By Tram Le
Texas has added complexity and a layer of taxation on vendors in 2020. In addition to adopting economic nexus for sales and use tax in Texas , a new economic nexus threshold with gross receipts tax implications took effect as of December 29, 2019, and applies to the tax year 2019 Texas franchise tax reports due on or after January 1, 2020.
The Texas Comptroller of Public Accounts (Comptroller) incorporated economic nexus to franchise tax once a business reaches a threshold of $500,000 in Texas-based gross receipts. The added economic nexus factor-based standard now states:
(f) Economic nexus. For each federal income tax accounting period ending in 2019 or later, a foreign taxable entity has nexus in Texas and is subject to Texas franchise tax, even if it has no physical presence in Texas, if during that federal income tax accounting period, it had gross receipts from business done in Texas of $500,000 or more, as determined under Sec. 3.591 of this title (relating to Margin: Apportionment).
(g) Beginning date. A foreign taxable entity begins doing business in the state on the earliest of:
(1) the date the entity has physical nexus as described in subsection (c) of this section;
(2) the date the entity obtains a Texas use tax permit; or
(3) 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 Takeaway
The change imposes a filing responsibility under the Texas franchise tax on remote sellers with no physical presence in the state. This $500,000 economic nexus threshold now applies to both franchise tax and sales and use taxes. Businesses deriving revenue in Texas have two tax considerations to consider going forward with the rule change.
If your business exceeds $500,000 of Texas-based gross receipts, you’ll have an additional filing requirement for franchise tax. However, the “no tax due” threshold of $1.18 million of gross receipts in Texas for tax years 2020 and 20201 still applies. Businesses with less than $1.18 million in Texas sales will need to file a No Tax Due Report. Companies with Texas sales that exceed $1.18 million are likely to owe some franchise tax in Texas in addition to sales and use taxes.
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Tram Le can be reached at tle@taxops.com or 720.227.0093.
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