Texas Sales Tax Requirements &What to Do If You Are Behind
Texas requires businesses to stay compliant with many taxes including a gross receipts tax, a sales tax, and an unemployment tax. Texas has a 6.25% state sales tax on all retail sales, leases, rentals, and many taxable services. If your business has nexus in Texas, you must collect sales tax from your customers and remit sales tax forms and payments to the Texas Comptroller. To help you out, this guide to Texas sales taxes explains the following:
- Businesses are required to collect Texas sales tax.
- The meaning of nexus in Texas.
- How to find the local sales tax rate in Texas.
- How to register for the Texas sales and use tax.
- How to report sales tax in Texas.
- How to pay sales tax in Texas.
- Due dates for Texas sales tax returns.
- Penalties for filing sales tax returns late in Texas.
- Penalties for paying sales tax late in Texas.
- Interest rates on late payments.
- Sales tax discounts.
- Texas sales tax audits.
- What to do if you were supposed to collect sales tax and didn't.
- Voluntary Disclosure for Texas sales tax.
- How to get help with Texas sales tax.
Who Needs to Collect Texas Sales Tax?
You must collect and pay sales tax if you sell, lease, or rent out retail goods in Texas. You must collect and pay sales tax if you have a clothing boutique or restaurant in Texas. Remote sellers who have nexus in Texas must also collect and pay sales tax. You also provide taxable services.
Taxable services include amusement services; cable television services; credit reporting services; data processing services; debt collection services; information services; insurance services; internet access services; laundry, cleaning, and garment services; motor vehicle parking and storage services; non-residential property maintenance; remodeling or repair services; personal services; real property services; security services; telecommunication services; telephone answering services; utility transmission and distribution services; and taxable labor including photographers, draftsmen, artists, tailors, and others.
What Is Nexus for Texas Sales Tax?
Anyone who has a business based in Texas has nexus in the state. For instance, if you run a retail store in Austin, you must collect and pay Texas sales tax. Remote sellers only have nexus if they collect over $500,000 in revenue in Texas.
For example, if you have a website and sell $1,000 in goods to Texas residents, you are under the threshold and don't have nexus in Texas. However, you are over the nexus threshold if you collect $600,000 in revenue selling goods or taxable services to Texas residents. By extension, you must collect and pay Texas sales tax.
Remote sellers include anyone who sells goods or services through the internet, over the phone, using radio or TV advertisements, or through catalogs and flyers.
What Is the Local Sales Tax Rate in Texas?
In Texas, the state sales tax rate is 6.25%, but local governments are allowed to add up to 2%. To find the local sales tax rate in your area, you can use the Texas Comptroller's Sales Tax Rate Locator. Simply type in your address, and the locator will show you the rate for your area.
If you have multiple business locations in Texas, you will need to know the rate for each area. Similarly, if you are a remote seller with nexus in Texas, the rate will vary based on the location of the customers that you sell to.
How Do You Register for Texas Sales and Use Tax?
You can register for a Texas sales tax account online through the Comptrollers sales tax eSystem. Or you can apply via mail, email, or fax using Form AP-201 (Texas Application for Texas Sales Tax Permit). To apply online, you need the Social Security Number of the owners, partners, officers, or directors of the business. Corporations also need the file number from the Texas Secretary of State. If you register online, you should receive your sales tax permit in two to three weeks.
How Do You Report Sales Tax in Texas?
When you receive your sales tax permit, the Texas Comptroller will let you know if you should file monthly, quarterly, or yearly. You can file online through the Texas Comptroller's sales tax eServices or by downloading software to use the Electronic Data Interchange (EDI).
If you collected $49,999 or less in the last fiscal year, you can file a paper tax form. You should file using the preprinted form mailed to you, or you can download sales tax return forms from the Texas Comptroller sales tax site.
How Do You Pay Texas Sales Tax?
All businesses can pay their Texas sales tax online using the Comptroller's sales tax eServices, through their EDI software, or with the TexNet system. If your business collected less than $10,000 in sales tax in the last fiscal year, you also have the option to pay Texas sales tax with a check.
When Is Texas Sales Tax Due?
