The Comptroller of Public Accounts adopts new §3.586, concerning margin: nexus, without changes to the proposed text as published in the September 14, 2007, issue of the Texas Register (32 TexReg 6282).

This section implements House Bill 3, 79th Legislature, Third Called Session, 2006 and House Bill 3928, 80th Legislature, 2007, which revise the franchise tax. This section establishes guidelines for determining nexus under Tax Code, Chapter 171. Subsection (a) provides the effective date. Subsection (b) states that Texas will find nexus to the limits of the United States Constitution. Subsection (c) provides a non-exclusive list of common activities which will subject a taxable entity to Texas franchise tax. Subsection (e) states Public Law 86-272 does not apply to the franchise tax.

We received several comments from various groups. Following is a summary of the comments received and the responses.

The Texas Society of Certified Public Accountants asked for additional guidance on "delivering into Texas." This language was in a current franchise tax rule concerning nexus and has not created a problem and is consistent with §171.001(b). Therefore, the comptroller declined to make any change.

The Texas Oil & Gas Association requested amending subsection (c)(4), (9), and (17) to exclude deliveries of items in Texas that remain in interstate commerce. The comptroller declined to make the suggested changes as the franchise tax provisions require that the tax be imposed to the limits of the U.S. Constitution. See Tax Code, §171.001(b).

The Section of Taxation of the State Bar of Texas stated that the list of activities which currently subjects an entity to franchise tax was changed. The list is a combination of the current nexus rules or a clarification to current nexus rules and, therefore, the comptroller did not make a change.

This new section is adopted under Tax Code, §111.002, which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of Tax Code, Title 2.

The new section implements Tax Code, §171.001 and §171.106.