All My Nexus Live in Texas

This post is in: Business



We just learned from the Texas Comptroller that they have been innundated with inquiries and are in the process of rewriting the above referenced cite, reversing their position.

Bottomline…. a server in TX will NOT create nexus.

I think we need to all say a thank you to who first broke the story. Without this nationwide publicity, TX could have snuck a bad tax in on a lot of unsuspecting people.

Have you seen what Texas just did? If you have a website, you need to pay attention to this blog post. A recent revision to the sales tax rules in Texas states that if you use a server located in the state of Texas, you now have nexus in the state of Texas.

Before you dash away and figure this means nothing to you, think a minute. Where is your website really hosted? Some of the biggest server farms are located in Texas including Rackspace and Host Gator. You might be surprised to find out where your server really is. And that surprise might mean Texas nexus. And nexus generally means more tax.

Step One: Call up hosting company and find out where they are located.

If you have nexus with a state that means you have some kind of connection with the state. There are two types of nexus: sales tax and income. Texas is talking about sales tax nexus here. If you host your website in Texas, that means you now are responsible for collecting and paying sales tax for any sales (that are subject to sales tax) you make to residents in the state of Texas.

Step Two: Get registered to collect Texas Sales Tax.

You’ll need to get registered to collect Texas tax for state, counties, cities and transit districts. Here’s the Texas Sales Tax site to sign up.

Step Three: Learn what is subject to sales tax in Texas.

There’s one more step and it’s a little tricky. You now have to learn what is taxable in the state of Texas. There are some things that you might find a little unusual. For example, delivery and shipping charges are most likely subject to sales tax if you sell to someone in Texas. Plus, digital downloads are subject to sales tax.

It’ll be interesting to see whether Texas keeps with this hardline definition for websites. My guess is that it’ll push ecommerce sites out of the state and that’s not good for anybody, especially in economic times like this.

Want more info? Here’s a great article that deals with the history of physical presence nexus and goes into the laws in a few other states. New Texas Nexus Rules

If you’d like some help determining your own state nexus exposure, give us a call! We have CPAs trained in the latest laws. You can find out more about our programs by calling Richard at 866.829.2368 extension 1.


  1. Megan Hughes says:

    Hi Ross,

    If anything, I feel the waters have become muddier. I just read a Controller’s Opinion from TX that seemed to come back to the original point – a TX-based server COULD create nexus. HOWEVER, the problem with the published opinion letters is that they remove critical data for privacy – states and companies become things like Company A and State X. Without the key missing data, it’s impossible to rely on the letter.

    We’ll keep pushing for clarity, but right now it appears to be anyone’s guess – including the TX tax authorities!

  2. Ross says:

    Greetings. I’m still hunkering down wondering what to do about the TX issue. Have there been any updates since the beginning of the year? Thanks!

  3. Ben says:

    Yep that is the same thing we are hearing too Diane, we work with two very large DCs in Texas, the new SoftLayer/The Planet group and Peer1, and I know both are really pushing the Texas Comp office to get an update out. As this has really bad overtones for any DC in Texas and their future and it is spooking investors I’m sure.

    Thanks, Ben

  4. Diane Kennedy says:

    Ross, I wish I had an answer. So far everything I’ve heard is conflicting. TX Comptroller’s office did tell a colleague in an email (and I have a copy) that they were changing the law. But then a few weeks later said ‘no.’

    I’m glad to hear from Ben above at – Sounds like he is in the same quandry that we are.

  5. Ross says:

    It’s been a couple of weeks since the last post. Has there been any update on whether or not TX will reverse their position on the “server tax”?

  6. Ben says:

    We had quite a few customers ask about this because they were concerned, the rules are still pretty fuzzy and they seem to be getting conflicting advice from the State Controller.

    In the mean time we have opened additional web hosting locations so they can easily move if they need too, now we offer servers in Chicago, Washington DC, Seattle, Los Angelos, Toronto, London, and Texas.

    Thanks, Ben

  7. Brian Morton says:

    Good afternoon,
    Yesterday I mentioned when I called to the Texas controller’s office that I was told that although I have no presence (no building, no agents etc. only a small Internet Store) that if I have more than two Internet sales to Texas I need to collect Sales Tax on them. I was under the impression that you only paid Sales Tax to the States you have a presence in. Can you please tell me if what he said or what I’m thinking is correct?

  8. Brian Morton says:

    Good afternoon Dianne,
    Please find below the message left by Yahoo (I’m getting a little mixed up with all the different facts so I was glad I found your site and someone who seems to know what they are talking about.
    On signing into our Yahoo store this is the message left by Yahoo.

    Recent changes to sales tax rules in Texas may require ecommerce merchants using a server located in Texas to collect tax on sales made to customers in Texas. Merchants are advised that Yahoo! Small Business uses servers located in Texas. Merchants who accept orders from customers in Texas should consult with their own tax professional to determine if the new tax rules apply to their business, and for questions regarding tax obligations.

  9. Diane Kennedy says:

    Thanks for the comment Brian. You are hearing something different than we’ve heard!

