Texas state sales and use tax

Find out interesting insights with Jon Naseath, CFO, Cantu Capital Inc.

Moderated by Srishti, Digital Transformation Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Srishti: Hello everyone. My name is Srishti Rajwer, and I am a digital transformation consultant at Hyperbots. Today I’m delighted to have John Naseath as my guest. Thank you so much for taking out the time, Jon.

Jon Naseath: My pleasure. Nice to be here.

Srishti: Of course, and a little bit about Jon. He is the CFO at Cantu Capital, and today we’ll be discussing Texas state sales tax and use tax. So with that said, let me know whenever you’re ready, and we can get started.

Jon Naseath: Yeah, problem.

Srishti: So to begin with, could you provide an overview of Texas state sales tax rules for goods and services?

Jon Naseath: So Texas has a pretty standard sales and use tax model. They have their state-level tax, and there are also local jurisdictions that add additional taxes in different scenarios. There are variations, but compared to other states, it’s pretty standard for a state from a sales tax perspective. A lot of people think about Texas being low on taxes, and around income tax, there are certainly different rules. Property taxes are also a big deal in Texas, but here we’re just talking about sales and use tax specifically. Just to give context, Texas charges a sales tax of 6.25% on most taxable items and services. Local jurisdictions can also impose additional sales tax, bringing the tax rate up to 8.25% in some areas. There are differences in what is taxed—goods such as clothing, electronics, and even some services are taxable.

Srishti: Understood. Can you also give some examples where certain items might be exempt from sales tax?

Jon Naseath: Sure. Texas applies sales tax to several services, including amusement services, personal services, laundry, and cleaning. Some exemptions include unprepared groceries like fruits and vegetables, prescription drugs, and sales to government agencies or nonprofit organizations. The government doesn’t want to pay taxes on these items, so they are exempt.

Srishti: That’s definitely helpful. That brings me to my next question. How do sales tax rates differ across Texas? And can you explain how jurisdictions impact tax rates?

Jon Naseath: Sure. There’s the state-level tax, and then different local jurisdictions can impose their own taxes. For example, the state sales tax is 6.25%, but cities like Houston and Dallas have added an additional 1% or 2%, bringing the total tax rate to 8.25% in those areas.

Srishti: Understood. Are there exemptions to the Texas sales tax? And could you give some examples of these exempt items?

Jon Naseath: Yeah. Again, unprepared groceries like fruits and vegetables are exempt from promoting healthy eating. Prescription drugs are also exempt to ease the financial burden on people with fixed incomes. Government and nonprofit organizations are also exempt because the state wants to support them. Taxes are often used as a tool to influence behavior and reward certain activities. Even Texas uses taxes to incentivize specific behaviors.

Srishti: Understood. That definitely makes sense and is very useful. How has Texas’ tax treatment of SaaS, or software as a service, evolved?

Jon Naseath: By now, it’s pretty common for states to apply taxes to SaaS, online e-commerce, and digital services. Texas treats SaaS as a taxable service, including cloud-based applications where customers access the software remotely and manage their data through a SaaS platform. In Texas, providers must collect sales tax on these transactions, which can be challenging given the complexity of the digital landscape.

Srishti: Understood.

Sales tax in California state

Find out interesting insights with Jon Naseath, COO/Founder Cantu Capital, Inc

Moderated by Kate, Financial Technology Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Kate: Hello, everyone! My name is Kate, and I’m a financial technology advisor here at Hyperbots. Today, I’m thrilled to have Jon Naseath with me. Hey, Jon, how are you doing?

Jon Naseath: Hey, Kate, doing good. How are you doing today?

Kate: I’m doing wonderful. So Jon is the COO at Cantu Capital, Inc. Today, Jon and I will be discussing the complexities of California sales tax regulations and how companies can stay compliant. Let’s dive right in. Coming to the first question, Jon, can you provide an overview of California sales tax rules, particularly on which goods and services are taxable, and which are exempt?

Jon Naseath: Sure, and I’ll just start by saying that California is a fun place to do business. There are always lots of different regulatory considerations, and the more the government tries to help, in many ways, it just becomes more complicated for accounting. A lot of times, that turns into more money, anyway. So I’ll get off my soapbox. But sure, California sales tax rules are complex. One main example is that most tangible goods are taxable, like electronics, clothing, and vehicles—your normal physical products. However, essential items like groceries and prescription medicines are exempt. They’ve wanted to make it so that people can buy the food they need and have kind of an influenced benefit on those versus other things. Like many jurisdictions, California uses tax policy to try to influence behavior. Prepared foods at restaurants are taxable, but unprepared foods are not. You’ve probably seen this where a restaurant asks if you’re eating in or taking it out; different tax rules can apply. It gets pretty complicated. Services are not typically taxed unless they involve creating or modifying a tangible good. For example, repairs on appliances are taxed because they involve a tangible outcome. It’s a bit complicated, but California isn’t unique. I’ve done business in places like China and India, where we faced similar complexities. Brazil, as everyone knows, is a particularly challenging place for taxes. Just the concept of having multiple layers of local, state, and federal regulations makes it tricky. Today, we’ll pick on California, but if any California regulators are listening, it’s not personal!

