In May 2019, Texas enacted two laws, House Bill 1525 (HB 1525) and House Bill 2153 (HB 2153), as a reaction to the US Supreme Court’s decision in South Dakota v. Wayfair (Wayfair). These laws require marketplace providers to collect and remit sellers’ use tax on remote sales. These laws are in addition to the economic nexus guidance previously issued by the Texas Comptroller of Public Accounts (Comptroller).
On January 1, 2019, the Comptroller amended Texas Administrative Code Section 3.286 to adopt several key changes. The changes address the following registration and collection responsibilities of remote sellers as a result of Wayfair:
- Remote sellers are required to register, collect, and remit Texas sales tax if they cross the safe-harbor threshold of the annual total of their taxable, nontaxable, and exempt sales revenue of $500,000 in Texas.
- Remote sellers must register by the first day of the fourth month after the month in which they exceeded the safe-harbor threshold. For example, if they exceed the threshold on October 20, 2019, they would need to register by February 1, 2020.
- Remote sellers should take into consideration the total revenue from the preceding twelve months to analyze the safe-harbor threshold.
This amendment is enforceable as of October 1, 2019.
Key Changes Under HB 1525 and HB 2153
The new laws clarify the Texas Administrative Code Rule 3.286 amendments made by the Comptroller in January.
Now, a marketplace provider must collect and report all sales made through the Texas marketplace. HB 1525 lays out marketplace definitions, while HB 2153 addresses the uniform local sales tax rate.
The following definitions are laid out in HB 1525:
- Marketplace–Any physical or electronic medium by which third-party sellers offer taxable items for sale
- Marketplace provider—The entity that owns or operates a marketplace and processes sales or payments for third-party sellers
- Marketplace seller—A seller, other than the marketplace provider, who makes a sale of a taxable item through a marketplace
Requirements and Implications
The new law makes marketplace providers primarily responsible for collecting and remitting tax, unless they’ve made an alternate agreement with their marketplace sellers or they’re affiliates or associates of the sellers. In these cases, marketplace providers and sellers are jointly and severally liable for any deficiencies.
However, regardless of who is collecting and remitting tax, marketplace sellers are required to provide all information necessary to collect and remit taxes. A marketplace provider isn’t liable for deficiencies if it relies on incorrect information provided by the marketplace seller.
The law also prohibits class-action lawsuits against marketplace providers.
Local Tax Implications
Combined local sales and use tax rates in Texas vary from 0%–2%. HB 1525 simplifies the compliance burden for various local taxes, providing remote sellers an option to elect the single local tax rate instead of the combined local tax rates.
A remote seller who elects the optional, single local rate must notify the Comptroller in the form and manner prescribed by the Comptroller before using that rate. Each year, the Comptroller will publish a notice of the single local sales-and-use tax rate that will be in effect for that calendar year. The single local use tax rate is equal to the estimated average rate of local sales and use taxes imposed in the state during the preceding state fiscal year.
The single local tax rate for the period beginning October 1, 2019, and ending December 31, 2019, is 1.75%. With respect to the sourcing rule to apply the single local tax rate, the new law states a sale is consummated at the location to which a taxable item is shipped or delivered or where the customer takes possession. Purchasers may annually apply for a refund of overpaid local taxes on purchases where the new local single rate is less than the average combined local rate.
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