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Ezel / Tax Rulings / TX
TX 9907781L Franchise Tax (PRIOR TO 01/01/2008) 1999-07-13

When were Internet sales of tangible personal property Texas franchise-tax receipts under the former delivery and throwback rules?

Short answer: The sales method did not matter. Tangible personal property sold online or otherwise was a Texas receipt when shipped or delivered to a Texas buyer. Property delivered from Texas to an out-of-state purchaser was also thrown back to Texas when the seller was not subject to tax in the destination state. Rules 3.549 and 3.557 governed the two former franchise-tax components.

Apply this to your situation

This page answers the general question as of 1999. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1999
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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. This response gives general historical delivery and throwback rules but no taxpayer-specific shipment facts. It applies the pre-2008 taxable-capital and earned-surplus apportionment rules, replaced by the margin tax effective January 1, 2008; confirm current sourcing and 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

Internet sales followed the same delivery and throwback rules as any other sale of tangible personal property.

The Comptroller stated two rules:

  • Property shipped or delivered to a buyer in Texas produced a Texas receipt.
  • Property delivered from Texas to a purchaser in another state was also reported as a Texas receipt if the seller was not subject to taxation in the destination state.

The fact that the order was placed over the Internet did not change either result. Rules 3.549 and 3.557 governed taxable-capital and earned-surplus apportionment.

Currency note: This is a historical statement of the former franchise-tax delivery and throwback rules. Texas replaced that tax with the margin tax effective January 1, 2008.

What this means for you

Online sellers of physical goods

Sales channel was irrelevant. Delivery destination and the seller's tax status in the destination state controlled the former receipts result.

Tax professionals

For an out-of-state delivery from Texas, verify whether the seller was subject to tax in the destination state before applying throwback.

Common questions

Q: Were goods delivered to Texas buyers Texas receipts?
A: Yes.

Q: Could an out-of-state delivery still be a Texas receipt?
A: Yes, when shipped from Texas and the seller was not taxable in the destination state.

Q: Did Internet ordering change the rule?
A: No.

Citations and references

  • 34 Tex. Admin. Code Sec. 3.549
  • 34 Tex. Admin. Code Sec. 3.557

Source

Original ruling text

July 13, 1999

To: **

Dear **:

Thank you for your e-mail concerning the calculation of gross receipts for the
Texas franchise tax.

You specifically requested information on sales of tangible personal property
via the internet.

Sales of tangible personal property, sold via the internet or any other method,
are Texas receipts if the property is shipped or delivered to a buyer in Texas.
Receipts from the sale of property delivered from Texas to a purchaser in
another state would be reported as Texas receipts if the seller is not subject
to taxation in the other state. See franchise tax rules 3.549, Taxable
Capital: Apportionment, and 3.557, Earned Surplus: Apportionment.

These rules may be viewed via the Comptroller's Window on State Government at
. Once you are at the website, click on the heading
"Texas Taxes", then on "The Franchise Tax." You'll then see a heading for
"Franchise Tax Rules."

This response is based on the facts presented and current law. If there are
different or additional facts, the response may change.

If you have questions about this, my internet address is
, or you may call toll-free at 1-800-531-5441,
extension 3-4612.

Sincerely,

Janet Spies
Tax Policy Division
Texas State Comptroller

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