Texas' sales and use tax return is one of the most complicated in the country. And recent changes in legislation have added new wrinkles, giving remote sellers a single rate.
In this episode of the E-COM Sales Tax podcast, our state and local tax experts break down how remote sellers can file sales tax in Texas at a single rate.
There are many benefits to this. Rather than having to file and report on every one of the local jurisdictions they ship into, a remote seller will be able to charge a single rate on their Texas sales tax return. It is going to look much simpler because they will just report gross sales, taxable sales and tax, essentially.
Sales Tax Questions This Post Answers
- If you have any significant level of sales at all in the state of Texas, do you have a responsibility to collect not just the state tax but other taxes as well?
- What is a "web file process" in Texas?
- How do we help our clients who have to file taxes in Texas with the online system which times out after a while?
- When is the effective date for economic nexus in Texas? Are they providing new simplified sellers use tax at a single rate?
- What is the number one worse state regarding filing return online? What is the second one?
- What is the case with Alabama and Louisiana, the so called "home rule states?"
- If you are an Amazon seller and you are using fulfillment by Amazon, then is it likely that you will not qualify as a quote unquote remote seller because of the inventory issue in Texas?
- Is simplified sellers use tax a big deal in Alabama? Why? Is it because of the entire local jurisdiction that has administered its own tax?
- Does Louisiana have a simplified sellers use tax form or process by which you can collect and remit?
- What is the situation like with Colorado?
- Will you qualify for this simplified sellers use tax rate that you could collect and remit if you have physical nexus due to the inventory in the state of Texas as an Amazon seller?
- According to e-commerce sellers, what are the biggest states they have sales in?
Qualifying for Remote Seller Status in Texas
There is a lot of complexity about going through filing sales tax returns. Each day is different, each day has different complexities. But it appears Texas has made things a bit easier for remote sellers. What should we be interested in?
Dan Peisner, CMI
The Texas sales tax return is probably one of the more complicated ones out there. One of the recent changes in legislation gives remote sellers a single rate for sales tax. You have to be a true remote seller and you cannot have any method of physical presence within the state of Texas.
Essentially, if your only presence within the state is that you need to know economic nexus threshold coming up here at the end of the year, then you are a qualifier for the single rate. What this means is, if you elect to use this rate, it is an election you are going to have to file and this is all the control have not set in this yet obviously. But if you need the qualification and you elect to do it then you can collect and remit tax at a single rate.
The benefit of this is rather than having to file and report on every one of the local jurisdictions you ship into, you will be able to charge a single rate. Your sales tax return, we can imagine, is going to look much, much simpler because you will just report gross sales, taxable sales and tax. It may not be everything we had hoped for, but in some instances it is going to be excellent for a lot of the remote sellers in Texas out.
Let me give a comparison here in regards to what you are talking about. I do not know if everybody out there has filed a Texas sales and use tax return form, but if you have you know how tough it can be.
If you have any significant level of sales at all in the state of Texas, you have a responsibility to collect not just the state tax, but you also local taxes, and those could be city or county taxes or transit taxes or special purpose district taxes. There are a lot of different taxes that you have a responsibility to collects and there are some special rules related to local taxes and some limits, etc.
On the collection side it is already one hassle, but on the remittance side it is another. It is never an easy task because every state has a different form, method and a way that you file your returns. In particular, in Texas it is burdensome. And the reason it is, is because online they have what is called a "web file process" where you take a report of all of the state tax which is literally aligned at them. And then all of the local taxes that you collected by the very local administered taxes or jurisdictions.
You could have 100 of those or you could have several hundred of those on one return for one month. And we had a lot of clients reaching out to us, asking us if there was some way that we could file their taxes return, because what happens is, you go out on the web file system and you begin entering all your information and you have to hand enter all of the amounts. Plus, Texas has a time limit feature, so if you have several hundred members to enter, you begin entering those numbers and then all of a sudden the website times out.
At that point, most people figure they can just log back in. But when you log back in, all the stuff you just entered isn't there. So you find you find people racing who can enter the numbers the fastest in the right jurisdiction and in the right way so that it does not time out and you lose everything.
One way you can solve this is through what's called an EDI, or electronic data interchange, file. That EDI file can be uploaded in a different website that Texas hosts, which allows you to file and remit payment in about a split second.
Are any other states that difficult?
California, which does not have an upload, is a No. 1 worst return to file online. I would have to agree that Texas is close second.
It is kind of a surprise to see this law come up in Texas. We have seen a few states pass something similar to this, but traditionally it has been the so called "home rule states," Alabama and Louisiana.
They have come up with a simplified rate. If you are a remote seller and do not have nexus in the state, Alabama lets you collect a simple 8% rate and remit it to the state on a very simple return, and then they divide it up.
Louisiana has a very similar process for the same reasons. They've come up with a simple way to do returns that insulates that state against any potential Wayfair challenges saying that they are too complicated for what the justices envisioned.
One big difference is that Louisiana and Alabama don't have big Amazon fulfillment centers, so sellers there qualified as remote. Texas does have fulfillment centers. So if you are an Amazon seller you are using Fulfillment by Amazon, then it is likely you will not qualify as a "remote seller" because of the inventory issue. It is a little bit of a let-down for our Amazon sellers out there, but anybody who is using fulfillment by merchant or using platforms other than Amazon to sell could qualify for a relief to this.
The other good point that you bring by, Dan, is that if you are an Amazon seller you anticipate that you will get qualified for remote seller status – a simplified registration of some sort. But because you have physical nexus due to the inventory in the state of Texas as an Amazon seller, you probably will not qualify for this simplified sellers use tax rate that you could collect and remit.
Since that is the case, if you're confused we would just tell you to reach out to us at (800) 940-9433. We have a phenomenal sales tax return filing team that files thousands of returns each month and we help clients cross the board with this situation.
When it comes to Texas specifically, obviously we can help you because we can provide a more efficient way to file and pay your taxes in Texas, but we file in all US jurisdictions that impose a tax in Canada. We can help you in regards to all of the states that may require you to collect and remit taxes.