(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)[(b)] Nexus. A
taxable entity is subject to Texas franchise tax [in
this state] 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)[(c)] Physical presence. Some
specific activities that [which] 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
which is doing business in Texas;
(B)acting as a general partner in a limited partnership
which is doing business in Texas (a foreign taxable entity which is
a limited partner in a limited partnership is not doing business 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.
(f)Economic nexus. 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 determined under §3.591 of this
title (relating to Margin: Apportionment).
(g)Beginning date. A foreign taxable
entity begins doing business in the state on the earliest of:
(1)the date the entity has physical nexus as described
in subsection (c) of this section;
(2)the date the entity obtains a Texas use tax permit;
or
(3)the first day of the federal income tax accounting
period in which the entity had gross receipts from business done in
Texas in excess of $500,000.
(h)[(d)]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)[(e)] Public Law 86-272.
Public Law 86-272 (15 United States Code §§381 - 384) does
not apply to the Texas franchise tax.
The agency certifies that legal counsel has reviewed
the proposal and found it to be within the state agency's legal authority
to adopt.
Filed with the Office
of the
Secretary of State on September 16, 2019
TRD-201903313 William Hamner
Special Counsel for Tax Administration
Comptroller of Public Accounts
Earliest possible date of adoption: October 27, 2019
For further information, please call: (512) 475-0387
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