How does an out-of-state entity end its Texas franchise tax account when nexus ends?

When nexus ends is a fact, not an election

The franchise tax rule on nexus says when an out-of-state entity begins doing business in Texas and is silent on when it stops. A foreign taxable entity has nexus when it has sufficient contact with the state to be taxed under the United States Constitution (34 Tex. Admin. Code section 3.586(c)), which the rule fills in two ways: a list of physical presence activities, including maintaining a place of business, having employees or representatives in the state, owning or using property there, and acting as a general partner of a partnership doing business in Texas (section 3.586(d), including (d)(12)), and the economic nexus test, under which gross receipts from business done in Texas of $500,000 or more in a federal income tax accounting period ending in 2019 or later create nexus for that period (section 3.586(f)). The beginning date is the earliest of the date physical presence began, the date a Texas use tax permit was obtained, or the first day of the accounting period in which Texas receipts reached $500,000 (section 3.586(g)). Nothing in the rule, the statute or the Comptroller's published guidance states a trailing nexus period or a formula for the end date.

The end date therefore comes from the facts that created nexus. Where nexus rested on physical presence, it ends on the last day the entity had an office, an employee, property or a representative in Texas. Where it rested on receipts, the measure is the accounting period, so an entity that crosses $500,000 in a period has nexus for that period even if it stops selling into Texas in the last month, and nexus ends with the first period in which Texas receipts stay below the threshold and no physical presence remains. A use tax permit is a separate anchor: a foreign entity that holds one is presumed to have franchise tax nexus (section 3.586(e)), so the permit closes with the account or the presumption survives the exit.

The date on a termination notice is therefore a factual representation, not a planning choice. An officer who signs a notice stating that the entity had no Texas activity after a given date is representing that the people, property and receipts the rule lists were gone by then. Where managers kept working from Texas or the entity kept a Texas lease, the representation is wrong whatever happened to the entity's ownership, because a change in who owns an entity does not end its nexus. What ends nexus is the end of the entity's own Texas activity.

The final report and the additional tax

Section 171.0011 imposes an additional tax on a taxable entity that "for any reason becomes no longer subject to" the franchise tax, measured at the ordinary rate on the entity's taxable margin for the period beginning the day after the last day for which tax was computed on its previous report and ending on the date it ceased to be subject (section 171.0011(a), (b)). The additional tax and the report the Comptroller requires are due on the 60th day after that date (section 171.0011(c)), and the rest of chapter 171 applies except as the section provides otherwise (section 171.0011(d)). The Comptroller's rule calls the filing a final report, ties it to the date the entity "no longer has sufficient nexus with Texas to be subject to the franchise tax," and allows a 45-day extension if the request is made on or before the filing date on the Comptroller's form with at least 90 percent of the tax reported as due (34 Tex. Admin. Code sections 3.584(c)(4), (c)(5)(B) and 3.592(a) to (c)). The passive entity exception applies to the additional tax as it does to the annual tax (section 171.001(c)).

The period follows from how annual reports work. An annual report is due in May and is based on the entity's federal accounting period that ended in the prior calendar year (Tex. Tax Code sections 171.202(b) and 171.1532(b); 34 Tex. Admin. Code section 3.584(c)(3)). The final report picks up the day after that period and runs to the nexus end date; the Comptroller's FAQ states it as a form instruction, with the begin date the day after the end date reported on the current year's annual report and the end date the day the entity ends its Texas nexus.

The no-tax-due threshold applies through annualization. For a period shorter or longer than 12 months, total revenue is divided by the number of days in the period and multiplied by 365, and the annualized figure decides whether the entity is at or below the threshold (34 Tex. Admin. Code section 3.584(d)(3)), which the Comptroller has set at $2,650,000 for report years 2026 and 2027; an entity at or below it owes no tax (Tex. Tax Code section 171.002(d)). An entity under the threshold owes no tax but still files any final report the Comptroller requires and the appropriate information report: the Public Information Report (Form 05-102) for a corporation, limited liability company, limited partnership, professional association or financial institution, or the Ownership Information Report (Form 05-167) for any other taxable entity (Tex. Tax Code section 171.203(a); 34 Tex. Admin. Code section 3.584(i)(1), (2)). Failing to file or sign the information report is itself a ground for forfeiture (section 3.584(i)(3)).

A worked example shows what the end date does to the filings. A Delaware limited liability company with a calendar year has had a leased office and two employees in Texas for several years and filed its 2026 annual report in May 2026 for calendar 2025. It closes the office, and the employees leave, on one of three dates; if it is registered with the Secretary of State, the example assumes it files its withdrawal within 60 days of that date, because the Comptroller requires a withdrawing entity's final report to run through a date within 60 days of its termination date.

If the office closes on December 31, 2026, the final report covers January 1 through December 31, 2026 and is due March 1, 2027. No 2027 annual report is due, because the final report has covered the period that report would have covered. One report, one information report, and the account closes.

