643 S.W.3d 402
Tex.2022Background
- Sirius XM is a satellite-radio company whose primary revenue is monthly subscription fees tied to individual satellite-enabled radios; most content is produced and uplinked from facilities outside Texas.
- Subscription activation/deactivation (an encrypted/decryption model) is controlled remotely; chip sets that decrypt signals are located in customers’ radios in Texas, but Sirius owns little or no personnel or transmission equipment in Texas.
- For 2009–2010, Sirius claimed COGS deductions and apportioned subscription receipts based on where content was produced; the Comptroller audited and re-apportioned receipts to Texas based on subscriber locations/decryption, assessing multi-million-dollar deficiencies.
- The district court found Sirius performed its receipt-producing service (production/broadcast) largely outside Texas, accepted Sirius’s cost-based fair-value evidence, and ordered a refund; the court of appeals reversed, holding the relevant act was decryption at the customer’s radio (in Texas).
- The Texas Supreme Court granted review to decide whether subscription receipts are "from . . . service performed in this state" and whether the Comptroller’s "receipt-producing, end-product act" test governs where a service is performed.
Issues
| Issue | Sirius's Argument | Comptroller's Argument | Held |
|---|---|---|---|
| Whether subscription receipts are "from a service performed in this state" for apportionment | Service = production and broadcast of content; performance occurs where Sirius’s personnel/equipment are located (mostly outside Texas) | Service = providing access (unscrambling/decryption) performed at each subscriber’s radio in Texas; locate the "receipt-producing, end-product act" | Court: "performed in this state" means where taxpayer’s personnel or equipment perform the useful labor; Sirius’s receipts are largely not from services performed in Texas — reverse court of appeals |
| Whether the Comptroller’s "receipt-producing, end-product act" test determines the location of performance | Test is atextual and improperly focuses on receipt/receipt location rather than performer location | Test should determine where the receipt-producing act occurs (point of receipt) | Court rejects that test for locating performance as inconsistent with statutory text; focus on where service is performed (origin-based) |
| If services are performed both in and out of Texas, whether Sirius’s cost-based fair-value evidence sufficed to apportion receipts to Texas | District court accepted Sirius’s cost study as credible evidence of fair value of services rendered in Texas | Comptroller contends evidence was legally insufficient to prove fair value | Court remands to court of appeals to consider fair-value sufficiency in light of its ruling; does not decide fair-value sufficiency here |
Key Cases Cited
- Van Zandt v. Fort Worth Press, 359 S.W.2d 893 (Tex. 1962) (defines "service" as performance of labor for another)
- Humble Oil & Refin. Co. v. Calvert, 414 S.W.2d 172 (Tex. 1967) (apportionment looks to where the "act done" is located)
- Westcott Commc’ns, Inc. v. Strayhorn, 104 S.W.3d 141 (Tex. App.—Austin 2003) (look to location of employees and transmission facilities for broadcast services)
- Southwestern Bell Tel. Co. v. Combs, 270 S.W.3d 249 (Tex. App.—Amarillo 2008) (services performed where network/facilities/personnel operate)
- Combs v. Roark Amusement & Vending, L.P., 422 S.W.3d 632 (Tex. 2013) (courts should account for economic realities in tax cases)
- Looney v. Crane Co., 245 U.S. 178 (U.S. 1917) (historical context for Texas franchise-tax revisions)