Marketplace facilitators to collect single sales tax rate on behalf of sellers in Texas

Update 6.3.2019: Gov. Abbott has signed HB 1525. Marketplace providers are required to collect and remit tax on behalf of marketplace sellers starting October 1, 2019.

Update 5.21.2019: Gov. Abbott has signed HB 2153. Remote sellers with an obligation to collect Texas sales and use tax may opt to collect a single sales tax rate rather than the more than 1,500 different rates currently in effect throughout the state. For the period of October 1, 2019, through December 31, 2019, the single local tax rate is 1.75 percent, for a combined state and local sales and use tax rate of 8 percent.

Texas Governor Greg Abbott has two bills related to sales tax sitting on his desk. One would require marketplace facilitators to collect and remit sales tax on behalf of third-party sellers. The other would greatly simplify sales tax collection for remote sellers making sales in Texas.

The Texas Comptroller of Public Accounts already has a plan to tax some remote sales starting October 1, 2019. Out-of-state businesses with total revenue in Texas in excess of $500,000 during the preceding 12 months must register with the comptroller and collect and remit tax on their Texas sales by that date. However, the comptroller’s plan doesn’t reference marketplace providers.

Marketplace facilitators must collect Texas sales tax

If Gov. Abbott signs House Bill 1525, marketplace providers (aka, marketplace facilitators) would be required to collect and remit tax on all sales made through the marketplace, their own and those by third-party sellers, starting October 1, 2019.

The collection requirement applies to in-state marketplaces as well as remote marketplaces with $500,000 or more in annual Texas revenue (economic nexus).

As of October 1, 2019, a marketplace provider must:

• Certify to each marketplace seller that the provider will assume the duties and rights of a seller with respect to sales made through the marketplace
• Collect sales or use tax on all taxable sales made through the marketplace
• Report and remit the tax on all sales made through the marketplace
• Retain records for all marketplace sales as required

For their part, a marketplace seller must furnish the provider with all information required to correctly collect and remit sales or use tax. A marketplace provider won’t be held liable for failure to collect and remit the proper amount of tax if it can prove the seller provided incorrect or insufficient information.

Simpler sales tax rates

Sales tax sourcing rules in Texas are complicated. Local sales tax rates are generally based on the origin of the sale, such as the location of the brick-and-mortar store (for in-store sales), or the location of the Texas-based warehouse from which an order was shipped. However, in the event a remote seller is required to collect and remit Texas sales tax, the local tax rate is generally based on the ship-to address.

There are more than 1,500 local sales and use tax jurisdictions in Texas, and each has its own sales and use tax rate. Because it would be an undue burden for remote sellers to deal with 1,500+ different sales tax rates, the legislature would turn those 1,500+ rates into one single local rate.

If Gov. Abbot signs House Bill 2153, remote sellers that have an obligation to collect and remit sales and use tax in Texas could elect to collect a single local tax rate that’s the estimated average rate of local sales and use taxes imposed in Texas during the preceding state fiscal year. That would greatly simplify sales tax compliance for out-of-state businesses that make sales in Texas.

The single local use tax rate for the period of October 1, 2019, through December 31, 2019, is 1.75 percent. This would be in addition to the state sales tax rate of 6.25 percent.

More than 25 states already require marketplace facilitators to collect and remit tax on third-party sales. Learn more in our state-by-state guide to marketplace facilitator laws.