Texas sales tax for Oklahoma companies: the $500,000 test

What if your Oklahoma company starts selling into Texas, and the orders keep growing? Most owners who ask us about Texas sales tax for Oklahoma companies already know one number: $500,000. Fewer know who that number belongs to.

The Texas Comptroller's safe harbor, a rule that excuses a seller from a requirement while it stays inside stated limits, is written for one kind of out-of-state seller. If your company isn't that kind of seller, the figure may not help you at all.

To show how the pieces fit, we'll follow a hypothetical company: a parts and equipment supplier in Ardmore that takes orders by phone and through its website from customers in North Texas. The company is invented for illustration, and so are its numbers.

Everything below is Texas law. Oklahoma's own rules for out-of-state sellers are the subject of a separate article on remote sellers and Oklahoma sales tax.

The first test: is the company a remote seller at all

The Comptroller defines a remote seller as an out-of-state seller whose only activity in Texas is the remote solicitation of sales. Its Remote Sellers page lists the internet, telephone, radio or television, and catalogs or flyers.

That page also says a seller with a physical presence in Texas is not a remote seller, and it gives a business location, salespersons, and representatives as examples. The $500,000 safe harbor is offered to remote sellers.

So before anyone adds up revenue, the Ardmore company has to ask whether it is "engaged in business" in Texas, the phrase Texas uses for a seller connected closely enough to the state that it must hold a permit and collect tax.

Before October 1, 2019, according to the Comptroller's FAQ, an out-of-state seller had to collect Texas tax only if it was engaged in business in the state. Texas added a revenue test for remote sellers after the 2018 Supreme Court decision in South Dakota v. Wayfair, and the older list of in-state activities never went away.

What Publication 94-108 lists

The Comptroller's Publication 94-108, titled Engaged in Business, sets out the activities. Paraphrasing the ones an Oklahoma company is most likely to meet, a seller is engaged in business in Texas if it:

• has a temporary or permanent Texas location, run directly or through an agent, such as an office, sales room, sample room, kiosk, warehouse, or distribution center;
• has an employee or representative in Texas who sells, delivers, or takes orders;
• performs services in Texas using company employees, authorized service agents, or subcontractors;
• delivers items in Texas using owned, leased, or company vehicles;
• leases equipment or other tangible personal property, meaning physical goods, to others in Texas.

Under the employee or representative item, the publication's examples are agents, canvassers, or solicitors operating under the seller's authority; independent salespersons working on behalf of direct sales companies; employees who exhibit products at trade shows or conferences; and affiliates or related businesses that accept returns in Texas.

The list goes on to cover promoting events such as flea markets and trade days, property owned or used in Texas, franchisees and licensees, companies organized under Texas law, and certain affiliates tied to the seller by 50 percent or greater ownership. It also includes soliciting orders by mail or online, which is the one Texas activity a remote seller has and the one the safe harbor is built around. Its last item is a catch-all for conducting business in Texas in any other manner.

For authority, the Remote Sellers page cites Texas Tax Code Sections 151.107 and 151.0595 and the Comptroller's Rules 3.286 and 3.334. Section 151.107, as posted on the Texas Legislature's statute site, is worded more generally: nine items, none using the words vehicle, trade show or subcontractor, the last reaching a retailer that otherwise does business in the state.

Where Oklahoma companies get surprised

Read that list as the owner of a company an hour north of the Red River, with three hypotheticals in mind. A box truck with the company's name on the door makes a weekly run to Gainesville, and the publication lists delivering items in owned, leased, or company vehicles. Employees staff a booth at a Dallas trade show, and the publication's examples include employees who exhibit products at trade shows or conferences.

The third is a technician or subcontractor working at a Texas customer's site, and the publication lists services performed in Texas by company employees, authorized service agents, or subcontractors. Whether a particular company's facts meet the Texas standard is a legal question the list doesn't answer by itself.

Publication 94-108 states no minimum number of days or visits, and no dollar floor, for any of these activities. The only carve-out it mentions is for out-of-state businesses that come into Texas solely to help with disaster recovery and meet requirements set out in a separate publication.

