American Multi-Cinema, Inc.// Glenn Hegar, Comptroller of Public Accounts of the State of Texas And Ken Paxton, Attorney General of the State of Texas v. Glenn Hegar, Comptroller of Public Accounts of the State of Texas And Ken Paxton, Attorney General of the State of Texas// Cross-Appellee, American Multi-Cinema, Inc.
03-14-00397-CV
| Tex. App. | Jan 15, 2015Background
- AMC exhibits films and sells tickets; dispute concerns whether those ticket sales constitute sales of “goods” for Texas franchise tax cost-of-goods-sold (COGS) deduction purposes (report years 2008–2009).
- Texas Tax Code § 171.1012 defines “goods” as real or tangible personal property and lists tangible personal property to include certain films/recordings (§ 171.1012(a)(3)(A)(i)–(iii)), but excludes services and intangible property.
- Comptroller (cross-appellants) argues AMC sells a revocable license to view a film, or a non‑proprietary experience/service, not tangible personal property; therefore exhibition costs (film rental, auditorium operations) are not COGS.
- AMC contends ticket purchasers also buy the movie experience (which it treats as property) and relies on statutory amendments (2007 and 2013) to support treating exhibition-related costs as COGS.
- Key statutory developments: 2007 amendment broadened the § 171.1012(a)(3)(A)(ii) description of mass-distributed media; 2013 H.B. 500 added § 171.1012(t) specifically addressing movie‑theater COGS but was enacted effective Sept. 1, 2013 and expressly characterized as a clarification (disputed as a substantive, non‑retroactive change).
- Comptroller argues (and asks the appellate court to hold) that the trial court’s factual finding that AMC produces tangible personal property when exhibiting films is not supported by the evidence and that the 2013 amendment does not apply retroactively to 2008–2009.
Issues
| Issue | Plaintiff's Argument (AMC) | Defendant's Argument (Comptroller) | Held (cross-appellants' position) |
|---|---|---|---|
| Whether AMC sells "goods" (tangible personal property) when it exhibits movies | AMC: ticket buyers purchase the movie's sight/sound (an experience or property) alongside the license, so exhibition produces goods for sale | Comptroller: ticket is a revocable license (intangible) and/or sale of an experience or service (non‑property); neither qualifies as COGS under §171.1012 | Trial court erred; AMC does not sell goods when exhibiting movies — licensing/service/experience excluded from COGS |
| Whether a movie experience (images, sounds, memories) is "property" under §171.1012(a)(3)(A)(i) | AMC: customers obtain proprietary movie content or at least temporally "own" the experience | Comptroller: experiences and memories are part of the person, not separable property; cannot be tangible personal property | Movie experience is not personal property; thus not "goods" for franchise tax purposes |
| Whether AMC produces items covered by §171.1012(a)(3)(A)(ii) (films and similar media intended for mass distribution) | AMC: §(A)(ii) can be read to support treating exhibited film content as tangible property for COGS | Comptroller: subsection targets producers/creators who incur production costs for mass distribution; AMC merely rents finished films and does not produce them | §(A)(ii) does not apply to AMC—the theater is an exhibitor/end‑user, not a producer of mass‑distributed media |
| Effect of 2013 amendment (§171.1012(t)) and retroactivity | AMC: 2013 addition allowing movie theaters to include exhibition costs supports treating 2008–09 costs as COGS (or at least clarifies prior law) | Comptroller: the 2013 provision is prospective; one legislature cannot bind earlier sessions; the amendment changed rather than merely clarified the law and thus is not retroactive to 2008–09 | 2013 amendment does not apply retroactively; it substantively changed law and cannot be used to validate pre‑2013 COGS deductions |
Key Cases Cited
- Calvert v. General Asphalt Co., 409 S.W.2d 935 (Tex. Civ. App.-Austin 1966) (statutes presumed prospective; effective date governs operation)
- State v. Fidelity & Deposit Co. of Md., 223 S.W.3d 309 (Tex. 2007) (statutory provisions are prospective absent clear retroactive language)
- Public Util. Comm'n of Tex. v. City of Harlingen, 311 S.W.3d 610 (Tex. App.-Austin 2010) (later-enacted legislation can moot policy arguments but does not control interpretation of earlier statutes)
- Waste Mgmt. of Tex., Inc. v. Tex. Disposal Sys. Landfill, Inc., 434 S.W.3d 142 (Tex. 2014) (later legislation that differs significantly from existing law effects change rather than mere clarification)
- Rowan Oil Co. v. Texas Emp't Comm'n, 263 S.W.2d 140 (Tex. 1953) (one legislature cannot declare intent of a prior legislature)
- Williamson Pointe Venture v. City of Austin, 912 S.W.2d 340 (Tex. App.-Austin 1995) (later statute characterized as a substantive change rather than a clarification)