Here are a few Texas sales tax return tips. The broad concepts can be used to build a framework that can be used to explore other jurisdictions. Remember to research the rules of each jurisdiction. Rules vary by state (and locality) and are subject to change.
Texas Sales Tax Return Tip1: Total Sales
If all of your sales are in Texas, you enter the total value of your sales in line 1 of the return, i.e. “Total Texas Sales.” What happens if you have sales outside Texas? Do you include the value of those sales in line 1 of your Texas sales and use tax return?
Texas sales are:
Sales made from in-state Texas locations. If you sell items from your Houston location, the value of the sale is reported, even if the items are exempt from Texas sales or use tax.
Sales made into Texas from out-of-state locations. If items are sold from a location in Louisiana and shipped to a customer in Texas, the value of the sale is reported because the items were used in Texas– if you are filing a Texas sales tax return.
Do not report sales that are not Texas sales. Make sure you reconcile and maintain how the reported sales figure is calculated. Auditors do ask to see federal income tax returns and bank statements. You may be required to defend the number reported.
Texas Sales Tax Return Tip 2: Taxable Sales
The nature of your business will dictate whether total sales and taxable sales are the same figure. Some people sell products and/or services that are not subject to sales or use tax. If some sales are not subject to tax due to their nature, the tax status of a client, the collection of a properly completed exemption certificate, the location of the purchaser, etc. those sales are not reported as taxable sales.
You must research the taxability of your sales to determine the tax collection responsibility and ensure you collect the correct documentation to support the tax-free nature of sales.
For more information, visit Top Five Resale and Exemption Certificate Mistakes.
Texas Sales Tax Return Tip 3: Taxable Purchases
Total sales and taxable sales reflect sales you make to clients. Taxable purchases reports the value of items that you purchase for use in your business. Items included in this section of the return include taxable items for which:
an out-of-state seller did not collect use tax
an in-state seller did not collect sales tax
an in-state seller under-collected sales tax (the tax rate is too low)
There are no free rides because a seller does not collect the appropriate sales or use tax. You remit the money directly to the state. It can be a red flag to the taxing authority if you NEVER have taxable purchases. Most companies do have taxable purchases at some point.
For more information, visit Taxable Purchases Made Easy!
Texas Sales Tax Return Tip 4: Sales Tax Rates
It is imperative that you collect and pay sales and use tax at the correct rate. The highest sales and use tax rate in Texas is 8.25%. With a few exceptions, the location of the seller dictates the sales and use tax rate.
For an online that explains how to compile a Texas sales and use tax return,
Texas Sales Tax Return Tip 5: Document Retention
Some people think that retaining the confirmation that they filed a tax return is all they need in case of an audit. The taxing authority knows when you filed a return and they know what you reported as total sales, taxable sales, taxable purchases, etc. They want to know HOW YOU CALCULATED the data in the reports. You need your invoices, contracts, spreadsheets, exemption certificates, and anything you used to compile your return. Get a copy in real time. Track all discounts, including, but not limited to prepayment discounts and timely filing discounts that reduce the money you remit to the tax authority.
The statute of limitations in Texas is four years if there is no finding of fraud. If the company makes no sales during a report period, a sales and use tax return must be filed timely.
Texas Sales Tax Return Tip 6: File Returns Timely
Always file the Texas sales tax return and remit payment on time. This will help you avoid late filing fees and help you get a waiver of penalty if you are audited and errors are found.
NOTE: This blog is for taxpayers that are registered with the Texas Comptroller of Public Accounts to collect Texas sales and use tax. If your organization is not registered to collect Texas sales and use tax, you cannot file a Texas sales tax return. However, some concepts can be used in other states.
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