As a Texas business owner, understanding sales tax collection is crucial. Failing to comply with Texas sales tax regulations can result in penalties, interest, and even business closure. This blog post will guide you through the essential steps to start paying sales tax in Texas and ensure your business operates smoothly.

How Texas Sales Tax Nexus Work

Sales tax nexus refers to a connection your business has with a state that obligates you to collect and remit sales tax. There are two main ways nexus can be established in Texas:

• Physical Presence: Having an office, warehouse, or any inventory storage facility in Texas creates a physical nexus. This automatically triggers the need to collect and remit sales tax on taxable sales to Texas customers.
• Economic Nexus: Even without a physical presence, exceeding a certain sales threshold within Texas can establish economic nexus. Currently, Texas has an economic nexus threshold of $500,000 in sales from Texas customers over the past 12 months.

Remember, economic nexus applies even if you don’t have a physical location in Texas.

Examples of Activities that might Establish Nexus in Texas

• Affiliate Marketing: If you have an affiliate marketing program that generates sales in Texas, you might need to collect sales tax.
• Fulfilling Orders from a Texas Warehouse: Using a fulfillment center located in Texas to ship orders to customers could establish nexus.

Steps to Start Paying Sales Tax in Texas

Once you understand sales tax nexus and determine you need to collect sales tax in Texas, here are the key steps:

1. Obtain a Texas Sales Tax Permit:

The first step is to obtain a Texas sales tax permit. The Texas Comptroller’s website (https://comptroller.texas.gov/) offers a convenient online application process. You’ll need basic business information, your Federal Employer Identification Number (EIN), and possibly other details depending on your business structure.

Here’s a step-by-step guide to applying for your Texas sales tax permit online:

1. Visit the Texas Comptroller’s website (https://comptroller.texas.gov/).
2. Click on “Sales and Use Tax.”
3. Choose “Apply for a Permit” and follow the on-screen instructions.
4. Enter your business information, nexus details, and estimated sales tax liability.
5. Review your application carefully before submitting it electronically.
6. Upon approval, you’ll receive your Texas sales tax permit electronically. Be sure to print a copy for your records.

2. Determine Your Sales Tax Rate:

Texas has a statewide sales tax rate of 6.25%. However, many localities add additional local sales taxes on top of the state rate. The exact rate you need to collect will depend on the location of your customer. The Texas Comptroller’s website provides a handy sales tax rate lookup tool (https://comptroller.texas.gov/taxes/sales/) to help you determine the appropriate rate for your customers.

3. Collect Sales Tax at the Point of Sale:

It’s your responsibility to collect the correct sales tax rate from your customers at the point of sale. This can be done manually or through automated sales tax software programs.

Texas Sales Tax Registration Process

Texas offers two ways to register for a sales tax permit:

• Online: Apply through the Texas Comptroller’s website. You’ll need basic business info, Social Security number, and estimated sales figures.
• Mail: Download and complete Form AP-201, then mail it to the Comptroller’s office.

Whichever method you choose, be prepared to provide details about your business and sales activity.

Texas Sales Tax Filing Requirement, Reporting and Remittance

Texas sales tax filing requirements depend on your average monthly sales tax liability. The state assigns filing schedules (monthly, quarterly, or annually) when you register for a sales tax permit. All returns are due by the 20th of the month following the reporting period.

Importantly, you’ll need to keep accurate sales records for tax purposes. These records should document your sales activity, including the type of goods sold, the sales price, the customer location, and the amount of sales tax collected.

Conclusion

Understanding sales tax nexus, obtaining a permit, determining the correct tax rate, collecting sales tax from your customers, and filing accurate sales tax returns are essential steps for any Texas business selling taxable goods.