Texas requires entities “engaged in business” in Texas to register for sales tax purposes and collect sales tax from their customers. The amended regulation no longer requires a physical presence to establish sales tax nexus when a taxpayer engages in “regular or systematic solicitation of sales of taxable items.” To prevent imposing an undue burden on taxpayers, the Rule provides a safe harbor for remote sellers with total Texas revenue in the preceding 12 months of less than $500,000. Once a remote seller’s revenue exceeds that amount, it must obtain a sales tax permit. “Total Texas revenue” means gross revenue (taxable, non-taxable and exempt) from sales of tangible personal property and services for use or consumption in Texas, including separately states shipping, installation, and other similar fees collected in connection with the sale. Once a remote seller exceeds the threshold amount, it has three months to register for a sales tax permit. The adopted amendments provide guidance for when a remote seller can terminate its permit if its sales go back under the threshold amount.
During the transition period, remote sellers will be subject to the permit and collection requirements beginning on October 1, 2019. The first 12 months for determining a remote sellers’ total Texas revenue will be July 1, 2018 through June 30, 2019.
Impact on You
Texas’s amendments should pass the Supreme Court’s test laid out in Wayfair of not imposing an undue burden on interstate commerce. The Wayfair decision determined that South Dakota’s treatment of remote sellers was not an undue burden, in part because it required $100,000 of sales and had no retroactive component. Texas’s amendments provide for a $500,000 threshold and a generous transition period before remote sellers would have to register for sales tax. Nonetheless, taxpayers may still have reasonable arguments that the law is an undue burden. For example, difficulties with complying local sales tax rates may be seen as an undue burden, and a $500,000 threshold for Texas may seem much lower in many ways than a $100,000 minimum in South Dakota.
Any legal challenges to the Comptroller’s amendments to Rule 3.286 are far in the future. For now, most readers of this article probably already have Texas nexus for sales tax purposes due to a physical presence in the State, which is still sufficient to create sales tax nexus.
Nonetheless, if you have any questions about these amendments, please feel free to reach out to Jon Wellington at firstname.lastname@example.org.
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