Kate: Understood. Moving on, how does California’s sales tax rate vary across different jurisdictions?

Jon Naseath: California has a base sales tax rate of 7.25%, but local cities, counties, or districts add additional rates on top of that. It can fluctuate a lot based on where you’re living. For example, Los Angeles and Santa Monica have a combined rate of 10.25%, while more rural areas like Lassen County only apply the state minimum tax. I’m from California—my dad was from Lassen County. I grew up in San Diego, and we always joked that anything north of San Diego was “Northern California.” Regional differences are significant. For instance, gasoline taxes are piled on heavily in California, which makes a big difference in overall costs.

Kate: I see. How frequently do these sales tax rates change, and what triggers these changes?

Jon Naseath: They change too often! Anytime regulators see an opportunity to generate more revenue, they might introduce a new tax or adjust an existing one. It’s tricky to know when these changes go into effect, as they might be announced far in advance. These changes usually occur quarterly or annually, often aligning with the fiscal year. In urban areas, local governments frequently adjust taxes to fund projects. Around the New Year, for instance, there’s always a cycle of news announcing new laws and taxes coming into effect. It’s a common theme—localities are always looking for new revenue streams.

Kate: That’s an interesting point. What challenges do businesses face in keeping up with these changing sales tax rates?

Jon Naseath: Managing taxes in a jurisdiction with frequent changes is tough. If you’re operating in hundreds of local jurisdictions, each with independent and aggressive tax rules, staying compliant can be a nightmare. Manually tracking these changes is nearly impossible, especially for businesses with high transaction volumes across multiple areas. Mistakes can be costly. If your processes aren’t up to date, you risk audits, penalties, and underpayment issues. However, if you can demonstrate solid processes and systems, regulators are usually more lenient, even if there’s a discrepancy.

Kate: Makes sense. Where can companies find reliable information on California sales tax rates and updates?

Jon Naseath: The California Department of Tax and Fee Administration (CDTFA) is the primary source for current sales tax rates and regulations. They provide a city and county tax rate lookup tool, updated quarterly. Beyond that, tax compliance platforms like Hyperbots or Avalara’s AvaTax can help businesses automate the process and ensure compliance in real-time.

Kate: That’s helpful. Can you provide an example of how a business might use these resources to stay compliant?

Jon Naseath: Sure. Let’s say a retail company operates in multiple California cities like Carlsbad, San Francisco, and Lassen County. They could use Hyperbots or Avalara to automatically apply the correct tax rates for each location. These tools are consistently updated, so the company doesn’t need to manually verify rates every quarter. If a new tax rate is applied to a specific zip code, the tool adjusts transactions in real-time and feeds accurate data into the ERP system. This reduces the risk of under or over-collecting taxes and simplifies compliance.

Kate: That’s a fantastic example. How can AI help businesses manage these complexities, especially in a state like California with high tax variability?

Jon Naseath: AI excels at processing large volumes of data, updating tax rates in real-time, and ensuring accurate application across transactions. Tools like Hyperbots leverage AI to track updates from CDTFA, notify teams of changes, and calculate rates based on zip codes and product types. AI reduces manual intervention, minimizing errors and allowing businesses to focus on strategic goals rather than administrative burdens.

Kate: That’s impressive. Finally, are there any specific AI tools or features you’d recommend for managing sales tax compliance?

Jon Naseath: I’d recommend Hyperbots and Avalara’s AvaTax. They’re both excellent at handling tax rate calculations and compliance across multiple jurisdictions. These tools use AI to integrate seamlessly into business processes, ensuring that sales tax rates are applied accurately and up-to-date in real-time.

Kate: Thank you so much, Jon. This has been a very enlightening discussion.

Pennsylvania’s sales tax system

Find out interesting insights with John Silverstein,VP of FP&A, XR Extreme Reach

Moderated by Kate, Financial Technology Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Kate: Hello, everyone! Good morning. My name is Kate, and I’m a financial technology advisor here at Hyperbots. Today, I’m thrilled to have John with me. Hey, John, how are you doing today?

John Silverstein: Great, thanks for having me.

