How to Register for a Sales Tax Permit in Texas

Some people are comfortable working for a monthly pay, within the boundaries of a certain company department, answering to a supervisor day after day. However, there is another type of people, entrepreneurial people who like to take charge and make business moves themselves. If you are part of this second group, you may find this guide interesting as it aims to show you the steps to registering a business in the state of Texas. It will also focus on the sales tax permit as well as exemptions, but let us start by covering the basics.

Running a business is a complex operation, which means that jumping in without any knowledge about how things work is a recipe for bankruptcy in a very short term. A somewhat natural course of action is to start as an employee, doing all the small things within a company taking in all the knowledge and skills you can as you move along and progress in your career.

Make every position count and make sure you learn all the tricks of the trade. Observe the market from every perspective, learn where the supply is tight or where a market is oversupplied, where the gaps are, try to find where you would be most comfortable. The step to leave a steady job and the monthly pay, however large it may be, behind and pursue your own business, is a big and important step and should not be taken lightly. There are a number of questions you should ask yourself prior to beginning the legal process. What sort of business would you be suited for or vice versa, what sort of business would suit you? Why are you considering the step, what education or experience do you have to back up this move?

The Importance of Having a Business Plan

To answer the suitability question, you should do market research in parallel with creating your own preference list. This list should include all the products and the markets you think you would be comfortable working in/with and you think you could strive in. Once the list is complete, analyze the market conditions. If you have any previous knowledge of the market dynamics use it to your advantage and see whether any of those products or markets from your list have any perspective, whether there is a market for it and whether the business would be a sustainable one, let alone profitable.

In general, the goal is to start small, eliminating the need for a sizeable upfront investment. This is why finding a suitable market gap or a niche market is usually advisable for small businesses. This means that you are entering a market that is undersupplied and has a healthy customer base without much supply competition. It is also good from an experience perspective as you get to build your knowledge, the experience of running a company slowly in a smaller market and build a name and reputation for yourself before tackling a larger market or a more competitive one.

One essential part of this process is having a plan of action, a business plan that will cover all the aspects of your business, your financial goals, revenue predictions, investments and other objectives you plan on achieving. This is important for a number of reasons. It will help you track the progress and it is probably the single most important thing you have to present when looking to secure external financing through banks or other investment institutions. Make sure you introduce your company, show the market research you have done, describe the way the business will be run and map out responsibilities of the management team if there will be a team, put all the startup costs to the paper and show your math. Showing the math includes financial projections of expenses, income, etc.

Once all this is done, once you have your business plan and you have pitched the idea to a number of investors and secured financing, it is time to move on to registering your business in the state of Texas.

Registering a New Business in Texas

According to the Texas government, small businesses drive the state’s economy with more than 22 million of such businesses operating in Texas. While the state gives no guarantees of success, it does help small businesses get going on the right track. Steps to starting a business in Texas are similar to any other state, which means selecting a location, legal structure of the business, determining tax responsibilities and acquiring all the necessary permits and licenses.

The first step includes selecting and registering a business entity with the Texas Secretary of State. There are several structures you can choose from, similar to any other state, and the decision depends on the type of business you intend on running and the scale of the operation.

Sole Proprietorship is for individuals who will own and run their business alone without any additional employees. This makes the owner personally liable for all debts of the business, and the life of the business is limited to the life of the owner as the ownership is non-transferable. There is no legal distinction between personal or business debts and this structure does not require filing a separate tax return. The businesses registered as a sole proprietorship are usually operated under the name of the owner. To operate under a name other than that of the owner the business requires an Assumed name Certificate.

Other business forms include a General Partnership, which includes two or more individuals joining to operate a business, a Limited Partnership includes one or more general partners and one or more limited partners. General partners share in debt and assets while limited partners only have limited debt obligations. Furthermore, you can register as a Limited Liability Company, a Corporation or a Limited Liability Partnership. For more information visit Go Big In Texas, an official brand for the Texas Economic Development Division within the Office of the Governor.

Whichever of the legal structures suits you, you have to register the name with the county clerk’s office or the Secretary of State. All businesses operating in the state of Texas must register with the SoS, and every entity, depending on the business structure chosen, is provided a summary of requirements for creation, except for the Limited Liability Partnership. Once a name is selected the Secretary of State performs a name availability search, and you are instructed to call the Secretary of State office to make sure the name you have chosen is not already taken by another entity (contact details are provided at the end of this guide).

