Important Facts About Texas Sales Tax

Erik Wallin
May 10, 2023

Texas is not the most complicated state when it comes to sales tax. Like Alabama, there are a plethora of local rates, but there aren’t the same tapestry of special rates and rules. Nonetheless, Texas has adopted a Single Local Use Tax rate and allows any remote seller (aside from marketplace facilitators) to use this simplification once they provide Texas with the proper advance notice.

Texas is an “origin” state for purposes of sales tax sourcing. This means that businesses making intrastate sales in Texas are required to collect sales tax at a “Texas place of business,” which is usually a sales location or fulfillment location where goods are shipped from. Unlike intrastate transactions, businesses operating outside of Texas and shipping goods into Texas are required to collect and remit sales and use tax at the location in Texas where orders are shipped, or delivered when an order is not received or fulfilled from a Texas place of business.

In Texas, local taxing jurisdictions (cities, counties, districts, etc.) may impose sales and use tax up to 2%. As rates vary between local taxing jurisdictions, compliance burdens for remote sellers could get complex as Texas sales volumes increase. The Single Local Use Tax is an alternative local tax rate that remote sellers can use instead of collecting and remitting the total local tax in effect at the destination address. The current single local use tax rate is 1.75% (published in the Texas Register by January 1 of each year).

It is important to note the Single Local Use Tax is only available to remote sellers (those with economic nexus) and not businesses located in Texas or marketplace providers collecting on behalf of marketplace sellers, as such businesses are required to remit using standard rates. Additionally, remote sellers must notify the Texas Comptroller of the election to collect the Single Local Use Tax by submitting Form 01-799.

For those remote sellers who qualify, using the Single Local Use Tax can reduce the compliance burden of tracking local rates and ensures a standard predictable rate applies across sales into Texas.

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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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