The billing mistake that turns 30% of a Texas deal into 100% taxable.
Texas has a rule most founders never see coming. If you bundle taxable and non-taxable services on a single lump-sum invoice, and the taxable portion exceeds 5% of the total, the state presumes the entire charge is taxable.
Picture a $10,000 deal: $3,000 in taxable services bundled with $7,000 in non-taxable work, written as one line item. Texas can treat all $10,000 as taxable. At a combined state and local rate up to 8.25%, that's hundreds of dollars in liability on revenue that was never supposed to be in the tax base.
A few things worth knowing:
1. It's a presumption. You can rebut it with documentation showing the actual breakdown, but that's an audit-time fight you don't want to have. Clean invoices prevent it entirely.
2. Service type matters. This applies to Texas's enumerated taxable services: data processing, information services, and similar categories. If your work doesn't touch these, the rule may not apply the same way.
3. If you do data processing work, Texas already carves out 20% as non-taxable by statute. That exemption only works if your invoice line items are separated.
The fix is the same in every case: break out your line items. Taxable services on one line, non-taxable on the next, expenses called out separately.
Nothing about the actual work changes. Just the quote template.
Pull up your last few Texas invoices and check how they're structured.