Texas Comptroller of Public Accounts    STAR System


9403R1288A01



STAR SUPERSEDED WITHOUT SUMMARY 

Accession No.(s): 9403085R

Document superseded on: 08/15/2013 



STATE OF TEXAS
COMPTROLLER OF PUBLIC ACCOUNTS
FRANCHISE TAX

Section 3.554. Earned Surplus: Nexus.

(a) Constitutional limit standard. A corporation is doing business in this 
state, for the earned surplus component of the franchise tax, when it has 
sufficient contact with this state to be taxed without violating the United 
States Constitution. See sec. 3.546 of this title (relating to Taxable Capital: 
Nexus) for the nexus standards for the taxable capital component of the 
franchise tax.

(b) Public Law 86-272(15 United States Code, secs. 381-384). A corporation may 
be subject to the taxable capital component, but not the earned surplus 
component, because of Public Law 86-272. If the only business activity within 
this state is the solicitation of orders for sales of tangible personal 
property, which orders are sent outside the state for approval or rejection, 
and, if approved, are filled by shipment or delivery from a point outside this 
state, then the corporation is not subject to the earned surplus component of 
the franchise tax, even if the corporation has obtained a certificate of 
authority. Only the sale of tangible personal property is afforded immunity 
under Public Law 86-272; therefore, the leasing, renting, licensing, or other 
disposition of tangible personal property, intangibles, or any other type of 
property is not immune from taxation by reason of Public Law 86-272. This 
subsection does not apply to a corporation chartered in Texas.

(c) Solicitation of orders.

(1) For the Texas activity to be immune under Public Law 86-272, it must be 
limited solely to solicitation (except for de minimis activities and those 
activities conducted by independent contractors described in this section). 
Solicitation means:

(A) speech or conduct that explicitly or implicitly invites an order; and

(B) activities that neither explicitly nor implicitly invite an order, but are 
entirely ancillary to requests for an order.

(2) Ancillary activities are those activities that serve no independent 
business function for the seller apart from their connection to the 
solicitation of orders. Activities that a seller would engage in apart from 
soliciting orders shall not be considered as ancillary to the solicitation of 
orders. The mere assignment of activities to sales personnel does not, merely 
by such assignment, make such activities ancillary to solicitation of orders. 
Additionally, activities that seek to promote sales are not ancillary, because 
Public Law 86-272 does not protect activity that facilitates sales; it only 
protects ancillary activities that facilitate the request for an order. The 
conduct of activities not falling within the foregoing definition of 
solicitation will cause the company to lose the exemption afforded by Public 
Law 86-272, unless the disqualifying activities, taken together, are de 
minimis.

(3) De minimis activities are those that, when taken together, establish only a 
trivial additional connection with Texas. An activity regularly conducted 
within Texas pursuant to a company policy or on a continuous basis shall 
normally not be considered trivial. Whether or not an activity consists of a 
trivial or nontrivial additional connection with Texas is to be measured on 
both a qualitative and quantitative basis. If such activity either 
qualitatively or quantitatively creates a non-trivial connection with Texas, 
then such activity exceeds the protection of Public Law 86-272. Establishing 
that the disqualifying activities only account for a relatively small part of 
the business conducted within Texas is not determinative of whether a de 
minimis level of activity exists. The relative economic importance of the 
disqualifying in-state activities, as compared to the protected activities, 
does not determine whether the conduct of the disqualifying activities within 
Texas is inconsistent with the limited protection afforded by Public Law 
86-272.

(d) Examples of doing business. Some specific activities which constitute doing 
business in Texas, assuming they are not of a de minimis level, by a foreign 
corporation are:

(1) making repairs or providing maintenance;

(2) collecting current or delinquent accounts;

(3) investigating credit worthiness;

(4) installation or supervision of installation;

(5) conducting training classes, seminars, or lectures for personnel other than 
personnel involved only in solicitation;

(6) providing any kind of technical assistance or services, including, but not 
limited to, engineering assistance or services, when one of the purposes 
thereof is other than the facilitation of the solicitation of orders;

(7) investigating, handling, or otherwise assisting in resolving customer 
complaints, other than mediating direct customer complaints when the sole 
purpose of such mediation is to ingratiate the sales personnel with the 
customer;

