Texas shoppers who make online purchases from out-of-state retailers are now paying taxes on most of the transactions.
Since Oct. 1, Texas has required out-of-state retailers to charge consumers the state's sales tax. The Lone Star State joined the cadre of states that implement an online sales tax after a 2018 U.S. Supreme Court ruling in South Dakota vs. Wayfair.
Under the ruling, states could force out-of-state businesses to require residents to pay local and state sales taxes. Texas followed California and New York’s leads after the two states adjusted their respective rules earlier this year.
For quite some time, online shoppers in Texas were able to avoid sales taxes because of a decades-long loophole. The Texas Legislature patched the loophole during its last session.
Texas’s large geographical size and various combinations of local taxes prompted Austin to allow businesses to collect a flat eight percent on purchases. However, online companies that already collect state taxes are prevented from imposing the flat eight percent rate.
According to the state Comptroller, Texas state government will bring in an estimated additional $500 million a year in sales taxes from transactions that previously did not require a sales tax.
A spokesman for the state Comptroller’s office said that retailers that start to abide by the Oct. 1 policy have the choice to administer the actual combined state and local rates or the flat eight percent rate itself. Businesses cannot change the rate once they decide upon it.
Not all retailers are expected to implement sales taxes. Those that have sold a minimum of $500,000 worth of goods to Texas in the past year must start collecting sales taxes while smaller companies are still exempt.
Residents who purchase items from in-state retailers will not see any changes.