Ezel / Tax Rulings / TX
TX 9906726L Franchise Tax (PRIOR TO 01/01/2008) 1999-06-11

Did a foreign investment corporation create Texas franchise-tax nexus by hiring a Texas company to provide investor-relations services?

Short answer: Yes. The foreign corporation invested only for its own account, but contracted with a Texas company whose employees received and answered inquiries from investors and potential investors. Those Texas representatives performed services on the foreign corporation's behalf, including contact with potential investors, creating nexus for both taxable capital and earned surplus.

Apply this to your situation

This page answers the general question as of 1999. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1999
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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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 answer is tied to Texas representatives receiving and responding to investor inquiries on the corporation's behalf. It applies the pre-2008 taxable-capital and earned-surplus nexus rules, replaced by the margin tax effective January 1, 2008; confirm current 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

A Texas investor-relations provider created nexus for the foreign corporation because it contacted investors and potential investors on the corporation's behalf.

Corporation A's sole business activity was investing for its own account. It contracted with Corporation B, whose principal place of business and employees were in Texas, to receive investor inquiries and respond verbally or in writing.

The Comptroller treated Corporation B and its employees as Texas representatives providing services for Corporation A. That in-state representation subjected Corporation A to both taxable capital and earned surplus.

Currency note: Texas replaced the former two-component franchise tax with the margin tax effective January 1, 2008. Confirm current representative and economic nexus rules.

What this means for you

Foreign investment companies

Using a Texas service provider for outward-facing investor contact could create tax presence even when the corporation's underlying business was investing for its own account.

Tax professionals

The key facts were agency-like services performed in Texas and direct contact with current and potential investors on the foreign corporation's behalf.

Common questions

Q: Did the foreign corporation have Texas employees?
A: The letter describes Corporation B's Texas employees, not employees directly hired by Corporation A.

Q: What services did they perform?
A: Receiving and responding to investor and potential-investor inquiries.

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

Citations and references

  • The letter cites no specific statute or rule number; its nexus conclusion rests on Texas representatives providing investor-relations services on the corporation's behalf.

Source

Original ruling text

June 11, 1999

Dear **:

Thank you for your letter asking whether a foreign corporation, CORPORATION A,
would be subject to Texas franchise tax.

You stated in your letter that CORPORATION A'S sole business activity is to
invest for its own account. CORPORATION Ahas entered into an agreement with
CORPORATION B. CORPORATION B's principal place of business and employees are in
Texas. CORPORATION B would provide investor relations services in Texas by
receiving inquiries from investors and potential investors and responding to
these inquiries either verbally or in writing.

CORPORATION A would be subject to both components of the Texas franchise tax
because it would have representatives in Texas providing services on behalf of
CORPORATION A, such as having contact with potential investors.

This response is based on the facts presented in your letter. If the facts
change or if there are additional relevant facts, the response may change.

If you have any questions, please do not hesitate to write me or call me toll
free at 1-800-531-5441, extension 34662.

Sincerely,

Jerry Oxford
Tax Policy Division

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