Texas – Taxability of Internet Orders

SALT Report 1300 – The Texas Comptroller’s monthly newsletter offers guidance regarding internet sales.  The newsletter addresses the taxability of the following transactions:

Delivery Charges

Fees for shipping and handling charged by the seller of a taxable item are considered part of the sales price of the item. Charges for transportation or delivery to a Texas location are considered to be services or expenses connected to the sale of a taxable item. If the item is taxable, charges for shipping and handling, transportation or delivery are also taxable, even if separately stated on the invoice.

Items Shipped from a Warehouse in Texas

If the order is shipped or delivered from a warehouse or other location in Texas that is not a place of business of the seller, the local sales taxes due are based on the location of the seller’s place of business where the order is received.

Items Shipped From an Out-of-State Warehouse

If an order is placed with a seller in Texas, but the item is drop-shipped to the purchaser by an out-of-state, third-party supplier, local sales tax is due based on the location of the seller’s place of business where the order was received.

Purchases From an Out-of-State Seller

When a purchaser buys a taxable item from an out-of-state seller for use in Texas, and the seller is engaged in business in Texas, the seller must collect Texas use tax. If the seller is engaged in business at the point of delivery, the seller must also collect any local use tax due.

Credit for Taxes Paid to Another State

The purchaser can take a credit against the amount of Texas use tax due for any imposed sales taxes the purchaser paid to another state or subdivision of another state. A purchaser cannot take a credit for taxes paid to another country.

Sales to an Out-of-State Buyer

If an order is placed with a seller in Texas, but the item is drop-shipped to the purchaser by an out-of-state, third-party supplier, local sales tax is due based on the location of the seller’s place of business where the order was received.

Exemption for Occasional Sales

There is an exemption for tangible personal property sold online when the property was originally purchased for personal use by a person who does not hold, and is not required to hold, a sales tax permit or a similar license or permit in another state. To qualify for this exemption, the person must not be in the business of selling taxable items, and the receipts from these sales must not exceed $3,000 in a calendar year.

There is also an exemption for the sale of up to two taxable items within a 12-month period by a person who does not hold a sales tax permit or a similar license or permit in another state and who is not in the business of selling taxable items.

Internet sales are subject to Texas sales and use tax in the same manner as sales made by any other business. Texas tax applies to taxable items on orders placed on the Internet when shipped or delivered to a purchaser in Texas. Taxable items include tangible personal property and taxable services.

All online sellers engaged in business in Texas must obtain a Texas Sales and Use Tax Permit and must collect and remit tax on the sale of taxable items shipped or delivered into Texas.

For Further Information:

Window on State Government – Tax Policy News