Texas Use Tax Guide
Your guide to Texas use tax compliance
An overview of Texas use tax
When tangible personal property is purchased in Texas, sales tax is generally collected by the retailer at the point of sale. Should it not be collected or if goods are purchased out of state and no tax is collected, a use tax is likely due and it is up to the buyer to file it. Use tax is one of the most overlooked and misunderstood taxes. This guide will help you better understand how to manage your Texas use tax responsibilities.
Use tax may apply to businesses, individuals, or nonprofits that don't have an exemption granted by the Texas Comptroller of Public Accounts and attempts to level the playing field for purchases that avoid sales tax.
Two types of use tax exist. Sellers use tax applies to retailers while consumer use tax applies to consumers who may be individuals or businesses. Use tax rules also apply to international purchases brought back to Texas.
Common use tax situations in Texas
There are many situations that require use tax to be paid to the Texas Comptroller's office. The following list is far from complete, but offers some common situations:
- Taxable items purchased from in-state or out-of-state sellers where Texas sales tax is not collected
- Items purchase for resale taken out of inventory to give away or use
- Use of goods purchased tax-free when performing a nontaxable service
- Goods taken from inventory and used as free samples or giveaways
- Bringing equipment, supplies, or vehicles into Texas for permanent use
Sellers use tax in Texas
Like sales tax, sellers use tax is a transaction tax. It is determined by applying the use tax rate (equal to the sales tax rate) to the purchase price of qualifying goods and services. Generally speaking, a business is required to pay sellers use tax if the following two conditions are satisfied:
- No tax was collected on a sale that qualifies for sales tax in Texas.
- A business in Texas uses, gives away, stores, or otherwise consumes a taxable item that was purchased tax-free.
To determine the amount of sellers use tax owed, the retailer should apply the sales tax rate where the item is used, stored, or otherwise consumed to the total purchase price.
Sellers use tax may also be referred to as "retailers use tax" or a "vendors use tax".
Consumer use tax in Texas
Consumer use tax is typically imposed on taxable transactions where sales tax was not collected. A good example is an taxable online purchase where the retailed fails to collect sales tax. The responsibility shifts from the seller to the buyer who can report, file, and remit total use tax on their annual Texas income tax return.
Credit for sales tax paid out-of-state
In some cases, an out-of-state purchase may be taxed at a sales tax rate different from that in Texas. If the consumer paid a higher, out-of-state tax rate, the Texas Comptroller's office allows them to claim a credit. If they paid a lower out-of-state tax rate, the Texas Comptroller's office expects them to report, file, and remit the difference.
Reporting Texas use tax
Depending on your situation, the manner in which you report use tax may vary. Consider the following examples:
- Individuals: Individuals who owe use tax in Texas may report it on their annual income tax return.
- With no sales tax permit: Should report on annual Texas income tax statement.
- With ongoing use tax to file: Should report per assigned Texas sales tax filing frequency.
If you're filing a use tax return to the Texas Comptroller's office, you can do that online or by completing ands submitting Form 01-156, Texas Use Tax Return, along with your use tax payment.
The following represents a list of resources you can use for further details pertaining to Texas use tax.