New Proposed Economic Nexus Regulations for Texas Franchise Tax

October 3, 2019

In the wake of South Dakota v. Wayfair, the Texas Comptroller has released proposed regulations to Comptroller Rule § 3.586, establishing an economic nexus policy for the state franchise tax. These proposed regulations follow draft rules released last month.

Under the new rules, a foreign entity is considered to be “doing business” in the state of Texas at the earliest of:

  • establishing physical nexus in the state,
  • obtaining a use tax permit, or
  • the first day of the federal income tax accounting period in which the entity had gross receipts from business done in Texas in excess of $500,000.

The proposed rules clarify two things that are not covered in the draft rules: First, the definition of “foreign taxable entity” means “a taxable entity that is not chartered or organized in Texas.” Second, the rules clarify that “nexus is determined on an individual taxable entity level.”

If accepted, the proposed changes will apply to reports due on or after January 1, 2020.


For more information, contact:

Doug Sigel
Practice Group Leader, Sales & Use and Income Tax

Richard W. Moore III
Attorney, Sales & Use and Income Tax