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:
This amendment is enforceable as of October 1, 2019.
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:
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.
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.
For more information on how this update could affect you and your business, contact your Moss Adams professional or statetax@mossadams.com.