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Texas Clarifies Proper Calculation of Sales Tax


The Texas Tax Policy News has been updated to provide guidance on the proper calculation of sales and use tax.

Here are the highlights:

  • “If the sales price involves a fraction of a dollar…a fraction of one cent that is less than one-half of one cent is not collected and a fraction of one cent that is equal to one-half of one cent or more is collected as one cent of tax.”
  • “…[T]he amount should be carried to the third decimal place.”
  • “If the numeral numeral in the third decimal place is equal to or greater than five, the amount should be rounded up to the next cent.”
  • State and local sales tax should be calculated by multiplying the state rate by the total sales price, then multiplying the local rate by the total sales price and adding the totals together to get the final sales tax due on the purchase.  [Example 1]
  • “When several taxable items are sold in the same transaction, sales tax is computed on the total sale of taxable items, not on the sale of each individual item.” The final total is after coupons, discounts, “free” offers and “…all other price reductions have been subtracted.” [Example 2]
  • Sellers may not round off the sales tax rate.

Example 1:

“…an item is sold for $20 and the total tax rate is 8.25 percent (6.25 percent state tax, 2 percent city tax). The seller should multiply $20 by the state tax rate (6.25 percent) and then multiply $20 by the city tax rate (2 percent). The seller would add state tax ($1.25) and the local tax ($.40) to compute the total tax due ($1.65).”

Example 2:

“…a retailer may offer a customer a 10 percent discount on all purchases. If the customer buys an item marked at $50, the discounted price becomes $45. Tax is computed on the final discounted sales price of $45.”

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Avalara Author
Susan McLain
Avalara Author Susan McLain
Susan McLain began her career as a technical writer in technology industries such as satellite networking and medical devices. Her skills encompass technical and marketing writing, usability engineering, verification and validation testing and protocol writing, requirements development, business analysis, technical illustration/graphic design and marketing. She has owned her own business providing service to small to medium sized business and in other positions, she has been in project management, documentation and marketing. She is currently the content specialist for Avalara helping to “make sales tax less taxing.”