Today I want to talk about an Ohio electrical contracting company that expands its business to Texas. This Ohio company has been successful for years providing electrical repair and maintenance services throughout the state of Ohio.
One of its customers was a national chain of retail stores. The retail chain was so impressed with this Ohio company that it wanted the Ohio company to manage all electrical lighting repair and maintenance services for its Texas stores. The Ohio company would arrange for all electrical lighting repair and maintenance services for the Texas stores through Texas electrical contractors and manage their performance.
The Ohio company did not hire any Texas employees, nor did it open a Texas office, or keep any parts or supplies or other property in Texas. All the Ohio company’s services were performed in Ohio.
Texas claimed that the Ohio company’s fees for providing these services to the Texas retail chain stores was subject to sales tax even though the Ohio company had no physical presence in Texas. Specifically, a Texas Administrative Law Judge found that the Ohio company had nexus with Texas through its use of Texas electrical contractors. The use of the Texas independent electrical contractors created sales tax nexus between the Ohio company and Texas; enabling the Ohio company to establish, operate and maintain a consistent presence in Texas.
The Texas ruling is Comptroller’s Decision No. 111,156 (August 18, 2017), and can be found at: https://star.cpa.texas.gov/view/201709018h
Comment. The United States Supreme Court is presently considering a challenge to the longstanding physical presence requirement. It is quite possible that tax nexus for out of state businesses may change because of the outcome of this case.
By John McCauley: I help people buy and sell businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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