Software Sales Tax in Texas 🇺🇸

How do I solve my tax liability?
Agony Rating
Sales Tax Rate
Taxable Goods
Highest Penalty

How likely am I to get caught for owing sales tax in Texas?

Very likely. Businesses that sell SaaS or downloadable software to customers in Texas are very likely to be liable for sales tax.

What is the sales tax threshold in Texas?

The current sales tax threshold in Texas is $500,000.

Is SaaS taxable in Texas?

Yes. You owe tax for the sale of cloud software subscriptions to customers in Texas.

Are software downloads taxable in Texas?

Yes. You owe tax for the sale of software downloads to customers in Texas.

Are eBooks taxable in Texas?

Yes. You owe tax for the sale of eBooks to customers in Texas.

Are digital downloads taxable in Texas?

Yes. You owe tax for the sale of digital downloads to customers in Texas.

Registering for Sales & Use Tax in Texas

😬🌶️🌶️ It's complicated

The sales tax system in Texas is probably the most painful, with 1700 separate jurisdictions that sit within the state. 

Luckily, the registration is made slightly easier by the fact that (unlike in some other states), you aren’t forced to register by paper. That being said, it’s not exactly painless. The registration form is very long and requires a lot of specific information. 

For example, you have to provide a Social Security Number and US zip code as part of the application, so for those based outside of the US, a local tax agent is a must!

Filing & Remittance of Sales & Use Tax in Texas

😩🌶️🌶️🌶️ It's *painfully* complicated

Filing frequency: Variable depending on the value of sales.

Different cities and counties (and even a large McDonalds) in Texas have individual tax rates. As you can imagine, this makes the filing process all the more complex! 

While the filing and remittance process itself isn’t too difficult, making sure you file for the right amount in each location within Texas makes it incredibly manual and time-consuming. 

If you’re based outside of the US or Canada, this process becomes a lot more painful. You’ll need to set aside enough time to manually complete the filing as the system doesn’t currently have the option to save and complete the filing later. The site also times out after 30 minutes of inactivity, so it’s best to make sure you’ve already taken your lunch break!

Penalties for Sales & Use Tax non-compliance in Texas

😩🌶️🌶️🌶️ It's crippling to the business / person

Despite being one of the most complex sales tax systems, the Tax authority in Texas is pretty unforgiving for those who do get it wrong – even for innocent mistakes.  

There is a $50 penalty for late filing and a 5% penalty for late payments (this rises to 10% after 30 days). 

As with many other jurisdictions, the penalties for those evading their tax liabilities get a lot more serious. The company Director could face anywhere from 2 to 20 years in prison and a criminal fine of up to $10,000. The person convicted of failure to pay sales tax will also owe 5 percent of the total unpaid tax as a penalty.

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