Texas Sales Tax Guide

Texas General Sales Tax Information:

Sales Tax Registration Information for Texas

Businesses that have a physical presence in Texas need to register for a sales tax permit with the Texas Comptroller. Additionally, sellers that do not have a physical presence but meet the economic nexus threshold of $500,000 must collect and remit sales tax. Businesses that cross the Texas economic nexus threshold must register for a sales tax permit on the first day of the fourth calendar month after crossing the threshold.

• Texas Economic Nexus: Sales Tax Requirements for Out-of-State Businesses
• Do You Need to Get a Sales Tax Permit in Texas?
• How to Register for a Sales Tax Permit in Texas?

Businesses can register for a permit online through the Texas Comptroller website. The registration process requires basic business information, such as the type of business, ownership information, and estimated monthly sales.

• How to File and Pay Sales Tax in Texas?

What Products are Subject to Sales Tax in Texas?

In Texas, most retail sales of tangible personal property are taxable except those sales specifically exempted by law. Tangible personal property is defined as items that can be seen, weighed, measured, felt, or touched, or which is in any other manner perceptible to the senses. There are also some services that are subject to sales tax. Some items that are exempt from sales tax include unprepared food products and certain medical products. 

Is Clothing Taxable in Texas?

Clothing is taxable in Texas. Clothing is considered tangible personal property and is fully taxable. The only time clothing is considered exempt is during the annual Sales Tax Holiday for Clothing, Shoes, and School Supplies.

Is CBD Taxable in Texas?

CBD is taxable in Texas. Industrial hemp and products derived from hemp, including CBD oil, were recently legalized in Texas. CBD products are often sold in forms such as candy, crystals, gels, lotions, sprays, oils, etc. Texas considers these items tangible personal property and are subject to sales tax unless otherwise exempt as a drug. CBD Products Tax Policy.

• CBD Sales Tax State-by-State Guide: Which States Require Sales Tax on Cannabidiol (CBD)?

Are Dietary Supplements Taxable in Texas?

Dietary supplements are generally exempt in Texas. Per the Texas Comptroller Sales Tax Exemptions for Healthcare Items website, a dietary or nutritional supplement is a product that: contains one or more vitamins, minerals, herbs, botanicals, amino acids or substances to increase calorie intake, is not represented as a food or the sole item of a meal or diet, and is labeled, or required to be labeled, “dietary supplement” or “supplement.” Additionally, a product that does not meet the previous three requirements will also be considered a dietary supplement if the product is labeled, or required to be labeled, with a Supplement Facts panel in accordance with FDA regulations.

Are Digital Products Taxable in Texas?

Digital products are generally taxable in Texas. Per Private Letter Ruling 200005359L, digital products are considered tangible personal property. Therefore, they are considered taxable.

Are Diapers Taxable in Texas?

Diapers are exempt from Texas sales and use tax effective September 1, 2023 per the Senate Bill (SB) 379.

Are Feminine Hygiene Products Taxable in Texas?

Feminine hygiene products are exempt from Texas sales and use tax effective September 1, 2023 per the Senate Bill (SB) 379.

Is Food Taxable in Texas?

The sale of food products is considered nontaxable in the state of Texas. Examples of food products include flour, sugar, bread, fruits, and other similar groceries. However, there are many other food items that vary in taxability based on the ingredients and preparation. The Texas Comptroller Grocery and Convenience Stores Taxes publication outlines the taxability of different foods.

Are Leases and Rentals Taxable in Texas?

Sales tax is generally imposed on all leases and rentals of most goods. Texas Rule §3.294 Rental and Lease of Tangible Personal Property outlines clear guidelines regarding the taxability of certain situations surrounding leases and rentals.

• Which States Charge Sales Tax on Rentals and Leases?

Is SaaS Taxable in Texas?

SaaS is considered a data processing service and is partially taxable in Texas. Effective October 1, 1999, 20% of the total amount charged for data processing services is exempt from tax according to Rule §3.330 Data Processing Services. Per Private Letter Ruling No. 20180411151546, customers do not pay for owning the software itself but rather for using it.

• Is SaaS taxable in Texas?

Are Services Taxable in Texas?

Services are generally taxable in Texas. There are 17 broad categories of services that each encompass a variety of specific services. The Texas Comptroller Taxable Services publication outlines these categories in detail.

Are Shipping & Handling Charges Taxable in Texas?

Shipping and delivery charges are considered taxable items in Texas if the product being sold is subject to Texas sales tax. Texas specifies that Shipping and Handling charges are taxable, even if stated separately from the sale price of the taxable item, in Texas Administrative Code, Title 34, Part 1, Chapter 3, Subchapter O, Rule §3.303.

Are Medical Products Taxable in Texas?

Medical products are generally exempt in Texas. Rule §3.284 Drugs, Medicines, Medical Equipment, and Devices specifically states that medical equipment such as corrective lenses, hearing aids, prosthetic devices, syringes, glucose monitoring strips, etc, are exempt from sales tax. This ruling also outlines specific exemptions for medical equipment for the legally blind and deaf.

Sales Tax Audit Risk in Texas

What Are the Chances of an Audit in Texas for Sales Tax?

The Texas Comptroller website does not provide statistics on the likelihood of an audit. However, the Auditing Process publication states that there are a variety of methods for selecting a business or individual to audit. These include computer-based random selection, leads submitted by the public, prior audits resulting in an assessment of $25,000 or more, etc.

What Are the Penalties of Not Paying Sales Tax in Texas?

Failing to file and remit sales tax can result in various consequences. The Texas Comptroller Sales and Use Tax Publication outlines the penalties and interest for past-due returns. A $50 penalty is assessed on each report filed after the due date. If tax is paid 1-30 days after the due date, a 5 percent penalty is assessed. If tax is paid over 30 days after the due date, a 10 percent penalty is assessed. Past-due taxes are charged interest beginning 61 days after the due date. In addition to penalties and interest, there can be criminal offenses such as felonies and misdemeanors.

Per the Sales Tax Cases publication, intentionally or knowingly failing to remit sales taxes collected when the unremitted amount is $1,500 or more may be prosecuted as a first-degree felony if the amount (either individually or in the aggregate) equals or exceeds $200,000 (Tax Code, Section 151.7032). Cases involving unremitted amounts less than $1,500 are misdemeanors. Intentionally or knowingly committing various fraudulent acts with respect to books and records required to be made or kept by law may be prosecuted up to a third-degree felony (Tax Code, Sec. 151.7102). Lastly, sales tax permits may be suspended or revoked should the Texas Comptroller see continual issues with the account.

• What Are the Penalties for Not Paying Sales Tax?

Additional Sales Tax News in Texas

• Tax Byte: Texas Tax Update - Court Rules Against Appeal for Software Company
• Tax Byte: Texas Passes Tax Exemption Bill for Menstrual Products, Diapers, and More