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Ezel / Tax Rulings / TX
TX 9812330L Franchise Tax (PRIOR TO 01/01/2008) 1998-12-29

Did a company earn taxable Texas service income when it solicited beer orders for another corporation and received commissions?

Short answer: Yes. The company solicited orders for Beck's beer, sent the orders to the manufacturer for processing and sale, and earned only a commission or fee. The Comptroller treated that solicitation for another corporation as a service performed in Texas, subjecting the company to the earned-surplus component under Rules 3.554(d)(20) and 3.546(c)(2)(A).

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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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 request asked only about earned surplus, and the response characterizes solicitation for another corporation as a Texas service. It applies the pre-2008 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

Soliciting beer orders for another corporation in exchange for a commission was a service performed in Texas and created earned-surplus liability.

The company solicited orders for Beck's beer and transmitted them to the manufacturer, which processed the orders and sold to the customers. The company earned only a commission or fee from the sales.

The Comptroller treated the company as providing a Texas service—sales solicitation for another corporation—and applied Rules 3.554(d)(20) and 3.546(c)(2)(A). The response addressed the earned-surplus component only.

Currency note: Texas replaced the former earned-surplus tax with the margin tax effective January 1, 2008. Confirm current service and representative nexus rules.

What this means for you

Commission-based sales representatives

The Comptroller characterized the activity as a service for the manufacturer, not merely the company's own protected sale of tangible property.

Tax professionals

Identify whose property is sold and who processes the order. Soliciting for another corporation can have a different nexus result from selling one's own goods.

Common questions

Q: Did the company sell its own beer?
A: No. It solicited orders for the manufacturer.

Q: How was it paid?
A: A commission or fee based on sales.

Q: Which former tax component did the letter address?
A: Earned surplus.

Citations and references

  • 34 Tex. Admin. Code Sec. 3.554(d)(20)
  • 34 Tex. Admin. Code Sec. 3.546(c)(2)(A)

Source

Original ruling text

December 29, 1998

Dear Mr. **:

Thank you for your letter concerning your company's exposure to the earned
surplus component of the Texas franchise tax.

You stated in your letter that your company solicits orders for Beck's beer and
transmits the orders to the manufacturer for processing and sale to the
customer. Your revenue is only a commission/fee based on the sales that you
make.

Based on the information provided, your company is providing a service in Texas
(the service of soliciting sales of property for another corporation) and is
subject to the earned surplus component of the Texas franchise tax. See Rule
3.554(d)(20) and 3.546(c)(2)(a).

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: Teresa Bostick, Revenue Opportunity Program

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