Not every sale in Texas is taxable. Texas law exempts a significant range of items — from everyday groceries to agricultural equipment to digital downloads — from the state's 6.25% sales tax. If your LLC holds a Texas Sales Tax Permit, misclassifying an exempt item as taxable means you over-collect and may need an amended return. Misclassifying a taxable item as exempt means you owe back-tax, penalties, and interest. This guide explains exactly which items Texas exempts and how to document those exemptions correctly.
What Items Are Exempt from Texas Sales Tax?
Texas law specifies which items are exempt. Everything else that constitutes tangible personal property is taxable unless an explicit exemption applies. The major exempt categories are:
Food and grocery items
Most unprepared food purchased for home preparation and consumption is exempt from Texas sales tax. This includes:
- Meat, poultry, and seafood
- Fresh, frozen, and canned fruits and vegetables
- Bread, cereal, and grain products
- Dairy products (milk, cheese, butter, yogurt)
- Eggs, cooking oils, and fats
- Baby formula and baby food
What is NOT exempt: Food sold hot, ready to eat, or prepared for immediate consumption is taxable. This includes restaurant meals, deli counter hot food, and bakery items sold individually for on-site consumption. Candy (including chocolate bars and gummy products) and soft drinks are taxable even when purchased at a grocery store.
Common mistake: Assuming all items sold at a grocery store are exempt. If you run a specialty food business or catering operation, verify whether your product meets the "unprepared food for home consumption" standard before treating sales as non-taxable.
Prescription drugs and certain medical items
Prescription drugs are fully exempt from Texas sales tax. Over-the-counter drugs that carry FDA-required "Drug Facts" labeling are also exempt. This covers pain relievers, cold medicines, antacids, and topical medicated products.
Items that are NOT exempt include vitamins, dietary supplements, cosmetics, and personal care products — even when sold in a pharmacy. These are taxable unless they carry required Drug Facts labeling.
Durable medical equipment prescribed by a licensed practitioner, along with prosthetics and orthopedic devices, is generally exempt when purchased for medical use.
Digital goods and software
Texas does not impose sales tax on digital goods delivered electronically. This includes:
- Downloaded software and mobile apps
- Streamed movies, TV shows, and music
- E-books and digital publications
- SaaS (software as a service) subscriptions
- Online-only services delivering digital content
This is one of the broadest digital exemptions in the country. If you sell software or digital content to Texas customers — whether your business is based in Texas or not — you do not collect Texas sales tax on those sales.
Common mistake: Assuming Texas taxes SaaS because many other states now do. Texas does not. If you have been collecting and remitting sales tax on SaaS sales to Texas customers, you may have over-collected. Consult a CPA about filing an amended return.
Agricultural and farming supplies
Texas provides broad sales tax exemptions for items used in agricultural production. Exempt items include:
- Feed for livestock and poultry used in commercial agricultural production
- Seeds and plants used to produce food
- Agricultural chemicals — pesticides, herbicides, and fertilizers
- Farm machinery and equipment used exclusively for agricultural purposes
- Containers used to transport agricultural products to market
These exemptions apply to farmers and ranchers whose primary activity is agricultural production. Landscaping companies and residential hobby farms generally do not qualify.
Manufacturing equipment and raw materials
Items that become an ingredient or component of a product manufactured for sale are exempt. Manufacturing equipment that directly operates in the production process (not office equipment, storage, or janitorial) also qualifies.
To claim this exemption your primary business must be the manufacture of goods for sale.
Sales for resale
Items purchased for resale — meaning you intend to sell them to a customer rather than consume them in your business — are exempt at the wholesale level. You document this with a Texas Sales and Use Tax Resale Certificate (Form 01-339).
When you sell those items to retail customers, you then collect sales tax from them at that point. The exemption prevents double-taxation up the supply chain.
How to Document and Verify Exemptions
Claiming an exemption without proper documentation exposes your business to back-tax assessments during a Comptroller audit. The Comptroller's standard audit window is four years from the original filing due date.
For sales-for-resale transactions:
- Obtain a signed Texas Sales and Use Tax Resale Certificate (Form 01-339) from the buyer before or at the time of sale.
- Verify the buyer's Texas Sales Tax Permit number is current and valid.
- Retain the signed certificate for at least four years.
For agricultural exemptions: Use the Texas Agricultural Sales and Use Tax Exemption Certificate (Form 01-924). The buyer completes and signs it; you retain it on file.
