Texas Sales and Use Tax return (Form 01-114) for self-employed individuals and small businesses. Covers the 6.25% state rate, local tax add-ons (up to 2%), combined maximum of 8.25%, use tax, data processing services exemption under Section 151.351, and filing frequencies. Primary source: Texas Tax Code Chapter 151. Covers Form 01-114 Total Texas Sales vs Taxable Sales treatment, exempt-customer documentation, and Texas local-tax sourcing rules.
Written by the OpenAccountants team. Written by the OpenAccountants team from the official sources it cites.
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Who must register
Any person who sells, leases, or rents taxable tangible personal property or taxable services in Texas must obtain a Texas sales tax permit. There is no fee for the permit.Texas Tax Code §151.201
Due date
The 20th of the month following the reporting period. If the 20th falls on a weekend or holiday, the next business day.Texas Comptroller Rule 3.286
Local tax total cap
Total local taxes cannot exceed 2.00% for any location.Texas Tax Code §321.101, §322.103
Discount forfeiture
The discount is forfeited if the return is filed or paid late.Texas Tax Code §151.423
Classify all sales
For each transaction, determine: 1. Tangible personal property or taxable service? If yes, taxable unless an exemption applies. 2. Exempt? (See Section 5.) 3. Location of sale. Texas local sourcing is not a blanket destination rule. For Texas sellers, local sales tax generally follows the seller's place of business or fulfillment facts; remote/out-of-state sellers generally use destination local use tax or the elected single local use tax rate.Texas Tax Code Chapter 151
Total sales
Sum gross sales, rentals, and leases for the reporting period, including taxable and nontaxable sales but excluding separately collected sales tax.Form 01-114 Item 1
Taxable sales
Total Texas Sales minus supported deductions/exemptions. Exclude documented resale, exempt-entity, statutory exempt, and out-of-state destination sales from Taxable Sales, but keep them in Total Texas Sales when included in gross receipts.Form 01-114 Item 2
State tax
Taxable sales x 6.25% = state sales tax.Form 01-114 Item 3
Local tax
Determine whether local sales tax or local use tax applies. For Texas places of business, source under Comptroller local-tax rules; for remote/out-of-state fulfillment, use the ship-to local use tax rate or a valid single local use tax rate election. Apply local tax only up to the 2% local cap.Form 01-114 Item 4
Use tax
For purchases on which no Texas tax was collected: - Purchase price x (6.25% state + applicable local rate) = use tax. - Credit allowed for sales tax paid to another state (limited to the Texas rate).Form 01-114 Item 5
Total tax
State tax + local tax + use tax = total tax.Form 01-114 Item 6
Timely filing discount application
If filing on time: total tax x 0.5%, capped at $500 per period.Form 01-114 Item 7
Net tax due
Total tax - timely filing discount = net tax due.Form 01-114 Item 8
Data processing services 20% exemption
The sale of data processing services is taxable, BUT 20% of the charge is exempt. Only 80% of the data processing service charge is subject to sales tax.Texas Tax Code §151.351
Data processing services definition
Data processing services include word processing, data entry, data retrieval, data search, information compilation, payroll processing, and similar computer-based services.Texas Tax Code §151.0035
Internet access and web hosting
Internet access services are exempt from Texas sales tax (per the federal Internet Tax Freedom Act). Web hosting is classified as a data processing service and is taxable (at the 80% rate).Texas Comptroller Rule 3.330
Canned software
Canned software (sold off-the-shelf or downloaded): taxable as tangible personal property.unsure
Custom software
Custom software (written to specific customer specs): exempt.unsure
SaaS
SaaS (Software as a Service): the Comptroller's position treats SaaS as a data processing service (taxable at 80%). Some taxpayers dispute this classification.unsure
