Ezel / Tax Rulings / TX
TX 9501L1356G05 Franchise Tax (PRIOR TO 01/01/2008) 1995-01-27

After a corporation withdraws from Texas, does it still have franchise-tax nexus?

Short answer: No. The Comptroller advised that after the date of its withdrawal from Texas, the corporation would no longer have nexus in Texas and therefore would not be subject to either component of the Texas franchise tax (the taxable-capital tax or the earned-surplus tax). The answer was based on the facts presented and could change if the facts changed.

Apply this to your situation

This page answers the general question as of 1995. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1995
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. This letter applies the Texas franchise tax as it existed before January 1, 2008; the 2007 legislation (House Bill 3 and House Bill 3928) restructured the tax into the current margin tax and made partnerships taxable effective January 1, 2008, so its entity-level conclusions are historical. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

A representative asked whether a corporation ("ABC Corporation") would have nexus with Texas for franchise-tax purposes. The Comptroller answered briefly: after the date of its withdrawal from Texas, ABC Corporation would not have nexus in Texas and, therefore, would not be subject to either component of the Texas franchise tax.

At the time, the franchise tax had two bases — a tax on net taxable capital and a tax on net taxable earned surplus — and a corporation with no Texas nexus is subject to neither. The Comptroller noted the response rested on the facts presented and could change if the facts changed.

Important currency note: This letter applies the pre-2008 franchise tax. The 2007 legislation (House Bill 3 and House Bill 3928) restructured the tax into the current margin tax effective January 1, 2008, changing what creates a filing obligation. Confirm current nexus rules before relying on this result.

What this means for you

Businesses winding down Texas operations

Once a corporation properly withdrew and had no remaining Texas nexus, its franchise-tax exposure ended — nothing was owed under either the taxable-capital or the earned-surplus base. The key was that no Texas-activity connection remained after withdrawal.

Accountants and tax professionals

The ruling is short and fact-specific; it confirms the general rule that no nexus means no franchise tax under either pre-2008 component. Re-verify under the current margin tax, whose nexus and "doing business" tests differ.

Common questions

Q: Did the corporation owe franchise tax after withdrawing from Texas?
A: No. With no Texas nexus after withdrawal, it was subject to neither the taxable-capital component nor the earned-surplus component.

Q: Is this still current law?
A: The framework has changed. The 2008 margin tax replaced the two-component pre-2008 tax, so confirm current nexus rules.

Citations and references

The letter states its conclusion on nexus without citing a specific Tax Code section; it applies the general pre-2008 rule that a corporation without Texas nexus owes neither franchise-tax component. See the verbatim text below.

Source

Original ruling text

January 27, 1995

Dear *****:

Thank you for your letter (copy attached) dated January 10, 1995,
asking whether ABC Corporation would have nexus with Texas for
franchise tax purposes.

After the date of withdrawal, ABC Corporation would not have
nexus in Texas and, therefore, would not be subject to either
component of the Texas franchise tax.

This response is based on the facts presented in your letter.
If the facts change or if there are additional relevant facts, the
response may change.

If you have any questions, please do not hesitate to write me
or call me toll free at 1-800-252-1381, extension 3-4662.

Sincerely,

Jerry Oxford
Tax Administration

NOTE: Previous Accession Number 9501248L

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