TX 9901594L Franchise Tax (PRIOR TO 01/01/2008) 1999-01-11

Did an Oregon equipment lessor have Texas franchise-tax nexus when its leased property was used by Texas lessees?

Short answer: Yes. Although the Oregon corporation had no other physical presence or business activity in Texas and executed its operating leases under Oregon law, it retained ownership of equipment used by Texas lessees. Leasing tangible personal property used in Texas created nexus under Rules 3.546(c)(19) and 3.554(d)(20), subjecting the lessor to both taxable capital and earned surplus.

Apply this to your situation

This page answers the general question as of 1999. 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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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 answer depends on the lessor retaining ownership of tangible property used in Texas under operating leases. It applies the pre-2008 taxable-capital and earned-surplus nexus rules, replaced by the margin tax effective January 1, 2008; confirm current leasing nexus 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 Oregon equipment lessor had nexus for both former franchise-tax components because it owned tangible property leased for use in Texas.

The corporation said it had no physical presence or other business in Texas, executed all contracts in Oregon under Oregon law, and used operating leases. It retained ownership of the leased personal property, paid property tax, and billed the Texas lessees for that tax.

Rules 3.546(c)(19) and 3.554(d)(20) treated leasing tangible personal property used in Texas as doing business in the state. The contract location and absence of other operations did not change that result.

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

What this means for you

Out-of-state equipment lessors

Owned equipment physically used by Texas customers could create nexus even without an office, employees, or locally signed contracts.

Tax professionals

Confirm ownership, lease classification, and actual place of use. This letter involved operating leases and lessor-owned property.

Common questions

Q: Did the lessor have a Texas office?
A: No.

Q: Where were the contracts executed?
A: Oregon.

Q: What created nexus?
A: Leasing lessor-owned tangible personal property used in Texas.

Citations and references

34 Tex. Admin. Code Sec. 3.546(c)(19)
34 Tex. Admin. Code Sec. 3.554(d)(20)

Source

STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
Opinion: https://star.comptroller.texas.gov/view/9901594L

Original ruling text

January 11, 1999

Dear Mr. **:

Thank you for your letter concerning the liability of your corporation for the
Texas franchise tax.

You stated in your letter that your corporation is an Oregon corporation, that
you maintain no physical presence in the state of Texas and that you conduct no
business in Texas. All contracts are executed in Oregon and are subject to the
laws of Oregon. Your corporation is an equipment lessor. The personal
property that is being leased to lessees in Texas belongs to your corporation
for the term of the lease and property taxes are paid accordingly. You bill
the lessees for the property taxes, in turn. In your prior correspondence with
our office, you stated that all of the lease agreements are operating leases.

Based on this information, your corporation is subject to both components of
the Texas franchise tax. You are leasing tangible personal property which is
used in this state. See Rule 3.546 (c)(19) and Rule 3.554 (d)(20). 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

Get today's answer for your situation

You just read a 1999 ruling on this question. Ezel checks current Texas tax law and answers your specific situation, with citations.

Opens in Ezel Pro. Every answer cites the authority it relies on.