United States

Texas: Out-of-State Taxpayer Contracting with Local Service Providers had Sales and Use Tax Nexus

Jan 22, 2018
From KPMG TaxWatch

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A Texas Administrative Law Judge or ALJ recently determined that an out-of-state company that provided electrical repair and maintenance services to retail stores operating in the state had Texas sales and use tax nexus. Under Texas law, the repair and maintenance of tangible personal property is subject to sales and use tax. The taxpayer entered into contracts with retail store chains to provide electrical lighting repair and maintenance services, as well as HVAC, plumbing, and carpentry services. The taxpayer had no employees or property in Texas and performed services through its contracts with local service providers. Specifically, when one of the taxpayer’s customers, i.e., the retail store, needed services at a particular location, the taxpayer arranged for a local service provider to go to the location and perform the work. After the taxpayer ignored several requests to complete a nexus questionnaire, the Comptroller estimated the taxpayer’s sales and use tax liability for a three-year period and issued an assessment accordingly. The taxpayer protested the assessment and the matter eventually came before an ALJ. 

The taxpayer argued at hearing that it did not have sales tax nexus with Texas and, in any event, was selling non-taxable services when it connected its customers with local contractors. It was undisputed that the taxpayer did not have employees in Texas and did not own or lease any property in Texas. However, the ALJ rejected the position that the taxpayer did not have Texas nexus and/or was selling a non-taxable service. Although the taxpayer lacked a physical presence in Texas, the ALJ observed that because of the local service providers the taxpayer was able to establish, operate and maintain a consistent presence in Texas. The activities in Texas, conducted through the independent contractors, were significantly associated with the taxpayer’s ability to establish and maintain a market in Texas. This is the second ALJ ruling holding that an out-of-state service provider had nexus through its contracts with local persons to provide services to the taxpayer’s customers. Please contact David Davis at 214-840-6791 with questions on this ruling. 


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.