taxes

Texas Tax Responsibilities and Resources for Sellers After Wayfair

As a result of the U.S. Supreme Court’s June 21, 2018 decision in South Dakota v. Wayfair, Texas businesses selling items or services into other states may be required to collect taxes for those states. Additionally, sellers outside of Texas who were previously not required to collect and remit Texas sales and use tax may have to begin collecting Texas tax on their sales into Texas beginning on Oct. 1, 2019.

The Comptroller has updated Rule 3.286 (Seller’s and Purchaser’s Responsibilities) to address the permitting and collection requirements of sellers because of the Wayfair decision. These changes are effective on Oct. 1, 2019. This includes transition rules to explain how remote sellers determine when they have to start collecting. In the near future, the Comptroller will also update its franchise tax rules because of the Wayfair decision.

In addition, the 86th Legislature (2019) adopted HB 1525, which creates new tax responsibilities for marketplace providers and marketplace sellers, and adopted HB 2153, which provides a single local tax rate for remote sellers. These two laws become effective Oct. 1, 2019.

Tax Requirements

Remote Seller Tax Collection Obligations and the Single Local Tax Rate

The Wayfair decision held that a state could impose sales and use tax collection obligations on vendors without physical presence in the state (remote sellers), provided that the collection obligation would not impose an undue burden.

Beginning Oct. 1, 2019, the Comptroller will enforce the collection obligation on sellers whose only activities in the state are the remote solicitation of sales. The Comptroller has provided a safe harbor for remote sellers. The Comptroller will not require remote sellers with total Texas revenue of less than $500,000, in the preceding twelve calendar months, to obtain a permit or collect and remit sales and use tax.

The 86th Legislature also eased the burden on remote sellers by enacting HB 2153 (codified at Texas Tax Code § 151.0595), which provides a single local tax rate for remote sellers. A remote seller may choose to collect this single local tax rate and notify the Comptroller's office of its election using Form 01-799, Remote Seller's Intent to Elect or Revoke Use of Single Local Use Tax Rate (PDF) by email or mail instead of calculating and remitting local tax based on the total local tax rate in effect at the destination.

The email address is Sales.applications@cpa.texas.gov. The mailing address is:

Comptroller of Public Accounts
P.O. Box 149354
Austin, TX 78714-9354

For the period of Oct. 1, 2019 – Dec. 31, 2019, the single local tax rate will be 1.75 percent. Going forward, the Comptroller will compute the single local tax rate and publish it in the Texas Register prior to the beginning of each calendar year.

Non-remote Sellers Collection Obligation

A seller who is already permitted to collect and remit Texas sales and use tax does not need to make any changes because of Wayfair unless it sells through a marketplace. The safe harbor for remote sellers and the single local tax rate option are not available to these sellers.

Marketplace Providers and Sellers

The 86th Legislature enacted HB 1525 (codified at Texas Tax Code § 151.0242) to address the tax collection responsibilities of marketplace providers. It is effective Oct. 1, 2019.

A marketplace is a physical or electronic store, internet website, software application, or catalog that third-party sellers use to make sales. A marketplace provider is a person who owns or operates a marketplace and processes sales or payments for marketplace sellers (third-parties). Examples include Amazon, eBay, Walmart Marketplace, and Etsy.

The law requires marketplace providers to collect and remit state and local sales and use tax on all third-party sales. Marketplace sellers are not responsible for collecting and remitting sales and use tax on their sales through the marketplace, but they must retain records of the sales.

Texas Purchasers

Taxable purchases from remote sellers have always been subject to Texas sales and use tax. If the seller has a sales tax permit, the seller must collect the tax. If the seller does not have a permit or the seller fails to charge tax, the purchaser must pay the tax directly to the Comptroller’s office on either a use tax return (PDF), (if they do not have a Texas Sales and Use Tax Permit) or a sales tax return (if they do have a permit).

How To Get a Texas Sales and Use Tax Permit

Sellers located within the United States may apply for a free sales tax permit:

Remote sellers located outside the United States can register to collect and remit by sending in Form AP-201, Texas Application (PDF).

You can email the application to sales.applications@cpa.texas.gov or fax the application to 512-936-0010.

For more information about reporting requirements, record-keeping requirements, due dates, and other sales tax-related topics, visit our Sales and Use Tax webpage.

Information on Other States

For more information about Texas businesses’ collection responsibilities for other states, see these websites:

Disclaimer: Each website listed is responsible for its own information, and the Texas Comptroller of Public Accounts is not responsible for maintaining the information provided on these websites.

Frequently Asked Questions

What did the U.S. Supreme Court’s decision in the South Dakota v. Wayfair case say?

