An online textbook company (Varsitybooks.com) doesn't have a Texas office, but sends employees to visit a university co-op regularly, and also pays Texas college students on commission to recommend the site to friends. Does the company have to collect Texas sales tax on its sales to Texas customers?

Plain-English summary

Someone asked whether Varsitybooks.com, an online textbook retailer, had to charge Texas sales tax given its specific ties to the state. Two facts stood out: the company's employees regularly visited a university bookstore co-op (and reportedly did the same at Texas A&M) to pick up book lists, and separately, the company hired college students on commission — earning a percentage of what their fellow students spent on the site — to recommend the website to friends.

The Comptroller's answer: yes, the company is engaged in business in Texas and must charge sales tax on sales to individuals in Texas — based specifically on the commissioned student representatives. Under Rule 3.286(G), a business is "engaged in business" in Texas if it conducts business in the state through employees, agents, or independent contractors — and the commission-paid student recommenders fit squarely within that definition, regardless of whether the company has any office or other physical location in Texas.

What this means for you

Online and mail-order retailers using commission-based student or influencer referral programs

Paying Texas-based individuals a commission to refer or recommend your product creates Texas sales tax nexus under Rule 3.286(G)'s broad "agents or independent contractors" language — this is a classic affiliate/referral-nexus fact pattern, and it doesn't require a formal employment relationship or a company office in the state.

Companies whose only Texas contact is periodic informational visits (like picking up book lists)

This letter's holding rests on the COMMISSIONED student representatives, not the informational co-op visits standing alone — but don't assume routine in-state visits are risk-free either; other Comptroller precedent (see the companion nexus letter on conference exhibit booths) treats even limited physical activity broadly.

Any modern remote seller reading this 1999 letter for nexus guidance

Read the currency note carefully: since 2018's Wayfair decision, Texas (like other states) can also require a remote seller with $500,000+ in Texas revenue to collect tax purely on economic activity, with NO physical presence or in-state agents required at all. This 1999 letter's physical/agent-based analysis is still valid as far as it goes, but it's no longer the only way a remote seller can end up with Texas nexus today.

Accountants and tax professionals advising e-commerce and referral-marketing clients

This letter is useful as an early (pre-Wayfair) example of the "engaged in business through independent contractors" nexus trigger — but any nexus analysis for a client today must also separately check the current $500,000 economic nexus threshold, which doesn't depend on any in-state agents or physical presence at all.

Common questions

Q: Does paying commissions to in-state individuals for referring customers create Texas sales tax nexus?
A: Yes, according to this letter — Rule 3.286(G) treats conducting business through independent contractors (including commissioned referrers) as being engaged in business in Texas.

Q: Does the company need a physical office in Texas for this to apply?
A: No — the nexus trigger here is the commissioned student representatives acting as independent contractors/agents, not any office or storage location.

Q: Is this 1999 letter's nexus analysis still the complete picture today?
A: No — since the 2018 Wayfair decision, Texas can also require remote sellers with $500,000+ in Texas revenue to collect tax based purely on economic presence, without any physical presence or in-state agents at all (see STAR document 201910005L).

Q: Can I rely on this letter for my own online retail nexus situation?
A: No. This opinion is rendered based on the facts presented, and if there are additional or different facts, the opinion may change; it can be relied on only by the taxpayer it was issued to.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.286(G) (engaged in business — conducting business through employees, agents, or independent contractors)

Currency note (from STAR's own ALERT):

• South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (June 21, 2018) — overruled the physical-presence nexus requirement, allowing states to tax remote sellers based on economic presence
• Texas's post-Wayfair economic nexus threshold: remote sellers with $500,000+ in total Texas revenue (preceding 12 calendar months) must obtain a use tax permit and collect tax, effective Oct. 1, 2019 (see STAR document 201910005L)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9901086L

Original ruling text

Alert: On June 21, 2018, the U.S. Supreme Court issued a decision allowing states to require remote sellers that have an economic presence in the state to collect sales tax. See South Dakota v. Wayfair, 138 S. Ct. 2080 (June 21, 2018). Any remote sellers with $500,000 or more in total Texas revenue (during the preceding 12 calendar months) must apply for a use tax permit and begin collecting use tax by Oct. 1, 2019. For additional information, see STAR 201910005L.

January 13, 1999

Dear Mr. **:

Thank you for your recent letter which is restated in part with response below.

I would like to know if Varsitybooks.com has to charge sales tax if they have

employees in the State of Texas.

Varsitybooks.com sends their employees into the Co-op to pick up book lists

from us on a regular basis and I am told the same thing happens at Texas A&M.

Note: In our telephone conversation of January 13, 1999, you stated that the

firm also hires students to recommend the web site to their friends. These

students work on commission earning a percentage of the revenue spent by their

fellow students at the site.

Response: Varsitybooks.com is engaged in business in Texas by virtue of using

the student representatives and is required to charge sales tax on their sales

made to individuals in Texas. Rule 3.286 (G) defines engaged in business to

include:

(G) conducting business in this state through employees, agents, or independent

contractors.

This opinion is rendered based on the facts presented. If there are additional

or different facts, the opinion may change.

You may call me toll free at 1-800-531-5441, ext. 3-4680. The direct line is

512/463-4680. You may also write to Tax Policy, Comptroller of Public

Accounts. The email address is .

Sincerely,

Al Van Allen

Tax Policy Division