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Ezel / Tax Rulings / TX
TX 9702413L Franchise Tax (PRIOR TO 01/01/2008) 1997-02-14

Did a minority beneficial interest in a trust doing business in Texas create franchise-tax nexus for a foreign corporation?

Short answer: No. The foreign corporation held less than a majority beneficial interest, did not effectively control the trust or trustee, and had no other Texas activity. On those facts, Texas said the corporation was not subject to the former franchise tax.

Apply this to your situation

This page answers the general question as of 1997. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1997
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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. This 1997 no-nexus answer depends on all three stated facts: no majority trust interest, no effective control of the trust or trustee, and no other Texas activity. Different control rights or contacts could change the result. 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

The minority trust interest did not create franchise-tax nexus without control or other Texas activity.

The foreign corporation owned a beneficial interest in a trust doing business in Texas. It did not own a majority interest, did not effectively control the trust or trustee, and had no other Texas activities that could create nexus.

Texas concluded that the corporation was not subject to the former franchise tax on those facts.

What this means for you

Minority trust investors

Passive ownership below a majority interest did not create nexus in this letter when it carried no effective control and no other Texas contact.

Tax professionals

Review voting, governance, trustee-removal, and other control rights rather than relying only on the ownership percentage.

Common questions

Q: Did the beneficial interest create nexus?
A: No, on the stated facts.

Q: What facts were important?
A: No majority interest, no effective control, and no other Texas activity.

Q: Did the letter cite a statute or rule?
A: No.

Citations and references

  • The letter states the factual no-nexus conclusion without citing a specific provision.

Source

Original ruling text

February 14, 1997

RE: Franchise Tax
Foreign Corporation Owning an Interest in a Trust

Dear ***:

Thank you for your letter concerning a foreign corporation that owns a
beneficial interest in a trust which is doing business in Texas.

You stated in your letter that the foreign corporation will not own a majority
interest in the Trust and will not have effective control of the Trust or
Trustee. You also stated that the foreign corporation has no other activities
in Texas that could give rise to nexus for Texas franchise tax purposes.

Based on the facts in your letter and current law, your client is not subject
to the franchise tax.
If there are different or additional facts, the response may change.

If you have any questions about this or any other franchise tax matter, please
call me at
1-800-531-5441, extension 34612. My direct number is (512) 463-4612. You may
write me at Tax Policy Division, Comptroller of Public Accounts, Austin, Texas
78774.

Sincerely,

Janet Spies
Tax Policy Division

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