Texas is famous for not having a state income tax. It's one of the biggest reasons people pack up U-Hauls and head for the Hill Country. But the state has to keep the lights on somehow, and that’s where the Texas sales tax comes in.
If you're buying a burger in Austin or selling software from a home office in Plano, you're part of this massive tax web. Most people think it’s just a flat percentage you see at the bottom of a receipt. Honestly, it’s way more localized and "kinda" complicated than that.
The Base Rate and the 2% Add-On
Basically, the State of Texas starts everyone at a 6.25% base rate.
But you almost never pay just 6.25%. Why? Because the state allows local "jurisdictions"—think cities, counties, and transit authorities—to tack on their own small slices of the pie.
There is a hard cap, though. The total combined sales tax rate in Texas can never go above 8.25%.
Here is how that usually breaks down in the real world:
- State of Texas: 6.25%
- City of Dallas: 1.00%
- DART (Transit): 1.00%
- Total: 8.25%
Some places, like a tiny unincorporated patch of land in West Texas, might only charge the state's 6.25% because there’s no city or transit authority to add more. But if you’re in a major metro like Houston, San Antonio, or Fort Worth, expect to see that 8.25% maximum every single time.
What is Taxable (And What Surprisingly Isn't)
Texas is pretty strict about "tangible personal property." If you can touch it, it’s probably taxable. Clothes, electronics, cars, furniture—all taxed.
But then it gets weird.
Groceries are mostly exempt. You don't pay sales tax on a head of lettuce or a gallon of milk. However, the moment that food becomes "prepared," the taxman wants his cut. A rotisserie chicken that's hot and ready to eat? Taxable. A cold raw chicken in the meat aisle? Tax-free.
And don't get me started on "over-the-counter" items. Vitamins and minerals are exempt, but most toiletries like deodorant or shampoo are taxable. It’s a fine line that retailers have to walk every day.
The SaaS Conundrum
For business owners, the biggest "gotcha" in the Lone Star State is Software as a Service (SaaS).
In many states, cloud-based software isn't taxed because you aren't "owning" a physical disc. Texas disagrees. The Comptroller views SaaS as a form of data processing or a taxable service. If you’re selling a subscription to your app to a customer in Texas, you generally have to collect tax on it.
Services That Hit Your Wallet
Texas also taxes several services that might surprise you:
- Credit reporting services.
- Information services (like newsletters or data feeds).
- Security services (alarm monitoring or private investigators).
- Cleaning services (but only for non-residential buildings).
If you’re a plumber fixing a leaky pipe at a house, your labor is usually exempt. But if you’re a commercial contractor working on an office building, that labor is often taxable. Nuance is the name of the game here.
The $500,000 Rule for Remote Sellers
You don’t have to live in Texas to owe Texas sales tax.
Ever since the Wayfair Supreme Court decision, Texas has enforced "economic nexus." If your business is based in Florida but you sell over $500,000 worth of goods or services into Texas during a 12-month period, you have to register for a permit.
You’ve reached "nexus." You’re officially "in" Texas as far as the tax office is concerned.
There is a "Single Local Use Tax" option for these remote sellers. Instead of trying to figure out the specific local rate for all 1,600+ taxing jurisdictions in Texas, you can choose to collect a flat 1.75% local rate on top of the 6.25% state rate. It makes life a lot easier for out-of-state accountants.
Calculating the Pennies
When you’re doing the math, Texas uses the "half-cent" rule.
Let's say you sell an item for $250 in a zone with an 8.25% rate.
The math is: $250 \times 0.0825 = 20.625$.
Because that third decimal is a 5, you round up. The customer owes $20.63 in tax.
📖 Related: Income Tax Rate New Rules: Why Your 2026 Paycheck Might Look Different
If you decide to include the tax in the price (common at bars or festivals), you can't just guess. You have to use the official formula:
$$Total \ Price \div (1 + Tax \ Rate) = Sales \ Price$$
Then subtract that from the total to find the tax amount you need to report. If you don't do this, the state will assume the entire amount was the sales price and charge you tax on top of the tax you already collected.
Important Dates to Circle
The Texas Comptroller is not a fan of late arrivals.
Most businesses file monthly. Your report and payment are due by the 20th of the month following the period you're reporting. So, your January sales must be reported by February 20th.
If the 20th falls on a Saturday, Sunday, or a holiday, you get until the next business day.
The Carrot and the Stick
Texas actually rewards you for being on time. If you file and pay by the deadline, you get to keep 0.5% of the tax you collected as a "timely filing discount." It’s basically the state saying "thanks for doing our paperwork for us."
But if you’re late?
- An immediate $50 penalty for the late report.
- A 5% penalty on the tax due if you’re 1-30 days late.
- Another 5% penalty (10% total) if you’re more than 30 days late.
- Interest starts kicking in after 60 days.
It gets expensive fast.
Sales Tax Holidays: The Big Breaks
Texas does give us a break every now and then. There are three main "holidays" in 2026:
- Emergency Preparedness Supplies (April): Think batteries, flashlights, and portable generators.
- Energy Star & Water-Efficient Products (May): Dishwashers, clothes washers, and air conditioners (with price caps).
- Back-to-School (August): The big one. Most clothes and school supplies under $100 are tax-free for one weekend.
Pro tip: The $100 cap is per item. You can buy ten shirts for $80 each and pay zero tax. But if you buy one pair of designer jeans for $110, you pay tax on the whole $110.
Actionable Steps for Success
If you're running a business or starting one, don't wing this.
Verify your local rate. Use the Texas Comptroller’s "Tax Rate Locator" tool. You can plug in a specific street address to see exactly what the combined rate is for that specific spot.
Apply for a permit early. It’s free to get a Texas Sales and Use Tax Permit. You can do it online through the eSystems/Webfile portal. Do not wait until you have a massive tax bill to realize you should have been collecting it all along.
Keep your records for 4 years. That’s the "look-back" period for most audits. If you can’t prove a sale was exempt (like a sale for resale), the state will assume it was taxable and send you a bill.
Automate the collection. If you use Shopify, Square, or Stripe, make sure the Texas tax settings are toggled on. These tools handle the "rounding" and the local jurisdictional splits so you don't have to do manual math on every $20 t-shirt.
Texas is a "destination-based" state for most remote sales, meaning the tax rate is usually determined by where the item is being delivered. Keep that in mind before you ship anything across the state line or even across city limits. Stay organized, file on time, and keep that 0.5% discount in your pocket instead of giving it back in penalties.
Next Steps for You
- Check your Nexus: Calculate your total Texas gross revenue for the last 12 months to see if you've crossed the $500,000 threshold.
- Search the Tax Rate: Use the Comptroller's website to find the specific combined rate for your primary place of business.
- Register for Webfile: Set up your online account now so you aren't scrambling on the 20th of the month.