Local Sales and Use Tax Collection – A Guide for Sellers

Orders received by a salesperson (by mail, email, or telephone) while the salesperson is not at his or her normal work location will be treated as being received at the salesperson’s normal work location, only if that location meets the definition of a place of business.

Orders not received by sales personnel are considered to be received at locations that are not places of business of the seller.

• If these orders are not fulfilled by a place of business of the seller, they are consummated at the destination location.
• If these orders are fulfilled by a place of business of the seller, then they are consummated at that place of business.

Pursuant to an agreed temporary injunction, the agency has agreed not to enforce the provision relating to orders not received by sales personnel while its validity is being challenged in district court. The temporary injunction does not change the effective date of the rule. If the courts ultimately determine that the rule follows the statute, taxpayers as well as the agency will be bound by that determination.

The following examples illustrate where a local sale or use is "consummated," based on whether the order is received at a place of business of the seller in Texas, whether the order is placed in person, and whether the order is fulfilled from a place of business of the seller in Texas. You must collect local tax at the location where the sale or use is "consummated," which may be where the order is received, fulfilled, delivered, or stored, used, or consumed. These examples do not apply to the "Special Situations" that are subsequently described.

Order Received at a Place of Business of the Seller in Texas

Order Not Received at a Place of Business of the Seller in Texas

* Plus any local use tax due if you ship or deliver into a local jurisdiction with a higher local sales and use tax rate.

There are four types of local taxing entities in Texas:

• cities (including incorporated towns and villages);
• counties;
• special purpose districts; and
• transit authorities.

Each taxing entity has its own boundaries. Different types of taxing entities can cross or share boundaries. The combined local sales tax rate cannot be more than 2 percent.

Example: A business located inside the city limits of Corpus Christi is within the boundaries of three types of local taxing jurisdictions: the city of Corpus Christi, the Corpus Christi Crime Control and Prevention District and the Corpus Christi Regional Transit Authority. The total rate of local sales tax imposed at the business location is 2 percent.

Local taxing jurisdiction boundaries do not follow U.S. postal codes (ZIP codes). Many cities in Texas share a common ZIP code, and many ZIP codes encompass an area both inside and outside a taxing jurisdiction.

If you are not sure of the local taxes in effect at a given location, use the Comptroller’s online Sales Tax Rate Locator to search for sales tax rates by address.

There are several areas in Texas where city boundaries are allowed to overlap the boundaries of another taxing jurisdiction, even though the total local tax rate in these combined areas technically exceeds 2 percent.

The Comptroller maintains a 2 percent rate in these areas and shares the revenues between the overlapping taxing jurisdictions. These combined areas are listed on the Comptroller’s website.

Sellers collecting local tax in one of these areas must use the combined area local code when reporting sales and use taxes, instead of the regular city or SPD code.

Local use tax is due on the storage, use or other consumption of a taxable item within local taxing jurisdiction boundaries. Sellers are responsible for collecting local use tax if they ship or deliver a taxable item into a local taxing jurisdiction with a higher local sales and use tax rate than the location where the sale is consummated.

Every local taxing jurisdiction with a local sales tax also has a local use tax. Use tax rates are the same as sales tax rates.

Local sales tax and local use tax may be due on the same taxable item when:

• the total amount of local sales tax is less than 2 percent (the total amount of local tax imposed on any transaction cannot be more than 2 percent); and
• the local sales tax and local use tax are not the same type of local tax. If a city sales tax is due on a taxable item, for example, there will be no city use tax, even if the item is shipped or delivered to a different Texas city. In other words, local use tax is not due if a local sales tax of the same type is due.

When state use tax is due on a taxable item, local use tax is also due at the location where the taxable item is shipped or delivered. If the ship-to location is not in a local taxing jurisdiction, local use tax is not due.

Example: A taxable item purchased at a store in Seattle is shipped to an address in Austin. State use tax of 6.25 percent is due on the taxable item. Local use tax of 2 percent is due based on the ship-to address.

When state sales tax is due on a taxable item, local sales tax is due where the sale is consummated. Local use tax may also be due if the item is shipped or delivered into a local taxing jurisdiction with a higher local sales and use tax rate than the location where the sale is consummated.

Example: Pipe Creek and Bandera are cities in Bandera County, Texas. Pipe Creek does not have a city sales tax, Bandera has a 1.5 percent city sales tax and Bandera County has 0.5 percent county sales tax.

A person buys a rocking chair at a store in Pipe Creek. Bandera County sales tax of 0.5 percent is due on the sale. If the seller ships the rocking chair from the Pipe Creek store to the person’s home in the city of Bandera, the seller must collect the additional 1.5 percent Bandera city use tax that is due.

Note: The customer is responsible for paying directly to the Comptroller any local taxes you do not collect.

Example: A furniture seller has a store with an attached warehouse located outside the city limits of Corsicana, in Navarro County. Customers place orders in person at the store, and the seller fulfills the orders at its warehouse. The seller offers free delivery service to locations within 50 miles of the store/warehouse.

A customer shopping at the Navarro County store orders furniture for delivery to a location inside the city limits of Ennis, which imposes a 1.5 percent city sales and use tax. Since the store where the order is received is outside the city limits of Corsicana, no city sales tax is due. The seller must, however, collect county sales tax of 0.5 percent for Navarro County. Because the total amount of local sales tax due is less than 2 percent, the furniture seller has to also collect additional local use taxes due based on the point of delivery.

Since the seller is delivering the furniture to the buyer, the seller must collect the city’s use tax. Therefore, the total amount of sales and use tax that the seller must collect on the transaction is 8.25 percent, consisting of 6.25 percent state sales tax, 0.5 percent Navarro County sales tax and 1.5 percent Ennis city use tax.

