Texas: Presence of Single Employee in State Creates Nexus

The Texas Comptroller recently concluded that an Illinois-based internet seller of heating and air conditioning equipment had Texas nexus because it solicited sales, delivered products, and, most importantly, had a single employee in the state. The employee performed customer service for the taxpayer from his Texas residence. The taxpayer argued that because the employee was only a representative for purposes of in-bound customer service calls, his activities should not create nexus for the company.  Further, the taxpayer argued, there was no intent to establish a Texas business presence through the employee and nothing that the employee did improved the taxpayer’s name recognition, market share, goodwill or customer relations in Texas.

The Comptroller rejected this argument, noting that the activities of an in-state representative may create constitutional nexus even if the representative’s activities do not directly involve selling, delivering, or taking orders for sales. Under both the Due Process Clause “minimum connections” test and the Commerce Clause “substantial nexus” test, the Comptroller determined the taxpayer had sufficient contacts with Texas to create nexus for sales and use and franchise tax purposes.  Specifically, the taxpayer (1) solicited business in Texas; (2) had completed sales to Texas customers; and (3) had an employee physically located in Texas. For more information on this determination, please contact Jeff Benson.