Does an out-of-state touring band's corporation owe Texas franchise tax if it performs in Texas only a few days a year, even without corporate-income nexus?

Plain-English summary

A representative asked whether a touring band organized as a corporation owes Texas franchise tax when it plays in Texas only about seven days a year and believes it has no corporate-income nexus (though it does collect and remit sales tax on merchandise sold at concerts).

• Performing in Texas is "doing business." Sec. 171.001 imposes the franchise tax on each corporation that does business in Texas or is chartered/authorized to do so. Franchise Tax Rule 3.546(c)(6) says the "staging of shows, theatrical performances, or other events in Texas" constitutes doing business (with Rule 3.554 the parallel earned-surplus nexus rule). So the band is subject to the tax - a small number of performance days does not exempt it.
• How the old tax worked. Two components - taxable capital (0.25% per year of privilege) and taxable earned surplus (4.5%) - each apportioned by a single gross-receipts factor; the corporation pays the greater of the two.
• Possible no tax due, but still must file. No tax is due if gross receipts for both components are each under $150,000, or if the computed tax is under $100 - but the corporation must still file an abbreviated franchise tax information report and a public information report.

Currency note: This 2000 letter applies the pre-2008 franchise tax and its component rates (replaced by the margin tax effective January 1, 2008 under House Bills 3 and 3928). The margin tax uses a different base and rates and its own nexus rules; confirm current law.

What this means for you

Out-of-state performers, entertainers, and event companies

Having little physical presence and no income-tax nexus did not get a corporate performer off the hook: staging an event in Texas was itself "doing business" for the franchise tax. Even a band on stage for a handful of days a year had a filing obligation (and possibly tax). The $150,000 / $100 thresholds could zero out the tax, but the reports were still required.

Tax professionals

Note the decoupling: franchise-tax nexus under Rule 3.546(c)(6) turns on the activity (staging shows), independent of income-tax nexus concepts the taxpayer had in mind. The pre-2008 mechanics (dual components, single gross-receipts factor, greater-of tax, filing thresholds) are historical - re-verify under the margin tax and its modern nexus standards.

Common questions

Q: Does a touring band that plays only a few days in Texas owe franchise tax?
A: Yes. Staging shows or performances in Texas is "doing business" under Rule 3.546(c)(6), so the corporation is subject to the franchise tax.

Q: We don't think we have income-tax nexus - does that matter?
A: No. Franchise-tax nexus turns on the activity of staging events in Texas, not on income-tax nexus.

Q: If we owe no tax, do we still have to file?
A: Yes. Even when gross receipts are under $150,000 or the tax is under $100, you must file an abbreviated franchise tax information report and a public information report.

Citations and references

Statute and rules:

• Texas Tax Code Sec. 171.001 - franchise tax on each corporation doing business in, or chartered/authorized to do business in, Texas
• 34 Tex. Admin. Code Sec. 3.546 (Franchise Tax Rule 3.546, Taxable Capital: Nexus), subsection (c)(6) - staging shows, theatrical performances, or other events in Texas is doing business
• 34 Tex. Admin. Code Sec. 3.554 (Franchise Tax Rule 3.554, Earned Surplus: Nexus)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/200010841L

Original ruling text

October 24, 2000

Re: **
Texas Taxpayer Number: **

Dear **:

Thank you for your letter regarding your client's responsibility for Texas
franchise tax.

You stated in your letter that your client is a touring band that may transact
business in Texas a total of seven days out of 365 days. You stated that the
company does not have nexus for corporate purposes, however it does collect
sales tax on merchandise sold at concerts and remits it accordingly.

Section 171.001 of the Texas Tax Code imposes a franchise tax on "each
corporation that does business in this state or that is chartered or authorized
to do business in this state." Franchise tax rules 3.546, Taxable Capital:
Nexus, and 3.554, Earned Surplus: Nexus, provide a listing of activities that
constitute doing business in Texas. Subsection (c)(6) of Rule 3.546
specifically states that the "staging of shows, theatrical performances, or
other events in Texas" constitutes doing business. Therefore, your client is
doing business in Texas and is subject to the franchise tax.

The franchise tax consists of two components: Taxable Capital and Earned
Surplus. The taxable capital component includes the equity (i.e. assets minus
debts) of the corporation. The earned surplus component is based on federal
taxable income with modifications. Both components are apportioned using a
single gross receipts factor and then multiplied by the appropriate tax rates
(.25% per year of privilege for taxable capital and 4.5% for earned surplus). A
corporation will pay the greater of the two taxes. Franchise tax will not be
due from a corporation if the gross receipts from its entire business for both
components, taxable capital and taxable earned surplus, are each less than
$150,000 during the period upon which the tax is based or if the amount of tax
computed is less than $100. The corporation is responsible, however, for
filing an abbreviated franchise tax information report, stating the amount of
its gross receipts, along with a public information report.

This response is based on current law and the facts presented. If there are
different or additional facts, the response may change.

If you have any questions about this or any other franchise tax matter, please
call me at 1-800-531-5441, extension 34612. My direct number is (512)
463-4612. You may write me at Tax Policy Division, Comptroller of Public
Accounts, Austin, Texas 78774 or via e-mail at .

Sincerely,

Janet Spies
Tax Policy Division
Texas State Comptroller