Texas operates one of the nation's most business-friendly tax environments, with no corporate or personal income tax and relatively high economic nexus thresholds that provide breathing room for growing companies.
However, Texas's nexus rules are notably comprehensive, requiring businesses to count all gross receipts, including exempt, wholesale, and marketplace sales, toward economic thresholds, thereby broadening compliance obligations beyond those of many other states.
Texas requires businesses to register for sales tax collection when they establish either economic nexus through sales volume or physical presence nexus through business activities in the state.
Texas establishes economic nexus when a remote seller's gross receipts from retail sales to Texas customers exceed $500,000 in the previous 12 calendar months.
This threshold is notably inclusive, counting all revenue types toward the calculation:
The 12-month measurement period is rolling, meaning businesses should continuously monitor their trailing 12 months of Texas revenue.
Unlike states with transaction count requirements, Texas relies solely on the dollar threshold — a single large contract can establish nexus as easily as thousands of small transactions.
Registration and collection obligations begin on the first day of the fourth month after exceeding the threshold, providing a brief implementation period for compliance setup.
Physical presence in Texas creates an immediate sales tax nexus regardless of revenue levels. Activities that establish physical presence include:
Even a single remote employee working from a Texas home office creates a physical presence nexus, requiring immediate registration and tax collection on the first taxable sale.
Businesses with a Texas nexus must register through the Texas Comptroller's eSystems Portal for a sales tax permit. The state assigns filing frequencies based on tax volume, typically monthly for larger sellers, quarterly for moderate sellers, and annually for smaller operations.
Texas offers a marketplace facilitator program where certified platforms handle tax collection for third-party sellers, eliminating individual registration requirements for qualifying sellers. However, sellers are responsible for maintaining records and separately managing tax obligations for any direct sales made outside of these platforms.
Returns and payments are generally due by the 20th of the month following the collection period, with electronic filing and payment required for most businesses.
Texas levies a franchise tax (its equivalent to corporate income tax) on most business entities conducting business in the state, using similar nexus standards to sales tax, but with some unique characteristics.
Texas franchise tax applies to corporations, LLCs, partnerships, and other entities with Texas nexus based on:
The franchise tax uses the same $500,000 gross receipts threshold as sales tax but applies it to the current tax year rather than a rolling 12-month period. Entities with Texas gross receipts below $2.65 million pay no franchise tax due to the state's no-tax threshold.
Entities subject to the Texas franchise tax must file annual reports by May 15 following the end of their accounting period.
The tax calculation uses a "margin" system based on total revenue minus certain allowable deductions, taxed at 0.375% for wholesale/retail entities or 0.75% for other business types.
Estimated payments are not required for franchise tax. The annual return includes both the tax calculation and an annual report component, combining tax and entity maintenance requirements in a single filing.
Employment tax nexus in Texas triggers when any employee performs work within the state, creating immediate obligations across multiple tax types and agencies.
Texas employment tax nexus is established by:
The location where work is performed determines nexus, not the employee's official residence or the company's payroll processing location.
Employment nexus requires multiple registrations with different Texas agencies:
Texas treats digital products and cloud-based services as taxable personal property, subject to the same nexus rules as traditional retail sales. SaaS subscriptions, downloadable software, and digital media all count toward the $500,000 economic nexus threshold and must be taxed when sold to Texas customers.
Digital businesses face unique considerations in Texas:
Texas marketplace facilitator rules require platforms to collect tax on behalf of third-party sellers when the platform itself has Texas nexus. Sellers using certified facilitators don't need separate registration for those sales but must track direct sales separately.
Affiliate marketing relationships do not, by themselves, create nexus through click-through provisions in Texas; nexus is established only through physical presence, economic activity above $500,000 in annual sales, or certain ownership/control relationships.
Establishing sales or franchise tax nexus in Texas often requires foreign registration with the Secretary of State.
While tax registration and entity qualification are separate processes, crossing economic nexus thresholds typically demonstrates sufficient business activity to require corporate registration, particularly for businesses maintaining ongoing customer relationships or repeat sales in the state.
Texas provides specific timeframes for registration after nexus is established:
Texas requires comprehensive documentation supporting nexus determinations and tax calculations:
Texas audits focus heavily on proper customer location identification and on including all revenue types in nexus calculations, making detailed recordkeeping essential.
Texas's comprehensive nexus rules and inclusive revenue calculations create complexity that many businesses underestimate, particularly when managing multi-state compliance obligations.
Discern streamlines Texas registration requirements through automated foreign entity filings and registered agent services, while providing real-time compliance tracking across all jurisdictions where you operate.
Ready to take the stress of Texas compliance off your hands? Book a demo with Discern today.
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