Internet Orders - Buying and Selling
You might think you can save money by not paying tax when you buy or sell something on the Internet, but those sales are subject to sales tax.
Buying on the Internet
Whether the sale takes place online or in a store, Texas sellers must collect sales tax on taxable items sold and delivered to Texas locations. A seller is "engaged in business" in this state if they have a Texas outlet, office or location where they take orders for taxable items.
Is there sales tax on delivery charges? Yes. Charges for transportation or delivery to a Texas location, both before and after the sale, are considered to be services or expenses connected to the sale and thus taxable. These charges are taxable even if stated separately from the sales price.
What if I buy something out-of-state? Is there still tax due? A taxable item that is shipped from outside the state directly to a Texas customer is subject to Texas use tax at the location where the customer takes delivery. Use tax rates are the same as sales tax rates.
Some companies voluntarily collect the Texas use tax, while others must collect it because they have some form of physical representation in Texas. An out-of-state seller is not required to collect Texas tax if the seller only conducts business in Texas from out-of-state by mail, telephone, or via the Internet, but this seller can choose to apply for a permit and voluntarily collect Texas tax from its Texas customers. On the other hand, an out-of-state seller must get a Texas permit and collect Texas tax if the seller has Texas outlets, Texas salespersons, or otherwise comes into Texas to conduct business, such as soliciting sales, performing services, or making deliveries. The Comptroller's office closely monitors out-of-state sellers to make sure they properly report and remit the tax they collect.
What should I do if the out-of-state seller does not collect Texas use tax? If the seller did not collect Texas use tax, then you can report it directly to the Comptroller's office. If you don't have a sales tax permit, you can file an "occasional use tax" return, Form 01-156. Reporting use tax that is due helps put out-of-state vendors on an equal footing with Texas vendors.
What if I paid the other state's sales tax? Isn't that double taxation? You can take a credit on the Texas use tax you may owe for the amount of sales tax paid to another state. Check your billing statement to see if you paid another state's sales tax or if the seller collected Texas use tax.
Selling on the Internet
I'm thinking about selling on e-Bay or from my own website - do I have to collect tax? If you live in Texas, sell more than two taxable items in a 12-month period and ship or deliver those items to customers in Texas, you are required by law to have a Texas sales tax permit.
You also must have a Texas permit if you live outside the state but are engaged in business here. An out-of-state seller must get a Texas permit and collect Texas tax if the seller has Texas outlets, Texas salespersons, or otherwise comes into Texas to conduct business, such as soliciting sales, performing services, or making deliveries. An out-of-state seller is subject to Texas sales and use tax in the same way as sales made by any other retail business located in Texas.
If the above conditions apply, you are required by law to collect, report and remit the appropriate state and local sales and use tax on taxable items delivered to customers in Texas. The sales price includes all shipping and handling charges. "Taxable items" include all tangible personal property as well as taxable services. For a list of the services taxable in Texas, see our publication 96-259, Taxable Services.
What if I sell to customers outside of Texas? You do not need to collect sales tax on items you deliver directly to out-of-state locations. To document such a sale, your records must include proof of delivery, such as a bill of lading, a shipping invoice or a postal receipt. You may have to collect tax in another state if you are engaged in business there. You should contact the states where you buy or ship merchandise to find out if you are responsible for paying or collecting their taxes. The Multistate Tax Commission has a useful website at http://www.mtc.gov with links to the tax websites of other states.
How much is sales tax? The current state sales tax rate on taxable items delivered into Texas is 6.25 percent. Local sales and use taxes may be due depending on where you receive orders and where the products are delivered. You should not collect more than 2 percent local tax on any one transaction. To find out the proper rate for any jurisdiction, use our tax rate search engine. More information on local sales and use taxes is online at http://www.window.state.tx.us/taxinfo/local/index.html.
How do I buy things tax free? When you buy items that you intend to resell in the regular course of business, you can give your supplier a properly completed Texas resale certificate in lieu of paying Texas sales tax. You can buy these items tax free since you will be collecting sales tax from your customers.