Texas Economic Nexus: Understanding Sales Tax Requirements for Out-of-State Businesses

Understand the sales tax requirements for out-of-state businesses in Texas. Learn about the economic nexus threshold, registration process, and consequences of non-compliance.

If you are a business that sells products across state lines, it is essential to understand the sales tax requirements of each state. In Texas, out-of-state businesses that meet certain sales thresholds may be required to collect and remit sales tax under the state's economic nexus law. In this article, we will explain what this law entails and how it affects your business.

Texas Economic Nexus

What is Texas's Economic Nexus Threshold?

The economic nexus law in Texas requires out-of-state businesses to collect and remit sales tax if they have more than $500,000 in sales in the preceding 12 calendar months. This law applies to businesses that sell taxable goods or services to customers in Texas, regardless of whether they have a physical presence in the state.

When Did Texas's Economic Nexus Law Go Into Effect?

Texas's economic nexus law was enacted on October 1, 2019, for out-of-state businesses. If your business crosses the economic nexus threshold after this date, you must obtain a sales tax permit and begin collecting and remitting sales tax. If your business crossed the threshold before this date, you would only need to register for a sales tax license in Texas starting when the law went into effect. However, other considerations, such as physical presence, need to be taken into account when deciding what your sales tax permit start date should be in Texas.

What Are Businesses Supposed to Do if They Meet Texas's Economic Nexus Threshold?

If your business meets Texas's economic nexus threshold, you must register for a sales tax permit and begin collecting and remitting sales tax. This involves registering with the state of Texas, keeping records of taxable sales, and setting up your transaction platforms to calculate sales tax based on the products being sold accurately. After registration, businesses need to stay up-to-date with any changes regarding filing guidelines that may arise in the future.

By When Does a Business Need to Get a Sales Tax Permit After Crossing Texas's Economic Nexus Threshold?

Businesses that cross Texas's economic nexus threshold must register for a sales tax permit by the 1st day of the 4th month following the month in which they crossed the threshold. For example, if your business crossed the threshold in January, you must register for a sales tax permit by April 1st.

What Could Happen if I Cross Texas's Economic Nexus Threshold and Don't Get a Sales Tax Permit?

If your out-of-state business crosses Texas's economic nexus threshold and fails to obtain a sales tax permit, you could be subject to audits, penalties, and interest. The audits will review the prior period of time to see if taxes are due, with penalties applied based on the amount not paid. Interest will also accrue at the rate determined by the state for any unpaid taxes or late filing. It is essential to take these consequences seriously and ensure your business complies with the state's sales tax requirements.

Getting Help with Texas's Economic Nexus Requirements

Navigating the economic nexus law in Texas can be complex, especially for out-of-state businesses. That's where Galvix comes in. Our team of experts can help you determine if your business meets Texas's economic nexus thresholds and, if so, obtain a sales tax permit for your business. We offer a free initial consultation to help businesses understand their sales tax obligations in Texas. Click here to learn more and schedule your free consultation.

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