Texas tax law refers to tangible personal property and taxable services as taxable items. Each sale of a taxable item is taxable unless a specific exemption applies.
2. How much sales tax do I collect from my customers?
You should calculate the amount of sales tax by multiplying the tax rate by the sales price of the taxable item. Tax charts are located on the Sales Tax forms page.
Sales tax = sales price of a taxable item multiplied by the tax rate.
If you sell multiple taxable items on one invoice, then you must compute the tax on the total sum of the sales prices of the taxable items sold. For example, if you sell three T-shirts for $10, $25, and $50, then the total sum of the sales prices is $85. You would apply the tax rate to $85 to calculate the sales tax.
3. What tax rate do I use?
The Texas state sales and use tax rate is 6.25%, but local taxing jurisdictions (cities, counties, special purpose districts, and transit authorities) may also impose sales and use tax up to 2% for a total maximum combined rate of 8.25%. You will be required to collect both state and local sales and use tax. For information about the tax rate for a specific area, see Local Sales and Use Tax Rate Information.
The tax rate for sales and use taxes are the same. See Purchases/Use Tax for additional information.
4. Am I required to separately state the sales tax amount to my customers?
Yes. You must separately state the sales tax amount on your invoice or receipt unless you provide a written statement to the customer that the sales price includes sales tax. The "tax included" statement must be displayed where people would normally be advised of the terms of the sale (e.g., brochures, invoices, contracts, signage). If you use a written statement that sales tax is included in the sales price, you have collected sales tax and must report the collected tax by backing it out of the total amount received.
For example, you sell T-shirts. You are located in Austin and are required to collect 8.25% tax on your sales. You charge a customer $50 for a T-shirt and your invoice contained a written statement that the price included sales tax. Your sales price for that T-shirt was $46.19, and you collected $3.81 in tax.
Out-of-state sellers that are permitted to collect Texas sales and use tax must identify the sales and use tax as "Texas sales and use tax" on invoices to their customers. Please refer to Rule 3.286.
5. Is rounding permitted when computing sales tax?
When you compute the sales tax by multiplying the tax rate against the sales price, you should go out to the third decimal place. If the third decimal place is equal to or greater than 5, you should round up to the next cent. If the third decimal place is 4 or less, then you should round down to the next cent. For example, you sell a taxable item for $250 and must charge 8.25% tax. If you multiply the tax rate against the sale price, it is $20.625. Because the third decimal place is a 5, you would round up and charge $20.63. You can also use a rate chart.
6. If I do not collect the sales tax or collect an incorrect amount, who is responsible for paying sales tax to the Comptroller's office?
As a seller, you are responsible for collecting and remitting the correct amount to the Comptroller's office. If you do not collect and remit the correct amount, you can owe any additional tax plus you may be assessed penalties and interest.
7. Are barters and exchanges taxable?
Yes. Barters or exchanges are considered the same as making sales or purchases. The retail value of the property or services received is the amount to which tax will apply. For example, assume that you are a retailer of electronic equipment and owe $500 for dental care. In place of cash, you provide a television set from your inventory as full payment. The transfer of the television is considered a taxable sale, and you must collect tax on the $500.
8. Are delivery or shipping charges taxable?
Shipping and handling charges are taxable if the charges are associated with the sale of taxable goods or service.
For example, you sell a sofa to a customer for $500. You agree to deliver the sofa and charge separate fee of $50 for delivery. Because your sale of the sofa is taxable, your $50 delivery charge is also taxable. You should collect sales tax on $550.
In contrast, if you sold a similar sofa for $500 to another customer who issues you a properly completed resale or exemption certificate, then your sale and the delivery charge are exempt. If you deliver the sofa for a fee of $50, the delivery charge is not taxable. You do not collect sales tax on the $550.
Note: "Delivery," "shipping," or "postage" on an invoice represents delivery charges. Please refer to Rule 3.303. Please note that separately stated charges for postage are not taxable when billed by the seller to a client if the cost of the postage was incurred by the seller at the request of the client to distribute tangible personal property to third party recipients designated by the seller's client.
9. Where can I get more information?
It is not possible to explain what is taxable for every type of business. You are encouraged to use any of the resources listed below to obtain answers to your questions. You may:
Call our toll-free line at (800) 252-5555.
Look at any of our publications designed to explain what is taxable for your type of business.