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As a business owner who collects and remits sales tax in Texas, there is a sales tax saving strategy that you have available to you. Pursuant to Texas Tax Code Chapter 151, Section 424; Texas taxpayers may pre-pay their tax liability and subsequently withhold 1.25% of the amount of the prepayment in addition to the timely filing discount allowed by Section 423 of the same tax code.  The combination of these two discounts is 1.75%.

To take advantage of the prepayment option, you must file form 01-118 Texas Sales and Use Tax Prepayment Report (also available via WebFile) and pay the liability on or before the 15th of the month for which you are reporting or the 15th of the second month of the quarter for which you are reporting.  For example; if you are reporting for March 2016, the prepayment report must be filed and paid by March 15, 2016.  If you are a quarterly filer, the report and payment are due by February 15, 2016 for the first quarter of 2016.

If the due date falls on a weekend or legal holiday, the next business day is the due date.  Payments postmarked or transmitted after the due date will not be eligible for the additional prepayment discount.  If you file the prepayment timely, but file the regular return for that period late, no discounts are allowed and penalty will be assessed on the tax due that exceeds the amount prepaid.  Taxpayers who file using WebFile or pay through EDI or TexNet should keep dates in mind to ensure that the report is filed timely so that payments are processed timely. Filing the prepayment report on the due date will not be considered paid timely as bank processing timelines require payments to be submitted before 6:00 p.m. on the last banking business day BEFORE the due date.

For complete information regarding due dates and avoiding penalties, please reference http://www.window.state.tx.us/taxinfo/sales/webfile_sales.html.

How to estimate the appropriate amount to prepay

The prepayment amount must be one of the following:

  • At least 90% of the total tax that will be due for the reporting period
  • Equal to or greater than the total tax that was due and paid in the same reporting period of the preceding year (not including discounts on previous year’s payment)

Filing your regular return

When filing your regular Sales and Use Tax return due on the 20th of the month following the end of the reporting period (e.g. April 20, 2016 due date for March 2016 reporting period); you will enter the amount of your prepayment plus the allowable prepayment discount into line 9 of the return.

If there is additional tax due more than the pre-payment credit, you will pay that amount when filing the regular quarterly or monthly report.  You are still entitled to the timely filing discount of .5% for the total tax due which includes any additional tax due over the prepayment credit.

If the amount of the prepayment exceeds the actual tax liability, the excess of the prepayment shall be credited against future tax liability or refunded to you.