Manufacturing exemption
Tangible personal property directly used in manufacturing is exempt. This includes machinery, equipment, and materials that become an ingredient or component of a manufactured product for sale.Texas Tax Code §151.318
Agricultural exemption
Farm machinery, feed, seed, and fertilizer are exempt when used exclusively in agricultural production. Requires a valid agricultural exemption certificate (Ag/Timber Number).Texas Tax Code §151.316
Occasional sales exemption
A person who does not regularly sell tangible personal property is not required to collect sales tax on an occasional sale, provided they do not make more than two sales of taxable items in a 12-month period.Texas Tax Code §151.304(a)
Destination-based sourcing
Texas local sourcing depends on the seller's place of business, fulfillment location, and remote-seller status. Local sales tax generally follows a Texas seller's place of business; local use tax for remote/out-of-state fulfillment generally follows the ship-to location unless the remote seller has elected the single local use tax rate.Texas Tax Code §321.203
P-1
Do NOT assume Texas local tax is always destination-based or always origin-based; identify Texas place of business, fulfillment facts, remote-seller status, marketplace-provider status, and any single local use tax election.Section 7 -- Prohibitions
P-2
Do NOT tax the full amount of data processing services. Only 80% is taxable.Section 7 -- Prohibitions
P-3
Do NOT classify all software as taxable. Custom software is exempt.Section 7 -- Prohibitions
P-4
Do NOT claim the timely filing discount on a late return.Section 7 -- Prohibitions
P-5
Do NOT apply local tax rates exceeding the 2% cap.Section 7 -- Prohibitions
P-6
Do NOT accept a resale certificate without verifying the purchaser's sales tax permit number.Section 7 -- Prohibitions
Rendered from the canonical facts model. General reference only — confirm with a qualified professional before acting.
Obligation category: CT (Consumption Tax) Functional role: Return preparation Status: Complete
This is a Tier 2 content skill for preparing the Texas sales and use tax return (Form 01-114) for sole proprietors and small businesses selling taxable goods or services in Texas.
In scope:
Out of scope (refused):
Filing frequency (Texas Comptroller Rule 3.286; Texas Tax Code §151.424)
| Quarterly tax liability | Filing frequency | Source |
|---|---|---|
| $0 -- $500/quarter | Annually (due January 20) | Texas Comptroller Rule 3.286 |
| $500 -- $1,500/quarter | Quarterly (due 20th after quarter) | Texas Comptroller Rule 3.286 |
| Over $1,500/quarter | Monthly (due 20th of following month) | Texas Comptroller Rule 3.286 |
| $500,000+/quarter | Monthly with prepayment option | Texas Tax Code §151.424 |
Rates and thresholds (Texas Tax Code §151.051, §321.101, §322.103, §151.101)
| Item | Rate | Source |
|---|---|---|
| State sales tax | 6.25% | Texas Tax Code §151.051 |
| Maximum local tax | 2.00% | Texas Tax Code §321.101, §322.103 |
| Maximum combined rate | 8.25% | Texas Tax Code §151.051 + local caps |
| Use tax | Same as sales tax (6.25% state + local) | Texas Tax Code §151.101 |
Local tax components (Texas Tax Code §321.101, §323.101, §322.103, Various statutes)
| Component | Maximum rate | Source |
|---|---|---|
| City sales tax | 2.00% (within the 2% cap) | Texas Tax Code §321.101 |
| County sales tax | 0.50% | Texas Tax Code §323.101 |
| Transit authority tax | 1.00% | Texas Tax Code §322.103 |
| Special purpose district tax | varies | Various statutes |
Timely filing discount (Texas Tax Code §151.423)
| Item | Amount | Source |
|---|---|---|
| Timely filing discount | 0.5% of tax due (max $500/reporting period for monthly/quarterly filers) | Texas Tax Code §151.423 |
Example: $10,000 data processing invoice. Taxable amount: $10,000 x 80% = $8,000. Tax: $8,000 x 8.25% = $660.
Input: Retailer in Houston (combined rate 8.25%). Taxable sales: $50,000. Expected: State tax: $50,000 x 6.25% = $3,125. Local tax: $50,000 x 2.0% = $1,000. Total: $4,125. Discount: $4,125 x 0.5% = $20.63. Net: $4,104.37.
