Texas Nexus Questionnaire Instructions: How to Complete and Submit

Businesses operating in Texas may need to complete a Nexus Questionnaire, which helps state tax authorities determine whether a company has sufficient presence to owe taxes. Completing this form accurately is essential to avoid compliance issues or penalties.

This guide explains the key sections of the questionnaire, required documentation, and the submission process.

Determining Filing Thresholds

Texas uses both economic and physical presence standards to determine tax obligations. A company with a physical location, employees, or property in Texas generally meets the physical presence requirement. However, businesses without a physical footprint may still owe taxes if they exceed the economic nexus threshold.

For 2024, Texas requires businesses with gross receipts over $1,230,000 from Texas-based transactions to file a franchise tax report, even if they have no physical presence. This threshold is periodically adjusted, so businesses should verify the latest figures with the Texas Comptroller’s office.

Economic nexus is based on total revenue sourced to Texas, including sales of goods delivered to Texas customers, services performed for Texas clients, and royalties from intellectual property used in the state. Online sellers and marketplace facilitators must track revenue carefully to ensure compliance.

Core Areas of the Questionnaire

The Texas Nexus Questionnaire gathers details about a business’s operations to determine tax liability, focusing on business activities, revenue sources, and corporate structure.

Business Activity

This section examines whether a company has offices, employees, or conducts sales in Texas. Businesses must disclose if they own or lease property, maintain inventory, or have representatives soliciting sales. Independent contractors working in Texas may also establish nexus.

Service-based businesses must report work performed for Texas clients, even if done remotely. An out-of-state consulting firm advising Texas businesses via video calls, for example, may still create nexus. Companies participating in trade shows, delivering goods with company-owned vehicles, or providing installation or repair services in Texas must also report these activities.

Failing to disclose relevant operations can lead to penalties, including back taxes, interest, and fines. The Texas Comptroller may audit businesses to verify reported information, making accuracy essential.

Revenue Sources

This section requires businesses to categorize income from product sales, service fees, royalties, or rental income. Companies must explain how they track and allocate revenue, especially if they operate in multiple states.

Texas follows a market-based sourcing approach for service revenue, meaning income is taxable if the benefit of the service is received in Texas. A California-based software company licensing its product to Texas customers, for example, must report that revenue. Similarly, businesses earning royalties from intellectual property used in Texas must disclose these earnings.

Online sellers and marketplace facilitators must report sales to Texas customers, even without a physical presence. The Texas Comptroller uses this data to determine whether a business meets the economic nexus threshold. Companies should ensure their accounting systems accurately track Texas-sourced revenue.

Corporate Structure

Businesses must provide details about their legal entity type, ownership, and affiliations with other companies. They must indicate whether they operate as a sole proprietorship, partnership, corporation, or LLC. If part of a larger corporate group, they must disclose parent companies, subsidiaries, and related entities.

Texas applies a combined reporting method for franchise tax purposes, meaning affiliated entities engaged in a unitary business may need to file a combined report. This is particularly relevant for businesses with multiple subsidiaries under common control. Companies should review Texas Tax Code 171.1014 to determine their filing requirements.

Ownership details, including the percentage of control held by individuals or other entities, must also be disclosed. Businesses with foreign ownership or out-of-state parent companies should ensure they understand how Texas tax laws apply to their structure.

Required Supporting Documentation

The Texas Nexus Questionnaire requires businesses to submit documentation verifying financial activity and operational footprint. Incomplete or inconsistent submissions may prompt additional requests from the Texas Comptroller.

Financial statements are key to supporting a business’s responses. Companies should provide profit and loss statements, balance sheets, and general ledgers reflecting Texas-related revenue. For multistate businesses, income apportionment schedules clarify how revenue is sourced.

Contracts and agreements further substantiate a business’s presence in Texas. Lease agreements for office space, warehouses, or distribution centers demonstrate physical presence, while service contracts with Texas-based clients highlight ongoing business relationships. Licensing agreements for intellectual property used in Texas should also be included, particularly if royalty income is reported. Businesses using third-party logistics providers should provide shipping and fulfillment agreements.

Payroll records help establish workforce-related nexus. Employee withholding tax filings, W-2s, and payroll summaries indicate whether workers perform duties in Texas. For remote employees, job descriptions and employment contracts specifying work locations may be necessary. Businesses using independent contractors should submit 1099 forms and service agreements.

Bank statements and transaction records offer additional evidence of business activity. Deposits, payments to Texas vendors, and credit card transactions tied to Texas customers can illustrate economic presence. Businesses accepting online payments should provide merchant processing statements that break down sales by geographic region. If a company operates through an affiliate or subsidiary, intercompany transaction records may be required.

Submission and Review Process

Once the Texas Nexus Questionnaire is completed, businesses must ensure all responses are accurate and supported by the necessary documentation before submission. The Texas Comptroller’s office accepts electronic and paper filings, though electronic submission is recommended for faster processing. Businesses should retain a copy of the completed form and all attached records for their internal compliance files.

Upon receipt, the Comptroller’s office reviews submissions for completeness. If sections are left blank or responses conflict with other filings, such as franchise tax reports or sales tax permits, the agency may request clarification. This can extend the review process, so businesses should ensure their reported information aligns with previously submitted tax returns and financial disclosures.

In some cases, the Comptroller may issue a nexus determination letter outlining whether the business must register for tax collection and reporting in Texas. If the determination results in an unexpected tax liability, businesses can seek administrative review or provide additional evidence to contest the findings.