For manufacturing exemptions: Use Form 01-339 (Texas Sales and Use Tax Exemption Certificate). The buyer describes the exempt use, signs, and provides their taxpayer number.
For prescription drugs and medical devices: No certificate is required. The nature of the item itself establishes the exemption. Keep purchase invoices or receipts showing the items qualify.
Common mistake: Accepting a verbal claim of exemption without a signed certificate. If the Comptroller audits and you cannot produce documentation, you become liable for the uncollected tax — not the customer. Always get the paperwork first.
For guidance on how resale certificates work in practice, see the Texas LLC Sales Tax Permit guide.
What About Sales for Resale?
Sales for resale are the most common exemption small business owners mishandle. A few critical rules:
You must accept a valid certificate in good faith. You cannot legally charge sales tax when a customer presents a valid Texas resale certificate and the purchase is plausibly for resale. "Good faith" means the certificate looks legitimate and the buyer's type of business could reasonably resell the item.
The liability shifts with fraud. If a buyer provides a fraudulent certificate, the tax liability shifts to the buyer rather than you — provided you accepted the certificate in good faith and had no reason to suspect fraud. Document all certificates carefully.
Resale certificates do not expire on their own, but you should periodically reverify that your customer's permit is still active. The Comptroller provides a permit verification lookup tool at comptroller.texas.gov.
See the Texas LLC compliance checklist for a full picture of your LLC's ongoing sales tax obligations.
Quick reference
| Detail | Info |
|---|---|
| What | Texas sales tax exempt item categories |
| Who | Any business holding a Texas Sales Tax Permit |
| Key exempt categories | Unprepared groceries, Rx drugs, OTC drugs (Drug Facts label), digital goods, agricultural supplies, resale purchases |
| Key taxable surprises | Candy, soft drinks, restaurant/hot food, vitamins, cosmetics |
| Resale documentation | Form 01-339 (Texas Sales and Use Tax Resale Certificate) |
| Ag exemption documentation | Form 01-924 (Texas Agricultural Exemption Certificate) |
| Audit window | 4 years from the filing due date |
| Where | Texas Comptroller — comptroller.texas.gov/taxes/sales/ |
Frequently asked questions
What food items are exempt from Texas sales tax?
Most unprepared food intended for home consumption is exempt — including meat, produce, dairy, canned goods, eggs, and bread. Food sold hot, ready to eat, or prepared for immediate consumption is taxable. Candy and soft drinks are taxable even when purchased at a grocery or convenience store, not just restaurants.
Are digital products and downloaded software exempt from Texas sales tax?
Yes. Texas does not tax electronically delivered digital goods, including downloaded software, streamed content, e-books, and SaaS subscriptions. This is a broad exemption and applies to sales made to Texas customers by both Texas-based and out-of-state businesses. If you sell digital products online, you should not be collecting Texas sales tax on those sales.
What happens if I charge sales tax on a Texas-exempt item?
You must remit whatever tax you collected to the Comptroller — even if you collected it by mistake. File an amended return for the affected period, refund the over-collected amount to your customer, and claim a credit. Keeping tax you were not entitled to collect is a compliance violation regardless of intent.
How do I document an exempt sale for a Texas audit?
Obtain a signed Texas Sales and Use Tax Resale Certificate (Form 01-339) or the appropriate exemption certificate before or at the time of sale. Keep it on file for at least four years. Without a signed certificate, the Comptroller can hold you liable for the uncollected tax plus a 5–10% penalty, even if the sale genuinely was exempt.
Do I have to collect Texas sales tax on services?
Most services are not taxable in Texas. The state taxes only a specific list of enumerated services — including amusement and recreation services, cable television, data processing, information services, nonresidential real property repair, and a few others. If the service you provide is not on that list, it is not taxable. Check the full list at comptroller.texas.gov/taxes/sales/.
Not sure what else your Texas LLC owes?
Most business owners are surprised by how many filing obligations they have. Ortholo's free compliance checker shows you everything you owe, when it's due, and what happens if you miss it — personalized to your entity.
This guide is for informational purposes only and does not constitute legal or tax advice. Consult a qualified professional for advice specific to your situation.
Last verified: 2026-05-16
Sources: Texas Comptroller — Sales Tax Exemptions · Sales Tax Permit Application · Form 01-339 Resale Certificate