The Texas Comptroller of Public Accounts has proposed significant amendments to its service receipts sourcing regulation in the wake of the Texas Supreme Court’s decision in Sirius XM Radio, Inc. v. Hegar, 643 S.W.3d 402 (Tex. 2022). The proposed amendments would dispense with the Comptroller’s long-standing “receipts-producing, end-product act” test and align the underlying regulation with the SiriusXM decision.
The Texas Supreme Court issued a decision holding that service receipts are sourced to the physical location of the taxpayer’s personnel or equipment that performed the service for which the customer paid. The decision resolves disagreement regarding the proper interpretation of a Texas franchise tax apportionment statute that addresses the sourcing of service receipts. The statute sources a service provider’s receipts to Texas to the extent the service is “performed” in Texas. The taxpayer argued that its receipts from sales of satellite radio programming subscriptions were properly sourced to the location where its personnel and equipment performed the radio production and transmission services necessary for its radio programming (“origination sourcing”). The Comptroller interpreted the apportionment statute to source service receipts to Texas if the “receipt-producing, end-product act” takes place in Texas, which the Comptroller argued occurred where each subscriber’s radio received and decrypted the taxpayer’s radio signal (“destination sourcing”).
Nicole Boutros presents “State Tax Updates and What’s in Store for 2019” during Tax Executives Institute’s Fort Worth Chapter Luncheon on February 27.