Texas Sales Tax

[Troy]

I'm getting ready to set up a second company in Dallas. (Current one is outside of Texas and I haven't had to deal with sales tax.)

As I understand it, a Texas based company must charge sales tax for hosting services, (only to clients who are also located in Texas), but 20% of the charge is exempt.

Texas sales tax is 6.25%, and Dallas city sales tax is 2.00%, for a total of 8.25%

Two questions for anyone who is already in this situation:

1. Do you separate the two taxes (Level 1 and Level 2) or charge a single rate? I assume separating them would make it easier to report the amounts one should remit to each agency? (I haven't formed the company yet so am just assuming there would be two separate payouts, one to the state and one to the city?)

2. To accommodate the 20% exemption do you charge 5.00% state sales tax  (80% of 6.25) and 1.60% (80% of 2.00) city sales tax? Reducing the tax rate by 20% is functionally equivalent to making 20% of the entire charge exempt, so I assume this would work out okay, but I'd like to get it right from the get-go.

[Troy]

In case anyone else has these questions, here are the answers now that I'm set up in Texas:

1. Sales tax is remitted solely to the Texas Comptroller of Public Accounts, which then remits to the separate taxing locales as necessary. No need for level 1/2 taxes to separate state from local sales tax.

2. 20% of digital services / data processing is exempt from sales tax, so you should only collect 80% of the sales tax for which you will be liable. In my case 8.25% (State of Texas + Dallas City) * 0.8 = 6.6%.

Edited January 22, 2021 by Troy