A second customer places an order in person at the store for delivery to an address in Waxahachie, which imposes a local city sales and use tax of 2 percent. Again, the seller must collect Navarro County sales tax of 0.5 percent.

Since the seller is delivering the furniture to the buyer, the seller must collect any taxes due in the city of Waxahachie. The seller cannot, however, collect the total amount of the Waxahachie city use tax (2 percent) without exceeding the 2 percent cap. Therefore, the total amount of sales and use tax that the seller must collect on the transaction is 6.75 percent, consisting of 6.25 percent state sales tax and 0.5 percent Navarro County sales tax.

You can use the Comptroller’s online Sales Tax Rate Locator to search for sales and use tax rates by address.

Rules to Follow

Use these rules to determine if local use tax is due in addition to local sales tax.

• 2 percent cap
  The maximum amount of local sales and use tax due on a sale in Texas is 2 percent. You cannot collect more than a total of 2 percent combined local sales and use taxes. If a local use tax cannot be collected or accrued at its full rate without going over 2 percent, you cannot collect it. You must collect applicable local use taxes when you ship or deliver a taxable item into a local taxing jurisdiction with a higher rate of local use tax when the 2 percent cap is not reached at the location where the sale is consummated.
• Tax type order
  You must collect applicable local use taxes in the following order:
  1. City
  2. County
  3. Special purpose districts (SPDs)
  4. Transit authorities
• Different tax type
  You cannot collect a local use tax if a local sales tax of the same tax type is due.

Collect local taxes on amusement services where the performance or event occurs.

Collect local taxes on cable television services where the customer receives the service. Satellite service, commonly known as "direct-to-home" satellite service, is exempt from local tax under the Federal Telecommunications Act of 1996.

Marketplace providers that are engaged in business in Texas must collect and remit tax on all third-party sales. The tax is based on the shipping destination. Examples include Amazon, eBay, Walmart Marketplace, and Etsy. Marketplace providers are not eligible to use the single local use tax rate.

Marketplace sellers are not responsible for collecting and remitting sales and use tax on their sales through the marketplace if the marketplace provider has certified they will collect any applicable tax, but they must retain sales records.

Collect local taxes based on the location where the parking service occurs.

Collect local taxes based on where the customer receives the gas or electricity. Residential use of gas and electricity is exempt from county, transit and most special purpose district taxes, and in many cities, city tax. Lists of all cities and special purpose districts currently imposing sales tax on the residential use of gas and electricity and those cities and special purpose districts eligible to do so are available online.

If you provide repair or remodeling services on nonresidential improvements to realty, the entire charge is subject to local tax, regardless of whether it is billed as a separated or lump-sum charge. Collect local taxes for labor and materials based on the location of the job site.

If you perform new residential construction, new commercial construction, or residential repair and remodeling under a separated contract, you must collect local taxes on the separately stated charge for materials based on the location of the job site.

Telecommunications services are subject to the state sales tax, but are not automatically subject to local sales tax. By federal law, all interstate telecommunications are excluded from the tax. A list of jurisdictions that impose tax on telecommunications services is available online.

Landline Telecommunications Services

Collect local taxes, when due, on landline telecommunications services sold on a call-by-call basis based on the location of the telephone or other device where the call or other transmission originates. If you cannot determine where the communication originates, collect local tax based on the address where the service is billed.

Mobile Telecommunications Services

Collect local taxes on mobile telecommunications services (such as cell phones) based on the place of primary use. The place of primary use must be the customer’s residential street address or the primary business street address within the service provider’s licensed service area. If the person who contracts for the service with the service provider is not the end user, the end user’s place of primary use determines which local taxes are due.

Collect local taxes where the waste is collected or picked up for removal.

A seller who does not have a place of business in Texas, and who travels to various locations to receive orders and make sales, is an itinerant vendor. Itinerant vendors collect sales tax for all local taxing jurisdictions in Texas where deliveries are made or where the customer takes possession of the items.

Example: A person who only receives orders and makes sales in San Antonio and has no place of business in the state must collect all applicable local San Antonio sales taxes due on each sale.

Vending machine operators are considered itinerant vendors and must collect local sales tax for the taxing jurisdictions where the vending machines are located.

A "kiosk" is a booth, stall or similar small, stand-alone area located within another seller’s place of business (such as a department store or shopping mall) that is used solely to display merchandise or submit orders for taxable items from a data entry device. A seller can take orders at a kiosk, but a kiosk does not have inventory in stock to transfer directly to customers. Although the kiosk itself is not a place of business, if you operate a kiosk, you are engaged in business in this state.

When items ordered at a kiosk are shipped or delivered to a customer from the seller’s place of business in Texas, then local sales tax is due at the seller’s place of business. If the total local sales tax is less than 2 percent, local use tax may also be due based on the location in Texas where the customer receives the taxable items.

When items ordered at a kiosk are shipped or delivered from a location that is not a Texas place of business of the seller, or from a location outside of Texas, local sales or use tax is due based on the location where the taxable items are shipped or delivered.

A remote seller is a seller whose only activities in Texas are remotely soliciting sales. Remote sellers with total Texas revenue of $500,000 or more, in the preceding 12 calendar months, must have a permit and collect and remit use tax.

A remote seller may choose to collect either

• local use tax based on the ship-to location; or
• the single local use tax rate.

The Comptroller’s office will compute the single local use tax rate and publish it in the Texas Register prior to the beginning of each calendar year. The current single local use tax rate is 1.75 percent.

Note: To collect the single local use tax rate, you must notify the Account Maintenance Division via email or mail using Form 01-799, Remote Seller’s Intent to Elect or Revoke Use of Single Local Use Tax Rate (PDF).

The email address is sales.applications@cpa.texas.gov.

The mailing address is: