34 Tex. Admin. Code § 3.586 - Margin: Nexus

(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.

Notes

34 Tex. Admin. Code § 3.586

The provisions of this §3.586 adopted to be effective January 1, 2008, 32 TexReg 10027; Amended by Texas Register, Volume 44, Number 51, December 20, 2019, TexReg 8021, eff. 12/29/2019; Amended by Texas Register, Volume 46, Number 06, February 5, 2021, TexReg 0935, eff. 2/10/2021