Understanding the New Texas Sales Tax Nexus Rules

Erik Wallin
October 26, 2020

The South Dakota v. Wayfair, Inc. decision made waves in the sales tax nexus world, with ripples being felt in every state. The Texas sales tax nexus rules were no exception, and all businesses operating in the Lone Star State – remote organizations and those with a physical presence – must ensure they stay compliant. Otherwise, there could be audits and heavy financial fines to follow. So, what exactly changed?

Enforcement date:
October 1, 2019

Sales/transactions threshold:
$500,000 in previous year for remote sellers

Measurement period:
Threshold applies to the previous 12 calendar months.

Included transactions/sales:
The changes impact remote sellers, which are out-of-state sellers that only participate in the remote solicitation of sales in Texas.

When You Need to Register Once You Exceed the Threshold:
Remote sellers have until no later than the first day of the fourth month after the month that a remote seller exceeds the $500,00 safe harbor amount.

Summary: Remote sellers must collect Texas sales tax if their sales exceed $500,000 in the preceding 12 calendar months. Additionally, state law requires marketplace providers to collect and remit state and local sales and use tax on all third-party sales. There is also a safe harbor law: remote sellers that do not exceed the $500,000 threshold from the previous 12 months will not be required to obtain a tax permit or collect, report and remit sales and use tax. Remote sellers can also “collect a single local tax in lieu of the different taxes imposed by cities, counties and special taxing jurisdictions at each shipping destination,” according to the Texas Comptroller’s office. The single local use tax rate is 1.75%, with the rate published each year on January 1.

The Texas sales tax nexus rules essentially impacted remote sellers, but all businesses that operate within the state should ensure that they are compliant with all local and state requirements.

Texas Sales Tax Resources
Our team is here to help, and can answer your questions on Texas sales tax nexus rules. You can also check out our interactive sales tax nexus map for real-time information on other states.

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Author

Erik Wallin

Erik Wallin is a Senior Tax Counsel on the Tax Research Team at Sovos Compliance. Erik has been with Sovos Compliance since 2011, and his main areas of focus are on U.S. Transaction Tax Law which includes special expertise in the taxation of technology and the taxation mechanisms that apply throughout the Colorado home rule jurisdictions. Erik is a member of the Massachusetts Bar, has a B.A. from York College of Pennsylvania, a J.D. from New England School of Law, and an LL.M. in Taxation from Boston University.
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