Texas Sales Tax
Texas relies heavily on sales and use tax to fund schools, infrastructure, and public services, making it one of the state’s primary revenue sources.
For 2025, the Texas state sales tax rate remains 6.25%, with local jurisdictions cities, counties, and transit authorities allowed to add up to 2%, creating a maximum combined rate of 8.25%.
This guide explains what’s taxable and what’s exempt under Texas sales tax law so individuals and businesses can stay compliant and avoid penalties.
Step 1: Understanding the Texas Sales and Use Tax System
Sales tax applies to the sale, lease, or rental of most tangible personal property and certain taxable services in Texas.
Use tax complements sales tax and applies to taxable items purchased out of state but used within Texas without tax paid at the time of purchase.
Example:
A business owner in Austin ordering $10,000 of office equipment from an out-of-state supplier without sales tax will owe use tax on the purchase when brought into Texas.
Step 2: Items and Services Subject to Texas Sales Tax
The following are generally taxable in Texas:
- Retail Goods
- Clothing, electronics, furniture, and appliances.
- Office equipment, machinery, and tools.
- Prepared Food and Beverages
- Meals, snacks, and drinks sold by restaurants, caterers, and convenience stores.
- Digital Goods and Streaming Services
- Downloaded music, movies, e-books, and subscription streaming platforms.
- Telecommunications and Data Services
- Mobile phone plans, cable television, and internet access fees (excluding the first $25 of monthly charges).
- Certain Services
- Personal services such as lawn care, pest control, and car repair.
- Amusement services such as concerts, sporting events, and theme parks.
Example:
If you hire a landscaper in Dallas for $500 in services, you’ll pay around $41 in sales tax at an 8.25% combined rate.
Step 3: Common Texas Sales Tax Exemptions
Some goods and services are exempt from sales tax under the Texas Tax Code:
- Groceries and Unprepared Food
- Fresh produce, meats, bread, dairy, and pantry staples are exempt.
- Prescription Medicines and Medical Supplies
- Prescription drugs, insulin, and certain medical devices are exempt.
- Manufacturing Equipment
- Machinery used directly in manufacturing is exempt from sales tax.
- Newspaper and Magazine Subscriptions
- Periodicals issued at regular intervals are exempt.
- Agricultural Items
- Feed, seed, and fertilizer used in farming operations are exempt when purchased by qualified farmers or ranchers.
Example:
A farmer purchasing $20,000 of seed and feed for livestock operations will not owe sales tax if they hold a valid agricultural exemption number.
Step 4: Mixed Transactions Partially Taxable Sales
Certain transactions combine taxable and exempt items:
- Bundled Goods: If taxable and exempt items are sold together for one price, the entire bundle is generally taxable.
- Custom Manufacturing: Labor to manufacture goods for resale is exempt, but labor to repair or modify property is taxable.
- Software and Cloud Services: Custom software development is exempt, while off-the-shelf or cloud-based software subscriptions are taxable.
Step 5: Local Sales Tax Variations
Local governments in Texas can impose additional sales taxes of up to 2%.
Your combined rate depends on your city, county, and special district.
Example:
- Houston combined rate: 8.25%
- Austin combined rate: 8.25%
- El Paso combined rate: 8.25%
- Rural counties may have a lower rate of around 6.75%
Knowing your local rate is important for correctly charging and remitting sales tax as a business owner.
Step 6: How to File and Remit Texas Sales Tax
- Register with the Texas Comptroller before making taxable sales.
- Collect sales tax from customers at the time of sale.
- File sales tax reports monthly, quarterly, or annually based on your sales volume.
- Remit collected tax using the Texas Comptroller’s Webfile system.
Failure to file or pay on time may result in penalties, interest, or even revocation of your sales tax permit.
Step 7: Recordkeeping and Audit Readiness
Maintain accurate records for at least four years, including:
- Sales invoices and receipts.
- Resale and exemption certificates.
- Purchase records for inventory and equipment.
Proper recordkeeping ensures you are prepared in case of a Texas Comptroller sales tax audit.
Conclusion
Understanding what’s taxable and what’s exempt under Texas sales tax is essential for both individuals and businesses.
Texas applies broad sales tax rules, but it also provides exemptions for necessities like groceries, medicines, and manufacturing equipment.
By staying informed, you can ensure full compliance while minimizing unnecessary tax costs in 2025.
Call to Action
For expert guidance on Texas sales tax compliance, registration, exemption documentation, or audit support, contact Anshul Goyal, CPA EA FCA, a U.S.-licensed Certified Public Accountant, Enrolled Agent authorized to practice before the IRS, and cross-border tax expert assisting Texas businesses and individuals with accurate sales tax management.
Disclaimer
This blog is intended for educational purposes only and should not be considered legal or tax advice. Always consult a licensed CPA before making sales tax decisions or filings.
Top 5 FAQs
- What is the current Texas sales tax rate?
The state rate is 6.25%, with local jurisdictions adding up to 2% for a combined maximum of 8.25%. - Are groceries taxable in Texas?
No. Most unprepared food items for home consumption are exempt. - Do I need to collect sales tax for online sales?
Yes. If you sell taxable goods to Texas customers, you must collect and remit sales tax. - Are professional services taxable in Texas?
Only certain services such as repair, cleaning, and amusement services are taxable. - How often must Texas businesses file sales tax returns?
Depending on volume, filings may be monthly, quarterly, or annually as assigned by the Texas Comptroller.
About Our CPA
Anshul Goyal, CPA EA FCA is a Certified Public Accountant licensed in the United States, Enrolled Agent admitted to practice before the IRS, and a cross-border tax expert helping Texas residents and businesses manage sales tax compliance, filings, and audit defense.