(8) approving or accepting orders;

(9) repossessing property;

(10) securing deposits on sales;

(11) picking up or replacing damaged or returned property;

(12) hiring, training, or supervising personnel, other than personnel involved 
only in solicitation;

(13) providing shipping information and coordinating deliveries;

(14) maintaining a sample or display room in excess of two weeks (14 days) at 
any one location during the period upon which the earned surplus is based;

(15) carrying samples for sale, exchange, or distribution in any manner for 
consideration or other value;

(16) owning, leasing, or maintaining any of the following facilities or 
property in-state:

(A) repair shop;

(B) parts department; 

(C) purchasing office;

(D) employment or recruiting office;

(E) warehouse;

(F) meeting place for directors, officers, or employees;

(G) stock of goods other than samples for sales personnel or that are used 
entirely ancillary to solicitation;

(H) telephone answering service that is formally attributed to the company or 
to the agent(s) of the company in their agency status;

(I) mobile stores, i.e., vehicles with drivers who are sales personnel making 
sales from the vehicles; and

(J) real property or fixtures to real property of any kind.

(17) consigning tangible personal property to any person, including an 
independent contractor;

(18) maintaining, by any employee, an office or place of business (in-home or 
otherwise) that is paid for directly or indirectly by the company and that is 
formally attributed to the company or to the agent(s) of the company in their 
agency status, even if such office is for the exclusive use of soliciting 
orders. (For example, a telephone listing for the company or for the agents of 
the company in their capacity as agents or other indications through 
advertising or business literature that the company or its agents can be 
contacted at a specific place shall normally be determined as the company 
maintaining within this state an office or place of business attributable to 
the company or to its agents in their agency status);

(19) using agency stock checks or any other instrument or process by which 
sales are made within this state by sales personnel;

(20) conducting any activity listed as doing business in sec. 3.546 of this 
title (relating to Taxable Capital: Nexus), which is not protected by Public 
Law 86272; or

(21) conducting any activity not listed in subsection (e) of this section which 
is not entirely ancillary to requests for orders, even if such activity helps 
to increase purchases.

(e) Examples of protected activities. The following activities are protected by 
Public Law 86-272:

(1) soliciting orders for sales by any type of advertising;

(2) carrying samples only for display or distribution without charge or other 
consideration;

(3) owning or furnishing autos to sales personnel;

(4) passing inquiries and complaints on to the home office;

(5) missionary sales activities;

(6) checking of customers' inventories without a charge therefore (for reorder, 
but not for other purposes such as quality control);

(7) maintaining a sample or display room for two weeks or less at any one 
location during the period upon which the earned surplus is based;

(8) soliciting of orders for sales by an in-state resident employee of the 
company; provided the employee maintains no in-state sales office or place of 
business (in home or otherwise) that is attributable to the company or to the 
company's agent(s) in their agency capacity;

(9) recruitment, training, or evaluation of sales personnel, including 
occasional use of homes, hotels, or similar places for meetings with sales 
personnel;

(10) maintaining, by any sales employee, an in home office that is not paid for 
directly or indirectly by the company and which is not attributable to the 
company or to the company's agent(s) in their agency capacity; or

(11) mediating direct customer complaints when the purpose thereof is solely 
for ingratiating the sales personnel with the customer and facilitating 
requests for orders.

(f) Independent contractors.

(1) Public Law 86-272 provides immunity to certain in-state activities if 
conducted by an independent contractor that would not be afforded if performed 
by the company or its agents or other representatives. Independent contractors 
may engage in the following limited activities in the state without the 
company's loss of immunity:

(A) soliciting sales;

(B) making sales; and

(C) maintaining an office.

(2) Sales representatives who represent a single principal are not considered 
to be independent contractors.

(3) Maintenance of a stock of goods in the state by the independent contractor 
under consignment or any other type of arrangement with the company, except for 
purposes of display and solicitation, shall remove the immunity.


Effective Date: March 17, 1994
Filed with Secretary of State: February 24, 1994


 
Comptroller of Public Accounts




ACCESSION NUMBER: 9403085R   
SUPERSEDED: Y
DOCUMENT TYPE: R
DATE: 03/17/1994
TAX TYPE: FRANCHISE