Ezel / Tax Rulings / TX
TX 9610803L Franchise Tax (PRIOR TO 01/01/2008) 1996-10-01

Did Texas or its political subdivisions impose income tax on individuals, or franchise tax on an unconnected North Dakota S corporation?

Short answer: No on both stated facts. Texas and its political subdivisions imposed no individual income tax on wages, interest, dividends, capital gains, or other income. The North Dakota S corporation also was not subject to Texas franchise tax if it had no activity or other connection to Texas.

Apply this to your situation

This page answers the general question as of 1996. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1996
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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. The S-corporation answer is expressly conditional on having no Texas activity or other connection, and the franchise-tax discussion reflects 1996 law. Confirm current law. 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

Texas imposed no state or local individual income tax, and the unconnected North Dakota S corporation owed no Texas franchise tax.

The Comptroller said wages, interest, dividends, capital gains, and other income received by an individual were not subject to Texas state or local income tax.

Texas did impose franchise tax on corporations, including S corporations. But the particular North Dakota S corporation was not subject to it if the corporation had no activity or other connection to Texas.

What this means for you

Individuals receiving income

The letter distinguishes Texas's lack of an individual income tax from taxes imposed on business entities.

Out-of-state S corporations

The no-tax result depended on the corporation having no Texas activity or connection.

Common questions

Q: Did Texas tax an individual's wages or investment income?
A: No under the letter.

Q: Did S status itself eliminate franchise tax?
A: No. The letter says Texas imposed franchise tax on S corporations.

Q: Why was the North Dakota corporation not taxable?
A: It had no Texas activity or other connection on the stated facts.

Citations and references

  • No statute or rule was cited in the letter.

Source

Original ruling text

October 1, 1996

Dear **:

Thank you for your recent letter concerning income taxes imposed on individuals
by the State of Texas.

There is no income tax imposed by the State of Texas nor its political
subdivisions. Therefore, wages, interest, dividends, capital gains, and other
sources of income received by an individual are not subject to any Texas state
or local income tax.

Although Texas does impose a franchise tax on corporations (including S
corporations), the North Dakota S corporation would not be subject to franchise
tax if the corporation has no activity or other connection to Texas.

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 feel free to call Bob Jeffcoat in the Tax
Policy Division, at 1-800-531-5441, extension 3-4662.

Sincerely,

Glen D. Hunt
Director, Research and Policy Development

cc: Bob Jeffcoat

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