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. | Jun 5, 2015Background
- AMC challenged the Comptroller's denial of franchise-tax "costs of goods sold" deductions for movie-exhibition costs; case reached the Third Court of Appeals (Austin).
- Texas Tax Code defines "tangible personal property" similarly in Chapters 151 (sales/use tax) and 171 (franchise tax): property "that can be seen, weighed, measured, felt, or touched, or that is perceptible to the senses in any other manner."
- The Court of Appeals held the evidence supported a finding that AMC produced "tangible personal property" (the film experience) and therefore could deduct exhibition costs as COGS.
- The Attorney General (Comptroller) moves for rehearing/en banc, arguing the opinion improperly expands "tangible personal property" to include sensory experiences and treats admission sales as sales of goods.
- Comptroller contends (1) long-standing statutory and regulatory law treats entertainment as a service/admission transaction, not a sale of goods; (2) a sale of goods requires transfer of title or possession; and (3) the opinion’s construction threatens major revenue loss and disrupts settled law.
Issues
| Issue | Plaintiff's Argument (AMC) | Defendant's Argument (Hegar/Paxton) | Held |
|---|---|---|---|
| Whether AMC’s exhibition produces "tangible personal property" | The film experience is a perceptible product sold to patrons (a good). | Sensory experiences are services; the statute and sales-tax scheme distinguish services from tangible property. | Court of Appeals found evidence legally sufficient that AMC produced tangible personal property (opinion). |
| Whether sale of admission is a "sale" of goods for COGS treatment | Admission tickets transfer the benefit of the film (resale of the film experience) so exhibition costs are COGS. | A sale of goods requires transfer of title or possession; ticket conveys only a license to view (a service), not ownership of film or images. | Court treated exhibition as sale of tangible personal property; Comptroller urges rehearing. |
| Proper construction of "tangible personal property" language shared by Chapters 151 & 171 | The statutory sensory language supports treating exhibited images/sounds as tangible property. | Identical statutory language historically coexists with explicit statutory classifications of many sensory experiences as taxable services—meaning sensory perception alone should not convert services into goods. | Opinion expanded the definition to include perceptible experiences; Comptroller argues this conflicts with legislative intent and precedent. |
| Broader statutory and precedent impact | Expansion affects only the parties here. | The opinion undermines decades of sales/use and franchise tax distinctions, could invalidate service exclusions, and conflicts with other states’ authority. | Third Court’s ruling stands unless rehearing/en banc or higher court reverses; Comptroller cites revenue and precedent concerns. |
Key Cases Cited
- Jordan v. Concho Theaters, 160 S.W.2d 275 (Tex. Civ. App. 1941) (ticket sale treated as license/admission, not sale of product)
- Kelly v. Dent Theater, 21 S.W.2d 592 (Tex. Civ. App. 1929) (same principle on admission as license)
- Bullock v. ABC Interstate Theaters, Inc., 577 S.W.2d 337 (Tex. Civ. App. 1977) (relevant Texas precedent on theater tax issues)
- In re Merrill Theatre Corp. Sales & Use Tax, 138 Vt. 397 (Vt. 1980) (Vermont Supreme Court: projection product is not tangible personal property to patrons)
- American Multi-Cinema, Inc. v. City of Westminster, 910 P.2d 64 (Colo. App. 1995) (Colorado appellate court rejecting theater’s claim that exhibition is resale of film)
- Cinemark USA, Inc. v. Seest, 190 P.3d 793 (Colo. App. 2008) (reaffirming that moviegoers are not consumers of film reels; projection is use by theater)