My out-of-state mail-order/Internet client has no employees, salespeople, or locations in Texas, but plans to exhibit a booth (no sales, no installs) for about seven total hours at a one-time, four-day educational industry conference in Texas, and separately sells downloadable digital content (clipart, music, possibly software) to Texas customers online. We believe this limited, non-recurring conference display doesn't create substantial nexus under Quill and Complete Auto. Is that right?

Plain-English summary

An out-of-state mail-order and Internet retailer, with no Texas employees, salespeople, or business locations, asked the Comptroller to confirm that it would NOT owe Texas sales/use tax collection duties. All physical product orders were accepted and shipped from out-of-state facilities via common carrier. The company also sold digitized content — clipart, music, and possibly software — that customers purchased and downloaded directly from the company's out-of-state server, free to install on as many computers as they wanted.

The wrinkle: the company planned to attend a one-time, four-day industry conference being held in Texas (the first and, to its knowledge, only time this particular conference would be held there). The conference consisted mainly of educational seminars, not a traditional trade show, and the company would staff an exhibit booth visible to attendees only during lunch breaks, for about seven total hours across the four days — making no sales at the conference itself, just handing out ordering information.

The taxpayer's argument: citing the Commerce Clause four-part test from Complete Auto Transit, Inc. v. Brady (1977) and the physical-presence rule from Quill Corp. v. North Dakota (1992), the company argued this one-time, non-recurring, limited display was a "de minimis" activity that didn't create the "substantial nexus" required before a state can force an out-of-state business to collect its tax. The company distinguished two prior Comptroller hearings finding nexus (Hearing 11,751 and Hearing 21,462) on the grounds that those cases involved recurring trade-show attendance across multiple years, and in one case, in-state installation/training work — activities well beyond what this company planned.

The Comptroller disagreed, on two separate and independent grounds:

1. The conference display booth itself creates nexus. Under Tex. Tax Code § 151.107(a)(1), a retailer is "engaged in business" in Texas if it maintains, even temporarily, a "sample room," "storage place," or similar place of business — and Hearing 11,751 already held a display/exhibit booth qualifies as this kind of place. The Comptroller found no meaningful distinction between a "conference," "convention," or "trade show" as long as attendees (like this company) could exhibit products — and no requirement that the conference recur in future years. Critically, the Hearing 11,751 precedent found nexus even though the taxpayer there, like this company, did not actually transfer equipment or take orders at the event — merely exhibiting products "toward the end of making sales" was enough to qualify as having a representative in Texas "for the purpose of selling, delivering, or taking order[s]" under Sec. 151.107(2).
2. Separately, downloadable software licensing creates its own, independent nexus. The company mentioned its customers might download the company's software for use in Texas. Citing a more recent hearing (No. 36,237 / 9807720H), the Comptroller noted that a company licensing software for use in Texas is engaged in business in the state under Sec. 151.107(a)(3) — a wholly separate basis for nexus that doesn't depend on the conference at all.

Because either ground independently supports nexus, the Comptroller concluded the company would be considered engaged in business in Texas and required to collect and report use tax on its Texas sales going forward.

What this means for you

Out-of-state retailers considering any physical presence at a Texas industry event

Don't assume that a single, non-recurring conference appearance with no on-site sales is automatically too minimal to create nexus. Under Texas's own administrative precedent (as read by the Comptroller here), even a one-time exhibit booth used to promote future sales can qualify as "engaged in business," regardless of whether the event is labeled a trade show, convention, or educational conference, and regardless of whether it recurs.

Software companies licensing products for download by Texas customers

This letter treats software licensed for use in Texas as an independent nexus trigger under Sec. 151.107(a)(3) — separate from any physical event attendance. If your customers are downloading and using your licensed software in Texas, that alone may create a collection obligation.

Businesses relying on Quill-era physical-presence nexus arguments

This 1999 letter shows the Comptroller applying Texas's own broadly-worded "engaged in business" statute and administrative case law even under the pre-Wayfair physical-presence-required constitutional framework — a state didn't need much physical activity to establish nexus even then. Note also that Quill itself was overruled by Wayfair in 2018, and states (including Texas) now have separate economic nexus rules that don't require physical presence at all — so today's analysis for a similar remote seller would also need to account for those newer economic-nexus thresholds, not just the physical-presence question this letter focuses on.

Accountants and tax professionals advising remote sellers on Texas nexus

This letter is useful primarily for its physical-presence-era analysis: (1) an exhibit/display booth counts as a "sample room" or "place of business" even for a single, non-recurring event, and (2) software licensed for use in Texas independently creates nexus under Sec. 151.107(a)(3). Layer in current post-Wayfair economic nexus rules for a complete modern analysis.

Common questions

Q: Does attending a one-time industry conference in Texas with a limited display booth create sales tax nexus?
A: According to this letter, yes — the Comptroller found that even a single, non-recurring exhibit booth used to promote sales qualifies as "engaged in business" under Texas's broad statutory definition, based on prior Comptroller hearing precedent.

