Although forming your business structure in Delaware—specifically, a corporation—gives you a lot of flexibility, depending on which state you operate in, you may still need to observe local rules.
If you operate a business in Texas, you must register with the state. We will go through the process step by step and make it as easy as possible. But first, how can you tell if you're doing business lawfully in Texas?
When to register as doing business in Texas
The state refers to Delaware C corps and all other for-profit corporations incorporated outside of Texas as "foreign" corporations. All business entities transacting business in Texas must register as a foreign entity with the Texas Secretary of State, including businesses registered as a limited liability company, non-profit, limited liability partnership, or corporation. Entrepreneurs should make sure to file for the correct business licenses and pay the appropriate business taxes to avoid costly fines down the road.
Texas statutes are vague about what constitutes "doing business" or "conducting commercial activity" in the state. However, if a firm has an office or an employee in Texas, or is otherwise pursuing one of its purposes in Texas, the Texas Secretary of State deems it to be doing business.
The following activities are not considered doing business in Texas, according to the Texas Business Organizations Code (BOC):
- Opening or maintaining a bank account at a Texas-based bank
- Using independent contractors to conduct sales operations
- Keeping or defending a lawsuit or action
When to register to collect sales tax in Texas
Every state has different rules regarding when a company is required to pay sales tax. These are referred to as sales tax nexus rules.
Consider the nexus to be a special version of that state's border; if you perform certain business activities within that border, you fall under the state's sales tax nexus and must register for and collect state sales tax.
Typically, these actions involve the purchase and sale of goods and services.
Sales tax nexus rules in Texas only apply to sellers who sell physical goods or services to Texas residents. For example, selling software would not trigger sales tax nexus rules.
Until 2018, selling or purchasing non-physical goods, such as subscriptions to streaming services, SaaS memberships, and so on, did not generally qualify you for sales tax nexus. That changed after a significant court ruling in 2018. If you buy or sell non-physical goods or services in a state, you may be subject to its sales tax.
Texas Sales Tax Nexus (physical goods and property)
If you perform any of the following activities in Texas, you may need to apply for a Texas sales and use tax permit:
- A temporary or permanent Texas location that you operate directly or through an agent.
- A Texas employee or representative who sells, delivers, or takes orders for taxable items.
- In Texas, you can rent out equipment or other tangible personal property to others.
More information about physical presence for sales tax purposes can be found on the State's website.
Texas Sales Tax Nexus (non-physical goods and property)
The new state sales tax laws that apply to non-physical (i.e. internet) sales allow you to qualify for sales tax nexus even if you do not have a physical presence or goods. To qualify in Texas, you must meet certain criteria.
If a company's total Texas revenue is $500,000 or more in a calendar year, it must collect and remit applicable sales tax. The amount is calculated using gross revenue from sales of tangible personal property and services into the state.
If you want to learn more, visit the FAQ from the State Comptroller.
As usual, this isn’t legal advice—just a guide. If you are unsure whether you have Texas sales tax nexus, consult with your legal counsel and/or an accountant who is knowledgeable about Texas' legal code and tax regulations.
How To Register To Do Business In Texas
You must complete the following steps to become a "qualified foreign business" in Texas:
- Choose a company name under which to operate. This doesn't have to be the name you used to form your Delaware corporation, but it typically is. You must pick a unique business name that is not already in use by another company in Texas, otherwise you will have to register to do business in Texas using an assumed name, otherwise known as a DBA or doing-business-as name.
- Submit your company's application for a certificate of authority. The state's online portal allows you to complete the application online. You will include information such as your principal office address and jurisdiction of formation. Unlike other states, in Texas, you do not need to upload a certificate of formation or certificate of good standing from your corporation’s home state in order to complete the registration process.
- Make the payment. You must pay a $750 registration fee to the Texas Secretary of State's office when submitting your application to register to do business as a foreign entity.
- Wait. Processing takes two to four weeks on average.
You must meet certain standards once you've been approved to operate as a qualified foreign firm in Texas.
Compliance as a Qualified Foreign Business in Texas
To maintain your foreign qualification and continue legally doing business in Texas, you need to meet two requirements: maintaining a registered agent and filing your annual report/franchise tax.
Registered Agent in Texas
In Texas, your registered agent main job is to receive service of process. If your company does not have a physical location in Texas, finding a registered agent to receive state notices on your behalf may be beneficial.
A registered office in Texas is necessary for foreign corporations. The office must be an actual address of your registered agent or a recognized registered agent service, not a P.O. box.
Any vital information, such as business mail, will be forwarded to you by your registered agent. A number of companies hire registered agents on a contract basis. They usually cost between $50 and $100 each year.
Annual Reporting In Texas
Every year, you must inform the State of any changes to the company's address or the makeup of the Board of Directors and officials. You'll provide details such as:
- Your company's official name
- Your registered agent's name and address
- Board members, managers, and officers' names and addresses
There is no filing fee your annual report; instead, you must file and pay your yearly state franchise tax along with it. If you don't file your yearly report and franchise tax on time, you'll be fined $50.
How To Collect Sales Tax In Texas
You'll need to apply for a sales tax permit once you've determined that you need to collect and remit sales and use tax in Texas. Texas' online portal allows you to apply for a sales tax permit. Your sales tax permit will arrive in approximately 2-3 weeks.
Online filing is available through the Texas Comptroller's online portal.
Hiring And Paying Employees In Texas
When you hire a new employee in Texas, federal and state laws require that you report new hires and rehires within 20 calendar days from the date the employee starts earning wages by using the Texas employer website portal.
Employers reporting new hires in Texas should submit all employees employed within the prior 90 days, according to the Texas Attorney General.
Paycheck withholdings should be handled by your payroll provider, but you must register as an employer with the State and create an online employer account.
Texas provides a comprehensive guide to employer rules and responsibilities.
The Easiest Way To Register Your Business In Texas
You need to keep track of a lot of moving parts in order to register your business in Texas. Failure to file the correct documents, give the correct information, or stay current on compliance rules can result in major headaches.
It's simple using Capbase. When you use Capbase to incorporate your Delaware corporate entity, we'll automatically generate the information you need to register to do business in Texas and keep you up to speed on any required filings.
Your Capbase account's compliance calendar will alert you to forthcoming fees, reporting, and other requirements, so you can keep your startup in good standing with Texas state regulators. Try Capbase today.
Written by Beth Zhao
Beth is a second year law student at The George Washington Law School. She is a member of the Public Contract Law Journal.
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