TITLE 34. PUBLIC FINANCE

PART 1. COMPTROLLER OF PUBLIC ACCOUNTS

CHAPTER 3. TAX ADMINISTRATION

SUBCHAPTER V. FRANCHISE TAX

34 TAC §3.586

The Comptroller of Public Accounts adopts amendments to §3.586, concerning margin: nexus, in response to the United States Supreme Court decision in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), without changes to the proposed text as published in the September 27, 2019, issue of the Texas Register (44 TexReg 5605). This rule will not be republished.

The comptroller adds titles to subsections and improves readability throughout the section.

The comptroller adds the word "Texas" in front of "franchise tax" throughout the section to maintain consistency.

The comptroller amends subsection (a) to allow effective dates in this section other than the effective date of January 1, 2008. Specifically, the amendment is in response to the decision in Wayfair affecting franchise tax reports due on or after January 1, 2020.

The comptroller adds new subsection (b) to provide that a foreign taxable entity is a taxable entity that is not chartered or organized in Texas. Subsequent subsections are relettered.

The comptroller amends relettered subsection (c) concerning nexus to provide that nexus is determined on an individual taxable entity level.

The comptroller amends relettered subsection (e) to provide that a foreign taxable entity with a Texas use tax permit is presumed to have nexus and is subject to Texas franchise tax. This presumption codifies existing practice. Information formerly in subsection (d) concerning exemptions for trade show participants is now in new subsection (h).

The comptroller received comments regarding subsection (e) from Martens, Todd, Leonard & Ahlrich. The comment stated that proposed subsection (e) could be a potential constitutional violation if the comptroller presumes that a foreign entity has nexus solely because it obtains a use tax permit. The comptroller has considered the comment and concluded that subsection (e) is appropriate because an entity may rebut the presumption.

The Wayfair opinion held that constitutional nexus may result from substantial sales activity in a state even if an entity has no physical presence in a state. The opinion is incorporated into Texas law through Tax Code, §171.001(b), which provides that the franchise tax extends to the limits of the United States Constitution. To simplify tax administration for both the agency and taxpayers, subsection (f) proposes an economic nexus threshold of $500,000 in annual Texas receipts for foreign taxable entities that do not have physical presence in the State. This threshold eliminates the need to determine on a case-by-case basis whether revenue-generating activities in the State constitute substantial nexus. The comptroller's office will apply this economic nexus provision beginning with reports due on or after January 1, 2020. Information formerly in subsection (e) concerning Public Law 86-272 is now in new subsection (i).

The comptroller received comments regarding subsection (f) from Martens, Todd, Leonard & Ahlrich. The comment proposed that the comptroller add an exception in subsection (f) that excludes receipts that are sourced to Texas solely because of the legal domicile of the seller. The comptroller has considered the comment and concluded all receipt-producing activities should be included in the economic nexus analysis, including receipts sourced to Texas based on the location of payor rule. See, Humble Oil & Refining Co. v. Calvert, 414 S.W.2d 172, 175 (Tex. 1967). The comptroller declines to make changes to the section based on this comment.

The comptroller adds new subsection (g) to identify the criteria for determining the beginning date when a foreign taxable entity begins doing business in this state.

This amendment is adopted under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture), which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of Tax Code, Title 2.

This amendment is in response to the United States Supreme Court decision in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 9, 2019.

TRD-201904647

William Hamner

Special Counsel for Tax Administration

Comptroller of Public Accounts

Effective date: December 29, 2019

Proposal publication date: September 27, 2019

For further information, please call: (512) 475-0387


CHAPTER 5. FUNDS MANAGEMENT (FISCAL AFFAIRS)

SUBCHAPTER N. ACCOUNTING POLICIES

34 TAC §5.160, §5.161

The Comptroller of Public Accounts adopts amendments to §5.160, concerning petty cash accounts for travel advances, and adopts new §5.161, concerning general revenue fund reimbursement for statewide support services, without changes to the proposed text as published in the October 18, 2019, issue of the Texas Register (44 TexReg 6007). The rules will not be republished. Additionally, the title to Subchapter N, Funds Accounting--Accounting Policy Statements, is being changed to Accounting Policies.

Two statutes require the comptroller to adopt rules relating to specific accounting policies: Government Code, §403.248 (Travel Advances), and Government Code, §2106.006(e) (General Revenue Fund Reimbursement). Currently, accounting policies are adopted by reference in §5.160. The comptroller amends §5.160 and adds new §5.161 to adopt these two accounting policies, and to eliminate the unnecessary inclusion of other accounting policies.

The amendments to §5.160 replace the current, unnecessary language relating to the incorporation by reference of certain accounting policy statements with language relating to petty cash accounts for travel advances. The amendments include requirements governing the use of petty cash accounts established under Government Code, Chapter 403, Subchapter K, for the purpose of advancing travel expense money to state officers and employees, including prohibited uses of this type of petty cash account, the requirement to complete a final accounting, and the maximum balance of this type of petty cash account. The amendments also change the title of the rule to Petty Cash Accounts for Travel Advances.

New §5.161 governs the reimbursement of the general revenue fund (GR) by a state agency for the cost of statewide support services allocated to the state agency under the Statewide Cost Allocation Plan. The rule requires a state agency to: submit a completed Statewide Cost Allocation Worksheet to the comptroller at the email address and by the date prescribed by the comptroller (failure to do so will result in the comptroller distributing the cost of statewide support services owed by the state agency based on the state agency's method of finance for the current fiscal year); make transfers to GR in one payment or in quarterly payments; and make transfers to GR in accordance with the payment schedule established by the comptroller.

No comments were received regarding adoption of the amendment and new rule.

The amendments to §5.160 are adopted under Government Code, §403.248, which requires the comptroller to adopt rules governing the use of petty cash accounts established under Government Code, Chapter 403, Subchapter K, for advancing travel expense money to state officers and employees. New §5.161 is adopted under Government Code, §2106.006(e), which requires the comptroller to adopt rules necessary to prescribe the timing and method of certain state agency transfers to GR for the cost of statewide support services allocated to the state agency under the Statewide Cost Allocation Plan and the manner in which a state agency shall send to the comptroller information the comptroller requires to transfer these amounts to GR.

The amendments to §5.160 implement Government Code, §403.248. New §5.161 implements Government Code, §2106.006.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 5, 2019.

TRD-201904568

Victoria North

Chief Counsel, Fiscal and Agency Affairs Legal Services Division

Comptroller of Public Accounts

Effective date: December 25, 2019

Proposal publication date: October 18, 2019

For further information, please call: (512) 475-0387