TX 9806563L Franchise Tax (PRIOR TO 01/01/2008) 1998-06-15

Did independent agents soliciting Texas orders for publications create nexus for both former franchise-tax components?

Short answer: They created taxable-capital nexus. Independent agents soliciting Texas orders for tangible publications made the corporation responsible for franchise-tax reports under Rule 3.546(c)(4). The corporation might not owe the earned-surplus component if its Texas activity stayed within Public Law 86-272's protection for qualifying solicitation; the letter did not make that result unconditional.

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This page answers the general question as of 1998. Ezel answers yours, under current Texas tax law, with citations.

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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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 earned-surplus answer is conditional because the letter says P.L. 86-272 may protect the corporation; it does not confirm that solicitation was the only Texas activity or that every statutory condition was met. This pre-2008 ruling predates the margin tax; 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

Independent Texas sales agents created taxable-capital nexus, while earned-surplus protection depended on Public Law 86-272.

The corporation marketed publications through independent sales agents around the country. Agents soliciting Texas orders for tangible personal property made the corporation subject to taxable capital and required franchise-tax reports under Rule 3.546(c)(4).

For earned surplus, the Comptroller said the corporation may not be subject because Public Law 86-272 can protect qualifying solicitation. The letter does not state enough facts to make that protection definitive.

Currency note: This is a pre-2008 two-component nexus ruling. Texas replaced the former tax with the margin tax effective January 1, 2008.

What this means for you

Publishers using independent representatives

Independent-contractor status did not prevent taxable-capital nexus under the former rule.

Tax professionals

Test every P.L. 86-272 condition and look for non-solicitation activity before concluding the income-based component is protected.

Common questions

Q: Did solicitation create taxable-capital nexus?
A: Yes.

Q: Was earned surplus definitely exempt?
A: No. The letter says it may be protected by Public Law 86-272.

Citations and references

34 Tex. Admin. Code Sec. 3.546(c)(4)
34 Tex. Admin. Code Sec. 3.554(c)
Public Law 86-272

Source

STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
Opinion: https://star.comptroller.texas.gov/view/9806563L

Original ruling text

June 15, 1998

Dear **:

Thank you for your May 11, 1998 letter concerning your corporation's
responsibility for Texas Franchise Tax.

You stated in your letter that your publications are marketed by independent
sales agents throughout the United States. If you have a sales agents
soliciting orders of sales of tangible personal property in Texas, the
corporation would have nexus in Texas and would be responsible for filing our
franchise tax reports. The corporation would be subject to the tax on taxable
capital but may not be subject to the tax on earned surplus because of PL
86-272.

See subsection (c)(4) of Rule 3.546, Taxable Capital: Nexus and subsection (c)
of Rule 3.554, Earned Surplus: Nexus, for additional information. I have
enclosed copies of both rules for your review.

This response is based on current law and the facts presented. 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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