Kate: Thank you for joining us. A little bit about John—he’s the Vice President of Finance Processes and Accounting at XR Extreme Reach. Today we will be discussing Pennsylvania’s sales tax system. So let’s jump right in. Coming to the first question, is the fundamental question: what makes Pennsylvania’s sales tax system unique, and how does it impact businesses operating in the state?

John Silverstein: Pennsylvania is unique in that it allows jurisdictions to have different tax rates. Pennsylvania has a 6% statewide sales tax rate. For example, Philadelphia has a total tax rate of 8%, which can add complexity for businesses in multiple cities or counties within Pennsylvania. This means companies need to track not just at the state level but also the local taxes in metropolitan areas.

Kate: That’s an interesting point. Are there notable goods or services that are exempt from sales tax in Pennsylvania?

John Silverstein: Many goods and services are exempt. Clothing and footwear are exempt from sales tax across the state. Prescription drugs and certain medical devices are also exempt. However, digital products like ebooks or music are taxable in Pennsylvania, which surprises some businesses. It varies, so we must continue to review tax regulations by jurisdiction.

Kate: Yeah, I understand. Could you explain some of the challenges businesses face in keeping track of these exemptions and tax rates, especially if they operate in multiple locations?

John Silverstein: The biggest challenge is understanding exemptions. For example, food is generally exempt from sales tax, but prepared foods like takeout, restaurant meals, and some frozen meals are taxable. With multiple local jurisdictions applying different rates, businesses often struggle to stay compliant. In cities like Philadelphia, the tax rate could be 8%, while rural areas might only have a 6% rate. It varies by municipality.

Kate: I see. That brings us to the frequency of tax rate changes. How often do sales tax rates or exemptions change, and how do businesses stay updated?

John Silverstein: Sales tax rates in Pennsylvania don’t change frequently, but municipalities can adjust their rates more often. Philadelphia occasionally revises its local taxes. Companies must constantly monitor the State’s Department of Revenue and local tax authorities for updates. For example, if there is a rate change in Philadelphia, businesses need to adjust their systems immediately.

Kate: I understand. How does AI help businesses stay compliant with these frequently changing tax laws?

John Silverstein: AI can automate tax calculations and updates to tax tables, ensuring compliance with changes or adjustments. For example, if there’s a tax exemption update in Philadelphia, AI ensures the correct rate is applied based on the customer’s location. It also tracks regulation changes, notifying businesses of updates. AI can automatically apply new rates to transactions, eliminating the need for manual updates.

Kate: That’s very insightful. Could you provide an example where AI has helped streamline sales tax compliance for a company?

John Silverstein: One example is a retail business operating in both Philadelphia and Pittsburgh. The company had to track two different local tax rates—8% in Philadelphia and 7% in Pittsburgh. With an AI-powered sales tax system, the company no longer needed to manually calculate taxes for each transaction. AI automatically applied the correct rates for each location and adjusted for any tax rule changes.

Kate: Impressive. Now, with all the different rules in Pennsylvania, how can a business ensure it remains compliant, especially when it comes to exemptions?

John Silverstein: Keeping accurate records is key. AI can help identify exempt products, such as food versus prepared meals, ensuring proper application of exemptions. AI can also detect misclassifications in product categories, ensuring businesses don’t miss applicable exemptions. Additionally, AI helps keep item lists clean and updated with exemption status changes, such as during tax holidays for back-to-school items.

Kate: I totally agree with you, John. We’ve almost reached the end of our discussion today. Last question: what advice would you offer to businesses struggling to navigate Pennsylvania’s complex sales tax rules?

John Silverstein: My advice is to invest in a sales tax automation solution that incorporates AI. This reduces manual errors and helps businesses stay compliant. Relying solely on standard tax tables from software like QuickBooks may not account for jurisdiction-specific rates and changes. Staying informed through the Pennsylvania Department of Revenue’s website and using AI tools to monitor changes can significantly improve efficiency.

Kate: Very insightful. Thank you so much, John, for joining us and sharing your valuable insights today. It’s been a pleasure.

John Silverstein: No problem. Thanks for having me again.

Kate: Thank you.

Colorado sales and use tax compliance

Find out interesting insights with Kelly O’Neill ,CEO, KMONE Ventures

Moderated by Kate, Financial Technology Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Kate: Everyone. My name is Kate, and I am a financial technology advisor here at Hyperbots. Today I’m thrilled to have Kelly O’Neill with me. Hey, Kelly, how are you doing today?

Kelly: Doing wonderful.

Kate: That’s great to hear. A little bit about Kelly—she’s the Chief Executive Officer at KM One Ventures. Today, we will be discussing Colorado sales and use tax compliance. So let’s jump right in. Coming to the first question, could you provide an overview of Colorado state sales and use tax rates? How do these rates differ across goods and services?

