The Who, What, When, Where, and Why of Sales Tax for the Business Owner
WHO
Are you a business owner in Texas? Do you sell or lease goods (also referred to as “tangible personal property”) which can be moved, seen, measured or touched? Do you provide “taxable services”? (See below Note for a list of some “taxable services”). If the answer is “yes” to either of the questions above, then you most likely need to collect sales tax from your customer. As a business owner, when you charge a tax on your goods, you have a duty to collect and give the correct amount of tax to the Texas Comptroller. If you do not, just like with your federal taxes owed, you will have to pay any additional taxes and maybe even penalties and interest.
Note: Texas puts “taxable services” into 17 broad categories: amusement services; cable & satellite services; credit reporting services; data processing services; data collection services; information services; insurance services; internet access services; motor vehicle parking & storage services; nonresidential real property repair, restoration or remodeling services; personal property maintenance, remodeling or repair services; personal services; real property services; security services; telecommunication services; telephone answering services; and utility transmission & distribution services.
WHAT
The Texas Comptroller lists the items which are taxable as: (1) tangible personal property or (2) taxable services. There are two types of tax: (1) sales taxes and (2) use taxes. Sales tax is based on where your business is located. Use tax is where your customer is located. Use tax occurs when the seller/business is engaged in business in another taxing jurisdiction.
The total amount of tax is calculated by adding together the state and local tax. The Texas state tax is 6.25%, and the local tax depends on where your business is located. There is a maximum of 2% local sales and use tax. Thus, the maximum a business owner can charge in Texas is 8.25%. The local taxes come from the city, county, special purpose district and transit authorities. For example, the sales tax rate in Stephenville is 8.25%, but the rate is only 6.75% in Bluff Dale.
Business owners need to understand which tax to collect. There are two general rules: (1) a business owner cannot collect more than a total of 2% percent for local sales and use tax, and (2) a business owner cannot collect a sales tax for one jurisdiction and a use tax for another jurisdiction for the same transaction. But, the owner can collect more than one tax of the same kind (sales or use) for the same transaction. Use tax can be tricky to understand. Just remember, if you, as a business owner, are not engaged in business in the purchaser’s jurisdiction (Keep in mind that you are engaged in business in the purchaser’s jurisdiction when there are: permanent or temporary locations, sales representatives, company vehicles that make deliveries, there is income from the lease of equipment, or services are provided by business employees or agents in that jurisdiction) then you do not need to charge sales or use tax. The purchaser will owe the use tax.
Some items may be exempt from taxation. The three main types of items that are exempt from sales tax are (1) resold items, (2) raw materials (3) and non-profits. If you think that you might be exempt from sales tax, the Comptroller offers an application for exemption. Business owners do not automatically qualify as exempt; you must apply through the Comptroller.
WHEN
Once you receive a Sales Tax Permit, you will have to file the sales tax return on a monthly, quarterly or yearly basis. The time period is based on how much tax your business actually collects.
Monthly: If you collect $500 or more sales and use tax in a month. This return is due on or before the 20th of the month following the month when the taxes are collected.
Quarterly: If you collect less than $500 sales and use tax in a month. This return is due on or before the 20th day of the month after the end of the quarter when the taxes are collected.
Yearly: If you collect less than $1,000 sales and use tax per year. This return is due on or before January 20th.
WHERE
The Texas Comptroller handles the collection process through their website. The business needs to register and receive a Sales Tax Permit. Then the business can file and pay through the Comptroller’s online payment system. In the links below, you can find a link to complete the permit and another one to file and pay online.
WHY
Sales tax is important revenue for state and local funds. These funds are used for community development such as buildings and roads, public services such as schools, parks, and libraries, and protective services such as police and fire departments.
THE TAKEAWAY: Whether your business is big or small, when you sell taxable goods or sell taxable services, you need to charge sales tax. The sales tax must be reported and paid to the Texas Comptroller’s Office. All the information regarding the different tax rates can be found on the Comptroller’s website. Through that website, you can also register for a permit and pay the tax amount you owe. The website is the main place for any information you might need and it offers a lot of helpful advice and resources.
Texas Comptroller Helpful Links:
-Local Rate List: http://www.window.state.tx.us/taxinfo/local/city.html.
-Tax Rate Locator: http://www.window.state.tx.us/taxinfo/local/
– The Business Team
Scott | Josh | Jeremy