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Why did Texas calculate at 6.60%?

Overview

The expected tax rate for an invoice in Texas was 8.25%. However, we instead got 6.6% with our SaaS line items.

Environment

Avalara AvaTax

Resolution

  • The tax rate in Texas is often 8.25%. However, Texas will tax only 80% of certain item types (namely online services).
  • Instead of 8.25% being applied on $100.00, it is 8.25% applied on $80.00. Mathematically, this comes out to be the same as if you took only 80% of the 8.25% tax rate, which would be a 6.60% rate.
    • The tax rate is technically not lowered by this 80% rule.

Note: This same behavior can occur on rates in Texas lower than 8.25%, in which case you still simply only tax 80% of the line amount.

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