601 S.W.3d 769
Tex.2020Background
- Lockheed Martin manufactured custom F-16 fighter jets at its Fort Worth facility for foreign governments during tax years 2005–2007; sales were effected through the federal Foreign Military Sales (FMS) procurement process.
- Under FMS, foreign governments issue a Letter of Offer and Acceptance (LOA) and the U.S. government contracts with domestic contractors; the U.S. government takes title in the procurement process and arranges delivery to the foreign buyer.
- For these transactions, Lockheed transferred title and obtained DD250 acceptance at Fort Worth; a U.S. government pilot then ferried each aircraft to the foreign purchaser, which acknowledged final receipt abroad.
- Lockheed sought a refund of Texas franchise tax (~$2.67M) arguing the receipts were not Texas gross receipts because the foreign governments were the buyers and delivery was outside Texas; the Comptroller denied the refund.
- Trial court and the court of appeals ruled for the Comptroller; the Texas Supreme Court granted review and reversed, holding Lockheed entitled to the refund.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Identity of the buyer for sourcing receipts | Foreign governments are the buyers in FMS procurements; U.S. role is a mandatory intermediary | U.S. government was the buyer (contracting party to Lockheed); sales to U.S. occurred in Texas | Held for Lockheed: the foreign governments are the relevant buyers; the U.S. intermediary is a statutory "condition of the sale" to be disregarded for franchise-tax sourcing |
| Place-of-delivery test for Texas receipts | Sourcing depends on buyer's location (ultimate destination) | Sourcing depends on where property was delivered or shipped (place of transfer in Texas) | Held for Lockheed: even under Comptroller's framing, final delivery to buyers occurred outside Texas (foreign receipt countersigned abroad); receipts not Texas receipts |
Key Cases Cited
- Secretary of State for Def. v. Trimble Navigation Ltd., 484 F.3d 700 (4th Cir. 2007) (describes FMS back-to-back structure and limits on direct contractor–foreign purchaser claims)
- BAE Sys. Tech. Sols. & Servs., Inc. v. Republic of Korea’s Def. Acquisition Program Admin., 884 F.3d 463 (4th Cir. 2018) (explains U.S. government procurement contracting role in FMS)
- Bullock v. Enserch Exploration, Inc., 614 S.W.2d 215 (Tex. App.—Austin 1981) (sale-for-resale precedent relied on by Comptroller)
- TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432 (Tex. 2011) (franchise tax apportionment principles)
- Gen. Dynamics Corp. v. Sharp, 919 S.W.2d 861 (Tex. App.—Austin 1996) (discussion of single-factor sales apportionment)