Challenging the Texas Sales Tax Exemption: Is $500,000 Threshold Justified?
The University of Texas at Austin has published an objection to the planned threshold for Texas remote seller sales tax collection.
While many states have set the bar at $100,000 or $200,000 in revenue per year, Texas will only require remote sellers to comply with Texas sales tax rules if they have $500,000 in sales in Texas each year. Calvin H. Johnson, the John T. Kipp Chair in Corporate and Business Law at The University of Texas at Austin and author of the editorial thinks that number is too high.
“If Texas imposes burdensome taxes on Texans, it can and should impose them on out-of-state vendors,” says Johnson. “If Texas merchants are not getting offered a half-million-dollar exemption from sales tax, then neither should the remote sellers.”
Texas has warned remote sellers to plan on sales tax compliance later this year (most recent news says October will be the month), and has promised that there will be no retroactive sales tax collections. Remote sellers must keep track of their sales in Texas and have a month after they hit the $500,000 threshold to start collecting sales tax. Sellers won’t base their eligibility for the small seller exemption on a calendar year. They will instead be required to look at the previous 12 months. If at any time the seller has racked up $500,000 in sales in the previous 12 months, they will be judged to have met the requirements to collect sales tax.
The Texas sales tax permit is free, and sellers can apply for one at any time. Texas is also considering setting a flat tax for all sales in the state, rather than requiring remote sellers to keep track of all jurisdictions.
Is Texas favoring remote sellers?
Compared with some other states, Texas seems to be making it easy for remote sellers to comply with their sales tax regulations. Is it too easy?
The UT editorial says, “Texas needs to pay to attract and hold the best teachers. Schools need books and buildings. The $500,000 exemption does not help Texas get what it needs.”
Johnson doesn’t see any need for small seller exemptions. He believes that, with the right software, it shouldn’t cost any more to comply with Texas sales tax rules for remote sellers than it does for local sellers.
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