Can a mail-order business get its Texas sales and use tax permit cancelled by showing it no longer has nexus in Texas after Quill Corp. v. North Dakota?

Subject

Mail-order seller's Texas sales and use tax permit cancelled after Quill v. North Dakota

Plain-English summary

This 1992 Texas Comptroller letter responds to a taxpayer who asked to have its Texas sales and use tax permit cancelled in light of the U.S. Supreme Court's then-recent decision in Quill Corp. v. North Dakota (1992), which held that a state cannot require an out-of-state seller to collect its sales/use tax unless the seller has a physical presence in the state.

Based on a phone conversation and the taxpayer's representation that it was not conducting any of the activities listed in sections (a)(1)(A) through (E) of Rule 3.286 (Seller's and Purchaser's Responsibilities) — the activities Texas used at the time to determine whether a retailer is "engaged in business" in Texas — the Comptroller's office directed that the taxpayer's sales and use tax permit be cancelled.

The letter notes it is based on the specific facts presented and that other, similar-looking facts could lead to a different result.

Note: the auto-generated title for this letter references "Internet Seller," but that is boilerplate language added system-wide to older STAR letters, not something this 1992 letter actually discusses (the internet was not a live sales-tax issue in 1992). This letter is about a mail-order business's permit cancellation following Quill.

What this means for you

Mail-order and remote sellers (historical context)

At the time of this letter, Texas — like other states — could only require an out-of-state seller to collect sales/use tax if the seller had a physical presence or engaged in specific nexus-creating activities in the state, per Quill. A seller that could represent to the Comptroller that it did none of the Rule 3.286(a)(1)(A)-(E) activities could get its permit cancelled. This letter shows that process in action.

Why this letter is now of limited practical value

This 1992 physical-presence framework was overturned by South Dakota v. Wayfair (2018), which allows states to require remote sellers with sufficient economic presence (e.g., $500,000+ in Texas revenue) to collect Texas use tax, regardless of physical presence. Businesses today evaluating whether they need a Texas permit should look to current economic-nexus rules, not this letter's physical-presence-based analysis.

Accountants and tax professionals

This letter is a useful historical illustration of how the Comptroller applied Rule 3.286's list of nexus-creating activities to permit-cancellation requests in the immediate aftermath of Quill, but it predates Wayfair by 26 years and should not be relied on for current nexus determinations.

Common questions

Q: What did the taxpayer ask for in this letter?
A: Cancellation of its Texas sales and use tax permit, based on the argument that under Quill Corp. v. North Dakota it no longer had to collect Texas sales/use tax.

Q: Why did the Comptroller agree to cancel the permit?
A: The taxpayer represented that it was not conducting any of the activities listed in Rule 3.286(a)(1)(A) through (E) — the activities Texas then used to decide if a retailer was "engaged in business" in the state — and the Comptroller relied on that representation and a phone conversation confirming the facts.

Q: Does this letter still reflect current Texas law on remote-seller nexus?
A: No. It reflects the pre-2018 physical-presence nexus standard from Quill. After South Dakota v. Wayfair (2018), Texas can require remote sellers with $500,000 or more in Texas revenue to collect and remit use tax even without physical presence. See STAR 201910005L for the current economic-nexus rule.

Q: Can other taxpayers rely on this letter?
A: No. Under STAR's rules, a letter ruling can only be relied on by the taxpayer to whom it was issued, and this letter is expressly limited to the specific facts presented to the Comptroller.

Q: What was Rule 3.286?
A: The Texas Comptroller rule ("Seller's and Purchaser's Responsibilities") that listed the activities used to determine whether an out-of-state seller was "engaged in business" in Texas and therefore required to hold a sales and use tax permit.

Citations and references

• Quill Corp. v. North Dakota, 504 U.S. 298 (1992) (physical-presence nexus standard, referenced in the letter)
• 34 Tex. Admin. Code § 3.286, Seller's and Purchaser's Responsibilities (activities determining "engaged in business" status)
• South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018) (superseding economic-nexus standard, referenced in the STAR system alert at the top of this letter, not in the original 1992 letter)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9209L1191G12

Original ruling text

Alert: On June 21, 2018, the U.S. Supreme Court issued a decision allowing states to require remote sellers that have an economic presence in the state to collect sales tax. See South Dakota v. Wayfair, 138 S. Ct. 2080 (June 21, 2018). Any remote sellers with $500,000 or more in total Texas revenue (during the preceding 12 calendar months) must apply for a use tax permit and begin collecting use tax by Oct. 1, 2019. For additional information, see STAR 201910005L.

September 8, 1992

Dear *****:

This is in response to your letter requesting that your sales and use tax

permit (***) be cancelled in light of the recent Supreme Court

Decision in Quill Corporation vs. State of North Dakota.

Based on our telephone conversation of today and on your representation that

***, is not conducting any of the activities listed in sections (a)

(1) (A) through (E) of the enclosed Rule 3.286, Seller's and Purchaser's

Responsibilities, I have directed that your sales and use tax permit be

cancelled. The activities listed in section (a) (1) (A) through (E) are the

activities that we currently consider in determining whether a retailer is

engaged in business in Texas.

This opinion is based on the facts presented. Other facts though similar may

provide a different result.

If you have other questions or need more information, you may call me at

1-800-252-5555, extension 3-4502. The regular number is 512/463-4600. You may

also write to Tax Administration Division at the above address.

Sincerely,

Gilbert Zamora

Tax Administration Division