Q: Does it matter that no actual sales were made at the conference, just an information booth?
A: No — the cited precedent (Hearing 11,751) found nexus even where the taxpayer didn't transfer equipment or take orders at the event itself; exhibiting products toward the purpose of making sales was enough.

Q: If my company licenses software that Texas customers download and use, does that create nexus even without any event attendance?
A: Yes, according to this letter — licensing software for use in Texas independently creates nexus under Sec. 151.107(a)(3), citing Hearing No. 36,237.

Q: Is this letter's nexus analysis still the complete picture today?
A: Not entirely — it's built on the pre-2018 physical-presence framework from Quill, which the Supreme Court overruled in Wayfair. States including Texas have since added economic nexus rules that don't depend on physical presence at all, so a modern analysis would need to consider those too.

Q: Can I rely on this letter for my own company's Texas nexus situation?
A: No. This opinion is based on the facts presented, and other facts, though similar, may provide a different result; it can be relied on only by the taxpayer it was issued to.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.107(a)(1) (engaged in business — maintaining a sample room, storage place, or other place of business, even temporarily)
• Tex. Tax Code § 151.107(2) (engaged in business — representatives in Texas exhibiting or soliciting toward the purpose of making sales)
• Tex. Tax Code § 151.107(a)(3) (engaged in business — licensing software for use in Texas)

Case law and prior Comptroller precedent discussed in the letter:

• Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) (Commerce Clause four-part nexus test)
• Quill Corp. v. North Dakota, 112 S. Ct. 1904 (1992) (physical-presence nexus requirement; overruled by South Dakota v. Wayfair, Inc. in 2018)
• Comptroller Hearing No. 11,751 (Feb. 5, 1982) (display/exhibit booth as a "sample room"; nexus found despite no on-site sales or order-taking)
• Comptroller Hearing No. 21,462 (Aug. 3, 1987) (recurring trade show attendance found to create nexus)
• Comptroller Hearing No. 36,237 / 9807720H (software licensed for use in Texas creates nexus under Sec. 151.107(a)(3))

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9902203L

Original ruling text

February 2, 1999

Dear Ms. **:

This is in response to your request for a ruling to confirm your understanding
of the sales and use tax and franchise tax reporting obligations of your client
under the fact scenario restated below. I will only address the sales tax
obligations that your client may have. The franchise tax responsibilities
will be addressed by our franchise tax section, under separate cover.

Facts

Company Operations

Our client (here in referred to as "the company") is a retailer of tangible
personal property. The company is based outside the state of Texas, does not
employ sales people or independent contractors who solicit sales in Texas, and
does not maintain any business locations in Texas. The company does make sales
to Texas consumers through its mail order business. The company accepts orders
via telephone and via its Internet web page. All orders of tangible property
are shipped by common carrier into Texas. All orders are accepted and approved
at its corporate headquarters located in another state and are delivered from
inventory stored in a warehouse, also in another state.

The company also sells digitized content that is delivered to customers
electronically via the Internet. Customers are able to purchase and download
the digitized content directly onto their computer by accessing the company's
web page. The company's web page and content reside on a server located outside
Texas. In our telephone conversation of January 27, 1999, you indicated that
the digitized content includes, clipart, music and possibly software. Once
purchased the customer is free to place the downloaded content on as many
computers as it desires.

The company is currently not registered with the State of Texas for either
franchise or sales and use taxes.

Industry Conference

The company plans to attend a four day industry conference hosted by a third
party professional organization. The conference will be held in Texas in 1999.
The primary purpose of the industry conference is to hold educational seminars
tailored to the present industry specific breakthrough techniques and products.
This conference is held in a different state each year and this is the first
and last time (to our knowledge) that the conference will be held in Texas.
Individuals and companies attending the conference will be coming from all over
the United States.

Over the course of the four day conference, the company will have a booth set
up to exhibit its products. This booth will be available for viewing by
conference attendees only for a limited period each day, primarily during
conference lunch breaks, for approximately seven hours in total. The company
will not make sales of its products at the conference but will supply potential
customers with ordering information.

Prior to, during, and after the conference, the company will solicit orders in
Texas for its products through its mail order business and Internet web page.
All mail orders will continue to be delivered via common carrier. The company
does not anticipate any further contacts with Texas in the future.

Your Conclusions

The company's attendance at the Texas conference and its limited display of
products at an exhibit booth does not rise to the level of substantial
presence. Thus, the company will not be required to register with the State of
Texas for either franchise or sales and use tax purposes.

Your Contentions and Discussions

Constitutional Limits on State's Authority to Tax

Both the Due Process Clause and the Commerce Clause of the United States
Constitution impose limitations on the state's power to levy corporate income
tax, or impose a franchise tax or sales or use tax collection obligation on
out-of-state businesses. For a state to constitutionally impose a tax on a
corporation, there must be "nexus," or some minimum connection between the
corporation and the taxing state. If a corporation has no nexus in a state, it
is unconstitutional for the state to impose taxes or the duty to collect taxes
on the corporation.

