| (a) Effective date. The provisions of this section
apply to franchise tax reports originally due on or after January
1, 2008, unless otherwise noted.
(b) Foreign taxable entity. A taxable entity that is
not chartered or organized in Texas.
(c) Nexus. A taxable entity is subject to Texas franchise
tax when it has sufficient contact with this state to be taxed without
violating the United States Constitution. Nexus is determined on an
individual taxable entity level.
(d) Physical presence. Some specific activities that
subject a taxable entity to Texas franchise tax include, but are not
limited to, the following:
(1) advertising: entering Texas to purchase, place,
or display advertising when the advertising is for the benefit of
another and in the ordinary course of business (e.g., the foreign
taxable entity makes signs and brings them into Texas, sets them up,
and maintains them);
(2) consignments: having consigned goods in Texas;
(3) contracting: performance of a contract in Texas
regardless of whether the taxable entity brings its own employees
into the state, hires local labor, or subcontracts with another;
(4) delivering: delivering into Texas items it has
sold;
(5) employees or representatives: having employees
or representatives in Texas doing the business of the taxable entity;
(6) federal enclaves: doing business in any area within
Texas, even if the area is leased by, owned by, ceded to, or under
the control of the federal government;
(7) franchisors: entering into one or more contracts
with persons, corporations, or other business entities located in
Texas, by which:
(A) the franchisee is granted the right to engage in
the business of offering, selling, or distributing goods or services
under a marketing plan or system prescribed in substantial part by
the franchisor; and
(B) the operation of a franchisee's business pursuant
to such plan is substantially associated with the franchisor's trademark,
service mark, trade name, logotype, advertising, or other commercial
symbol designating the franchisor or its affiliate.
(8) holding companies: maintaining a place of business
in Texas or managing, directing, and/or performing services in Texas
for subsidiaries or investee entities;
(9) inventory: having an inventory in Texas or having
spot inventory for the convenient delivery to customers, even if the
bulk of orders are filled from out of state;
(10) leasing: leasing tangible personal property which
is used in Texas;
(11) loan production activities: soliciting sales contracts
or loans, gathering financial data, making credit checks, collecting
accounts, repossessing property or performing other financial activities
in Texas through employees, independent contractors, or agents, regardless
of whether they reside in Texas;
(12) partners:
(A) acting as a general partner in a general partnership
that is doing business in Texas;
(B) acting as a general partner in a limited partnership
that is doing business in Texas (a foreign taxable entity that is
a limited partner in a limited partnership does not have physical
presence in Texas, if that is the limited partner's only connection
with Texas);
(13) place of business: maintaining a place of business
in Texas;
(14) processing: assembling, processing, manufacturing,
or storing goods in Texas;
(15) real estate: holding, acquiring, leasing, or disposing
of any property located in Texas;
(16) services, including, but not limited to the following:
(A) providing any service in Texas, regardless of whether
the employees, independent contractors, agents, or other representatives
performing the services reside in Texas;
(B) maintaining or repairing property located in Texas
whether under warranty or by separate contract;
(C) installing, erecting, or modifying property in
Texas;
(D) conducting training classes, seminars or lectures
in Texas;
(E) providing any kind of technical assistance in Texas,
including, but not limited to, engineering services; or
(F) investigating, handling or otherwise assisting
in resolving customer complaints in Texas.
(17) shipment: sending materials to Texas to be stored
awaiting orders for their shipment;
(18) shows and performances: the staging of or participating
in shows, theatrical performances, sporting events, or other events
within Texas;
(19) solicitation: having employees, independent contractors,
agents, or other representatives in Texas, regardless of whether they
reside in Texas, to promote or induce sales of the foreign taxable
entity's goods or services;
(20) telephone listing: having a telephone number that
is answered in Texas; or
(21) transportation:
(A) carrying passengers or freight (any personal property
including oil and gas transmitted by pipeline) from one point in Texas
to another point within the state, if pickup and delivery, regardless
of origination or ultimate destination, occurs within Texas; or
(B) having facilities and/or employees, independent
contractors, agents, or other representatives in Texas, regardless
of whether they reside in Texas:
(i) for storage, delivery, or shipment of goods;
(ii) for servicing, maintaining, or repair of vehicles,
trailers, containers, and other equipment;
(iii) for coordinating and directing the transportation
of passengers or freight; or
(iv) for doing any other business of the taxable entity.
(e) Texas use tax permit. A foreign taxable entity
with a Texas use tax permit is presumed to have nexus in Texas and
is subject to Texas franchise tax. If the entity has overcome this
presumption, the beginning date is determined under subsection (g)(2)(A)
or (C) of this section.
(f) Economic nexus.
(1) For each federal income tax accounting period ending
in 2019 or later, a foreign taxable entity has nexus in Texas and
is subject to Texas franchise tax, even if it has no physical presence
in Texas, if during that federal income tax accounting period, it
had gross receipts from business done in Texas of $500,000 or more,
as sourced under §3.591(e) and (f) of this title (relating to
Margin: Apportionment).
(2) For purposes of this subsection, gross receipts
means all revenue reportable by a taxable entity on its federal return,
without deduction for the cost of property sold, materials used, labor
performed, or other costs incurred.
(g) Beginning date.
(1) Prior to Jan. 1, 2019, a foreign taxable entity
begins doing business in Texas on the date the entity has physical
presence as described in subsection (d) of this section.
(2) On or after Jan. 1, 2019, a foreign taxable entity
begins doing business in Texas on the earliest of:
(A) the date the entity has physical presence as described
in subsection (d) of this section;
(B) the date the entity obtains a Texas use tax permit
if obtained on or after Jan. 1, 2019 or Jan. 1, 2019, if the entity
obtained a use tax permit prior to that date; or
(C) the first day of the federal income tax accounting
period ending in 2019 or later in which the entity had gross receipts
from business done in Texas of $500,000 or more.
(h) Trade shows. See §3.583 of this title (relating
to Margin: Exemptions) for information concerning exemption for certain
trade show participants under Tax Code, §171.084.
(i) Public Law 86-272. Public Law 86-272 (15 United
States Code §§381 - 384) does not apply to the Texas franchise
tax.
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