Sole proprietorships and general partnerships planning to do business under another name or to ‘do business as’ must apply for an Assumed Name Certificate with the county clerk where the business premise will be maintained. Assumed Name Certificate forms may differ from county to county, but in general, these require you to provide a business name, mailing address, city, state, zip, expected period of operation, business type, and owner information.

The next step is to make sure you are covering all your tax responsibilities. We will discuss this matter in further detail later in this guide. Before, we will focus on licenses and permits your business might require. The state of Texas does not require a business license, but, depending on the business you do, the services you might be providing, some regulatory agencies might require you to apply for a specific permit. You can find more details about licensing at Texas Department of Licensing and Regulation (TDLR). It is advised to contact your local county or city office and inquire whether you have any additional or specific requirements, to make sure you are covering all the bases.

Texas Sales Tax Permit

This part of the guide has been granted a separate section due to its complexity and importance. In the state of Texas, this is the second step you make in your business registration process. You have to determine what federal, state and local taxes your business might have to deal with.

On a Federal level, every business should apply for a Federal Employer Identification number with the Internal Revenue Service. Some states might not require this tax ID and allow you to use your Social Security Number (SSN), but this opens you up for potential identity theft and similar issues which is why it is advisable to apply for an EIN even if you are registered as a sole proprietor. You can apply for an EIN here.

On a state level, the Texas Comptroller is responsible for the collection of sales, use, and excise taxes in Texas. Retail sales, leases, and rentals of goods, and certain services are taxable in the in the state of Texas, with a 6.25 percent state sales and use tax, and certain local taxes are possible for a total combined rate of 8.25 percent combined.

What you have to do is find whether your business, the products you might sell or the services you provide are taxable and whether you actually have a sales tax nexus in the state. This means that you have an office or a place of business in the state, an employee in the state, a place of distribution, warehouse or a storage location, a storefront or a sample room or any other site where you conduct business.

If you have a sales tax nexus in the state and the products or services you sell/provide are taxable, you have to apply for a sales tax permit. Even online sellers who engage in business in Texas, or are selling tangible personal property or acquiring tangible personal property from suppliers that do not have a Texas permit.

You can apply for a sales tax permit online or by downloading, filling out and mailing the Texas Sales Tax Permit Application to the address provided below in the Contact Details section. You will be required to provide your social security number if you are operating as a sole proprietor or the Federal EIN for each member of the partnership. If you have registered a corporation you are required to provide the corporation’s file number from the Texas Secretary of State, and social security numbers for each officer or director. Also, you have to provide the North American Industrial Classification System (NAICS) code, which, if you plan on selling merchandise online is 454110. Lastly, you have to be at least 18 years of age to apply.

According to the Texas Comptroller, there is no fee tied to applying for the Sales Tax Permit and you should receive your permit within 2 to 3 weeks following application.

Sales Tax Exemptions in Texas

According to Texas law, certain purchases of taxable items are exempt from tax. If you are buying products for resale, you can avoid paying sales tax in case the seller accepts the completed Texas Sales and Use Tax Resale Certificate (Form 01-339).

As a buyer, you should make sure the form is properly filled. To avoid any legal consequences, only use the resale certificate if you plan on reselling the products. An exemption certificate should be provided every time you make a purchase of items for resale. However, if you are a frequent customer of a certain supplier, they can accept a blanket resale certificate, which should state that all the items purchased will be resold in the regular course of business. To check whether a resale certificate is a valid, visit here.

If you are on the receiving end of a resale certificate, the first thing to do is verify that the resale certificate has been filled out properly. You should also make sure that the products being purchased from you will be sold on and only then accept the resale certificate. If you doubt that the merchandise will not be resold, you have the right to decline the resale certificate.

Always keep all the resale certificates you receive in a file for a period of at least four years in order to prove that the sale was made for resale.

Contact Details

Secretary of State

Corporations Section
P.O. Box 13697
Austin, Texas 78711-3697
Phone: 512-463-5555

Email: [email protected]

Comptroller of Public Accounts

111 E. 17th St.
Austin, Texas 78774-0100

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