On December 20, 2019, an amendment was finalized, and the Texas Comptroller has adopted the amendment to Texas Code Section 3.586 - the economic nexus standard for Texas franchise tax purposes. The amendment affects accounting periods ending in 2019 and later. A foreign (non-Texas) entity with no physical presence in Texas is now considered to have nexus and will be subject to Texas franchise tax if it has gross receipts from doing business in Texas of $500,000 or more. Historically, the Texas Comptroller has applied the physical presence nexus standard for franchise tax, meaning a taxpayer did not have a franchise tax liability with the state of Texas if it was not physically present in the state.
Since the Wayfair Supreme Court decision in 2018, a number of states have enacted economic nexus legislation. The economic presence standard is deemed by the level of sales sufficient to impact a state’s economy. The Comptroller’s office attempts to minimize the impact on businesses as much as possible while creating a level playing field. It will continue to develop best practices in conjunction with the Multistate Tax Commission (MTC) and will remain open to new ideas and concerns.
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In summary, companies that have a physical presence in Texas are unaffected by this amendment, but companies that are formed outside of Texas and have Texas sourced sales over $500,000 may be subject to a Texas franchise reporting and tax liability going forward.
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Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.