Most Texas businesses with brick and mortar locations and required to collect and submit state and local sales taxes on the sale of goods and services to Texas residents. However, Texas law has not always held online businesses to the same standards.
The 2018 South Dakota v. Wayfair U.S. Supreme Court decision changed the way many states enforce the collection of sales tax by online businesses.
Which online businesses must collect Texas sales tax?
Before the 2018 court decision, Texas only required online sellers with a physical presence in the state to collect sales tax on sales to Texas residents. After that decision, the state began requiring all online sellers considered to have an economic nexus in the state to begin collecting sales tax.
What constitutes an economic nexus in Texas?
Texas law considers a business to have an economic nexus if any of several conditions apply:
- Substantial physical presence in the state
- Affiliate or third party solicits sales in Texas on behalf of the seller
- Seller stores inventory in the state
- Business sold or advertised merchandise at a trade show or convention in Texas
- Remote seller has over $500,000 in annual revenue from sales in Texas
- Business sells products developed, designed or shipped from within Texas
Because of the revenue requirement, most small online sellers can avoid collecting Texas sales tax, unless they meet one of the other economic nexus conditions. However, all other businesses should expect to register with the state and comply with state and local tax laws when selling to Texas residents.