Nexus in Texas is the legal connection between your business and the state that forces you to collect sales tax, file franchise tax reports, or both. The Texas Comptroller recognizes two main triggers: a physical footprint in the state, or $500,000 or more in Texas revenue over the preceding twelve months. Either one is enough on its own, and plenty of out-of-state businesses have one without realizing it.
What Counts as Physical Presence
Under Texas Tax Code Section 151.107, a business is “engaged in business” in Texas when it maintains any physical location in the state, permanent or temporary. That covers an office, warehouse, distribution center, sales room, storage facility, or a kiosk at a mall.1Texas Comptroller of Public Accounts. Engaged in Business
People create nexus too. Employees, sales representatives, independent agents, and subcontractors working in Texas all count, including agents taking orders, affiliates accepting returns, and employees exhibiting products at trade shows.1Texas Comptroller of Public Accounts. Engaged in Business They don’t need to live in Texas or work there full-time. A single salesperson making periodic visits can be enough.
Inventory is the trap that catches e-commerce sellers. If your products sit in a Texas fulfillment center, including a third-party operation like Amazon FBA, you have physical presence nexus. It makes no difference that you’ve never set foot in the state yourself.2Texas Comptroller of Public Accounts. Remote Sellers
Trade Shows and One-Off Events
Selling at a Texas trade show, fair, or festival creates sales tax nexus even on a single visit. The Comptroller treats any out-of-state seller taking orders or promoting taxable items at these events as engaged in business, requiring a sales tax permit.3Texas Comptroller of Public Accounts. Fairs, Festivals, Markets and Shows
Franchise tax is more forgiving on this point. A business whose only Texas activity is soliciting orders at trade shows can avoid franchise tax nexus if it visits no more than five times during its accounting year and each visit lasts no longer than 120 consecutive hours.3Texas Comptroller of Public Accounts. Fairs, Festivals, Markets and Shows So you can owe sales tax from a trade show without triggering franchise tax, as long as you stay inside those limits.
The $500,000 Economic Nexus Threshold
You can also establish nexus without any physical presence at all. Texas sets its economic nexus threshold at $500,000 in total Texas revenue during the preceding twelve calendar months, under 34 Texas Administrative Code Section 3.286.4Legal Information Institute. 34 Texas Admin Code 3-286 – Sellers and Purchasers Responsibilities
The number is broader than most sellers assume. “Total Texas revenue” means gross revenue from all tangible personal property and services sold into Texas, taxable or not. It also includes sales for resale, sales to exempt entities, and separately stated charges for shipping, handling, and installation.5Texas Comptroller of Public Accounts. Remote Sellers and Marketplace Frequently Asked Questions Wholesale and exempt transactions count toward the threshold even though no sales tax is due on them.
Once you cross $500,000, you have a short grace period. You must obtain a Texas sales tax permit and begin collecting state and local use tax by the first day of the fourth month after the month you exceeded the threshold.2Texas Comptroller of Public Accounts. Remote Sellers Hit $500,000 in June, start collecting by October 1. The permit itself is free, though the Comptroller may require a security bond depending on your situation.6Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions
Selling Through a Marketplace
If you sell through a platform like Amazon, eBay, or Walmart, Texas Tax Code Section 151.0242 shifts the sales tax burden to the marketplace provider. The provider collects and remits sales tax on all taxable orders made through its platform and must certify to each seller that it is doing so.7Texas Public Law. Texas Tax Code Section 151.0242 – Marketplace Providers and Marketplace Sellers
A remote seller whose only Texas sales go through a certifying marketplace provider doesn’t need a Texas sales tax permit.2Texas Comptroller of Public Accounts. Remote Sellers
The exemption disappears if you have anything else going on in Texas. Inventory in a Texas warehouse creates physical nexus regardless of how you sell. Direct sales through your own website that cross $500,000 trigger economic nexus independently of your marketplace volume. Either situation puts you back on the hook for your own permit covering the non-marketplace channels, even while the platform keeps handling taxes on its own sales.
