Sales Tax Exposure in Austin, Texas

What is Sales Tax Exposure in Austin?

Sales tax exposure occurs when businesses fail to comply with Austin’s tax rates, nexus rules, or special tax district obligations. In Austin, businesses often create exposure by applying incorrect tax rates, ignoring nexus rules, or overlooking use tax requirements.

Understanding Sales Tax Nexus in Austin

• Physical Nexus: Businesses with a physical presence in Austin, such as an office, employees, inventory, or property, are required to collect and remit sales tax on all sales within the city.
• Economic Nexus: Austin, like the rest of Texas, enforces economic nexus. Businesses with over $500,000 in sales in Texas may be required to collect sales tax, even if they do not have a physical presence in the city.

Special Tax Districts in Austin

Austin is home to several special purpose districts that apply additional sales taxes. These may include:

• Transit Authorities
• Municipal Utility Districts
• Development Zones

Understanding these districts and where they apply is key to accurately calculating sales tax exposure in Austin. Businesses should always assess whether their specific location falls under the jurisdiction of one or more districts.

Austin, like many cities in Texas, has special districts that impact the sales tax rate. Find out more on our Special Tax Districts page.

Sales Tax Rates in Austin

• Texas State Sales Tax: 6.25%
• Austin City Sales Tax: 1.00%
• Combined Sales Tax Rate: The combined sales tax rate in most areas of Austin is 7.25%. However, this rate can vary depending on the location’s participation in special purpose districts.

Businesses need to carefully assess the correct rate based on the transaction location to avoid exposure.

Use Tax Exposure in Austin

Use tax is due when businesses purchase goods or services from out-of-state vendors who do not collect Texas sales tax. Businesses in Austin often face use tax exposure in the following scenarios:

• Out-of-state purchases of equipment, machinery, or inventory.
• Software and digital tools used by Austin-based teams but purchased from vendors outside Texas.
• Transactions that occur across city or county lines, where sales tax may not have been collected.

Businesses purchasing goods out of state for use in Austin may face use tax. Read more on our Use Tax page.

Common Sales Tax Mistakes in Austin

Businesses in Austin commonly make these mistakes, leading to sales tax exposure:

• Relying on ZIP codes rather than jurisdiction boundaries.
• Misapplying nexus rules by assuming no nexus because the business lacks a physical location in Austin.
• Ignoring special purpose districts, which add additional taxes.
• Misapplying origin vs. destination sourcing rules for taxable sales.

These mistakes often go unnoticed until an audit occurs, leading to significant exposure. Because sales tax obligations are jurisdiction-based, businesses should understand how rules apply across Travis County to help limit potential risk.

How Sales Tax Exposure Builds Over Time in Austin

Sales tax exposure rarely results from one big mistake. Instead, it accumulates gradually through small errors in transaction processing, tax rate application, and nexus determinations. As errors compound, businesses may face substantial tax liabilities and penalties. Common causes include:

• Incorrect application of tax rates.
• Failure to account for special purpose districts.
• Delays in registering for sales tax permits.
• Underreporting of use tax.

Related Resources

• Learn more about sales tax exposure in Dallas, Fort Worth, and San Antonio.
• For more on special tax districts in Austin, visit the Special Tax Districts page.
• Check your Austin sales tax exposure with our Sales Tax Exposure Calculator.
• Software Companies
• Digital Services
• Industrial Businesses