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Ezel / Tax Rulings / TX
TX 9811052L Franchise Tax (PRIOR TO 01/01/2008) 1998-11-09

Did buying raw agricultural materials in Texas and picking them up with company employees and a truck create franchise-tax nexus?

Short answer: No. The client bought raw agricultural product from a Texas seller, sent three employees and a company truck from Missouri to pick it up, and hauled all of it to the Missouri processing plant. It owned and rented no Texas property. The Comptroller said purchasing raw materials and subsequently picking them up generally did not create sufficient contact for either former franchise-tax component.

Apply this to your situation

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

Currency note: this ruling is from 1998
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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. The no-nexus result assumes only purchase and pickup, no Texas property, and all processing in Missouri. It applies the pre-2008 taxable-capital and earned-surplus nexus rules, replaced by the margin tax effective January 1, 2008; 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

Buying raw agricultural materials in Texas and picking them up for transport to Missouri did not create franchise-tax nexus on these facts.

The client sent three employees in a company truck from Missouri to collect raw product from a Texas seller. It owned and rented no Texas real or personal property, and all purchased material went to its Missouri plant for processing.

The Comptroller said that purchasing raw materials from a Texas seller and subsequently picking them up generally did not create enough contact for either taxable capital or earned surplus.

Currency note: Texas replaced the former two-component franchise tax with the margin tax effective January 1, 2008. Confirm current physical and economic nexus law.

What this means for you

Out-of-state manufacturers buying Texas inputs

Limited procurement and pickup were not treated as Texas business activity here when all processing and property remained outside the state.

Tax professionals

The result is narrow. Storage, processing, representatives, repeated services, rented space, or other Texas activity could change the analysis.

Common questions

Q: How many employees entered Texas?
A: Three.

Q: Did the client own or rent Texas property?
A: No.

Q: Where was the product processed?
A: Missouri.

Citations and references

  • The letter cites no specific statute or rule number; its holding is limited to the procurement-and-pickup facts stated.

Source

Original ruling text

November 9, 1998

RE: **

Dear Mr. **:

Thank you for your letter concerning the nexus of your client.

You stated in your letter that your client purchases a raw agricultural product
from a location in Texas. The client employs 3 persons to pick-up the product
in a company truck that comes from Missouri to haul the product from the Texas
seller to the client's processing plant in Missouri. The client does not own
any personal or real property located in Texas and does not rent any property
located in Texas. One hundred percent (100%) of the product purchased in Texas
is brought to the Missouri plant to begin the process of preparing the product
for sale.

Based on the information provided, your client does not have nexus in Texas and
is not subject to the franchise tax. Generally, the purchase of raw materials
from a seller located in Texas and the subsequent "pick up" of the materials
does not establish sufficient contact with the state to subject the purchaser
to either component of the Texas franchise tax.

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

cc: Sherry Yeager, Revenue Opportunity Program

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