A direct sales and network marketing company that sold a variety of products and services to marketing professionals, including training videos and web hosting services, had substantial nexus with Texas through its activities for both the taxable capital component and the earned surplus component of the Texas franchise tax.

The company sold memberships that allowed Texas customers to purchase its products and services. Members could obtain an affiliate status by referring new customers. The affiliates acted as independent contractors who solicited sales of company memberships, goods, and services in Texas. The activities of these affiliates were sufficient to establish nexus for the taxable capital component of the franchise tax. The company's activities in Texas were not protected by RL. 86-272 for purposes of the earned surplus component of the franchise tax because they exceeded the mere solicitation of orders for tangible goods. The company also sold intangible goods, such as access to the company's telephone and web-based services and customer leads resulting from company advertising. (Decision of the Comptroller of Public Accounts, Hearing No. 44,735, April 6, 2005.)

Copyright CCH Incorporated: Federal and State Tax Aug 2, 2005
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