Are Small Businesses About to Get Caught In Texas Nexus Battle?

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It was just a few weeks ago that the Texas Comptroller codified a sales tax change that is creating mini-earthquakes in the ecommerce world. The problem is that it should be creating HUGE earthquakes and everyone should be talking about it.

The new rule states that if you use a server that is housed in the state of Texas, you have Texas nexus for sales tax.That means you must collect and pay sales tax from any taxable sales made to customers within the state of Texas.
If you have a catalog business or an Internet business, you probably had your ears perk up already. But a recent conversation with the Texas Comptroller’s office on this and other ‘little known’ Texas sales tax issues has me even more confused.

Remember if you have Texas nexus, then every sales you make to a Texas resident will be subject to the Texas sales tax rules. Here are some of the things you might not expect to be taxable:

  • Shipping and handling
  • Digital downloads
  • If 5% of value of personal coaching, mentoring, etc… is due to a digital download or printed manual, then the entire service and product are subject to sales tax
  • Live coaching (without a manual or hand-out) is not subject to sales tax
  • Recording sessions are subject to sales tax

This becomes an even bigger issue because some of the country’s biggest server farms and datacenters are located in Texas – Hostgator, The Planet and Rackspace are just a few names you might recognize.

And they aren’t saying a word about this law change. In fact, Hostgator made the statement that you had to be physically present to have to pay sales tax in Texas. That’s not even close to right. And they made that statement through Twitter for millions to see.

Who gets hammered for wrong advice here? You do.

If you have a website that is hosted in Texas, or if you don’t know where it’s hosted, talk to your CPA today. This could be a very big problem going forward.

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