The Texas Court of Appeals for the Third District upheld the Comptroller of Public Accounts’ Franchise Tax apportionment rule as facially valid, including the provisions apportioning receipts to Texas where the seller ships or delivers property in Texas—regardless of whether the buyer is ultimately located in the state.
The taxpayer, a company that transports and stores crude oil, argued that the apportionment regulation was facially invalid because it was contrary to the underlying statute. For purposes of the Franchise Tax, Texas statute provides that sales of tangible personal property are attributable to Texas “if the property is delivered or shipped to a buyer in [Texas,] regardless of the FOB point or another condition of the sale.” The taxpayer contended that the statute sourced sales to the buyer’s location. The taxpayer asserted that the apportionment regulation, 34 Texas Administrative Code Section 3.591, instead applied the tax on “transactions where the seller ships or delivers the property to the buyer in Texas, regardless of whether the buyer is located in state or out of state” (i.e., a “place of transfer” approach).
On review, the court concluded that the statute was unambiguous. The statute’s only “reasonable construction” was that “sales of tangible personal property are apportioned based on where that property is delivered or shipped” and, thus, “not where the buyer is ultimately located when they plan to use, sell, or otherwise dispose of the property.” While the apportionment statute was derived from model UDITPA language and the Multistate Tax Compact, the court opted not to follow other states’ interpretations because, as states took differing approaches, there was no “‘uniform’ implementation of the Multistate Tax Compact apportionment provision.”
NuStar Energy, L.P. v. Hegar, No. 03-21-00669-CV (Tex. Ct. App. Dec. 21, 2023).