TEI Files Amicus Brief Seeking Review by the Texas Supreme Court in Sirius XM Radio v. Hegar.

Date01 September 2020

On July 16,2020,2020, TEI filed an amicus brief seeking review with the Texas Supreme Court in Sirius XM Radio v. Hegdr.

The case addresses the manner Texas apportions service providers gross receipts. TEIs brief argued the Texas Supreme Courts review was necessary to resolve the conflict created by the Texas Court of Appeals' decisions in Sirius XM Radio v. Hegar and Westcott Communications, Inc. v. Strayhorn. These cases use fundamentally different standards to determine how taxpayers providing similar services must apportion their Texas franchise tax bases and cannot be reconciled, creating uncertainty for Texas taxpayers and the potential for inconsistent taxation.

TEI's brief was prepared under the aegis of TEI's State and Local Tax Committee, whose chair is Michell Rodriguez. TEI Tax Counsel Pilar Mata coordinated the preparation of the brief and was its principal author.

Introduction

Amicus curiae Tax Executives Institute, Inc. ("TEI") respectfully submits this brief in support of petitioner, Sirius XM Radio Inc. ("Sirius XM"). This Court's review is necessary to resolve the conflict created by the Texas Court of Appeals' decisions in Hegar v. Sirius XM Radio, Inc., No. 03-18-00573-CV, 2020 WL 2089132 (Tex. App.--Austin May 01, 2020, pet. filed) ("Sirius XM") and Westcott Communications, Inc. v. Strayhorn, 104 S.W.3d 141 (Tex. App.--Austin 2003, pet. denied) ("Westcott").

Sirius XM and Westcott use fundamentally different standards to determine how taxpayers providing similar services must apportion their Texas franchise tax bases. The cases reach opposite results and cannot be reconciled, creating uncertainty for Texas taxpayers and the potential for inconsistent taxation.

State tax apportionment rules can profoundly impact the amount of tax multistate taxpayers must pay. Texas taxpayers need a single, clear standard to apportion service providers' franchise tax bases. TEI urges this Court to grant the petition for review pursuant to Texas Rules of Appellate Procedure 56.1 (a) (2) and provide this needed guidance.

Statement of Interest

TEI is the largest organization representing taxpayers' interests on issues associated with tax administration. It is a voluntary, nonprofit association of corporate and other business executives, managers, and administrators responsible for the tax affairs of their employers. TEI was organized in 1944 under the laws of the state of New York and is exempt from taxation under section 501(c)(6) of the Internal Revenue Code. TEI dedicates itself to developing sound tax policy, the uniform and equitable enforcement of tax laws, the minimization of administrative and compliance costs for governments and taxpayers, and the vindication of taxpayers' rights.

TEI's members are employed by a broad cross-section of the business community. The rules governing state taxes generally and, in particular, those governing the allocation and apportionment of income among multiple states, directly affect the multistate companies represented by TEI's membership.

TEI has more than 7,000 members representing more than 3,200 companies globally and throughout the United States. As in-house tax professionals, TEI's members must evaluate tax laws, advise their companies regarding the tax consequences of various transactions and business decisions, and make practical judgments regarding their tax obligations. TEI's members thus have a vital interest in ensuring rules governing the apportionment of income are fair and are applied consistently and without regard to whether a taxpayer conducts operations inside or outside of the state.

Pursuant to Tex. R. App. P. 11(c), TEI advises the Court that it prepared this brief at its own expense.

Argument

TEI urges this Court to grant discretionary review pursuant to Texas Rules of Appellate Procedure 56.1(a)(2) to resolve the conflict between the Texas Court of Appeals' decisions in Sirius XM and Westcott. It is imperative for this Court to clarify the standard used to apportion service providers' receipts.

Texas's Franchise Tax Must Be Apportioned to Fairly Reflect the Value Service Providers Perform Within the State

The United States Supreme Court has held a tax upon interstate commerce must be fairly apportioned to activities carried on by the taxpayer in the taxing state to satisfy Commerce Clause scrutiny. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977). States have latitude in how they apportion their taxes, Container Corp. of America v. Franchise Tax Board, 463 U.S. 159, 171 (1983). However, the apportionment method must reasonably...

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