DTC Tax Updates for Out-of-State Wineries Shipping Directly to Texas Consumers

Updated on Sept. 11, 2020

Franchise Tax:

The State of Texas requires wineries located outside the state to file and pay franchise tax if the winery has nexus with the state. Nexus is established if the winery has a physical presence based on various criteria or if the winery has economic nexus in Texas. Economic nexus is established if the winery has gross receipts from business done in Texas of $500,000 or more during its federal income tax (FIT) accounting period.

Texas law requires the collection and remittance of sales and use taxes on all wine directly shipped to Texas consumers. To obtain a direct shipper’s permit from the Texas Alcoholic Beverage Commission, the winery must obtain a sales and use tax permit from the Texas Comptroller of Public Accounts. As described in the amendments to Rule 3.586 in 2019 regarding franchise tax and economic nexus, the Comptroller presumes that a non-Texas entity with a use tax permit is also subject to franchise tax. The presumption may be overcome by filing a Texas Nexus Questionnaire, found here, indicating gross receipts from business done in Texas of less than $500,000.

If a winery is subject to franchise tax but does not owe any tax, the winery MUST still file annually a “No Tax Due Information Report”, found here.

Local Sales Tax Collection:

Recent changes to Texas sales tax laws and regulations require all out-of-state entities, including out-of-state winery direct shipper permittees, with a Texas sales and use tax permit to collect up to 2 percent local sales and use tax in addition to the 6.25 percent state rate. The local sales and use tax is based on the location where the items are shipped, delivered or where the purchaser takes possession of the items.

Out-of-state wineries that do not have a physical presence in the State of Texas are remote sellers and, may choose to collect a single local tax rate instead of calculating and remitting the specific local tax rate in effect at the destination address. If an out-of-state winery wishes to collect the single local use tax rate it must notify the Comptroller’s office of their election using Form 01-799, Remote Seller’s Intent to Elect or Revoke Use of Single Local Use Tax Rate.

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