# Tex. Tax Code § 171.0004: DEFINITION OF CONDUCTING ACTIVE TRADE OR BUSINESS

> Texas · Statutes · In force

URL: https://www.frixlaw.com/law-library/statutes/STATE_TX_Ctx_C171_S171.0004

## Section

- **Citation:** Tex. Tax Code § 171.0004
- **Heading:** DEFINITION OF CONDUCTING ACTIVE TRADE OR BUSINESS
- **Jurisdiction:** Texas
- **Kind:** Statutes
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** TX Code / Code tx / Chapter 171 / Section 171.0004

## Text

(a) The definition in this section applies only to Section 171.0003.

(b) An entity conducts an active trade or business if:

(1) the activities being carried on by the entity include one or more active operations that form a part of the process of earning income or profit; and

(2) the entity performs active management and operational functions.

(c) Activities performed by the entity include activities performed by persons outside the entity, including independent contractors, to the extent the persons perform services on behalf of the entity and those services constitute all or part of the entity's trade or business.

(d) An entity conducts an active trade or business if assets, including royalties, patents, trademarks, and other intangible assets, held by the entity are used in the active trade or business of one or more related entities.

(e) For purposes of this section:

(1) the ownership of a royalty interest or a nonoperating working interest in mineral rights does not constitute conduct of an active trade or business;

(2) payment of compensation to employees or independent contractors for financial or legal services reasonably necessary for the operation of the entity does not constitute conduct of an active trade or business; and

(3) holding a seat on the board of directors of an entity does not by itself constitute conduct of an active trade or business.

## Nearby sections

- [Tex. Tax Code § 171.0001 § 171.0001. GENERAL DEFINITIONS.](https://www.frixlaw.com/law-library/statutes/STATE_TX_Ctx_C171_S171.0001.md)
- [Tex. Tax Code § 171.001 § 171.001. TAX IMPOSED.](https://www.frixlaw.com/law-library/statutes/STATE_TX_Ctx_C171_S171.001.md)
- [Tex. Tax Code § 171.0002 § 171.0002. DEFINITION OF TAXABLE ENTITY.](https://www.frixlaw.com/law-library/statutes/STATE_TX_Ctx_C171_S171.0002.md)
- [Tex. Tax Code § 171.002 § 171.002. RATES; COMPUTATION OF TAX.](https://www.frixlaw.com/law-library/statutes/STATE_TX_Ctx_C171_S171.002.md)
- [Tex. Tax Code § 171.003 § 171.003. INCREASE IN RATE REQUIRES VOTER APPROVAL.](https://www.frixlaw.com/law-library/statutes/STATE_TX_Ctx_C171_S171.003.md)
- [Tex. Tax Code § 171.0003 § 171.0003. DEFINITION OF PASSIVE ENTITY.](https://www.frixlaw.com/law-library/statutes/STATE_TX_Ctx_C171_S171.0003.md)
- [Tex. Tax Code § 171.0004 § 171.0004. DEFINITION OF CONDUCTING ACTIVE TRADE OR BUSINESS.](https://www.frixlaw.com/law-library/statutes/STATE_TX_Ctx_C171_S171.0004.md)
- [Tex. Tax Code § 171.0005 § 171.0005. DEFINITION OF NEW VETERAN-OWNED BUSINESS.](https://www.frixlaw.com/law-library/statutes/STATE_TX_Ctx_C171_S171.0005.md)
- [Tex. Tax Code § 171.006 § 171.006. ADJUSTMENT OF ELIGIBILITY FOR NO TAX DUE, DISCOUNTS, AND COMPENSATION DEDUCTION.](https://www.frixlaw.com/law-library/statutes/STATE_TX_Ctx_C171_S171.006.md)
- [Tex. Tax Code § 171.0011 § 171.0011. ADDITIONAL TAX.](https://www.frixlaw.com/law-library/statutes/STATE_TX_Ctx_C171_S171.0011.md)
- [Tex. Tax Code § 171.051 § 171.051. APPLICATION FOR EXEMPTION; EFFECTIVE DATE.](https://www.frixlaw.com/law-library/statutes/STATE_TX_Ctx_C171_S171.051.md)
- [Tex. Tax Code § 171.052 § 171.052. CERTAIN CORPORATIONS.](https://www.frixlaw.com/law-library/statutes/STATE_TX_Ctx_C171_S171.052.md)
- [Tex. Tax Code § 171.053 § 171.053. EXEMPTION--RAILWAY TERMINAL CORPORATION.](https://www.frixlaw.com/law-library/statutes/STATE_TX_Ctx_C171_S171.053.md)
- [Tex. Tax Code § 171.055 § 171.055. EXEMPTION--OPEN-END INVESTMENT COMPANY.](https://www.frixlaw.com/law-library/statutes/STATE_TX_Ctx_C171_S171.055.md)

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/STATE_TX_Ctx_C171_S171.0004. Check the current official text before relying on it. Not legal advice.