Ezel / Tax Rulings / TX
TX 9808053L Franchise Tax (PRIOR TO 01/01/2008) 1998-08-28

Did a passive Delaware corporation owe Texas franchise tax because it held a Texas certificate of authority and had a Texas mailing address?

Short answer: Yes. The corporation's only asset was a limited-partnership interest, and it had no employees, operations, or tangible property. Even so, Section 171.001 taxed a corporation authorized to do business in Texas, and the company's certificate of authority independently made it subject to franchise tax. Comptroller records also showed a Texas mailing address indicating a Texas office, which was a separate nexus basis.

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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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 response gives two bases for liability: authorization through the certificate and a recorded Texas address indicating an office. It applies the pre-2008 franchise tax, replaced by the margin tax effective January 1, 2008; confirm current registration and nexus consequences. 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

The Delaware corporation owed franchise tax because it was authorized to do business in Texas, and Comptroller records also indicated a Texas office.

The corporation described itself as passive: its only asset was a limited-partnership interest, with no employees, business activity, or tangible property in any state.

Section 171.001 nevertheless taxed corporations authorized to do business in Texas. The company had received a Texas certificate of authority on March 13, 1997, making it subject to the tax without regard to active operations.

The Comptroller also found a Texas mailing address in its records, indicating a Texas office and providing an additional nexus fact under the former rules.

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

What this means for you

Foreign corporations registered in Texas

Formal authority to do business could itself trigger the historical tax even for a passive entity.

Tax professionals

Check Secretary of State status and agency address records, not only operational facts.

Common questions

Q: Did the corporation actively operate in Texas?
A: It said no.

Q: What independently created liability?
A: Its Texas certificate of authority.

Q: What additional nexus fact did the Comptroller identify?
A: A Texas mailing address indicating an office.

Citations and references

  • Texas Tax Code Sec. 171.001
  • 34 Tex. Admin. Code Secs. 3.546 and 3.554

Source

Original ruling text

August 28, 1998

RE: **
Taxpayer Number: **

Dear Mr. **:

Thank you for your recent letter regarding the nexus of the corporation listed
above.

You stated in your letter that the corporation is a Delaware corporation. Its
sole asset is a limited partnership interest. The corporation has no
employees, conducts no business and owns no tangible property in Texas or any
other state. Other than the impact of owning the limited partnership interest,
the corporation has no operations.

Section 171.001 of the Texas Tax Code imposes a franchise tax on "each
corporation that does business in this state or that is chartered or authorized
to do business in this state." Because the corporation listed above is
authorized to do business in Texas, as evidenced by its Certificate of
Authority, the corporation is subject to the Texas franchise tax.

According to our records, the company received its certificate of authority on
March 13, 1997. Our records also reflect that the mailing address of the
corporation is in ** Texas, which indicates that the corporation
has an office in Texas. The presence of an office in Texas will subject the
corporation to the franchise tax.

Franchise Tax Rules 3.546 (Taxable Capital: Nexus) and 3.554 (Earned Surplus:
Nexus) address specific activities that, when performed in Texas, constitute
doing business in Texas. I have enclosed copies of these rules for your
review.

I have also enclosed the corporation's initial franchise tax report for your
use.

This response is based on 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.