Texas sales tax returns are due on the 20th of the month following your reporting period or the next business day if the 20th falls on a weekend or a holiday. For instance, if your business reports sales tax annually, your sales tax return is due on January 20th.
If you report quarterly, your sales tax returns are due April 20th, July 20th, October 20th, and January 20th. Monthly reports are due on the 20th of the month following the month of sales. For instance, your September sales tax return is due on October 20th.
What Are the Penalties for Filing Sales Tax Late in Texas?
If you file your return late, you incur a $50 penalty. The penalty applies per report. If you file multiple reports, you will incur multiple penalties. The penalty for filing your Texas sales tax return late applies the first day you are late.
What Are the Penalties for Paying Sales Tax Late in Texas?
If you pay the sales tax one to 30 days late, the late payment penalty is 5% of the tax due. The penalty is 10% for payments that are more than 30 days late. Keep in mind that the online payment channels have specific cut-off times. If you make your sales tax payment on the due date, it may not be credited until the next day if you make it after the cut-off time.
If the state sends you a notice of tax or fee due, you will also incur an additional 10% penalty. This brings your total penalty for late sales tax to 20% of the tax owed.
What Is the Interest Rate on Late Sales Tax Payments?
The Texas Comptroller charges interest when your sales tax payment is 61 days or more late. The interest applies to your late sales tax and the penalties on your account. The interest rate changes annually, and it is the annual prime rate plus one. For instance, if the annual prime rate is 4.25%, Texas will charge you 5.25% annual interest on your late sales tax bill.
If you overpay and request a refund, the Texas Comptroller will also pay you interest. For instance, say that a bookkeeping error caused you to pay $1,000 in extra sales tax. When you fill out the refund request, the state will apply interest to this amount so you will get back a bit more than the $1,000.
What Are Texas Sales Tax Discounts?
If you file and pay your Texas sales tax on time, the state will give you a discount of 0.5% of the tax due. For instance, if you're paying $10,000 in sales tax, you will receive a discount of $50.
Monthly and quarterly filers can get an extra 1.25% discount if they pay estimated sales tax early and file on time. To get this discount, monthly filers must pay by the 15th of the month of sales and quarterly filers must pay by the 15th day of the second month of the quarter.
For example, say that you're a monthly sales tax filer. To get the 1.25% prepayment discount as well as the 0.5% timely filing discount, you must pay your estimated January sales tax bill by January 15th. Then, your return is due on February 20th.
Now let's say you are a quarterly filer in the second quarter of the year (April, May, and June). To get the prepayment discount, you must pay the estimated sales tax by May 15th, and your return is due on July 20th.
Of course, you can't get this discount if you send in a lowball prepayment. The Texas Comptroller defines a reasonable estimated payment as at least 90% of your sales tax due for the tax reporting period or 100% of the amount due the previous period.
Extensions for Texas Sales Tax Returns
You cannot request an extension for a Texas sales tax return. The only exception is if you are in an area declared as a disaster. The Texas Comptroller publishes a list of disaster areas declared by the Texas Governor.
How to Amend a Texas Sales Tax Return
If you make a mistake on a Texas sales tax form, complete a new return with the correct information, write "amended return" on the top, and mail it to the Texas Comptroller's Office. Alternatively, you can just send in a copy of your original return with the changes noted on it and "amended" written at the top.
Send your amended sales tax return to this address
Comptroller of Public Accounts
111 E 17th Street
Austin. Texas 78774-0100
If you underpaid your taxes, you should also send in a payment for the difference plus late penalties and interest. If you overpaid, you would need to apply for a refund. Use Form 00-957 (Texas Claim for Refund) to apply for a refund. Make sure to include any documents that support your refund claim. Generally, you must apply for a refund within four years of the tax due date.
What Is a Tax Sales Tax Audit?
A sales tax audit is when the Texas Comptroller checks to make sure that you have collected, reported, and paid sales tax correctly. When you file a Texas sales tax report, you provide details about your sales and the amount of sales tax you collected, but you don't provide any supporting documentation. Basically, an audit asks for the supporting documentation.
To ensure tax compliance, the Texas Comptroller selects certain accounts for audit. During an audit, you basically prove the information on your sales tax return. For instance, you may show the auditor sales reports from your point of sale (POS) system or you may show bookkeeping records. The auditor will tell you what information they need to see.
