Ezel / Tax Rulings / TX
TX 9801265L Franchise Tax (PRIOR TO 01/01/2008) 1998-01-15

Did a foreign corporation have Texas nexus because it was the general partner of a partnership doing business in Texas?

Short answer: Yes. Although the foreign corporation described itself as a passive pass-through entity with no direct Texas business, its business questionnaire showed that it was general partner of a partnership doing business in Texas. The Comptroller treated the corporation as doing business in Texas and subjected it to both taxable capital and earned surplus under Rules 3.546 and 3.554.

Apply this to your situation

This page answers the general question as of 1998. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1998
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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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 conclusion depends on the foreign corporation serving as general partner of a partnership doing business in Texas and applies to the former taxable-capital and earned-surplus tax. Different facts could change the response; confirm current nexus 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

A foreign corporation had Texas nexus because it was general partner of a partnership doing business in Texas.

The corporation said it conducted no Texas business and was only a pass-through investor. But its business-tax questionnaire identified it as general partner of a partnership operating in Texas.

The Comptroller treated a foreign corporate general partner as doing business wherever its partnership did business. The corporation therefore owed both the taxable-capital and earned-surplus components under Rules 3.546 and 3.554.

What this means for you

Corporate general partners

Describing the corporation as passive did not overcome its general-partner role in an active Texas partnership.

Tax professionals

Review partnership roles and filed nexus questionnaires when testing a corporate partner's Texas obligations.

Common questions

Q: Did the corporation directly operate in Texas?
A: It said no, but its partnership did.

Q: Which franchise-tax 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

January 15, 1998

RE: **.

Dear Mr. **:

Thank you for your letter, dated October 29, 1997, concerning the liability of
your client for Texas franchise tax. I apologize for the delay in responding
to your inquiry.

You stated in your letter that your client conducts no business in the state of
Texas. The client has an investment in another entity and is just a
pass-through entity.

On July 21, 1997, we received a business tax questionnaire from your client,
signed by Mr. **. This questionnaire indicated that your client, a
corporation, is the general partner in a partnership that is doing business in
Texas. I have enclosed a copy of the business tax questionnaire for your
review.

Based on this information, your client has sufficient nexus in Texas to subject
it to the Texas franchise Tax. A foreign corporation that is a general partner
in a partnership doing business in Texas is considered to be doing business (to
have nexus) in Texas. Therefore, the corporation is subject to both the
taxable capital and earned surplus components of the franchise tax. I have
enclosed copies of Rules 3.546, Taxable Capital: Nexus, and 3.554, Earned
Surplus: Nexus.

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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