How does an insurance agency get the Texas franchise tax clearance the Department of Insurance requires for a license - a Certificate of Account Status or a No Nexus Letter?

Plain-English summary

An insurance agency asked how to obtain the franchise tax clearance the Texas Department of Insurance (TDI) requires before it will issue an insurance license. The Comptroller explained that the franchise tax applies to every corporation chartered in Texas and to out-of-state corporations doing business in Texas, and that there are two clearance documents depending on the agency's situation:

• Certificate of Account Status (CoAS) - for a corporation doing business in Texas that is set up for franchise tax and has satisfied all franchise tax requirements (it shows the corporation is in good standing).
• No Nexus Letter - for a corporation incorporated outside Texas that is not currently doing business in Texas; it is issued when the Comptroller determines the corporation is not subject to the Texas franchise tax.

In both cases, the agency first submits a completed Texas Nexus Questionnaire (Form AP-114) to the Comptroller. From that questionnaire, the Comptroller determines whether the corporation is doing business in Texas - and, if it is but has no account yet, can set up a franchise tax account. The agency then files the appropriate clearance document with TDI.

Currency note: This describes pre-2008 franchise tax procedures; the tax itself was replaced by the current margin tax (House Bills 3 and 3928) effective January 1, 2008, and specific forms, addresses, and procedures may have changed since. Treat as historical and confirm current requirements with the Comptroller.

What this means for you

Insurance agencies seeking a Texas license

Which document you needed turned on nexus. If you were doing business in Texas and current on franchise tax, you asked for a Certificate of Account Status. If you were an out-of-state agency not doing business in Texas, you asked for a No Nexus Letter. Either way, the process started with the Texas Nexus Questionnaire (Form AP-114).

Accountants and tax professionals

Have the client complete Form AP-114 first; the Comptroller uses it to decide nexus and, if needed, to open a franchise tax account. Then request the CoAS (in-state/registered filers in good standing) or the No Nexus Letter (out-of-state, no nexus) to satisfy TDI's licensing requirement. Confirm the current versions of these forms and procedures, since this guidance predates the 2008 margin tax.

Common questions

Q: Which clearance do I need for a Texas insurance license?
A: A Certificate of Account Status if you are doing business in Texas and current on franchise tax; a No Nexus Letter if you are incorporated outside Texas and not doing business here.

Q: What do I file first?
A: A completed Texas Nexus Questionnaire (Form AP-114), which the Comptroller uses to determine nexus.

Q: What if I'm doing business in Texas but have no franchise tax account?
A: The Comptroller can set up an account from your completed Nexus Questionnaire.

Citations and references

This letter explains the Comptroller's clearance procedures for insurance licensing and does not cite specific Tax Code sections or Comptroller rules in its text. It references the Texas Nexus Questionnaire (Form AP-114).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/200305929L

Original ruling text

May 30, 2003

Dear **:

Thank you for your inquiry concerning the Texas Franchise Tax. The tax is
imposed on each corporation that is chartered in Texas. Out-of-state
corporations doing business in the state are also liable for the tax.

The Texas Department of Insurance (TDI) requires an insurance agency applying
for an insurance license to receive a franchise tax clearance from this office.
You may request either a Certificate of Account Status (CoAS) indicating that
the corporation is in good standing or a No Nexus Letter, whichever is
applicable, and then file the appropriate document with TDI.

If your agency is incorporated outside Texas and is currently not doing
business in Texas, you can request a No Nexus Letter. To determine if the
corporation is doing business in Texas, a completed Texas Nexus Questionnaire
(Form AP-114) must first be submitted to this office. The No Nexus Letter is
issued when it is determined that the corporation is not subject to the Texas
franchise tax.

Corporations doing business in the state can request a CoAS. The CoAS is issued
to corporations that are set up for franchise tax and have satisfied all
franchise tax requirements. If a corporation is doing business in Texas and
has not been set up for franchise tax, this office can set up an account once a
completed Texas Nexus Questionnaire has been filed.

You can download the Texas Nexus Questionnaire at
http://www.window.state.tx.us/taxinfo/taxforms/05-forms.html. The completed
questionnaire should be mailed to , Account
Maintenance Division-Franchise Tax Section, 111 E. 17th Street, Austin, TX
78774-0100. When you return the questionnaire, you can also request the No
Nexus Letter or CoAS.

Additional franchise tax information is available online at
http://www.window.state.tx.us/taxinfo/franchise/index.html.

Our goal is to provide you with prompt, professional service. Please take a
moment to complete our on-line survey at
http://aixtcp.cpa.state.tx.us/surveys/tpsurv/.

If you have any questions, my internet address is
, or you may call toll-free at 1-800-531-5441,
extension 3-4496.

Sincerely,

Jerry Bobbitt
Tax Policy Division