The Comptroller of Public Accounts proposes amendments to §3.586, concerning margin: nexus, in response to the United States Supreme Court decision in South Dakota v. Wayfair, Inc., 139 S. Ct. 2080 (2018).

The comptroller amends subsection (d)(12)(B) to improve readability and replace the phrase "is not doing business" with "does not have physical presence". The amendment is necessary because although we do not consider a limited partner to have physical presence in Texas when its limited partnership is doing business in Texas, the limited partner may be doing business in Texas under our economic nexus provision in subsection (f).

The comptroller amends subsection (e) to add guidance concerning the beginning date of a foreign taxable entity that overcomes the nexus presumption.

The comptroller reorganizes subsection (f) into two paragraphs. The comptroller moves the current language of subsection (f) to paragraph (1) and amends the reference to §3.591, concerning margin: apportionment, to more specifically reference the sourcing information provided in subsections (e) and (f) of that section. The comptroller adds paragraph (2) to include a definition of gross receipts, derived from Texas Tax Code §171.1121 (Gross Receipts For Margin).

The comptroller reorganizes and adds language to subsection (g) relating to the beginning date for nexus. Paragraph (1) adds language outlining the beginning date for nexus of a foreign taxable entity prior to January 1, 2019. The comptroller corrects the reference to the physical presence subsection from subsection (c) to (d). The comptroller amends paragraph (2) to provide more guidance relating to the beginning date of a foreign taxable entity on or after January 1, 2019. Paragraph (3) becomes the new subparagraph (C). In subparagraphs (A) - (C) a foreign taxable entity's beginning date is the earliest of: the date the foreign taxable entity has physical presence, the date when the foreign taxable entity obtains a Texas use tax permit, or the date the foreign taxable entity had gross receipts from business done in Texas of $500,000 or more.

Tom Currah, Chief Revenue Estimator, has determined that during the first five years that the proposed amendments are in effect, the rules: will not create or eliminate a government program; will not require the creation or elimination of employee positions; will not require an increase or decrease in future legislative appropriations to the agency; will not require an increase or decrease in fees paid to the agency; will not increase or decrease the number of individuals subject to the rules' applicability; and will not positively or adversely affect this state's economy.

Mr. Currah also has determined that for each year of the first five years the rule is in effect, the proposed amended rule would benefit the public by updating the rule to more clearly state comptroller interpretation of statute. The proposed amendments would have no fiscal implication for the state government, units of local government, small businesses or individuals. There would be no significant anticipated economic cost to the public. The proposed amended rule would have no fiscal impact on small businesses or rural communities.

Comments on the proposal may be submitted to Teresa G. Bostick, Director, Tax Policy Division, P.O. Box 13528, Austin, Texas 78711-3528. Comments must be received no later than 30 days from the date of publication of the proposal in the Texas Register.

This amendment is proposed under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture), which provides the comptroller with the authority to prescribe adopt, and enforce rules relating to the administration and enforcement of the provision of Tax Code, Title 2.

This amendment implements the United States Supreme Court decision in South Dakota v. Wayfair, Inc., 138 S.Ct. 2080 (2018).