Did out-of-state salesmen who could bind the company on order terms remove Public Law 86-272 protection and Texas throwback?

Plain-English summary

Salesmen with authority to bind and refuse orders created nexus, removing Public Law 86-272 protection and Texas throwback.

The salesmen could bind the company on quantities, exercise some close-out pricing discretion, choose among payment terms, commit to delivery dates within parameters, and reject risky orders. The Comptroller therefore found nexus in every state where the company sent them.

Because the activity exceeded protected solicitation, sales in those states did not throw back into Texas receipts.

What this means for you

Interstate sales organizations

Actual authority over order terms and acceptance can materially change the nexus and throwback analysis.

Common questions

Q: Were the salesmen limited to solicitation?
A: No.

Q: Did Texas throwback apply in states where they worked?
A: No.

Citations and references

• Public Law 86-272, as cited in the letter

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9608442L

Original ruling text

August 15, 1996

Dear **:

This afternoon, I received your fax of Mr. **'s letter concerning the
authority of * salesmen to bind the company on orders taken in other
states. Essentially, Mr. *, as Corporate Comptroller, advised you
that the salesmen do have the authority to accept orders on behalf of
****.

This being the case, I find that ** has nexus in any state into which
it sends its salesmen. Consequently, the throw back provisions of the franchise
tax do not apply to sales made by **** in those states because the
company is not protected under the terms of P.L. 86-272.

As I advised you in our previous telephone call, we will be notifying the
states in which ** has salesmen that the company is not protected by
P.L. 86-272 and will accompany the notice with a copy of ****'s letter.

I hope this satisfactorily answers your inquiry.

Sincerely,

Wade Anderson
Director, Tax Policy

cc: Teresa Comer, Tax Policy, Franchise Tax Section

August 15, l996

SENT VIA FAX

Dear **:

Our reply to the inquiries of Mr. Wade Anderson, Legal Director of the
Comptroller's Office is as follows.

Question #1 Do salesmen have the authority to bind (i.e. quantities, price,
terms and delivery dates) the company for orders taken from within a state?
Answer #1 Salesmen do have the authority to bind the company for order
quantities. Salesmen may exercise some discretion in setting prices only on
close out goods. As for terms, salesmen may decide among four alternatives
which terms to grant a customer. Furthermore, salesmen have the authority to
bind the company to certain delivery dates, within parameters. Salesman are
aware of the minimum production lead times.

Question #2 Could a salesman refuse an order, on site, based on the financial
condition or other circumstances of the customer?
Answer #2. Salesmen most definitely have the authority to refuse an order which
in their judgment represents an unacceptable risk to the company.

**, if you have any further questions, please let me know.

Sincerely,

Corporate Controller