CCH Tax Day Report
An out-of-state taxpayer that provided trash consulting services to shopping centers in Texas was held to have had a physical presence in the state which established the requisite nexus with Texas for franchise tax and sales tax purposes under the Due Process Clause and Commerce Clause of the U.S. Constitution.
Taxpayer’s Activities in Texas
The taxpayer contracted with Texas property owners to audit, recommend, implement, and manage waste-hauling programs for tenants. The taxpayer’s activities included obtaining waste-hauling information from individual tenants and entering into contracts with local companies for waste-hauling services. The taxpayer paid sales tax on the waste-hauling services it purchased from local contractors and charged tenants a lump-sum price for its services without charging sales tax. During the audit period, the taxpayer provided its services at numerous shopping centers for hundreds of individual tenants and contracted with at least 20 different waste-hauling companies.
Although the taxpayer did not have employees, agents, representatives, or property in Texas and conducted its activities in Texas through email, telephone, and fax, the Comptroller ruled that by contracting with Texas vendors to perform waste-hauling services, the taxpayer was engaged in business in Texas. A foreign corporation’s “physical presence” may be manifested in the taxing state through the performance of activities there by franchisees, licensees, or independent contractors acting on the corporation’s behalf.
An out-of-state retailer can have sufficient constitutional nexus with a state if the seller’s activities, whether conducted by an employee or agent, or by an independent contractor, are significantly associated with the seller’s ability to establish and maintain a market in the state. In this case, the taxpayer’s activities in Texas were significantly associated with its ability to establish and maintain a market in Texas.
Also, the Texas taxes were applied to an activity with a substantial nexus with the state, were fairly apportioned, did not discriminate against interstate commerce, and were fairly related to the services provided by the state.
Decision, Hearing No. 112,189, Texas Comptroller of Public Accounts, May 10, 2016, released July 14, 2016, ¶404-172
Explanations at ¶10-075
Explanations at ¶60-025