Nexus in Texas is the legal connection between your business and the state that gives the Texas Comptroller of Public Accounts authority to require you to collect tax or file returns. Two taxes matter most: sales and use tax, which kicks in when your Texas revenue over the preceding twelve months exceeds $500,000 or when you have a physical footprint here, and the franchise tax, which applies to any entity organized in Texas or “doing business” in the state. The two tests are separate. Triggering one does not automatically trigger the other, and getting either wrong can mean back taxes, penalties up to 20%, and the loss of your right to operate in Texas.
Physical Presence That Creates Nexus
The clearest way to establish nexus is to have something or someone in Texas. Under Texas Tax Code Section 151.107, you are “engaged in business” if you maintain any kind of location in the state, whether an office, a warehouse, a distribution center, a sales room, or a temporary kiosk at a trade show. The location need not be permanent, and it does not matter whether you run it directly or through an agent.1Texas Comptroller. Engaged in Business
People create nexus too. Employees, sales representatives, or independent contractors in Texas who sell products, make deliveries, or take orders on your behalf all count. So does someone who flies into Dallas for a trade show to demonstrate your product, or a canvasser working door to door in Houston. Storing inventory in a Texas fulfillment center, including one operated by a third party, is physical presence and requires you to register for a sales tax permit.1Texas Comptroller. Engaged in Business
A less obvious trigger involves related entities. If a company that shares at least 50% common ownership with yours maintains a Texas location that delivers your products, sells substantially similar goods under a similar name, or promotes your sales, that relationship creates nexus for you.1Texas Comptroller. Engaged in Business
Economic Nexus for Sales Tax
You do not need an employee or a square foot of warehouse space in Texas to owe sales tax. After the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair, Texas adopted a revenue-based threshold for remote sellers. If your total Texas revenue exceeds $500,000 during the preceding twelve calendar months, you have economic nexus and must collect and remit Texas sales and use tax.2Texas Comptroller of Public Accounts. Remote Sellers
The $500,000 figure is broader than most sellers expect. It covers gross revenue from all sales of tangible personal property and services shipped into Texas, taxable and nontaxable alike. Handling charges, shipping fees, installation costs, sales for resale, and sales to tax-exempt buyers all count toward the threshold.3Comptroller of Public Accounts. Remote Sellers and Marketplace Frequently Asked Questions
When Collection Must Begin
Crossing the $500,000 line does not force you to start collecting the next day. You must obtain a permit and begin collecting state and local use tax no later than the first day of the fourth month after the month you exceeded the threshold.2Texas Comptroller of Public Accounts. Remote Sellers Cross $500,000 in March, and your collection deadline is July 1.
If you were previously registered as a remote seller, dropped below $500,000 for twelve consecutive months, and terminated collection, the timeline to resume is shorter. You must start collecting again on the first day of the second month after any twelve-month period in which you again exceed $500,000.3Comptroller of Public Accounts. Remote Sellers and Marketplace Frequently Asked Questions
There is no fee to obtain a Texas sales tax permit. The Comptroller may require you to post a security bond before issuing the permit, particularly if you have a history of compliance issues in other states.4Texas Comptroller. Texas Sales and Use Tax Frequently Asked Questions
Franchise Tax Nexus Is a Separate Test
Sales tax runs transaction by transaction. The franchise tax is an annual tax on the privilege of doing business in Texas, and it applies to corporations, LLCs, partnerships, and most other entity types. Texas Tax Code Section 171.001 imposes it on every taxable entity that is either organized in Texas or does business in the state.5State of Texas. Texas Tax Code Section 171.001 – Tax Imposed
Under Comptroller Rule 3.586, “doing business” covers both physical and economic connections. An entity with no employees, offices, or inventory in Texas can still owe franchise tax if its gross receipts from Texas sources reach $500,000 or more during a reporting period.6Cornell Law Institute. 34 Tex. Admin. Code 3.586 – Margin: Nexus This is a separate threshold from the sales tax economic nexus test. You can owe franchise tax without owing sales tax, and the reverse. For 2026, entities with annualized total revenue of $2,650,000 or less owe no franchise tax and are not required to file a No Tax Due Report. The annual report is due May 15.7Texas Comptroller of Public Accounts. Franchise Tax
Out-of-state sellers sometimes assume federal law shields them from state taxes when their only Texas activity is soliciting orders. Public Law 86-272 provides that protection, but only for taxes measured by net income. The Texas franchise tax is a margin tax, and Comptroller Rule 3.586 states explicitly that P.L. 86-272 does not apply.6Cornell Law Institute. 34 Tex. Admin. Code 3.586 – Margin: Nexus A business whose only Texas activity is sending sales reps to solicit orders still has franchise tax nexus if it meets the revenue or physical presence thresholds.
