Under the 1998 physical-presence nexus test, did an out-of-state internet retailer create Texas sales tax nexus merely because its website was linked from an unrelated third party's website that happened to be hosted on a server located in Texas — and is that charge for maintaining the link itself taxable?

Plain-English summary

An out-of-state internet retailer had no physical presence in Texas and took customer orders through a server located outside the state. Its only connection to Texas was that its website happened to be linked from an unrelated third party's website — and that third-party website happened to be hosted on a server physically located in Texas. The retailer's representative asked whether this thin, indirect connection created Texas sales tax nexus.

Under the physical-presence nexus rule that governed at the time, the Comptroller said no — the retailer did not have nexus in Texas for sales tax purposes based on those facts. (The letter notes the client's separate Texas corporate franchise tax exposure would be addressed under separate cover, since franchise tax nexus is analyzed differently.)

The letter did find one thing taxable in this arrangement, though: the charge for maintaining the link itself on the Texas server. Tax Code § 151.0035 defines "data processing" to include computerized data and information storage, and the Comptroller treated the link-maintenance charge as a taxable Texas data processing service under that definition. The client could give its Texas-based service provider an exemption certificate instead of paying tax directly, and then self-assess and remit Texas tax only to the extent it actually benefits from the service in Texas, per Rule 3.330(f).

This letter's core holding is obsolete. STAR's own record for this letter carries a prominent alert: the U.S. Supreme Court's 2018 decision in South Dakota v. Wayfair, Inc. eliminated the physical-presence requirement for state sales tax nexus nationwide. Under current law, remote sellers with $500,000 or more in total Texas revenue over the preceding 12 calendar months must register for a Texas use tax permit and begin collecting use tax (by an October 1, 2019 compliance deadline when the rule took effect), regardless of any physical presence or lack thereof — see amended Rule 3.286 (effective January 1, 2019) and STAR 201910005L. A retailer in this exact 1998 fact pattern, if it exceeds that revenue threshold today, would have Texas nexus and a collection obligation despite having no physical presence at all.

What this means for you

Remote/internet sellers evaluating their Texas nexus today

Do not rely on this letter's "no physical presence = no nexus" holding. Since 2018's Wayfair decision and Texas's implementing rule changes, economic nexus based on revenue (currently $500,000+ in Texas sales over a trailing 12-month period, per the rule referenced in STAR's alert) creates a collection obligation regardless of any physical footprint in the state. Check current Rule 3.286 and STAR 201910005L for the applicable threshold and mechanics.

Businesses whose only "Texas connection" is an indirect web link or Texas-hosted service

The specific question this letter answered — does a mere hyperlink relationship with a Texas-hosted third-party site create nexus — is now largely superseded by economic nexus, which looks at your Texas sales revenue, not these kinds of technical/physical connections.

Businesses paying for website hosting, links, or similar data-storage services on Texas servers

Separately from the nexus question, this letter's holding that link-maintenance charges are taxable Texas data processing services under § 151.0035 and Rule 3.330(f) may still be a relevant framework, though it should be verified against current Rule 3.330 guidance.

Accountants and tax professionals

This is a landmark example of pre-Wayfair physical-presence nexus analysis that current law has completely superseded — useful mainly as historical context for how dramatically internet-sales nexus law changed in 2018, not as a source of current no-nexus guidance.

Common questions

Q: Does an out-of-state retailer have Texas sales tax nexus just because its website is linked from a Texas-hosted third-party site?
A: This 1998 letter said no, under the physical-presence rule then in effect. But that rule was eliminated nationwide by the 2018 Wayfair decision — today, nexus instead turns on economic factors like Texas sales revenue, regardless of physical presence or website linking arrangements.

Q: What's the current Texas economic nexus threshold for remote sellers?
A: Per STAR's alert on this letter, $500,000 or more in total Texas revenue over the preceding 12 calendar months triggers a registration and collection obligation, per amended Rule 3.286 (effective 1/1/2019) — verify the current threshold and rule text directly, since thresholds can change.

Q: Is a charge for maintaining a website link on a Texas server taxable?
A: This letter treated it as a taxable Texas data processing service under § 151.0035 and Rule 3.330(f); confirm this against current Rule 3.330 guidance.

Q: Can I rely on this letter's nexus conclusion for my business today?
A: No — its core holding is obsolete after Wayfair. This opinion was also originally based only on the specific 1998 facts presented, and it bound the Comptroller only as to the taxpayer it was issued to even at the time.

Citations and references

• Tex. Tax Code § 151.0035 (data processing includes computerized data/information storage)
• 34 Tex. Admin. Code Rule 3.330(f) (data processing services)
• 34 Tex. Admin. Code Rule 3.286 (as amended 1/1/2019, remote seller economic nexus collection requirements)
• South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (U.S. June 21, 2018) (eliminated physical-presence nexus requirement)
• STAR 201910005L (referenced for current remote-seller guidance)

Subject

Representation/Nexus In Texas — Internet Link On Unrelated Third — Party Web Site Located In Texas Server — Oos Retailer Has No Presence In Texas

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9801365L

Original ruling text

ALERT: On June 21, 2018, the U.S. Supreme Court issued a decision allowing states to require remote sellers that have an economic presence in the state to collect sales tax. See South Dakota v. Wayfair, 138 S. Ct. 2080 (June 21, 2018). Any remote sellers with $500,000 or more in total Texas revenue (during the preceding 12 calendar months) must apply for a use tax permit and begin collecting use tax by Oct. 1, 2019. For additional information, see STAR 201910005L. See also Rule 3.286 amended 1/01/2019.

January 5, 1998

Dear Mr. **:

Thank you for your recent letter regarding your client's Texas sales and use

tax responsibilities.

You state that the retailer has no physical presence in Texas and receives its

orders through a server located outside Texas. The retailer's only connection

with Texas is that it has a link to its website on an unrelated third party's

website that is located on a Texas server.

Based on this information, your client does not have nexus in Texas for sales

tax purposes. You will receive a response regarding your client's liabilities

for Texas corporate franchise tax under separate cover.

Texas Tax Code Section 151.0035 defines data processing to include computerized

data and information storage. Accordingly, charges for maintaining a link on a

Texas server is subject to Texas sales tax. The client may give the service

provider an exemption certificate in lieu of Texas tax and self assess and

remit Texas tax to the extent it receives benefit of the service in Texas. I

am enclosing an exemption certificate and a copy of Rule 3.330 regarding data

processing services for your reference. Please refer to subsection (f).

This opinion is rendered based on the facts presented. If there are additional

or different facts, the opinion may change.

You may call me toll free at 1-800-531-5441, ext. 3-4680. The direct line is

512/463-4680. You may also write to Tax Policy, Comptroller of Public

Accounts. The email address is .

Sincerely,

Al Van Allen

Tax Policy Division