The Court overruled two previous decisions that held that a state can only require sellers of goods and services to collect tax when they have a physical presence in the state. Physical presence depends on the facts of each situation, but common ways that sellers have a physical presence in a state include the presence of employees or inventory in the state, or owning real property in the state. The decision means that states can now impose tax collection responsibilities on sellers who have an economic presence without any physical presence. For example, a state may decide that remote sellers have to collect and remit sales and use tax once they make total sales into the state of $100,000 during the previous calendar year.

Who is a remote seller under Texas law?

A remote seller is a seller whose only activities in this state are the remote solicitation of sales. Rule 3.286(a)(4)(I) and (J).

Remote solicitation of sales includes activities such as soliciting sales through:

  • Catalogs or flyers;
  • Radio or television;
  • Telephone; or
  • The Internet.
What does the decision mean for Texas purchasers?

Remote sellers that made total sales of $500,000 into Texas for a prior 12-month period should begin collecting the applicable sales tax on your purchases delivered into Texas on Oct. 1, 2019. If any purchases are not taxed appropriately, you must still report the applicable use tax directly to the Comptroller’s office.

Are there software services available to help sellers collect and remit sales tax?

Our office offers free electronic reporting using Webfile or Electronic Data Interchange (EDI), but we do not have software that integrates with a seller’s system to help with collecting and remitting. Contact us for questions about the taxability of goods and services, rates, and related issues.

Help with calculating, collecting, preparing returns and remitting the sales tax is available from various private service providers and tax practitioners.

Do the new laws for marketplace providers or for the single local tax rate impose a new tax on internet sales?

No. None of these new laws passed during the 86th Legislative Session impose new taxes. These new laws only address tax collection.

Can I be a remote seller, marketplace seller, or marketplace provider at the same time?

Yes. Depending on your activities, you may be a remote seller, a marketplace provider, a marketplace seller, or any combination of the three. There are different tax responsibilities for each type of seller.

My business is located in Texas and already collects Texas sales and use tax. Do I need to do anything as a result of this law?

Your responsibilities do not change unless you sell through a marketplace provider. The marketplace provider will collect Texas sales and use tax beginning Oct. 1, 2019. You will no longer be required to collect Texas sales and use tax on sales through a marketplace provider.

Do the new laws for marketplace providers and Wayfair apply only to Internet retailers?

No. The laws could apply to a variety of business types, including those that make sales through the Internet, by mail or telephone order, or by any other means where a business makes sales of items that are delivered into Texas such as a furniture store, jeweler, or seller in another state making sales delivered into Texas by common carrier.

Who is required to keep and maintain records?

All sellers, including remote sellers, must maintain and retain required records for at least four years.

As a remote seller, do I have to collect local tax?

Yes. You are required to collect local use tax based on the local tax applicable to the location to which you are shipping. You may elect to use the single local tax rate instead of having to determine the rate based on destination. You must notify the comptroller if you elect to use the single local tax rate by completing and sending Form 01-799, Remote Seller's Intent to Elect or Revoke Use of Single Local Use Tax Rate (PDF) by email to Sales.applications@cpa.texas.gov or mail. The mailing address is:

Comptroller of Public Accounts
P.O. Box 149354
Austin, TX 78714-9354
What is the safe harbor for remote sellers?

A remote seller whose total Texas revenue from sales into Texas in the preceding 12 calendar months are less than $500,000 is not required to obtain a permit and collect tax. The dollar amount is based on gross revenue from sales of tangible personal property and services into Texas. The amount includes separately stated handling, transportation, installation, and other similar fees you collect. It also includes sales for resale and sales to exempt entities.

As a remote seller am I responsible for collecting tax prior to Oct. 1, 2019?

No. You are responsible for collecting tax if you were engaged in business in Texas prior to Oct. 1, 2019, such as by maintaining an office or property in the state or having representatives in the state who take orders or make sales or deliveries.

What if I’m a remote seller that determines that I’m covered by the safe harbor for remote sellers?

If you determine that your total Texas revenue from sales into Texas does not exceed $500,000 and are not otherwise engaged in business in Texas, then you are not required to obtain a permit or collect and remit tax on sales to customer in Texas.

Please keep in mind that you may at a later date exceed the safe harbor amount. Once you exceed the amount, you will be required to obtain a permit and begin collecting and remitting tax on sales to customer in Texas beginning on the fourth month after the month in which your total Texas revenue exceeds $500,000. You should keep records of your sales into Texas.

As a remote seller, how do I terminate my Texas use tax responsibilities?

As a remote seller, in order to terminate use tax responsibilities, you must have twelve consecutive months in which total revenue from sales of all tangible personal property and services in Texas for the preceding twelve calendar months was less than $500,000.

Form 01-798, Remote Seller's Intent to Terminate Use Tax Responsibilities (PDF) is to be completed by remote sellers to terminate their Texas use tax responsibilities. A "remote seller" cannot have a physical presence or representative in the state. A remote seller that terminates its use tax responsibilities must resume collection on the first day of the second month following any 12 calendar months in which total Texas revenue exceeds $500,000. See Rule 3.286, Seller's and Purchaser's Responsibilities, for more information.

