State & Local Tax Blog

What Local Taxes Do You Charge in Texas?

What local tax to charge in Texas can be very tricky. And Texas, recently changed the statute on the MTA tax making it potentially more complex. The Comptroller of Public Accounts recently issued a letter with some explanation that is helpful. Here it is:
1. Look at the place of business from which the item is being mailed, shipped or delivered. Is there a:

  • City Rate? If yes, collect the city sales tax on all taxable sales in Texas.
  • County Rate? If the seller is located in a taxing county, then collect the county sales tax on all taxable Texas sales.
  • Special Purpose District (SPD)? If the seller is located in a special purpose district, then the seller must also collect the SPD sales tax on all taxable Texas sales.
  • Transit Authority? If yes, the seller must collect the transit authority tax on all taxable sales in Texas.

The seller must next determine if the total applicable tax rate being imposed for the place of business from which the item is being shipped is less than 8.25 percent, which represents the 6.25 percent state tax plus up to a maximum of 2 percent local tax that can be collected. If the combined local sales tax collected is less than 8.25 percent, the seller needs to look to the point of delivery to determine if any local use tax has to be collected. Sellers are required to collect the additional local use tax if they are engaged in business in the applicable local jurisdictions.
For example, if the sales tax rate at the seller’s place of business is 7.25 percent-6.25 percent state tax and 1.00 percent local sales tax-the seller can possibly collect up to an additional 1.00 percent of local use tax for other types of local taxing jurisdictions other than the type of local sales tax collected. This means that if, for example, the local sales tax a seller is responsible for collecting is city tax, then the seller is not required to collect any additional city use tax even if the destination city has a city tax rate at or below 1.00 percent. In this situation, the additional 1.00 percent of use tax that could be due would be county, SPD or transit authority local use taxes.
Remember: sellers should collect local use taxes in the order indicated below and cannot collect more than 8.25 percent in total sales and use taxes.
2. Look at the location where the item is being mailed, shipped or delivered. Is there a:

  • City Rate? If there is a city tax rate, collect city use tax if no city tax rate exists at the place of business from where the item was shipped and collection of the city use tax will not exceed the 2 percent cap.
  • County Rate? If there is a county tax rate, collect county use tax if no county tax rate exists at the place of business from where the item was shipped and collection of the county use tax will not exceed the 2 percent cap.
  • SPD Rate? If there is a SPD tax rate, collect SPD use tax if no SPD tax rate exists at the place of business from where the item was shipped and collection of the SPD use tax will not exceed the cap. If use tax can be collected for multiple SPDs at the full rate of each without exceeding the 2 percent cap, do so.
  • Transit Rate? If there is a transit tax rate, collect transit use tax if no transit tax rate exists at the place of business from where the item was shipped and collection of the transit use tax will not exceed the 2 percent cap. If use tax can be collected for multiple transits, at the full rate of each without exceeding the cap, do so.

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