550 S.W.3d 855
Tex. App.2018Background
- Lockheed Martin manufactured F-16 jets in Fort Worth and sold them under Foreign Military Sales (FMS) procurements: the U.S. government procured from Lockheed and resold to foreign governments (Chile, Greece, Israel, Oman, Poland). Title and final acceptance (DD250) occurred in Fort Worth; U.S. government then ferried jets to foreign destinations.
- Under the AECA/FMS scheme the U.S. government contracts with the contractor, takes title, charges the foreign purchaser the government’s payments plus admin fees, and retains control consistent with U.S. national-security policy.
- For Texas franchise-tax apportionment (Former Tex. Tax Code §171.1032), gross receipts are sourced to Texas if tangible property is "delivered or shipped to a buyer in this state regardless of FOB or other conditions."
- Lockheed originally treated the FMS receipts as Texas receipts, later sought a refund arguing receipts should be sourced to the foreign end users (ultimate-destination test); Comptroller denied refund.
- The district court, on stipulated facts, held for the Comptroller; on appeal the Texas court reviewed statutory construction de novo and affirmed, holding the U.S. government was the buyer and the receipts are Texas receipts.
Issues
| Issue | Lockheed's Argument | Comptroller's Argument | Held |
|---|---|---|---|
| Who is the relevant "buyer" for sourcing under Former §171.1032? | The foreign governments are the true buyers; the U.S. is merely an agent/middleman (ultimate-destination). | The U.S. government is the buyer under the FMS contract; sales to the U.S. should be sourced where delivery to the U.S. occurred. | The U.S. government is the buyer; Lockheed’s sales to the U.S. are Texas receipts. |
| Does delivery location or buyer location control sourcing? | Buyer-location/ultimate-destination should control; statute’s wording places "in this state" after "buyer." | Delivery location (place-of-delivery) controls; delivery to the U.S. in Texas makes receipts Texas receipts. | Even under either test, sales "begin and end in Texas" because U.S. government took delivery in Texas; affirmed without resolving the broader rule conflict. |
| Can the FMS back-to-back structure be disregarded based on economic substance/agency? | Yes; economic realities show Lockheed sold to foreign end users and the U.S. acted as purchasing/delivery agent. | No; FMS two-contract structure is real and created by federal law for U.S. policy reasons, so U.S. is the contracting buyer. | Court declines to pierce the statutory/contractual structure; federal authorities treat U.S. as independent actor and buyer. |
| Is Former Rule 3.557 invalid to the extent it applies a place-of-delivery test? | Rule contradicts the statute and misplaces the qualifying phrase; Lockheed challenged its validity. | Rule is consistent with statutory interpretation and prior precedent (Enserch). | Court did not decide validity of the rule generally because disposition is correct under either rule; it did not adopt Lockheed’s challenge. |
Key Cases Cited
- Bullock v. Enserch Exploration, Inc., 614 S.W.2d 215 (Tex. Civ. App.-Austin 1981) (sales sourced to Texas where delivery occurred in Texas despite ultimate out-of-state destination)
- United States ex rel. Campbell v. Lockheed Martin Corp., 282 F. Supp. 2d 1324 (M.D. Fla. 2003) (FMS structure: U.S. government acts as independent buyer, not mere agent of foreign purchaser)
- Trimble Navigation Ltd. v. Secretary of State for Defence, 484 F.3d 700 (4th Cir. 2007) (describing FMS procurement mechanics and that some items are FMS-only)
- BAE Sys. Tech. Sols. & Servs. v. Republic of Korea Def. Acquisition Program Admin., 884 F.3d 463 (4th Cir. 2018) (discussing FMS procurement and resales to foreign governments)
- General Elec. Corp. v. United States, 727 F.2d 1567 (Fed. Cir. 1984) (AECA contemplates FMS sales at no net cost to U.S. government and use of trust/undertaking for payment)