    The last word I heard was that Texas was going to change the rule. Can you send me the notice that Yahoo sent you? I’m Diane at USTaxAid Dot Com.

  10. Brian Morton says:

    Good afternoon,
    My name is Brian and I am sorry if I am going over old ground but I have only just found your site. I run a small internet business hosted by Yahoo. Recently they added a notice about “Texas may require ecommerce merchants using a server located in Texas to collect tax on sales made to customers in Texas” Yahoo says that they do have servers in Texas.
    So I called the Texas number to inquire what this is about (for Yahoo as usual was of little help).
    The gentleman I spoke to in the controller’s office in Texas says Yahoo got it wrong but if I do sell to Texas (I have no physical presence in Texas etc only sell online) more than two sales per year I need to collect sales tax. I was under the presumption that you only paid sales tax if you had a presence in that particular state. Am I wrong in thinking this?
    Thanks in anticipation for any help.

  11. Brian says:

    A lot of people got no when they called.

    It would, although mostly ecommerce only,
    thanks, Ben

  12. Diane Kennedy says:

    Brian, as near as I can tell the TX Comptroller said “yes, it’s nexus” and then when the office got slammed with protests and clarification requests (plus maybe even some political pressure), backed off and is rewording the rule.

    Can you imagine if all the server farms in TX moved? It would mean a lot of jobs leaving the state.

  13. Anne says:

    This is very good news. I’d have expected a law/rule like this to come from states like California that seem to be looking for ways to drive business out of their state … but I didn’t expect it from Texas which has been quite business friendly in the past.

    I’m very happy to see that they’ve reversed their position. And a big ‘thank you’ to for breaking the story!

    Thanks for posting the update.

  14. Diane Kennedy says:


    We just learned from the Texas Comptroller that they have been innundated with inquiries and are in the process of rewriting the above referenced cite, reversing their position.

    Bottomline…. a server in TX will NOT create nexus.

    I think we need to all say a thank you to who first broke the story. Without this nationwide publicity, TX could have snuck a bad tax in on a lot of unsuspecting people.

  15. Brian says:

    Interesting, so Diane if the Texas Comptroller is saying both yes and No what the heck is the right answer?

  16. Diane Kennedy says:

    An interesting sidenote: One of my colleagues called the Texas Comptroller office to inquire about the sales tax nexus issue. He was told that hosting your site in Texas did constitute sales tax nexus.

    Another colleague had a friend who sent an inquiry via email to the Texas Comptroller’s office and was told (by email response) that it did NOT constitute sales tax nexus.

  17. Diane Kennedy says:

    The information showing on the Texas website dates from 1999.

    Here’s the sales tax change that has caused all the controversy:

    Here’s a link to the new rule:$ext.TacPage?sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_tac=&ti=34&pt=1&ch=3&rl=286

    The kicker is (a)(2)(E)

    And here’s the original story: They had the link reference in there.

  18. Anne says:


    The Texas Sales and Use Tax website is at

    There’s a lot of info there, so surely they have something that describes what items/services to apply sales tax to…

  19. Where can I find out what is taxable? I have a dedicated server through HostGator so does that mean I should charge my TX customers tax when they order design, hosting, keyword research, content management, etc. ?

  20. Darryl says:

    I’m not to sure that Texas could actually enforce such a law. The logistics of trying to collect taxes from all over the world would be a nightmare.

    It’ll be interesting to see whether Texas keeps with this hardline definition for websites. My guess is that it’ll push ecommerce sites out of the state and that’s not good for anybody, especially in economic times like this.

    I agree with your statement here. I know that if they even attempt to enforce such a ridiculous law I would be moving every site I have to another state. Texas is not the only state that has fast servers.

    I currently have about 40 sites hosted out of Texas via Hostgator’s servers, it wouldn’t be difficult at all to move them to a dedicated server in a Chicago datacenter.

  21. Thanks for the responses. We did contact the Texas Comptroller office and were told that renting a server would mean Texas nexus.

    The site that HostGator referenced above was written in 1999. The tax change just ocurred a few weeks ago (2010).

  22. Anne says:


    The reply you received from Hostgator was interesting, indeed. It appears to be a 180 degree different position than was reported in this blog.

    I had previously been recommending Hostgator to my clients, so I contacted them regarding this, and to be honest, I was not thrilled with their response. They seemed to know little about the new law and kept telling me that if my clients didn’t live in Texas, that they would not have sales tax applied to their monthly web hosting fees. Clearly, they weren’t understanding my question or concern.

    Considering how recently Texas passed this law, I wonder if the page that Hostgator referenced is now out of date. I scanned the page and did not see any evidence of a date on the page to give the reader any sense of how current the information is.

    I’m going to take the conservative assumption that the what Diane and Meghan have posted is the most current info available and that the posting on the Texas govt site is now out-of-date.

    At this point, until the law is reversed or there is definitive proof that having your website located on a server inside Texas DOES NOT create Texas sales tax nexus, I can no longer recommend Hostgator to my clients. This situation is unfortunate for all hosting companies in Texas as I anticipate many businesses will simply move their sites to a different web host whose servers are not in Texas.