Franchise Tax Nexus
Sales tax is only half the picture. Texas also imposes a franchise tax (sometimes called the margin tax) on most business entities doing business in the state. It applies to corporations, LLCs, limited partnerships, professional associations, business trusts, and most other entity types. Sole proprietorships and certain general partnerships owned entirely by individuals are exempt.8State of Texas. Texas Tax Code Chapter 171 – Franchise Tax
An out-of-state entity establishes franchise tax nexus either through physical presence or by reaching $500,000 in annual Texas gross receipts.2Texas Comptroller of Public Accounts. Remote Sellers A remote seller who triggers economic nexus for sales tax has almost certainly triggered franchise tax nexus at the same time.
Public Law 86-272 Will Not Save You
Federal Public Law 86-272 protects companies from state income taxes when their only in-state activity is soliciting sales of tangible personal property. Many out-of-state businesses assume this shield extends to Texas. It does not. Texas Administrative Code Rule 3.586 explicitly states that Public Law 86-272 does not apply to the Texas franchise tax, because the franchise tax is not classified as an income tax.9Legal Information Institute. 34 Texas Admin Code 3-586 – Margin: Nexus If your only connection to Texas is sending salespeople to solicit orders, you may avoid income tax elsewhere, but Texas franchise tax still applies.
What You Actually Owe
Having franchise tax nexus doesn’t always mean writing a check. For 2026 reports, entities with annualized total revenue of $2.65 million or less owe no franchise tax.10Texas Comptroller of Public Accounts. Texas Franchise Tax Report Forms for 2026 You still need to file a Public Information Report or Ownership Information Report, but no tax return is required.11Texas Comptroller of Public Accounts. No Tax Due Reporting for Report Year 2024 and Later
Entities above that threshold pay at one of three rates for 2026 reports:12Texas Comptroller of Public Accounts. 2026 Franchise Tax Instructions
- 0.75% is the general rate for most entities, applied to taxable margin.
- 0.375% is the reduced rate for qualifying wholesalers and retailers.
- 0.331% is the EZ computation rate, available to entities with $20 million or less in annualized total revenue.
The annual franchise tax report is due May 15 each year. If that date falls on a weekend or holiday, the deadline shifts to the next business day.13Texas Comptroller of Public Accounts. Franchise Tax
What Non-Compliance Costs
Ignoring nexus doesn’t make it go away. If the Comptroller determines you should have been collecting sales tax or filing franchise tax reports, the penalties stack:14Texas Comptroller of Public Accounts. Penalties for Past Due Taxes
- A 5% penalty when tax is paid 1 to 30 days late.
- A 10% penalty when tax is more than 30 days late.
- An additional 10% after the Comptroller sends a formal Notice of Tax Due, bringing the total to 20%.
- $50 for each late report, even if no tax is owed for that period.
Interest begins accruing on the 61st day after a report’s due date, at a variable rate the Comptroller publishes each January.14Texas Comptroller of Public Accounts. Penalties for Past Due Taxes On the franchise tax side, consequences go beyond dollars. Failing to file franchise tax reports can lead the Texas Secretary of State to forfeit your entity’s right to transact business in the state. A forfeited entity cannot maintain lawsuits in Texas courts and cannot amend its formation documents until it is reinstated.15Texas Secretary of State. Terminations and Reinstatements FAQs
Catching Up Through a Voluntary Disclosure Agreement
If you’ve realized you should have been collecting Texas sales tax or filing franchise tax reports, the Comptroller’s Voluntary Disclosure Agreement program is the way to get right with less damage. Under a VDA, the Comptroller waives penalties and, in most cases, interest on back taxes owed.16Texas Comptroller of Public Accounts. Voluntary Disclosure Program One exception: interest is not waived on tax you actually collected from customers but failed to send to the state.
The standard lookback is the four years preceding the agreement. You calculate and remit all taxes due for that window, and liability for anything before it is typically forgiven.17Texas Comptroller of Public Accounts. Fast-Track Voluntary Disclosure Agreement For a business that has been selling into Texas for years without knowing it had nexus, a VDA can wipe out a significant portion of exposure compared with waiting for the Comptroller to come looking.