The Commerce Clause limits the state's power to interfere with interstate
commerce. In Complete Auto Transit Inc. v. Brady, 430 U.S. 274 (1977), the
Court enunciated the four-prong Commerce Clause test that determines whether a
state tax is constitutional. First, the tax must be applied to an activity that
has a substantial nexus with the state. Second, the tax must be fairly
apportioned. Third, the tax must not discriminate against interstate commerce.
Fourth, the tax must be fairly related to services provided by the state.

Your Sales and Use Tax Discussion

The Texas Limited Sales, Excise and Use Tax Act defines a retailer engaged in
business in the state and therefore required to collect sales/use tax as a
person who:

Maintains, occupies, or uses in this state permanently, temporarily, directly,
or indirectly or through a subsidiary or agent by whatever name, an of office,
place of distribution, sales or sample room or place, warehouse, storage place,
or any other place of business [Texas Tax Code Ann. ß151.107(a)(1)].

Furthermore, pursuant to Decision of the Comptroller of Public Accounts,
Hearing No. 11,751, February 5, 1982, a "display booth" qualifies as a "sample
room" or "storage place." Comptroller of Public Accounts Decisions in Hearing
No. 11,751, February 5, 1982 and Hearing No. 21,462, August 3, 1987 determined
that attendance at an in-state trade show did create nexus for out-of-state
companies for sales and use tax purposes. However, the facts of those Hearings
can be easily be distinguished from the situation at hand.

The conference the company plans to attend is not a trade-show. Rather, the
conference consists of educational seminars. Exhibition of products will be
limited.

In each of the above referenced hearings, the retailers attended trade shows
occurring in the state on at least two different occasions in the tax year.

The retailers in the above referenced hearings attended shows which were
reoccurring in nature; attendance at the trade shows were not limited to one
year.

One of the companies engaged in in-state installation and training related to
sales of its products.

Clearly, the retailers in the above referenced hearings engaged in activities
that exceed the instate activity contemplated by our client.

Physical presence in the form of attendance of an industry conference where
products will be displayed on a limited basis, and which will not re-occur in
the future, represents a de minimus activity and is clearly not a "substantial
presence." Pursuant to the decision in Complete Auto, and later in Quill
Corporation v. North Dakota, 112 S. Ct. 1904 (1992), a business must have a
substantial presence in a state before that state can impose its tax or a duty
to collect tax.

Our client will not have a substantial presence in Texas as a result of
attending this single event and will not be required to collect sales or use
tax on future sales to Texas consumers.

Response: Your client's attendance and exhibition at the seminar will cause
the client to be considered engaged in business in Texas and required to
collect and report use tax on its sales in Texas, for the following reasons:

In Hearing 11,751, which you cite, the administrative law judge did not
distinguish between an exhibit or display booth, at the conventions attended by
the Petitioner in Texas, and "sample rooms" or "storage places." The
administrative law judge stated that "(t)he legislature is not expected or
required to list every possible type room, space, or place, nor to use every
descriptive word which might be employed." Similarly, I do not believe the
administrative law judge would have discerned a difference among a conference,
a convention or a trade show, if all allowed attendees, such as your client, to
exhibit their products.

In making his decision, the administrative law judge assumed that the
Petitioner, like your client, did not actually transfer any of its equipment to
persons attending these conventions for consideration, nor did it take orders
from such persons to be filled at a later date.

The administrative law judge also held that the taxpayer's conduct at the trade
shows also qualified it as being "engaged in business" for the purposes of Tax
Code Section 151.107(2):

"It has been assumed for purposes of this decision that Petitioner did not
actually transfer any of its equipment to persons attending these conventions
for a consideration, nor did it even take orders from such persons to be filled
at a later date so, probably in a very strict sense, one might conclude that
Petitioner's representatives were not exhibiting the equipment at these
conventions for the purpose of selling, delivering or taking order. But, it
seems almost too obvious for argument that the reason Petitioner was exhibiting
its equipment at these conventions was toward the end of making sales. Thus,
the administrative law judge concludes that Petitioner, a retailer, had
representatives in Texas on at least four different occasions... for the
purpose of selling taxable items."

Finally, in our conversation you indicated that your client's customers may be
downloading your client's software for use in Texas. In a recent decision,
Hearing No. 36,237 (9807720H), the administrative law judge ruled that a
company that licensed software for use in Texas was engaged in business in this
state under Texas Tax Code Section 151.107(a)(3). If your client is licensing
software for use in Texas, this too would bring it within the nexus
requirements for Texas.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please call me toll-free at 1-800-531-5441, extension 3-4502. The
direct line is 512/463-4502. You may also write to Tax Policy Division,
Comptroller of Public Accounts. You may also e-mail our tax help section at:

Sincerely,

Gilbert Zamora
Tax Policy Division