  23. Kent Golding says:

    In reply to the E-Commerce Times “Texas Nexas” article you cited above: from HostGator, whose servers are in Texas replied when I inquired:

    Please take a look at This document provides additional insight into the current tax situation within Texas. As previously stated we currently are not not assessing sales tax on clients located outside of Texas.

    Activity 1: A remote (outside of Texas) seller stores its web page on a third party’s Internet server located in Texas.

    Until late 1997, the Texas Comptroller of Public Accounts had issued various rulings indicating that storage of a web page on a Texas server created Texas nexus for the remote seller. Subsequently, the Comptroller has reversed this position.

    The issue of whether this activity is sufficient to create nexus is complicated by the fact that computer software is treated as tangible personal property for sales tax purposes. Therefore, the argument could be made that the storage of a web page, designed in a myriad of Internet-oriented computer programming languages such as hypertext markup language (HTML), could be considered “tangible” personal property stored within the state.

    The Subcommittee unanimously agreed that storage of a web page should not establish nexus for a remote seller. Few if any states find nexus in this circumstance, and if Texas were to enforce such a policy, companies would likely abandon Texas Internet Presence Providers (companies whose primary function is to host web sites) in favor of IPP’s in states with no such requirement. This would mean Texas would not develop the infrastructure needed for efficient Internet access.

    All members, including those from the State, therefore agree that the Comptroller’s current policy should be continued.

    Activity 2: A remote seller stores its web page on a third party’s Internet server located in Texas, in addition to soliciting Texas customers via telephone, print advertising, and direct mail.

    This scenario raises the issue of whether a web page located on a server in Texas would provide sufficient physical presence in the State so as to overcome the United States Supreme Court decision in Quill. Once again, the Subcommittee agreed that these activities do not provide sufficient basis for establishing nexus. The Subcommittee recommends that this current Comptroller policy should be continued based upon the analysis in Activity 1.

    Interesting reply…

  24. John H. Smith says:

    From the people at Hostgator: Any new customers with a billing address in Texas will be required to pay a state sales tax on top of the initial invoice (currently 8.25%). This will also affect current customers and will be applied to recurring charges.
    Its only for the customers that have billing addresses inside the state of Texas.

    The taxes only apply for the service you provide if you as a merchant are suppose to be charging tax for the service or the product your providing that is not effected by us.

    Potential Hostgator client: So let’s say I am in Florida and I charge someone $100 for a coaching session but charge no tax…do I have to pay the Texas tax? Or, if I sell the same person a book, and again charge no tax, do I have to pay Texas tax?
    Answer: The tax is only for the hosting. You would want to speak to a CPA for that advice.

  25. Kasey says:

    This is quite profound. In the end, I personally believe it will do far more harm than good. Considering how quickly and relatively easy it is to switch web hosts, e-commerce businesses will change hosting companies, if necessary, in order to move their sites off of Texas servers. Income for the Texas-based web hosts will decline which means lowered business tax revenue for Texas. Lost business taxes will dwarf any sales tax that will be collected as a result of this new law.

    Why are states always being so penny-wise but pound foolish?

  26. Ryan Healy says:

    I thought Texas was a fairly conservative state… but I guess not.

    This has got to be one of the dumbest tax decisions ever. Right up there with Colorado’s decision to start collecting sales tax on all Amazon sales made by Amazon affiliates based in Colorado.

    Isn’t Ron Paul from Texas? Maybe we could get him to pick a fight. :-)

    In the mean time, it’ll be interesting to watch how fast Texas-based hosting companies flee the state… or just go out of business altogether.

    Another case of greedy politicians doing their level best to kill private business.


  27. Diane Kennedy says:

    I’ve gotten a few emails and tweets regarding my confusing conversation with Rackspace, a Texas hosting company, yesterday. I used to be with Rackspace and knew they were a big player. I also contacted Gator Host. Both with the same questions, “Do you know about the TX sales tax rule change? And, what are you doing about it?”

    In both cases, I identified myself by name and said I was a CPA with ecommerce clients. I was doing due diligence. All true.

    The very nice lady at Rackspace seemed to know exactly what I was talking about and practically before I could finish the question she volunteered that they were moving clients to Chicago, IL. I told her I thought that was smart and that was it.

    But when I reported it, I got a half dozen almost immediate responses from Rackspace saying that was not true. I didn’t reply right away, because face it, I have a busy tax practice and clients. I don’t spend my life on Twitter, Facebook, email, etc..

    Rackspace personnel apparently felt ignored and then sent messages to some people who were following me on Twitter, stating that they hoped I would correct my statement.

    I did. But apparently not good enough. I still got comments back. So I finally just stated that I didn’t know what Rackspace was doing and they should just contact Rackspace.

    Apparently that made them happy.

    I don’t think it’s worth a whole blog, as some have indicated. I think it’s a case of a business that wasn’t quite sure how to handle a problem.

    To be honest, though, they went from a good, proactive answer to a head in the sand answer.

    I wonder how long before the TX Comptroller gets subpoenas for the list of all their clients…who now have Texas nexus.

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