Here's the pattern we see most often. The accounting side of a company tracks Texas revenue against $500,000 and reports, accurately, that it's well under.

Meanwhile, the facts that decide whether the safe harbor is available at all sit with sales and operations, in delivery routes and trade show calendars the accounting team never sees. Nobody has put the two sets of facts side by side.

What the sources don't say

Precision cuts both ways. The delivery item speaks of owned, leased, or company vehicles and doesn't mention parcel carriers or the mail.

Nor does the publication address a single isolated visit, or how long a connection lasts after the activity stops. Silence in a short publication isn't a ruling in either direction, and the list ends with a catch-all.

If the Ardmore company does have one of the listed contacts, the publication's instruction is short. An engaged-in-business seller applies for a Texas sales and use tax permit and collects tax on the taxable items it sells, delivers, or provides in Texas.

For the next several sections, assume the opposite: the company's only Texas activity is remote solicitation.

Texas sales tax for Oklahoma companies that stay remote: counting to $500,000

A remote seller whose total Texas revenue in the preceding twelve calendar months is less than $500,000 isn't required to get a permit or to collect, report, and remit Texas use tax.

Use tax is the companion to sales tax: it applies to taxable items bought from a seller that didn't charge Texas tax and then stored, used, or consumed in Texas. It's what a remote seller collects.

The revenue figure is broader than most owners expect. It's gross revenue from sales of tangible personal property and services into Texas, taxable and nontaxable alike. The Comptroller's page counts separately stated fees for handling, transportation, and installation, along with sales for resale and sales to exempt entities.

For a wholesale-heavy company, that definition matters, because a sale for resale (a sale to a buyer who will resell the item, and so pays no tax on the purchase) still counts. Suppose our Ardmore supplier sells $450,000 over twelve months to Texas dealers for resale and $80,000 to Texas end users. Even if no tax were due on the dealer sales, the total that counts is $530,000.

Marketplace sales count too. The Comptroller's FAQ says that as of April 1, 2020, a remote seller includes sales made through a marketplace in the calculation even when the marketplace collects the tax. Its example is a seller with $300,000 of website sales and $300,000 of marketplace sales: $600,000 in total, so the safe harbor doesn't apply.

The look-back is the preceding twelve calendar months, not a calendar or fiscal year. The FAQ doesn't say how often to re-run the figure, but a deadline keyed to the month a seller goes over implies checking month by month.

Staying under the line doesn't make the tax disappear. According to the Comptroller's use tax page, when a seller doesn't charge Texas tax the purchaser owes the use tax directly, and a purchaser that holds a permit reports it on its own return.

The month the company crosses, and the permit deadline

Once a remote seller's Texas revenue for the preceding twelve calendar months exceeds $500,000, it must obtain a permit and begin collecting no later than the first day of the fourth month after the month in which it went over.

The Comptroller's own example uses July 1, 2021 through June 30, 2022. A seller over the line for that period had to be permitted and collecting by October 1, 2022.

Apply the same count to our hypothetical. Suppose the Ardmore company's trailing twelve-month Texas revenue first tops $500,000 with its March sales. April is the first month after, May the second, June the third, and July the fourth, so its permit and its first day of collection are due no later than July 1.

The Comptroller's permit FAQ says there's no fee for the permit, though an applicant may be required to post a security bond, and applications are made online or on Form AP-201.

Which local rate goes on the invoice

Texas imposes a 6.25 percent state sales and use tax. Cities, counties, special purpose districts, and transit authorities can add local tax of up to 2 percent, so the combined rate tops out at 8.25 percent.

By default, a remote seller collects local use tax based on the Texas address where the order is shipped or delivered, and the Comptroller's Sales Tax Rate Locator searches by address.

The alternative is the single local use tax rate, which a remote seller may elect to charge on every Texas sale instead of the destination rate. The Comptroller determines the figure after each state fiscal year and publishes it in the Texas Register before the calendar year begins. For calendar year 2026 it is 1.75 percent, and because it is reset annually, the current figure is the one to check.

