Reed Smith Client Alerts

The Texas Third Court of Appeals has issued a decision allowing Sirius XM to use a cost of performance methodology to apportion its service receipts to Texas, while also leaving open the potential that other methods may be suitable for determining the fair value of services performed in Texas. The flexibility shown by the court may present refund opportunities for service providers doing business in Texas.

Authors: Rich Moore

On November 10, 2022, the Texas Third Court of Appeals issued its opinion in Sirius XM Phase II,1 the remand proceedings discussed in our June 2022 Client Alert. It is presently unknown whether the Comptroller will appeal this portion of the parties’ dispute to the Texas Supreme Court.

To refresh, in March 2022, the Texas Supreme Court held that, for purposes of the Texas franchise tax, receipts from the provision of a service are sourced to the location of performance, i.e., the location of the taxpayer’s personnel or equipment that performs the service for which the customer pays. The Texas Supreme Court did not provide an answer, however, on how to make a fair value allocation of service receipts if the taxpayer performs the service both within and outside of Texas. Instead, the high court remanded that issue to the lower intermediate appellate court for consideration.