If the office closes on March 31, 2027, the entity files two reports that year: the 2027 annual report for calendar 2026, due May 15, 2027, and a final report for January 1 through March 31, 2027, due May 30, 2027, with 90 days of total revenue annualized for the threshold test. Both dates fall on a weekend, so each moves to the next business day, May 17 and June 1, 2027, since May 31 is Memorial Day (Tax Code section 111.053(a)). Two reports and the appropriate information report, and the account closes after the second.

If the office closes on January 1, 2027, because the lease ran through the first of the month, the entity files the 2027 annual report in May and a final report for the single day of January 1, 2027, due March 2, 2027, ahead of the annual report. The one-day final report is a nuisance, and the temptation is to state December 31 instead. The preceding section answers it: the date is the day the Texas activity ended, and an officer signs for it. Where the facts support December 31, the first scenario follows; where they do not, the stub report is the cost of accuracy.

Two exits: the registered entity and the one that never registered

Which exit applies depends on a different statute. Registration with the Secretary of State is governed by the Business Organizations Code, which requires a foreign entity transacting business in Texas to register but lists activities that do not count, among them transacting business in interstate commerce, maintaining a bank account and owning property in Texas without more (Tex. Bus. Orgs. Code section 9.251(3), (9), (15)). Franchise tax nexus is governed by the Tax Code and the Comptroller's rule, and the $500,000 receipts test creates it with no Texas presence at all, so most out-of-state sellers are in the franchise tax system without ever having registered.

A registered entity ends its registration by filing a certificate of withdrawal with the Secretary of State, which states, among other items, that the entity no longer transacts business in Texas, that it revokes its registered agent's authority and consents to service through the Secretary of State for claims arising from its Texas business, and that money due to the state has been paid or provided for (Tex. Bus. Orgs. Code section 9.011(b)). Because the entity is a taxable entity under chapter 171, the certificate must be accompanied by a Comptroller certificate that all taxes administered under Title 2 of the Tax Code have been paid (section 9.011(c)). The Comptroller's sequence for that certificate has six steps: file all outstanding annual franchise tax and information reports; file the final report, ending within 60 days of the termination date; pay any tax, penalty and interest; file, pay and close every other Comptroller tax account; request the certificate of account status through Webfile or on Form 05-359; and submit the certificate (Form 05-305) with the Secretary of State's withdrawal filing and fee. The certificate is valid through December 31 of the year issued, so an entity that obtains it in one year and files with the Secretary of State in the next starts over. An entity whose existence has ended in its home state files a certificate from that jurisdiction instead, and the Texas registration ends when either document is filed (section 9.011(d), (e)); the Comptroller's Webfile instructions add that such an entity still satisfies its tax responsibilities and provides copies of the home-state documents to close the account. Withdrawal does not end the Secretary of State's authority to accept service for claims arising from the entity's Texas business (section 9.011(g)).

An entity that never registered has no Secretary of State filing to make, and the Comptroller's instructions give it a different route. Its franchise tax notices page says that an entity not registered with the Secretary of State that no longer does business in Texas notifies the Comptroller in writing, giving the reason and the date the entity stopped being subject to the tax, at the Austin post office box the page lists; the FAQ lists the four items the notice carries: the entity's 11-digit Texas taxpayer number, its legal name, the reason its reporting responsibility ended, and the date it was no longer subject to the tax. The FAQ on reports adds, for a business that closes in its first year without a registration, that the entity "must notify our office in writing of the last day business was conducted." The notice does not replace the final report; it tells the Comptroller why no further annual reports will arrive. The account is closed when the final report and information report are processed, the balance is zero and the notice is on file, and the Comptroller's public account status search shows the result.

What goes wrong

The first failure is the letter that reads as a sale. A franchise tax account belongs to the entity, not to its owners: when a business is sold as assets, the selling entity keeps its account and its reporting duty, and when the ownership interests are sold, the entity continues under new owners with the same account. A notice that leads with a change in ownership or a transfer of the business to a buyer describes one of those two events and gives the Comptroller no reason to close the account. The reason that ends an account is the end of Texas activity: the office closed on a date, the employees left on a date, Texas receipts fell below the threshold for a period. A change in ownership belongs in the notice only as context, if at all, because ownership changes do not end nexus.

The second failure is the open year inside a combined group. A member of a combined group that ceases doing business in Texas does not file its own final report; its data goes into the group's annual report for the corresponding period, and a member that receives a final report notice returns it identifying the reporting entity (34 Tex. Admin. Code section 3.590(k)(3)(B)(i)). The reporting entity files for the group, a notice mailed to it is deemed mailed to each member (section 3.590(e)(1), (e)(2)), and the members are jointly and severally liable for the combined tax, interest and penalties (section 3.590(g)). A departing member's own account therefore carries a report year the reporting entity was supposed to cover, and if the group's report or its affiliate schedule did not reach the Comptroller's system, the member's account shows a missing report for that year. The member's termination notice does nothing for it, and a notice of intent to forfeit follows, listing the missing annual report and information report. The Comptroller's instruction for a member of a combined group is that the member files nothing and contacts the entity that reports its information; the notice resolves when the reporting entity files the missing report with its affiliate forms. For a 2024 or later year in which the group was at or below the no-tax-due threshold, each member organized in Texas or with Texas nexus still files its own information report (Comptroller, No Tax Due Reporting for Report Year 2024 and Later). A member that left the group before ceasing Texas activity is different: it files a separate final report for the period from its departure through the date it ceased doing business in Texas (section 3.590(k)(3)(B)(iii)). An entity that was reported in a combined group therefore checks two accounts before it writes anything: its own, and the reporting entity's for every year it was reported in the group.