Kelly: Absolutely. Colorado has a base state sales tax rate of 2.9%, which is one of the lower state rates. But local jurisdictions—cities, counties, and special districts—can impose additional rates if they choose to. This can lead to significantly varied combined rates across the state. For example, general merchandise would be a 2.9% state rate plus additional rates based on local taxation, resulting in a combined rate that can exceed 11% in some areas. Food and groceries are generally exempt from sales tax, though some local jurisdictions may impose a tax on those items. Some items, such as prescription drugs and medical devices, are exempt. Colorado’s decentralized tax system requires businesses to apply the correct combined rate for each sales location based on both state and local rules.

Kate: Understood. Moving on, could you discuss some of the jurisdictions in Colorado with notably high or low sales tax rates? How does this affect businesses?

Kelly: Colorado’s local jurisdictions create a patchwork of different rates. Highest rates are found in some cities, such as Winter Park or Glenwood Springs, which have combined rates exceeding 11%. Lower rates are in unincorporated areas and towns that may have rates closer to the 2.9% state rate without any additional local tax. This variability affects businesses by requiring them to apply different rates based on where each sale occurs. Companies in high-tax areas may face customer resistance to higher prices, while businesses in lower-tax regions might have an advantage with more competitive pricing.

Kate: That makes sense. How often do Colorado sales tax rates change? How do businesses keep up with these updates?

Kelly: The Colorado state rate is pretty stable, but local rates can change frequently—often yearly or even more frequently if cities pass new tax measures. Some localities also implement seasonal rates in tourist-heavy areas, such as those with ski resorts. Businesses typically monitor rate changes through the Colorado Department of Revenue, which provides updated rate tables, or they use third-party tax compliance tools to stay current. For companies operating across multiple jurisdictions, automated solutions are crucial to ensure they are using the latest rates accurately.

Kate: What are some of the primary resources available to businesses to stay informed about sales and use tax changes in Colorado?

Kelly: Helpful resources include the Colorado Department of Revenue, the primary source for state and local tax guidelines and forms. Sales tax rate lookup tools provided by the CDOR allow businesses to look up rates by address or zip code. Additionally, third-party compliance software, such as Avalara or TaxJar, offers real-time updates and comprehensive rate information across all Colorado jurisdictions, making it easier for businesses to apply the correct rate. What challenges do companies face when managing compliance with Colorado sales and use tax rules? Could you share some examples? The main challenges include jurisdictional complexity. Colorado has home-rule cities that administer their taxes independently. For example, a company with sales in Denver, which has its own tax administration, must manage a process different from that in state-administered areas. Frequent rate changes also pose challenges, especially in tourist-heavy areas with seasonal rates. Determining taxable items adds complexity—groceries, for example, may be exempt at the state level but taxable at the local level. Businesses must remain vigilant to apply the correct rates and taxability, particularly if they operate statewide.

Kate: How can artificial intelligence help businesses manage sales and use tax compliance more efficiently, especially with Colorado’s complex local tax structure?

Kelly: AI can simplify compliance in several ways. Automated rate updates ensure that the latest rates for each jurisdiction are applied. AI tools can also determine the exact sales tax rate by customer location, ensuring accurate application across Colorado’s home-rule cities and state-administered areas. AI can handle exemptions, such as food items that are exempt at the state level but taxable locally. For example, Hyperbots AI offers a solution that automates local rate adjustments across Colorado’s jurisdictions, reducing errors and administrative costs for compliance.

Kate: How can AI support companies during audits for sales and use tax compliance in Colorado?

Kelly: AI simplifies audit preparation by managing and organizing documentation efficiently. It can retrieve invoices, sales records, and tax rate documentation by jurisdiction, streamlining the audit process. AI also detects and corrects errors, allowing companies to address issues proactively. Hyperbots AI can prepare compliance reports and organize records by location, which is especially helpful in Colorado, where home-rule cities require highly organized tax records by jurisdiction.

Kate: What do you see as the future role of AI in handling Colorado sales and use tax compliance?

Kelly: AI will likely move beyond compliance into areas like predictive analysis. For example, AI could forecast how tax rate changes across Colorado’s home-rule cities might impact revenue, helping companies plan for rate shifts. Real-time compliance monitoring could provide live dashboards with tax liability insights across different jurisdictions. Proactive compliance alerts could notify companies of pending rates or legislative changes, enabling them to adjust in advance. Hyperbots AI is advancing in this area, offering solutions that provide real-time compliance and predictive analytics, helping Colorado businesses manage complex tax rules and anticipate changes.

Kate: Thank you so much, Kelly, for sharing your insights. It was a really fruitful discussion and a big thanks to our listeners for tuning in.

Kelly: Thank you!