Input: IT consultant in Dallas (combined rate 8.25%). Data processing services: $20,000. Expected: Taxable amount: $20,000 x 80% = $16,000. Tax: $16,000 x 8.25% = $1,320. Discount: $1,320 x 0.5% = $6.60. Net: $1,313.40.
Input: Retailer selling $30,000 general merchandise + $5,000 sold for resale (with valid resale certificate). Expected: Taxable: $30,000. Exempt: $5,000. Tax on $30,000 at applicable combined rate.
Input: Business purchases $3,000 of office supplies from out-of-state vendor, no tax collected. Located in Austin (8.25%). Expected: Use tax: $3,000 x 8.25% = $247.50.
Input: Same as Test 1 but filed 5 days late. Expected: No timely filing discount. Penalty: 5% of tax due ($206.25). Interest applies.
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Exempt customer documentation and return treatment (https://comptroller.texas.gov/taxes/publications/96-122.php)
| Buyer / sale type | Tax treatment | Documentation to retain | Return treatment |
|---|---|---|---|
| Federal government | Exempt on qualifying purchases | Properly completed Form 01-339 or purchase voucher in the government entity name | Include tax-free sale in Total Texas Sales; exclude from Taxable Sales |
| Texas state/local government and public schools | Exempt on qualifying purchases | Form 01-339 or government purchase voucher; public school/government identity should be clear | Include in Total Texas Sales; exclude from Taxable Sales |
| Private school, college, university, church, religious/charitable nonprofit | Not automatically exempt; must have Comptroller exempt status | Properly completed Form 01-339 in the exempt organization name; authorized-agent purchases must identify the exempt organization | Include in Total Texas Sales; exclude from Taxable Sales only with support |
| Federally recognized tribal council or tribal-council-owned business | Treat as exempt federal instrumentality; individual tribe members are not exempt merely by status | Form 01-339 or comparable exemption documentation identifying the tribal entity, not an individual member | Include in Total Texas Sales; exclude from Taxable Sales only for entity purchases |
| Farm/ranch/agricultural production | Exempt only for qualifying items used directly in commercial agricultural/timber production | Form 01-924 with Ag/Timber Number for ag/timber exemption; do not use Form 01-339 for that exemption | Include in Total Texas Sales; exclude from Taxable Sales only for qualifying documented items |
| Resale | Exempt when purchased for resale | Properly completed resale certificate (Form 01-339 resale side) and purchaser sales tax permit / resale details | Include in Total Texas Sales; exclude from Taxable Sales |
| Shipped or delivered out of Texas | Not subject to Texas sales tax when destination is outside Texas; check destination-state nexus separately | Shipping records, bill of lading, delivery address, customer order, and invoice showing out-of-state destination | If included in Texas outlet gross receipts, include in Total Texas Sales and exclude from Taxable Sales as a destination deduction |
Form 01-114 exempt sales reporting (https://comptroller.texas.gov/taxes/audit/manuals/fundamentals/ch5.php)
| Return concept | Treatment |
|---|---|
| Form 01-114 Item 1 / Total Texas Sales | Report gross taxable and nontaxable sales for the outlet/reporting period, excluding separately collected sales tax. Tax-free sales are not omitted from total sales. |
| Form 01-114 Item 2 / Taxable Sales | Report only sales subject to Texas tax after supported deductions and exemptions. Exempt, resale, and supported out-of-state destination sales are excluded here. |
| Deductions / exempt-sales reconciliation | There is no separate universal deduction line in the basic return; Comptroller audit reconciles deductions as Total Sales minus Taxable Sales. Keep certificates and shipping records by transaction. |
| Tax-free sales holidays or statutory exempt items | Include only in Total Texas Sales, not Taxable Sales, unless Comptroller instructions for a special schedule say otherwise. |
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