Texas SaaS sales tax at a glance
| Detail | Value |
|---|---|
| Is SaaS taxable? | Taxable On 80% of the charge |
| Downloaded software | Taxable On the full charge |
| Base state sales tax rate | 6.25% (on 80% of a SaaS charge) |
| Typical combined rate | 6.25% to 8.25% |
| Local tax rates? | Yes |
| Economic nexus threshold | $500,000 in sales |
| Reference period | The previous 12 calendar months |
| Revenue authority | Texas Comptroller of Public Accounts |
Is SaaS taxable in Texas?
The rule
Texas treats SaaS as a data processing service, taxable on 80% of the charge.
The main exception
Downloaded software is taxed on the full charge, not 80%.
What to do
Bill hosted access and any downloadable client on separate invoice lines, so only the download is taxed in full.
Is your product taxable in Texas?
Whether a particular product is taxed in Texas can depend on two things: how the software reaches the customer and how you write the invoice.
Does it matter how the software reaches the customer?
In Texas, downloaded software is taxable on the full charge. Software counts as downloaded when the customer installs a copy, such as a desktop app, an agent or an offline client, even if most of the product runs online.
Does it matter how you write the invoice?
In Texas, setup, implementation and training fees are taxable, except separately stated training. Listing them on their own invoice lines, rather than inside one software price, is what lets them be treated separately.
How are other software products and services taxed in Texas?
SaaS rarely ships alone. This is how Texas treats the products and charges that usually sit next to it on an invoice.
| Product or charge | Treatment |
|---|---|
| Downloaded software | Taxable On the full charge |
| Custom software | Not taxable If all rights transfer to the buyer |
| Cloud infrastructure and platforms (IaaS, PaaS) | Taxable On 80% of the charge |
| AI tools and API access | Taxable On 80% of the charge |
| Digital goods (e-books, music, video) | Taxable |
| Maintenance and support | Taxable |
| Setup, implementation and training | Taxable Except separately stated training |
Does Texas tax B2B and B2C SaaS differently?
No. Texas treats SaaS the same way for business and consumer buyers.
How much sales tax do you charge on SaaS in Texas?
SaaS is taxed at a base rate of 6.25% (on 80% of a SaaS charge), and the typical combined rate is 6.25% to 8.25%.
Do cities or counties tax SaaS differently?
No. Cities and counties follow the state's rules for SaaS, so whether it is taxed does not change from one address to another.
General sales tax rates, including any local rates, are in our Texas sales tax guide.
Do you need to register for sales tax in Texas?
Physical and economic nexus
Registration follows nexus. Once you have nexus in Texas and sell something taxable there, you need to register. Nexus comes from a physical presence, such as an office, staff or inventory in the state, or from passing an economic threshold.
In Texas, the economic nexus threshold is $500,000 in sales over the previous 12 calendar months. Exempt sales still count toward it. Our Texas nexus guide covers the rules in full.
Which address sets the rate
For remote sellers, the rate is based on where your customer is, not where your business or servers are. Buyers with users in more than one state can give you a multiple points of use certificate and pay Texas tax only on the share used there.
Buyers who do not pay tax
Some buyers can give you a certificate instead of paying tax. In Texas, that includes resellers, government agencies and qualifying nonprofit organizations. Collect the certificate at the time of sale and keep it, because in an audit it is the only thing standing between you and the tax.
How to register, collect and file in Texas
Register
If you need to register, do it with the Texas Comptroller of Public Accounts through the Comptroller's eSystems online portal. Note your account number and the filing frequency you are given, since both decide when and how you file.
Collect the right amount
Charge tax only on what Texas taxes. Collecting tax that is not owed creates its own refund and audit problems.
- List services on their own invoice lines, so each charge is taxed on its own terms.
- Describe each product on the invoice the way it actually reaches the customer: online access, a download or something shipped.
- Recheck the treatment whenever you add a desktop app, a hardware option or a new add-on, since each can change what is taxable.
File and keep records
Your filing frequency is assigned when you register: monthly, quarterly or annually, depending on how much tax you collect. Returns are due by the 20th of the month after each period ends.
You must file a return for every period, even when no tax is due.
Keep invoices, exemption certificates and returns for at least four years. That paperwork is what decides the taxable amount if you are audited years later.
What should SaaS businesses watch when selling in Texas?
Past sales where no tax was charged
If you should have been collecting and were not, the Texas Comptroller of Public Accounts can assess the unpaid tax plus a $50 late-filing fee, a late penalty of 5% rising to 10% after 30 days, and interest.
A voluntary disclosure agreement can reduce penalties if you come forward first. Work out which past sales were taxable before you come forward, so you know the size of the exposure.
Rule changes worth tracking
Nothing enacted or pending changes how Texas taxes SaaS.
The rules verified date at the top of this page shows when these rules were last checked.
How does Galvix help SaaS businesses manage Texas sales tax compliance?
We handle this
Sales tax in Texas is one line in a much larger problem. Most SaaS companies sell into 30 or 40 states, each with its own answer, threshold and filing calendar.
- We map each of your products and add-ons against every state's rules, including the ones that can change the answer in Texas.
- We watch your sales against every threshold and tell you before you cross one, not after.
- We handle registrations wherever you need one.
- We file and remit on each state's schedule, zero returns included.
- We collect and store exemption certificates so they are there when an auditor asks.