Overview of Texas Online Sales Tax Legislation
A pair of bills unanimously advanced by the Texas Senate on Friday would allow the state to collect sales tax on items sold by vendors who do not have a physical presence in Texas. A 2018 U.S. Supreme Court ruling in the case South Dakota v. Wayfair Inc. held that such taxes were constitutional.
Simplifying Tax Rates for Remote Sellers
One bill allows for the Texas Comptroller to identify a single tax rate to apply to remote sellers. Because local taxing jurisdictions in Texas have varying sales tax rates, ranging from 6.25% to 8.25%, lawmakers say the bill is intended to simplify online vendors’ sales tax calculations.
The bill would have no effect on the 2020-2021 budget that lawmakers are currently deliberating. That bill was agreed to by both chambers and heads next to Gov. Greg Abbott.
Sales Tax on Online Marketplaces
Another bill would require marketplaces such as Etsy, eBay, and Amazon to collect sales tax on third-party, out-of-state sellers and is expected to yield more than half a billion dollars for the state.
If a Texan purchases an item online from a seller in another state using a “marketplace”—a definition that includes websites and software applications—the marketplace would be responsible for collecting and paying sales tax on those transactions.
Officials estimate the bill would yield an additional $550 million in 2020 and 2021 above what lawmakers included in their budget assumptions.
Differences Between House and Senate Versions
While the House and Senate versions of the legislation, House Bill 1525, are largely similar, they differ on whether to direct the comptroller to study the fiscal impacts of exempting small marketplaces from the tax. That difference could lead to the creation of a conference committee to work out an agreement.
“This legislation paves the way for Texas to fairly collect online sales tax within the parameters outlined by the Supreme Court,”
Senate Finance Chair Jane Nelson, R-Flower Mound, said last week in a prepared statement after the legislation passed through her committee.
“These bills ensure that no undue burdens are placed on remote sellers.”
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Frequently Asked Questions
What is the purpose of the new Texas online sales tax legislation?
The legislation aims to enable Texas to collect sales tax from online vendors who do not have a physical presence in the state, following the Supreme Court’s ruling in South Dakota v. Wayfair Inc.
How does the new law simplify tax collection for remote sellers?
The law permits the Texas Comptroller to designate a single, statewide tax rate for remote sellers, streamlining calculations and reducing complexity caused by varying local tax rates.
Who is responsible for collecting tax on online marketplace sales?
Online marketplaces like Amazon, Etsy, and eBay are now responsible for collecting and remitting sales tax on behalf of third-party sellers, even if those sellers are located out of state.
Will this legislation impact Texas’ current budget?
No, the legislation will not affect the 2020-2021 budget already under consideration by lawmakers.
Are small marketplaces exempt from this tax law?
There is ongoing debate between the House and Senate versions of the bill regarding whether small marketplaces should be exempt, which may lead to further discussions or a conference committee.