Ezel / Tax Rulings / TX
TX 9802285L Franchise Tax (PRIOR TO 01/01/2008) 1998-02-20

Did an out-of-state company create Texas franchise-tax nexus by providing capital-lease financing without representation or financial activity in Texas?

Short answer: No, on the stated facts. The company had no Texas representation and provided only capital-lease financing. The Comptroller said it was not subject to franchise tax. But Texas credit checks, gathering financial data in Texas, or other in-state financial activities would create tax liability under Rule 3.546(c)(13).

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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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 no-nexus result depends on the company having no Texas representation and performing no Texas credit checks, financial-data gathering, or other financial activities. The leases were capital leases, not operating leases. 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

Providing capital-lease financing to Texas businesses did not create nexus when the lessor had no Texas representation or in-state financial activity.

The company made itself available as a financing source and entered only capital leases. On those facts, the Comptroller said it was not subject to Texas franchise tax.

The answer would change if the company performed credit checks in Texas, gathered financial data in Texas, or conducted other financial activities in the state. Rule 3.546(c)(13) would then create liability.

What this means for you

Out-of-state finance companies

The historical ruling distinguished financing Texas leases from performing the underlying financial work in Texas.

Tax professionals

Verify where credit review, data gathering, and related financing functions occur. The no-nexus answer was conditional on their absence from Texas.

Common questions

Q: Were the leases operating leases?
A: No. They were capital leases.

Q: Did the company have Texas representatives?
A: No.

Q: Would an in-state credit check matter?
A: Yes. The letter said it would make the company subject to tax.

Citations and references

  • 34 Tex. Admin. Code Secs. 3.546(c)(13) and 3.554

Source

Original ruling text

February 20, 1998

Dear Ms. *:

Thank you for your letter concerning your corporation's liability for Texas
franchise tax.

You stated in your letter that your company does not have any representation in
Texas. When a business in Texas needs a source for leasing, your corporation
is available to provide financing. All of the leases that you enter into are
capital leases and not operating leases.

Based on this information, your corporation is not subject to the Texas
franchise tax.

If, however, your corporation makes any credit checks in Texas, gathers
financial data in Texas, or performs any other financial activities in Texas,
it will be subject to the tax. [See Rule 3.546(c)(13).]

I have enclosed copies of Rule 3.546, Taxable Capital: Nexus, and Rule 3.554,
Earned Surplus: Nexus, for your review.

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

Get today's answer for your situation

You just read a 1998 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.