Ezel / Tax Rulings / TX
TX 9703420L Franchise Tax (PRIOR TO 01/01/2008) 1997-03-19

Did a Texas-based employee investigating aircraft accidents create franchise-tax nexus for an out-of-state corporation?

Short answer: Yes. Even though the corporation had no Texas facilities or sales activity, its employee lived and worked from home in Texas and investigated aircraft accidents in Texas and nearby states. Performing those investigative services in Texas subjected the corporation to both former franchise-tax components.

Apply this to your situation

This page answers the general question as of 1997. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1997
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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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 1997 response applies former nexus rules to an employee who lived and performed investigative services in Texas from a home office. Different employee duties or locations 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 Texas-based investigator created nexus for both former franchise-tax components.

The out-of-state corporation had no Texas facilities and performed no sales functions there. It did, however, employ a person who lived and worked from home in Texas and investigated aircraft accidents in Texas and surrounding states.

The Comptroller said performing those investigative services in Texas subjected the corporation to both the taxable-capital and earned-surplus components under Rules 3.546 and 3.554.

What this means for you

Out-of-state service businesses

A single Texas-based employee performing the company's substantive services could create Texas nexus even without an office or sales activity.

Tax professionals

Focus on where the employee actually performs services, not only on formal facilities or sales functions.

Common questions

Q: Did the corporation have a Texas office?
A: No formal facility; the employee worked from home.

Q: What created nexus?
A: Investigative services performed in Texas.

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

Citations and references

  • 34 Tex. Admin. Code Secs. 3.546 and 3.554

Source

Original ruling text

March 19, 1997

Dear ***:

Thank you for your letter concerning the filing requirements for the Texas
franchise tax for your corporation.

You stated in your letter that your corporation has no facilities in Texas and
performs no sales functions in Texas. You do have an employee, living in
Texas, who investigates aircraft accidents in Texas and surrounding states.
The employee works out of his home.

The performance of the investigative services in Texas will subject your
corporation to both components of the Texas franchise tax. I have enclosed
franchise tax rules 3.546, Taxable Capital: Nexus, and 3.554, Earned Surplus:
Nexus, as well as a publication that summarizes the franchise tax for your
review.

I have also enclosed a Business Tax Questionnaire for you to complete. This
will enable us to set up an account for you.

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.

Sincerely,

Janet Spies
Tax Policy Division

Enclosures

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