Reed Smith News Flashes

On September 3, 2021, the Texas Supreme Court granted review of Sirius XM Radio, Inc. v. Hegar, a case concerning Texas franchise tax apportionment of service receipts. The court set oral argument for November 30, 2021, and will likely issue its opinion in early 2022.

The court’s decision to exercise its powers of discretionary review will likely be met with cheers from taxpayers struggling to apply the Comptroller’s new test for sourcing services, as well as the industry groups who filed amicus briefs encouraging the court the take the case and provide a more workable standard. 

Although Sirius XM predates the Comptroller’s recent rule amendments adopting a receipts-producing, end-product act test for sourcing service receipts, a taxpayer win could invalidate the rule because the Comptroller’s Sirius XM litigating position advances the same statutory interpretation as the rule. If the court disagrees with the Comptroller’s interpretation of the governing apportionment statute in Sirius XM, that portion of the new rule should also be invalid.

Newsflash 2021-232