Reed Smith Client Alerts

Earlier this year, in Sirius XM, the Texas Supreme Court rejected the Comptroller’s attempt to source receipts from services to the location of the receipts-producing, end-product act (a sourcing method that produced results similar to market sourcing) in favor of a sourcing method based on the location where the services were rendered. However, the battle is far from over. Now the courts must decide how a service provider, like Sirius, that performs its service in multiple states, including Texas, must allocate service receipts to Texas.


Earlier this year, the Texas Supreme Court decided that, when it comes to sourcing receipts from services, Texas is a performance state. That means a Texas taxpayer should source service receipts based on the location(s) from which the taxpayer’s people or equipment render the service. The Court rejected the Comptroller’s argument that receipts should be sourced to the location of the taxpayer’s receipts-producing, end-product act, which many (including Sirius) argued was akin to market sourcing.

However, the Texas Supreme Court did not decide how to make an allocation of Texas receipts if a taxpayer performs its service from both inside and outside of Texas. In that situation, the Comptroller’s rule provides that: “If services are performed both inside and outside Texas for a single charge, then receipts from the services are Texas gross receipts on the basis of the fair value of the services that are performed in Texas.”1 The Texas Supreme Court remanded the Sirius dispute over fair value allocation to the intermediate appellate court.