is created in Texas when a business has
Taxes In Texas
Additionally, a business that does not have a physical presence in Texas, can establish economic nexus by exceeding a certain annual sales limit in the state. See the next section for details.
Effective October 1, 2019, Texas requires an out-of-state business (a.k.a. remote sellers) to register with the Texas Comptroller to collect and remit sales and use tax if the business has gross sales revenue in the state in excess of $500,000 for twelve calendar months the preceding ones.
Once the $500,000 sales threshold is exceeded, the seller must obtain a permit and begin collecting Texas sales and use tax before the first day of the fourth month following the month in which the threshold was exceeded.
EXAMPLE: If during the period July 1, 2020, until June 30, 2021, the Texas remote seller’s gross income exceeds $500,000, the remote seller needs to obtain a permit and begin collecting the appropriate tax before October 1, 2021. .
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A common question from remote sellers about Texas sales tax collection is whether you must collect sales tax permanently after crossing the economic nexus threshold. The answer is no.
Texas only looks at your business’s sales in the previous 12 calendar months. Therefore, if at any time the total amount of your sales in Texas falls below $500,000 in the past 12 months, you can terminate your collection obligation by submitting a form to the state. Be careful though, because if your sales grow slowly, you may again exceed the limit, and if you do, you must restart the collection of sales tax on the first day of the second month after exceeding the economic nexus limit.
EXAMPLE: You terminated your Texas sales tax collection obligation, then sales were collected and you realize that your total sales for the period January 1, 2020, through December 31, 2020, exceed $500,000. You must resume sales tax collection in February 1. , 2021.
It’s also important to note that, just because you stop collecting Texas sales tax doesn’t mean you’ve lost 100%. Texas still requires you to comply with its record keeping requirements and you are still subject to its sales tax assessment.
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If your business sells on Amazon or a similar marketplace provider, you may not be required to collect sales and apply tax on those sales. In particular, if the marketplace provider confirms that they collect and report sales tax, you are not illegal. However, such sales may count toward your sales threshold, which may require your business to collect tax on sales made directly through your website or other marketplaces.
If you have nexus in Texas, the next step is to determine whether the products or services you are selling are subject to Texas sales and use tax. Like most states, unless the item is specifically exempt, sales and rentals of tangible personal property are subject to Texas sales tax.
While the general rules seem straightforward, the application of Texas sales tax laws and the subtleties, complexities, and applications of your business can be difficult. We recommend that you schedule an appointment to review your specific situation with one of our sales tax professionals.
Generally, services are not subject to Texas sales tax. However, the types of services listed here are subject to Texas sales tax:
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Texas generally treats SaaS as part of data processing services and is subject to Texas sales tax. Likewise, downloaded software and digital products are taxable in Texas.
Texas assumes that delivery and shipping charges associated with taxable goods or services are taxable. If, however, a third-party carrier charges for delivery services, it is not subject to sales tax.
Although the general sales tax rules seem straightforward, the application of those rules can be complicated when gray areas appear. These guidelines were developed by the Texas Regulator to provide specific guidance for the industry.
The basic or statewide Texas sales tax rate is 6.25%. However, local tax jurisdictions (cities, counties, special purpose regions and transit authorities) may charge a local tax of up to 2% in addition to 6.25%, which may increase the amount of sales tax that must be collected and remitted by the seller. Local taxes are remitted to the state as part of the Texas sales and use tax refund.
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Determining how much tax to collect on the activity will actually be included, but the basic rules are:
In case you weren’t confused enough already, Texas has several jurisdictions where the boundary of a property tax jurisdiction (city, county, special purpose district or transit authority) crosses another jurisdiction of the same type, resulting in a total property tax rate. exceeding the 2% limit. These overlapping boundaries are called “incorporated areas,” and the Texas Governor has special rules for selling in incorporated areas:
The state of Texas + combined local sales and use tax rate for the 30 largest cities is listed below. A comprehensive list can be found here.
Unlike many of our competitors who offer a one-size-fits-all solution and blindly recommend completing a Voluntary Disclosure Agreement (VDA) in each state, our sales tax experts will work with you to determine the best and most cost-effective solution for your business.
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If you decide your business has nexus but you haven’t collected Texas sales tax, the main options are:
Here’s what you need to know about each option to make the best decision for your business:
Sometimes the best solution for a business is to simply register in Texas and pay the taxes, penalties, and interest. VDA is not very expensive if past debts and fines are small. Beware of tax experts who recommend doing a VDA in these cases, they want to make money rather than looking out for your interests. If you are not sure what your past due debts are, contact us and one of our tax experts will work with you to do an analysis and help you make the right choice for your business.
In many cases, voluntary disclosure is a useful tool to reduce extended periods of past exposure. For example, if you have been collecting sales tax for 10 years, voluntary disclosure reduces the lookback period to 3-4 years. Because of that, it’s a benefit to do
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