PROPOSED COMPTROLLER RULE CHANGES TO THE TEXAS FRANCHISE TAX BASED ON WAYFAIR

August 20, 2019

The Texas Comptroller, in response to the Wayfair decision, issued draft proposed amendments to Comptroller Rule § 3.586 concerning franchise tax nexus.

Historically, the Comptroller has applied a physical presence nexus standard for franchise tax purposes. In a 2018 ruling issued post-Wayfair, the Comptroller clarified that, despite the Wayfair decision, Texas
“has not moved away from the physical presence requirement for franchise tax at this time.” However, the draft proposed amendments would revise the regulation to provide that a foreign (non-Texas) taxable entity with gross receipts from business concluded in Texas of $500,000 or more has Texas nexus, even if the entity has no physical presence in the state.

A taxable entity would be deemed to be “doing business” in Texas on the earliest of: (1) the date the entity has physical presence; (2) the date the entity obtains a use tax permit; or (3) the first day of the accounting period in which the entity has gross receipts from business concluded in Texas in excess of $500,000.

Under the proposed regulatory amendment, the Comptroller would apply the economic nexus standard beginning with reports due on or after January 1, 2020. Comments on the proposed regulation must be received no later than 30 days from the date of the proposed regulation in the state’s register.

For more information, contact:

Doug Sigel
Practice Group Leader, Sales & Use and Income Tax
512-459-6611
doug.sigel@ryanlawyers.com

Richard W. Moore III
Attorney, Sale & Use and Income Tax
512-459-6613
richard.moore@ryanlawyers.com