Selling Through a Marketplace or Referral Partner
If you sell through Amazon, Etsy, Walmart Marketplace, or any similar platform, the marketplace provider, not you, is responsible for collecting and remitting Texas sales tax on those sales. Texas Tax Code Section 151.0242 requires the provider to assume the rights and duties of a seller for every transaction processed through its platform.8State of Texas. Texas Tax Code Chapter 151 The provider must certify to each seller that it is handling collection, and sellers who accept that certification in good faith should exclude those sales from their own returns.
That does not let sellers walk away from recordkeeping. Texas law requires marketplace sellers to retain records of all marketplace sales and to tell the provider accurately whether items are taxable, exempt, or sold for resale. If a tax deficiency comes from incorrect information you gave the provider, you owe the difference.8State of Texas. Texas Tax Code Chapter 151 If you and the marketplace provider share at least 50% common ownership, you are jointly liable for any deficiency.
Affiliate nexus, sometimes called click-through nexus, works differently. If you are a remote retailer that pays a Texas-based person or company to refer customers through a website link, that arrangement can create nexus when the referral revenue exceeds $10,000 during the preceding twelve months and your total Texas revenue also exceeds $500,000.
What Happens If You Ignore Nexus
Texas penalties escalate quickly on late filings and payments:
- 1 to 30 days late: 5% penalty on the tax due
- More than 30 days late: 10% penalty
- After a Notice of Tax Due is issued: an additional 10% penalty, bringing the total to 20%
Most tax types also carry a flat $50 penalty for each late report, and interest begins accruing on the 61st day after the report’s due date at a variable rate the Comptroller sets each January.9Texas Comptroller. Penalties for Past Due Taxes For businesses that collected sales tax from customers but did not remit it, the exposure is worse. Texas treats collected sales tax as money held in trust for the state, and there is no limit on how far back the Comptroller can look.
The franchise tax carries a separate consequence. If your entity fails to file its franchise tax report or pay what it owes, the Secretary of State will forfeit your right to transact business in Texas. While forfeited, you cannot file or maintain a lawsuit in any Texas court and cannot amend your certificate of formation or registration.10Texas Secretary of State. Terminations and Reinstatements FAQs You can still defend a suit brought against you, and your existing contracts remain valid, but you are frozen in place until the delinquency is cleared.
Fixing Past Exposure Before the State Finds You
If you have been selling into Texas for years without collecting tax or filing franchise reports, a voluntary disclosure agreement with the Comptroller is usually the best path. The program waives all statutory penalties and interest, except interest on sales tax you actually collected from customers but never remitted.11Texas Comptroller. Voluntary Disclosure Program
The Comptroller limits its review to reports due within four years from the date you first make contact, which can sharply reduce your back-tax exposure compared with an audit. For collected-but-unremitted sales tax, there is no lookback limit.11Texas Comptroller. Voluntary Disclosure Program
To qualify, your business must not have been previously contacted by the Comptroller, verbally or in writing, about a tax liability, and you must not have received notification of an audit or examination. Even receiving a nexus questionnaire can disqualify you in some cases. The program covers all taxes and fees the Comptroller administers except international fuel tax agreements. If you think you may have nexus, acting before the state contacts you is worth real money.11Texas Comptroller. Voluntary Disclosure Program