Ezel / Tax Rulings / TX
TX 9611853L Franchise Tax (PRIOR TO 01/01/2008) 1996-11-21

Did leasing airplanes and train cars that lessees used in Texas create franchise-tax nexus for the lessor?

Short answer: Yes. The lessor was subject because it held a Texas certificate of authority. It also had nexus independently because it leased airplanes and train cars that lessees used in Texas, even though the lessor did not control the equipment's location and had no Texas office, employees, agents, or solicitation.

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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. This 1996 response applies former nexus rules to a lessor with a Texas certificate of authority and mobile equipment used in Texas by lessees. Different lease terms, property use, or authorization status could change the result. 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

The lessor owed both former franchise-tax components because of its Texas authority and the equipment's Texas use.

The corporation leased airplanes and train cars, while its lessees controlled where the mobile equipment traveled. The lessor had no Texas solicitation, office, employees, or agents.

Its certificate of authority created franchise-tax status under Rule 3.546(a). Even without that certificate, leasing property used in Texas constituted doing business under Rules 3.546(c)(19) and 3.554(d)(20).

Texas therefore applied both taxable capital and earned surplus.

What this means for you

Lessors of mobile equipment

Giving the lessee control over location did not prevent nexus when the leased property was used in Texas.

Tax professionals

Analyze both authorization status and actual Texas use of leased assets.

Common questions

Q: Did the certificate create liability?
A: Yes.

Q: Would equipment use create nexus without the certificate?
A: Yes.

Q: Which components applied?
A: Both taxable capital and earned surplus.

Citations and references

  • 34 Tex. Admin. Code Secs. 3.546(a), 3.546(c)(19), and 3.554(d)(20)

Source

Original ruling text

November 21, 1996

Dear **:

In your letter of November 4, you asked if ABC (ABC) is liable for franchise
tax.

You state that ABC leases airplanes and train cars. The corporation does not
control the location of this mobile equipment. Instead, the lessee relocates
the equipment as necessary. ABC does not solicit business in Texas, has no
office or other place of business in Texas, and has no employees, or agents in
Texas.

Our records indicate that ABC has a certificate of authority issued by the
Texas Secretary of State. Therefore, ABC is subject to franchise tax as
indicated in Rule 3.546(a) (enclosed) because the company is authorized to do
business in Texas.

Based on the information submitted, ABC would be subject to franchise tax even
if the company did not have a certificate of authority. Specifically, ABC is
doing business in Texas because the corporation is leasing property which is
used in Texas (see Rule 3.546(c)(19) and Rule 3.554(d)(20) (enclosed)). Thus,
ABC is subject to both the taxable capital and earned surplus components of the
franchise tax.

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

If you have any questions, contact Tax Policy Division. You may call toll free
1-800-531-5441, or our regular number is 512/463-4600. My extension is 3-4662.
You may write me at Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Bob Jeffcoat
Tax Policy Division

Get today's answer for your situation

You just read a 1996 ruling on this question. Ezel checks current Texas tax law and answers your specific situation, with citations.

Opens in Ezel Pro. Every answer cites the authority it relies on.