The Texas Comptroller’s office has issued preliminary guidelines setting out the obligation of remote sellers to collect and report Texas sales taxes on sales made into Texas.  A remote seller is a seller that does not have a physical presence in this state, but who sells products or services for delivery into this state.

In its December 2018 Tax Policy News newsletter, the Comptroller states that in implementing the Wayfair decision it has amended Rule 3.286 concerning seller’s and purchaser’s responsibilities to be effective January 1, 2019.  The amendments establish a safe harbor for remote sellers with less than $500,000 in sales of tangible personal property or services into Texas during the preceding 12 calendar months. Remote sellers that fall under this safe harbor threshold will not be required to register and collect and remit Texas taxes.

Remote sellers exceeding the $500,000 sales threshold would be required to register for a sales tax permit and begin collecting and reporting tax on sales made into Texas.

Grace Period. To allow time for remote sellers to prepare for these changes, the Rule 3.286 amendments postpone the permitting and tax collection requirements for remote seller until October 1, 2019.

Sales Threshold Calculation Period.  The initial 12 calendar months that a remote seller would use to determine if its Texas revenues exceed the $500,000 threshold will be from July 1, 2018 through June 30, 2019. A remote seller exceeding the threshold will generally be required to continue collecting and reporting Texas sales tax until it ceases making sales into Texas.

Tax Rate.  In order to ease the burden on remote sellers to collect local taxes for more than 1,500 local taxing jurisdictions, the Comptroller has issued draft legislation to permit sellers to opt out of local tax rule  and comply with a local rate of 1.75 percent, in addition to Texas’s 6.25 percent sales tax for a total of 8 percent.  Remote seller’s meeting the threshold requirement and electing not to collect the single rate, would be required to collect the local sales and use tax for the taxing jurisdictions where the product or service is delivered.

The Comptroller’s office will ask Texas lawmakers to support this legislation in the upcoming legislative session set to begin on January 8, 2019.

Texas Based Businesses Selling into Other States

Texas-based businesses selling into other states may now be required to collect taxes for those states.  Effective October 1, 2018, some states, in following South Dakota v. Wayfair, have started requiring remote sellers to collect taxes for those states if they make more that $100,000 in gross sales or 200 individual transactions into that state.[1] If you think that you fall in this category, you should contact the state taxing authority directly to determine your reporting responsibilities.

You can obtain additional information for collection responsibilities for Texas and other states at these websites:

  • Federation of state Tax Administrators – State Tax Agencies
  • Multistate Tax Commission – Member States
  • Streamlined Sales Tax Governing Board, Inc. – Remote Sellers: SD v. Wayfair Decision

The Comptroller, to our knowledge, has not set out requirements for remote seller’s responsibilities for Texas Franchise Tax pursuant to Wayfair.  As soon as these are issued  we will post a blog on the threshold requirements and effective dates for franchise tax.

 

[1] The U.S. Supreme Court’s June 21 South Dakota v. Wayfair ruling overturned Quill Corp. v. North Dakota, the Supreme Court’s 1992 physical presence threshold for when states could tax remote sales. The majority in the 5-4 ruling suggested strongly that South Dakota’s law requiring remote sellers to collect sales tax if they had more than $100,000 in in-state sales or 200 transactions would pass constitutional muster.