Texas: Does Software Licensing Create Taxing Nexus?Allcat

by Danielle Ahlrich & Jimmy Martens with Martens, Todd, Leonard & Taylor

© 2014 Martens, Todd, Todd & Taylor


           On February 17, 2015, an Oregon software retailer will proceed to trial in Texas state district court to challenge the Texas Comptroller’s position that licensing software to Texas residents creates taxing nexus with the state. The retailer has no physical contact with Texas, as all customer orders are transmitted electronically or delivered by common carrier.

           In Blum Investment Group, Inc. d/b/a Procare Software v. Combs, Cause No. D-1-GN-14-00173 (201st Dist. Ct., Travis County, Tex. filed June 6, 2014), the out-of-state software company argues that it does not have taxing nexus with Texas because software is properly classified under Texas property law as intangible personal property and the act of licensing software is not equivalent to a rental or lease of tangible personal property, as the Comptroller alleges.

           Procare Software’s lawsuit directly challenges Comptroller hearing decisions finding taxing nexus when out-of-state software retailers engage in internet and mail order transactions with Texas customers. Counsel for Procare Software notes that adoption of the Comptroller’s position could have wide-ranging implications outside of the software context.

           For more details, please contact Danielle Ahlrich or Jimmy Martens, the attorneys trying the case. You may reach them by phone at (512) 542-9898.