Sales Tax Exposure in McKinney, Texas

What is Sales Tax Exposure in McKinney?

Sales tax exposure arises when businesses fail to comply with McKinney’s local and state tax regulations. Exposure often results from errors such as misapplying nexus rules, failing to account for special districts, or incorrectly calculating sales tax rates. These mistakes can lead to back taxes, penalties, and audits for businesses in McKinney.

Understanding Sales Tax Nexus in McKinney

• Physical Nexus: Businesses with a physical presence in McKinney, such as an office, employees, or inventory, must collect and remit sales tax on taxable sales within the city.
• Economic Nexus: McKinney, like the rest of Texas, has economic nexus laws. A business that makes over $500,000 in sales in Texas is required to collect and remit sales tax, regardless of whether it has a physical presence in McKinney.

Special Tax Districts in McKinney

McKinney is subject to special purpose districts that impose additional sales taxes, which businesses must account for. These districts can include:

• Transit authorities
• Municipal utility districts
• Development zones

It’s essential for businesses to identify whether their location falls within one or more of these districts to ensure accurate tax calculation.

For more on special tax districts, visit our Sales Tax Special Purpose Districts page.

Sales Tax Rates in McKinney

• Texas State Sales Tax: 6.25%
• McKinney City Sales Tax: 1.00%
• Combined Sales Tax Rate: In McKinney, the total combined sales tax rate is typically 7.25%, though this rate can vary depending on special district participation.

Businesses must apply the correct rate based on the transaction location in McKinney.

Use Tax Exposure in McKinney

Use tax is a tax on goods purchased from out-of-state vendors who do not collect Texas sales tax. McKinney businesses may face use tax exposure in these scenarios:

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

For more on use tax, visit our Use Tax page

Common Sales Tax Mistakes in McKinney

Businesses in McKinney often make the following mistakes that lead to sales tax exposure:

• Relying on ZIP codes instead of properly determining jurisdiction boundaries for tax calculation.
• Misapplying nexus rules by assuming no nexus due to lack of physical presence in McKinney.
• Ignoring special purpose districts and their impact on tax rates.
• Misapplying origin vs. destination sourcing rules for taxable sales.

These errors can accumulate over time and result in substantial tax liabilities.

How Sales Tax Exposure Builds Over Time in McKinney

Sales tax exposure in McKinney typically develops gradually due to small errors in tax rate application, nexus determinations, and special district tax accounting. These errors can lead to audit risk and larger liabilities down the line.

Common causes of growing exposure include:

• Incorrect tax rate application.
• Missed special district taxes.
• Failure to register for sales tax in time.
• Incomplete use tax reporting.

Related Resources

• Learn more about sales tax exposure in Dallas, Fort Worth, and Plano.
• For more on special tax districts in McKinney, visit the Special Tax Districts page.
• Use our Sales Tax Exposure Calculator to determine your McKinney exposure.