A seller applying for its first permit makes the election on the application. A seller that already holds a permit uses Form 01-799, and the election takes effect on the first day of a reporting period.

The trade-offs in the single rate

Simplicity is the appeal. At the 2026 figure, 1.75 percent plus 6.25 percent gives 8 percent on every taxable Texas invoice, with no address lookup.

Some of your customers bear the cost, where the single rate is higher than the local rate at their location. The FAQ's answer is that the purchaser may claim a refund of the difference from the Comptroller, once a year, on Form 00-957.

Where the local rate is at the 2 percent maximum, the arithmetic runs the other way, and the single rate is a quarter point lower.

Getting out of the election takes time, and revocation also goes on Form 01-799. Notice given before October 1 means the single rate continues through the end of that calendar year, and notice on or after October 1 means it continues through the end of the following year.

The election is reserved for remote sellers. The Comptroller's materials say it isn't available to businesses located in Texas or to marketplace providers collecting for third-party sellers.

When some of the sales run through a marketplace

A marketplace provider is an entity that owns or operates a marketplace, such as a website or app, and processes sales or payments for the sellers on it. In Texas, a provider that is engaged in business in the state collects and remits the tax on sales made through its marketplace.

The mechanism is a certification from the provider that it will collect on its sellers' behalf. If no certification arrives, the Comptroller says the seller should collect the tax itself until one does.

A remote seller that sells only through a certifying marketplace doesn't need a Texas permit. A seller with both channels is in a different position: marketplace revenue still counts toward the $500,000, and once over, the seller collects on its own website sales while the marketplace keeps collecting on the rest.

On the return, marketplace sales go into Total Texas Sales but stay out of Taxable Sales when the provider has certified that it's collecting. In the FAQ's example, $30,000 of marketplace sales and $20,000 of taxable website sales produce $50,000 on the first line and $20,000 on the second.

Sellers must keep records of their marketplace sales for at least four years. The FAQ also addresses inventory temporarily stored in a marketplace provider's Texas facility: under $500,000 with a certifying provider, no permit is needed, but a seller that is a taxable entity has franchise tax responsibility.

Franchise tax is Texas's separate tax on entities doing business in the state. The Remote Sellers page notes that an out-of-state taxable entity with $500,000 or more in annual gross receipts from Texas business has a taxable connection to the state even without physical presence, for reports due on or after January 1, 2020. We walk through that in our article on Texas franchise tax for Oklahoma companies.

Getting out, and coming back in

A remote seller whose Texas sales shrink can end its collection responsibility after twelve consecutive months in which its Texas revenue for the preceding twelve calendar months stayed under $500,000.

The seller then files the Comptroller's notice of intent to terminate, available as a web form and listed on the Remote Sellers page as Form 01-798. Franchise tax responsibility is ended separately.

If revenue later exceeds $500,000 in any twelve consecutive months, collection resumes on the first day of the second month after that period. A twelve-month period ending in December would mean collecting again on February 1.

If the facts were never remote

Return to the version of the Ardmore company with the box truck and the trade show booth. If it has leaned on the safe harbor for several years while doing things Publication 94-108 lists, it may have a look-back question whose size depends on facts that have to be reconstructed.

There are considerations on both sides. The Comptroller's list is broad and states no minimums. It is also brief, and whether a given person is a "representative" operating under your authority is a factual question its bullets don't resolve.

Timing matters as well, because the Comptroller's publication on its voluntary disclosure program says a business isn't eligible once the Comptroller has contacted it about a liability or sent notice of an audit. For a business that qualifies, review is limited to reports due in the four years before it first makes contact, with no such limit for tax that was collected from customers and never remitted. Our overview of voluntary disclosure agreements covers these programs in general terms.

If your company sells into Texas and you aren't sure which side of the remote seller line it sits on, that's a good moment to reach us through the contact page or at our Oklahoma City office. A conversation before the first permit application, or before the first letter from Austin, is almost always cheaper than sorting the same facts out afterward.

This article is general information about Oklahoma, Texas, and federal law, not legal advice, and it does not create an attorney-client relationship. Facts matter; talk to a lawyer about yours.