Comptroller Clarifies Nexus Rules for Businesses with Websites Hosted on Servers in Texas

Friday, April 29th, 2011

 
 
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In a recent policy letter, the Texas Comptroller's office clarified the rule for determining if a business with a website hosted on servers located in the state has nexus.

Texas imposes the overlapping duties of collecting and remitting sales tax on anyone who is "engaged in business in Texas." Texas regulations explain that a person is "engaged in business in Texas" if the person has "nexus" with Texas. Nexus means a "sufficient" contact with or activity within Texas, and the regulations state that a business that "derives receipts from a rental or lease of tangible personal property that is located in this state or owns or uses tangible personal property that is located in this state, including a computer server or software" has nexus in Texas.

The Comptroller's office recently stated that this rule is currently in flux, as the Comptroller is working to again revise the provision on using a server or software in the state. Elaborating on this, the Texas Comptroller explained that this provision was amended in 2010, and, since then, it has been interpreted more broadly than the Comptroller's office intended, so the Comptroller is working to amend the rule again.

To clarify the Comptroller's policy, the Comptroller's office has provided a "safe harbor" for businesses whose websites are hosted on servers physically located in Texas. If the entirety of the business's presence and activity in Texas is limited to (1) having ONLY a website on a third-party server in Texas (upon which the third-party provides all the functionality) and (2) delivering physical products into the state via third-party common carrier, then the business is not considered to be engaged in business in Texas.

For more, see 34 Tex. Admin. Code Sec. 3.286 and Tex. Policy Letter Ruling No. 201103016L (Comptroller of Pub. Accounts Mar 24, 2011).


About TTR

Transaction (buying or selling things), Tax (the tax on this activity), Resources (our people, our website, our support services) - TTR, Inc.

TTR has a website that companies subscribe to and use daily. This website provides a list of everything that can be bought or sold in the U.S. It provides simple answers to whether buying or selling these items is taxable (subject to a sales tax or other tax), and it provides all the legal authority to support these tax answers.

TTR likes to keep things simple and fun, which is why it has great people who provide help to clients on any support questions they have about transaction tax issues.

Please visit TTR on the web at www.ttrus.com or call 866.578.8193.

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