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When do I need to pay sales tax?

February 27, 2017

You want to open a business. You know almost exactly how much it will cost you to start; supplies, furniture, rent, utilities, etc. But, what about sales tax? As a new business owner, this will be one of the first taxes you will encounter once you start selling your product or service.

After setting up your company’s legal structure as either a sole proprietor, partnership, LLC, etc., you will need to visit the State Comptroller’s Office to find out about your sales tax responsibility.

Unfortunately, collecting, calculating, reporting and paying sales tax can be confusing, overwhelming, and sometimes complicated for first-time business owners. To help you understand sales tax, I would like to share with you some general information that I discuss with my clients during their visits.

Basically, sales tax is the percentage of money that a business collects for the government when selling taxable items, tangible personal property, or taxable services. Of course, there are exemptions for certain categories and organizations. Each state offers its own set of exemptions from sales tax. This is why it is extremely important for small business owners to know the applicable state and local tax rules and which exemptions apply in a particular jurisdiction, product or service.

Sales tax is a subject that can’t be taken lightly. Many business owners can fall into the double taxation category when purchasing taxed products and resell them and charge tax. To avoid double taxation it is important to purchase the products tax-free when they will be used as a taxable resale item. You can do this by presenting a resale certificate provided by the State Comptroller’s office to the supplier/vendor. This resale certificate will make you responsible for collecting sales tax once you sell the product, therefore you will include sales tax in the product you are selling.  Using and accepting a resale certificate involves great responsibility, consequently, the more informed you are, the better off you will be.

Another common mistake in sales tax collection/reporting is the lack of tracking of items sold or gifted. Often, many small businesses use the marketing strategy of gifting products to new or loyal customers as a thank you token. But, giving away products that were purchased tax-free obligates the business owner to be responsible for the tax that corresponds to the gifted product.

All these instances can be the cause for a business to be subject to an audit and, as a result, having to pay fines for the inaccuracy when collecting and paying taxes. Taxes are not an easy subject but understanding as much as you can make you a better and, hopefully, a more successful business owner. 

But how do you keep up with all these rules? My best advice is to visit the State Comptroller’s Office. It is important to have their phone number available at all times, and if you have access to the internet, visit their website it has the most up-to-date information and is available 24 hours a day, seven days a week.

 I wish I could give business owners all the answers regarding tax regulations. However, when it comes to sales tax law, the best option is always contacting the Texas State Comptroller’s office and your CPA.

“Business Tips” was written by Adriana Balcorta Havins, Business Development Specialist and Certified Business Advisor IV, of Angelo State University’s Small Business Development Center.  For more information on the topic of this article or the services of the ASU · SBDC, contact her at