605 S.W.3d 35
Tex.2020Background
- AMC (movie-theater chain) subtracted $1.657B (2008) and $1.670B (2009) as cost of goods sold (COGS), including film acquisition and auditorium-related exhibition costs, when calculating Texas franchise tax under Tex. Tax Code § 171.1012.
- Texas Comptroller audited, disallowed the exhibition-cost subtraction, assessed additional tax; AMC paid under protest and sued for refund.
- At bench trial the court found AMC’s film exhibitions were tangible personal property sold in the ordinary course of business and allowed the COGS subtraction; the trial court partially limited the refund on the measure of auditorium costs.
- The court of appeals affirmed (later relying on the statute’s “film” prong and referencing a 2013 statutory amendment), and awarded AMC the full disputed refund on measure issues; Comptroller appealed the entitlement ruling to the Texas Supreme Court.
- The Texas Supreme Court held that (1) "sold" in § 171.1012(a)(1) requires a transfer of property; (2) AMC’s film exhibitions do not transfer tangible personal property (the patrons receive a revocable license and sights/sounds, not a transferred medium); (3) subsection (o) (production/distribution) did not cover AMC; and (4) subsection (t) (2013 amendment allowing movie theaters to subtract exhibition costs) is not retroactive and cannot be used to change law for 2008–2009 — judgment reversed for AMC and rendered for the Comptroller.
Issues
| Issue | Plaintiff's Argument (AMC) | Defendant's Argument (Comptroller) | Held |
|---|---|---|---|
| Whether exhibition costs qualify as COGS under § 171.1012 because films are "sold" | "Sold" is satisfied by AMC distributing a film's creative content to customers; the film prong treats content itself as tangible personal property | "Sold" has its ordinary meaning and requires a transfer of property/title; mere exhibition is not a sale | "Sold" means transferred; AMC did not transfer property, so exhibition costs are not COGS |
| Whether AMC’s exhibitions transfer tangible personal property (film or perceptible property) | The film prong makes a film’s creative content tangible even absent transfer of a medium; perceptible sights/sounds are goods | Patrons receive an intangible revocable license and perceptible sights/sounds are not property subject to ownership; no medium is transferred | Exhibitions do not transfer tangible personal property; neither the film prong nor perceptibility prong is met |
| Whether subsection (o) (entities whose principal business is film production/distribution) covers AMC | AMC’s activities (assembling, cueing, presenting) amount to production/distribution of creative content, so (o) applies | Industry meanings of production/distribution exclude exhibitors; AMC’s principal business is exhibition, not production/distribution | Subsection (o) does not apply: production/distribution in (o) is industry-specific and does not cover AMC |
| Whether the 2013 amendment, subsection (t), clarifies prior law to allow AMC’s deductions for 2008–09 | Subsection (t) merely clarifies existing law and thus courts may consult it to interpret earlier statute in favor of AMC | A later Legislature’s amendment cannot be used to change or construe the prior Legislature’s intent retroactively | Subsection (t) is not retroactive; it alters which entities may claim the subtraction and thus cannot be used to authorize deductions for 2008–09 |
Key Cases Cited
- In re Nestle USA, Inc., 387 S.W.3d 610 (Tex. 2012) (franchise tax taxes the privilege of doing business; used for statutory-purpose context)
- Graphic Packaging Corp. v. Hegar, 538 S.W.3d 89 (Tex. 2017) (explains computation of total revenue for franchise tax)
- Molinet v. Kimbrell, 356 S.W.3d 407 (Tex. 2011) (statutory-interpretation principles; give words ordinary meaning unless context indicates otherwise)
- Colorado County v. Staff, 510 S.W.3d 435 (Tex. 2017) (courts must determine legislative intent from statutory text; used for interpretive framework)
- R.R. Comm’n of Tex. v. Tex. Citizens for a Safe Future & Clean Water, 336 S.W.3d 619 (Tex. 2011) (apply clear statutory meaning according to common usage)
- Sw. Royalties, Inc. v. Hegar, 500 S.W.3d 400 (Tex. 2016) (ordinary meaning of undefined statutory terms governs when statute is clear)
- First Nat’l Bank of Fort Worth v. Bullock, 584 S.W.2d 548 (Tex. App.—Austin 1979) (sale of a license is intangible property; relevant to license-versus-goods analysis)