I’m a remote seller and I sell through a marketplace provider. How will I know whether the marketplace provider will collect sales and use tax or whether I need to collect sales and use tax?

A marketplace provider is required to certify to you that it will collect sales and use tax. You should receive a certification from the marketplace provider. If the marketplace provider does not issue any type of certification, then you should collect sales and use tax until you receive a certification.

How can a marketplace provider certify that it will collect and remit tax for third-party sellers? Is a special form required?

No special form or language is required by marketplace providers to notify marketplace sellers that the provider is collecting and remitting tax for Texas. The notification can be part of the terms of use or any other agreement between the marketplace provider and seller and does not need to be a separate document that the provider issues to all sellers.

I’m a remote seller and I sell my products on my website and on a marketplace. Do I include the revenue from sales on the marketplace in calculating my safe harbor amount?

No. You do not include any sales for which you have received and accepted in good faith certification that the marketplace provider will collect sales and use tax.

For example, assume during a 12-month period a remote seller makes $300,000 in total sales into Texas through its website and $600,000 in sales through multiple marketplace providers that certify they are collecting and remitting the tax. The remote seller has no employees, inventory, or warehouses in Texas. Based on these facts, the remote seller is covered by the safe harbor and is not required to collect and remit tax for Texas.

I’m a remote seller and I only sell my products through a marketplace provider. Do I need to obtain a permit and collect tax?

No. You do not need a permit if you have received and accepted in good faith a certification that the marketplace provider will collect sales and use tax. However, you must retain required records of all marketplace sales.

If selling on a marketplace, who is subject to an audit, a marketplace provider or marketplace seller or both?

The marketplace provider is subject to audit for all transactions on the marketplace. The marketplace seller may also be audited and subject to liability for any deficiencies resulting from incorrect or insufficient information provided by the marketplace seller.

Does the $500,000 safe harbor apply to marketplace providers?

A remote marketplace provider does not have to be permitted and start collecting and remitting until the marketplace meets the $500,000 threshold or otherwise is engaged in business in the Texas - the same as any other seller.

What is the single local tax rate?

The single local tax rate is an alternative local tax rate that can be used by remote sellers only. The single local tax rate is not available to any marketplace providers. The single local tax rate for the period of Oct. 1, 2019 through Dec. 31, 2019 is 1.75 percent. We will compute the single local tax rate prior to the beginning of each calendar year and publish it in the Texas Register.

A remote seller may elect to use the single local tax rate in place of the actual local use tax rate for a particular location. If so, the remote seller must notify the Comptroller’s office of its election using Form 01-799, Remote Seller’s Intent to Elect or Revoke Use of Single Local Use Tax Rate (PDF) and submitting by email to sales.applications@cpa.texas.gov or mail to the Account Maintenance Division. The mailing address is:

Comptroller of Public Accounts
P.O. Box 149354
Austin, TX 78714-9354
If I’m a remote seller who elects to use the single local tax rate, may I opt out of the election at any time?

If you are a remote seller that elected to use the single local tax rate, you must continue to use the single local tax rate until the end of the calendar year. If you intend to change your election, you must notify the Comptroller by Oct. 1, but you must continue to collect the single local tax rate until the end of the calendar year.

If you do not notify the Comptroller by Oct. 1, then you must continue collecting the single local tax rate until the end of the following year.

For example, if you are a remote seller who begins collecting on April 1, 2020, and elects to collect the single local tax rate, you must notify the Comptroller by Oct. 1, 2020, to change your election to collect based on the destination location beginning Jan. 1, 2021.

If you are a remote seller who begins collecting after Oct. 1, 2020, and elects to collect the single local tax rate, you will collect the single local tax rate for the remainder of 2020 and all of 2021. You may change your election by providing notice by Oct. 1, 2021 and begin collecting based on destination on Jan. 1, 2022.

I purchased an item from a remote seller who used the single local tax rate. If the single local tax rate is higher than the local tax rate at my location, can I apply for a refund of tax?

Yes. You may apply for a refund on an annual basis of the difference between the single local tax rate paid and the local tax rate you would have paid at your location. Download Form 00-957-Texas Claim for Refund (PDF) on our website.

Does the Wayfair decision make any changes to other Texas taxes?

Yes. We plan to amend appropriate rules to incorporate the decision in Wayfair for franchise tax returns due on or after Jan. 1, 2020. We expect to establish an economic nexus threshold and will follow our normal rule adoption process by seeking input from the public and our stakeholders.

Other taxes administered by the Comptroller will be addressed at a future date, and the tax responsibility will be prospective.

Additional Resources