Authority/Reference(s) Texas Government Code §2252.903; Texas Government Code §403.055; Texas Government Code §403.0551
Revision Date June 1, 2020

POLICY

Texas statutes prohibit state agencies from issuing a payment or entering into a contract with an entity that is indebted to the state unless arrangements are made to pay off the debt. State debt includes tax delinquency, child support delinquency, student loan default, or any other indebtedness.

The Texas franchise tax is a privilege tax imposed on each taxable entity formed or organized in Texas or doing business in Texas. It does not apply to Governmental Entities or sole proprietorships. The Texas Comptroller of Public Accounts (Comptroller) requires that franchise taxes be paid in May and settled by July 15th of each year.

An entity must have an active franchise tax status. DFPS does not conduct business with entities who have a forfeited franchise tax status.

To check for tax delinquency, contract staff must verify the status of the Franchise Tax Account:

  • No earlier than the seventh calendar day before the effective date of a contract with a provider; and,
  • Annually, during the month of August as long as a contract is in effect (contracts that end in August do not need a franchise tax search for the next fiscal year if they will not be in effect).

If a Taxable Entity Search does not yield results, then a Texas Nexus Questionnaire must be completed through the Comptroller.
The Comptroller requires the Texas Nexus Questionnaire for a business to explain the nature of its relationship (or “nexus”) with Texas. The taxpayer must disclose any activities that may cause the taxpayer to be liable for one or several types of taxes by allowing the Comptroller to set up a Franchise Tax account for the business entity.

If a foreign entity (outside of Texas) is unwilling to complete a Texas Nexus Questionnaire for a DFPS client services contract, which would result in a barrier to essential delivery, contract staff must immediately contact Contracts Legal for consultation.