Ezel / Tax Rulings / TX
TX 9706283L Franchise Tax (PRIOR TO 01/01/2008) 1997-06-04

Did a foreign corporation create Texas franchise-tax nexus by serving as general partner of Texas limited partnerships?

Short answer: Yes. Assuming the three limited partnerships did business in Texas, the California corporation's role as their general partner created Texas nexus under the former franchise tax. It had to file an initial report, later annual reports, and a Public Information Report; the partnerships' expected Texas losses did not remove those filing duties.

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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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 historical franchise-tax forms and assumes each limited partnership was doing business in Texas. Form numbers, deadlines, and current entity rules may differ today. 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

Serving as general partner of Texas limited partnerships gave the foreign corporation Texas franchise-tax nexus.

The California corporation held general-partner interests in three limited partnerships expected to generate Texas losses. Assuming each partnership did business in Texas, the corporation itself was doing business in Texas under Section 171.001 and Rule 3.546.

The corporation therefore had to file an initial franchise-tax report and subsequent annual reports. The letter also required a Public Information Report and described the then-current extension and annual-report forms.

What this means for you

Foreign corporate general partners

Expected partnership losses did not eliminate the corporate general partner's Texas nexus or filing obligations.

Tax professionals

Confirm that the partnership was doing business in Texas, then apply the general-partner nexus rule. Treat the listed form numbers as historical.

Common questions

Q: Did the corporation have Texas nexus?
A: Yes, assuming the partnerships did business in Texas.

Q: Did expected Texas losses remove the filing requirement?
A: No.

Q: What reports did the letter require?
A: An initial report, later annual reports, and a Public Information Report.

Citations and references

  • Texas Tax Code Sec. 171.001
  • 34 Tex. Admin. Code Sec. 3.546
  • Historical Forms 05-141, 05-146, 05-147, and 05-102

Source

Original ruling text

June 4, 1997

VIA FAX: (714) 850-4488

Dear Mr. **:

Thank you for your letter concerning the filing requirements of your client.

Your client is a California corporation that holds interests, as a general
partner, in three different limited partnerships. Each partnership interest
will produce a loss associated with the Texas interest.

I presume that all three of the partnerships are doing business in Texas.

Texas Tax Code (TTC) Section 171.001 states that a franchise tax is imposed on
"each corporation that does business in this state or that is chartered or
authorized to do business in this state." A foreign corporation acting as the
general partner in a limited partnership doing business in Texas has nexus and
is subject to the franchise tax. See franchise tax Rule 3.546.

The corporation must file an initial franchise tax report and subsequent annual
reports. Form 05-141 is an extension request for an annual report. A
corporation may file an extension request on or before the due date of the
annual report and then file the annual report on or before the extended due
date. The annual report is form 05-146 and 05-147. A corporation must also
file a Public Information Report, form 05-102, to be in compliance with the
franchise tax law.

These forms and several others are available on the Comptroller's web site at
www.window.state.tx.us/taxinfo/taxforms/05-forms.html. Franchise tax rules are
available at the Texas Secretary of State's web site at
www.sos.state.tx.us/tac/34/I/3/V/index.html.

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

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