The third failure is the stub period left by a convenient date, which the worked example shows. A fourth, smaller one is the use tax permit left open, which keeps the franchise tax presumption alive under section 3.586(e) and produces a notice of intent to forfeit for an entity that believed it had left.

Forfeiture and personal liability

The Comptroller forfeits the corporate privileges of a corporation that does not file a required report, or does not pay a tax or penalty, within 45 days after notice of forfeiture is mailed or provided by electronic means (Tex. Tax Code section 171.251, as amended by S.B. 61, Acts 2023, 88th Leg., R.S., ch. 1040, effective September 1, 2023). For a taxable entity that is not a corporation, the Comptroller forfeits the entity's right to transact business in Texas for the same reasons and by the same procedures, and the provisions of the subchapter that apply to forfeiture of corporate privileges, "including Section 171.255," apply to that forfeiture (section 171.2515(a), (b)). The notice is mailed or sent electronically at least 45 days before the forfeiture to the entity's address of record or the electronic contact it gave the Comptroller, and the Comptroller's record of the mailing is legal and sufficient notice (section 171.256). The Comptroller's forms are the Notice of Intent to Forfeit Right to Transact Business (Form 05-211), the Notice of Forfeiture of Right to Transact Business (Form 05-212), and, once the Secretary of State acts, the Notice of Forfeiture of Registration (Form 05-213). An entity that has left Texas and no longer watches its mailing address of record can miss all three.

Forfeiture denies the entity the right to sue or defend in a Texas court and makes each director or officer liable for the entity's debts as section 171.255 provides (section 171.252). The liability reaches each debt "created or incurred in this state" after the date on which the report, tax or penalty was due and before the privileges are revived, including any tax or penalty imposed on the entity that becomes due after the forfeiture, "in the same manner and to the same extent as if" the director or officer were a partner and the entity a partnership (section 171.255(a), (b)). The only defenses are that the debt was created or incurred over that person's objection, or without that person's knowledge where reasonable diligence would not have revealed the intention to create it (section 171.255(c)), and revival does not affect a liability that has attached (section 171.255(d)). The statute's words are "director or officer"; section 171.2515(b) carries the section to limited liability companies and partnerships without naming their counterparts, and the statute does not say in terms which members, managers or partners stand in that place. The names on the entity's information report are the names the Comptroller holds, and a person listed who was not an officer, director or general partner on the filing date may file a sworn statement with the Comptroller disclaiming that status (section 171.203(e)).

For an entity that has left, the window matters more than the theory. The liability starts on the missed due date, not on the forfeiture, and for an exit that went wrong the missed due date is the final report's 60th day or the combined group year's May due date, so a debt the entity creates or incurs in Texas after that date falls inside it, as does any chapter 171 tax or penalty that becomes due after the forfeiture (section 171.255(a)). If the entity does not revive its privileges within 120 days after the forfeiture, the Secretary of State may forfeit its registration on the Comptroller's certification (sections 171.302 and 171.309), and revival then requires every delinquent report, payment of the tax, penalty and interest due, and a proceeding to set the forfeiture aside (sections 171.312 and 171.313). The library's article on franchise tax nexus for a business with no Texas footprint covers the general revival mechanics; the point specific to an exit is that an out-of-state entity that wants to leave rather than return can reinstate and withdraw in one sequence, and the Comptroller's Webfile instructions describe a certificate of account status issued for that combined purpose only.

Practice notes

The sound sequence for an out-of-state entity leaving Texas has five steps. First, the facts: the date the last office, employee, representative or property left, the accounting periods in which Texas receipts reached $500,000, and whether a Texas use tax permit is still open; the nexus end date is the last of those to cease, and the officer who signs for it sees the list. Second, the account history: whether the entity filed its own reports or was reported in a combined group, and for each group year whether the reporting entity's report and affiliate schedule were accepted, because a termination notice does not cure a group year. Third, the final report for the stub period through the end date, with the information report, the annualized threshold test and payment of any tax, on or before the 60th day. Fourth, the exit itself: a certificate of account status on Form 05-359 and a certificate of withdrawal under section 9.011 for a registered entity, or a written notice to the Comptroller stating the taxpayer number, the legal name, the reason and the date for an unregistered one, with the reason stated as the end of Texas activity rather than a change in ownership. Fifth, a check of the public account status after processing. An entity that receives a notice of intent to forfeit during the exit has 45 days from the notice, and the response depends on whose filing is missing: its own, or its former reporting entity's. G&G State Tax Group provides Texas franchise tax account closure, final report analysis, and forfeiture and reinstatement remediation alongside its state and local tax practice.