Ezel / Tax Rulings / TX
TX 9806607L Franchise Tax (PRIOR TO 01/01/2008) 1998-06-17

Did maintaining a company office in Texas create nexus for both former franchise-tax components?

Short answer: Yes. Rule 3.546(c)(15) treated maintaining a Texas place of business as taxable-capital nexus. Rule 3.554(d)(18) treated an office paid for directly or indirectly by the company and formally attributed to it as earned-surplus nexus. The Comptroller required franchise-tax reports for 1996 through 1998 and a public information report.

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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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 filing years and rules are historical and apply the pre-2008 taxable-capital and earned-surplus tax, which Texas replaced with the margin tax effective January 1, 2008; confirm current nexus and delinquent-report requirements. 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 company-maintained Texas office created nexus for both taxable capital and earned surplus.

The company acknowledged in its letter and business-tax questionnaire that it maintained an office in Texas.

Rule 3.546(c)(15) treated a Texas place of business as taxable-capital nexus. Rule 3.554(d)(18) applied to an office or place of business paid for directly or indirectly by the company and formally attributed to it, creating earned-surplus nexus.

The Comptroller directed the company to file 1996 through 1998 franchise-tax reports and a public information report.

Currency note: This is a pre-2008 office-nexus ruling. Texas replaced the former tax with the margin tax effective January 1, 2008.

What this means for you

Companies with attributed Texas offices

An office maintained and paid for by the company was direct nexus under both former components.

Tax professionals

Review company questionnaires, address records, and who pays for or formally uses the office.

Common questions

Q: Which former tax components had nexus?
A: Both taxable capital and earned surplus.

Q: Which reports were requested?
A: Franchise-tax reports for 1996-1998 and a public information report.

Citations and references

  • 34 Tex. Admin. Code Sec. 3.546(c)(15)
  • 34 Tex. Admin. Code Sec. 3.554(d)(18)

Source

Original ruling text

June 17, 1998

Dear Mr. **:

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

I have reviewed your letter dated May 18, 1998 and the Business Tax
Questionnaire you submitted, dated February 9, 1998.

You stated in your letter and in the business tax questionnaire that your
company maintains an office in Texas. Rule 3.546(c)(15) states that
"maintaining a place of business in Texas" constitutes doing business in Texas
and creates nexus for the taxable capital component of the franchise tax. Rule
3.554(d)(18) states that "maintaining...an office or place of business...that
is paid for directly or indirectly by the company and that is formally
attributed to the company" creates nexus for the earned surplus component of
the tax. I have enclosed copies of the referenced rules for your review.

Therefore, as Ms. Nanez stated in her April 24th letter, your company needs to
file franchise tax reports for 1996 through 1998 along with a Public
Information Report.

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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