If the auditor wants to change any of the details on your sales tax returns, you can present new information if you disagree with the changes, but you must provide the information in a reasonable time frame. Once the audit has been finalized, you can request a formal hearing if you disagree with the results.
The Comptroller tries to make the audit process as simple and streamlined as possible. But a sales tax audit can be a confusing and stressful process. To get help, contact a Texas tax pro who has experience with sales tax audits.
What Should I Do If I Was Supposed to Collect Sales Tax in Texas, but I Didn't?
If you were supposed to collect Texas sales tax, but you didn't, you will face penalties and interest. By not paying sales tax, you subject yourself to all of the collection actions used by the Texas Comptroller, including tax liens, asset seizures, and wage garnishments. If the state believes that you have been purposefully evading sales tax, you may also face civil or criminal penalties.
However, if you reach out to the state first, you may be able to minimize the damage. The Texas Comptroller offers a voluntary disclosure program for businesses that need to get caught up on unfiled and unpaid sales tax reports. It is always better to contact the taxing authority than to wait for them to contact you.
What is Voluntary Disclosure for Texas Sales Tax?
Sometimes, businesses don't know they're supposed to collect sales tax, or they fail to set up a sales tax account for some reason or another. To help taxpayers in this situation, the Texas Comptroller offers a voluntary disclosure program for sales tax.
You must contact the Comptroller's Office first to qualify for voluntary disclosure. If they have already reached out to you about the delinquent sales tax or sent you an audit notice, you cannot use this program.
When you make a voluntary disclosure for sales tax in Texas, you typically only have to file the last four years of returns. For instance, if you were supposed to collect sales tax for two years and you never did, you only will deal with those two years of unfiled and unpaid sales tax returns. If you were supposed to collect for six years, you will generally only deal with the unfiled and unpaid returns for the last four years.
However, if you have been collecting but not paying sales tax, there is no limit to the lookback period. For instance, if you have been collecting sales tax from your customers for six years, you will need to deal with all of the unpaid sales tax and returns for that entire time period.
The state also eliminates all of the penalties and interest on your account. However, you will pay interest if you have been collecting but not paying sales tax.
Can I Make Payments on Late Sales Tax Liabilities?
If you file behind on your sales tax payments, you may be able to make payments. However, this is never guaranteed. All taxes are due on the due date, and the Texas Comptroller tends to be strict with sales tax payments because they are collected from other people. In other words, you have collected the sales tax from your customers, and the state expects you to make the payments.
However, if you're having difficulty paying your sales tax bill, you can apply for payments. The Texas Comptroller's Office makes decisions about payment plans on a case-by-case basis. You can apply by contacting the local field office in your area, or you can work with a tax pro. They can help you deal with unpaid sales taxes in Texas.
Why Are People Calling Me About My Texas Sales Tax Account?
Some issues related to your Texas sales tax account are public information. In particular, when you register for a sales tax account, that is public information. It's also public information if you're being subjected to a Texas sales tax audit.
Salespeople find these public records and they use them as leads. As a result, when people register for a sales tax account, they often get a lot of phone calls from businesses selling services to help start-ups. Similarly, when businesses are being audited, they may get calls from accountants or tax resolution firms trying to sell them sales tax audit services.
Ultimately, it's up to you if you want to work with a telephone salesperson. But you should never share private information over the phone until you have verified that the company on the other line is trustworthy.
How Do I Get Help With Texas Sales Tax Issues?
Texas sales tax is a very specific part of the tax code. If you need help with Texas sales tax issues, you should contact a local tax pro who has experience with Texas sales tax. Texas tax pros can help you file delinquent sales tax returns, apply for penalty abatement, deal with Texas sales tax audits, and apply for voluntary disclosure.
To find a Texas sales tax professional, use TaxCure to search for local Texas tax pros. Then, narrow down your search based on your unique tax problem. Once you have a list of results, you can review their profiles and reach out to the tax pro who looks like the best fit for you.
Most tax pros offer free consultations. You get a chance to talk about your sales tax issue, and they give you an idea of your options and the best resolution path in your situation.