Texas Adopts Economic Nexus Provisions for Franchise Tax

Texas has amended a tax regulation to apply the state’s economic nexus threshold to Texas franchise tax, specifying that businesses that meet the threshold are subject to Texas franchise tax beginning January 1, 2020. For each federal income tax accounting period ending in 2019 or later, a remote seller has nexus in Texas and is subject to Texas franchise tax, even if it has no physical presence in Texas, if it has gross receipts of $500,000 or more from business done in Texas during that period. The amended regulation also states that a remote seller with a Texas use tax permit is presumed to have nexus in Texas and is subject to Texas franchise tax, however, this presumption is rebuttable by the taxpayer. The amended regulation states that a remote seller is considered to be doing business in Texas on the earliest of the following:

  • The date the remote seller has physical nexus in Texas;
  • The date the remote seller obtains a Texas use tax permit; or
  • The first day of the federal income tax accounting period in which the remote seller had gross receipts from business done in Texas in excess of $500,000.

The comptroller’s office will apply the economic nexus provision for Texas franchise tax beginning with reports due on or after January 1, 2020. (34 TAC 3.586)

Posted on January 13, 2020