Nexus is the legal connection between your business and Texas that gives the state the right to impose tax on your activities. Without nexus, Texas cannot require you to collect sales tax, file franchise tax returns, or comply with other Texas tax obligations. Understanding nexus standards is essential for businesses with any connection to Texas.
Physical presence has always established nexus. If your business has employees working in Texas, maintains inventory in the state, owns or leases property in Texas, or has representatives making sales calls, you have nexus. The physical presence can be minimal; even a single employee working from a home office in Texas may be sufficient.
Economic nexus expanded the landscape dramatically after the Supreme Court’s 2018 decision in South Dakota v. Wayfair. Texas responded by enacting economic nexus provisions that apply to businesses with no physical presence in the state. For sales tax purposes, you have economic nexus in Texas if your total Texas revenue exceeds $500,000 during the preceding twelve-month period.
Franchise tax nexus is broader. Any entity “doing business” in Texas has nexus for franchise tax purposes. Doing business includes actively engaging in transactions for profit, having employees or agents in Texas, maintaining a place of business in Texas, and receiving Texas-sourced income. The franchise tax reaches businesses that might not have sales tax nexus.
Marketplace facilitators complicate the nexus analysis for sellers who use platforms like Amazon, eBay, or Etsy. Texas law makes marketplace facilitators responsible for collecting and remitting sales tax on sales made through their platforms. If all your Texas sales go through a qualifying marketplace facilitator, you may not need to collect tax yourself, but you might still have franchise tax nexus.
Nexus isn’t permanent. If your connection to Texas ends, your nexus may lapse after a period of inactivity. However, the process isn’t automatic, and you remain responsible for any obligations that arose while nexus existed.
Businesses discovering they had Texas nexus in prior periods face difficult choices. Registering late brings you into compliance but may trigger audits of prior periods. Voluntary disclosure agreements offer a better path for many businesses, limiting the lookback period and eliminating penalties in exchange for coming forward proactively.
If you’re unsure whether your business has Texas nexus, or if you’ve had nexus without realizing it, schedule a consultation to discuss your situation and explore your options.
