Case Information
*0 FILED IN 3rd COURT OF APPEALS AUSTIN, TEXAS 1/21/2015 1:37:38 PM JEFFREY D. KYLE Clerk No. 03-14-00397-CV THIRD COURT OF APPEALS 1/21/2015 1:37:38 PM JEFFREY D. KYLE 03-14-00397-CV AUSTIN, TEXAS *1 ACCEPTED [3845366] CLERK l|n tbe @ourt of Øppestø for tbe @lSirù VuùitislTßíøtrirt Øuøtin,6'exuÉ
American Multi-Cinema, Inc., App ellant/Cros s -App el lee, v
Glenn Hegar, Comptrbller Public Accounts of the State Texas, and
Ken Paxton, Attorney General of the State Texas, Appellees/Cross-Appellants.
On Appeal from the 200th Judicial District Court Travis County, Texas
Appellees' Surreply Regarding Inapplicability of Tax. Code $ 17f .1012(o) Appeal CHARLES K. ELDRED KEN PAXTON State Bar No.
Attorney General Texas Assistant Financial Litigation, Tax, and E. ROY Charitable Trusts Division First Attorney
P.O. Box DAVIS
JAME,S Austin, Texas ll-2548
Deputy General for Civil Litigation 5t2-47s-1143
512-477-2348 (fax) ROBERT O'KEEFE charles.eldred@texasattonreygeneral. gov
Division Chief Attorneys Cross-Appel lants
Financial Litigation, Tax, and
Charitable Trusts Division
Oral Argument Requested *2 To rHp HoNoRRer-p TnIRn Counr op AppsRl-s:
seeks a ruling that its movie exhibition costs are costs goods sold
under Tex. Tax Code .l0I2.In district court, had three theories. The
first two theories are discussed in previous briefing and will not be further dis-
cussed in this surreply.
1. AMC sells "personal property that can be seen, weighed, measured,
felt, or touched or is perceptible to the senses in any other manner." Tax
Code $ 171.1012(a)(3XAXi).
2. sells "films, sound recordings, videotapes, live and prerecorded
television radio programs, books, other similar property embodying words,
ideas, concepts, images, or sound, without regard to the means or methods dis-
tribution or the medium in which the property is embodied, for which, costs are
incurred in producing the property, it intended or is reasonably likely thaT any
medium in which property is embodied will be mass-distributed by the creator
or any one or more third parties in a form that is not substantially altered." Tex. $ 171.1012(a)(3XAXii).
3. AMC's production, distribution
or any those activities, so cost goods sold taxable enti-
ty shall be costs described section 171.l0l2in relation films in-
clude depreciation, amortization, other expenses directly related to the acquisi- Surreply Regarding the I I 012(o) Page I al.; 03-1 4-00397-CV
tion, production, or use of the file, including expenses for the right to use the film.
Tex. Tax. Code $ 171.1012(o). CR.7-8 at"lll4 (original petition for Report Year
2008, alleging that produces films for sale); 2.SCR.6-7 aI]¡ll8 (same for Re-
port Year 2009); CR.68-69,79-80,85 (AMC's trial brief); CR.46l (requesting a
finding of fact that "AMC's principal business a of film
production film distribution.")
The district court agreed only with first theory. The Comptroller ap- pealed that ruling. AMC's responded by arguing that the district court correctly
ruled AMC's favor first theory AMC's second theory was an al-
ternate basis for affirmance. did not argue that the third theory was an alter-
nate basis aff,rrmance. It specif,rcally did not argue that its ac-
tivity film production, f,rlm distribution, or any combination those activities,
which is prerequisite to using Tex. Code 171.1012(o) to calculate cost goods sold. Therefore, AMC's third theory is waived on appeal, Tax I 71 .1012(o) has no applicability appeal
In rejecting AMC's third theory, the district coutl considered evidence from the Comptroller's expert witness on the role of film produeers, distributors, exhibitors such within movie business. It considered decades court opinions recognizing the three parts the movie business, including the antitrust case that broke the movie business up into producers, distributors, Surreply Regarding S I 71 .1 012(o) Page 2
and exhibitors such AMC. United States v. Paramount Píctures,334 U.S.
( 1948). AMC is not a producer or distributor at all, its business activ-
ity is not film production or distribution. Because did not preserve third
theory appeal, Comptroller has not briefed extensive testimony and case
1aw.
Yet AMC's Reply Brief states, "AMC is permitted subtract costs listed in stipulation by Tax Code $ 171.1012(c), (d), (o)." Appellant's Re-
ply Brief at 16. But for AMC to take advantage subsection (o), its principal
business activity must be hlm production, film distribution, or a combination of
those activities. The district court rejected that theory, has not argued
that the district court erred.
The only issue Comptroller's cross-appeal is whether, under Tex. Tax .1012, acquires or produces "goods" sale when it exhibits movies under either AMC's first or second theory. The issue whether AMC's
principal production, distribution, or of
those activities not before the court, so neither is subsection (o)
Respectfully submitted, KEN PAXTON ROY
First Surreply Regarding the lnapplicability l7l.l0l2(o) Page *5 JAMES DAVIS Deputy General Civil Litigation ROBERT O'KEEFE Division Chief
Financial Litigation, Tax, and Charitable Trusts Division K. ELDRED Charge Financial Litigation, Tax, and Charitable Trusts Division State Bar No.
P.O. Box
Austin, Texas ll -2548 512-475-1743
sI2-477-2348 (fax) charl e s e I dr ed@texas attorney general. gov Attorneys for Appellants Surreply Regarding the Inapplicability of Tex. I 71 .1012(o) Page 4 *6 Certificate of Compliance In compliance with Texas Rule Appellate Procedure 9.4(i)(2), brief contains 667 words, excluding portions of brief exempted by Rule 9.4(iXl).
Charles K. Eldred Assistant CertifÏcate of Service I certif, copy this Appellees' Surreply Regarding Inapplicabílity S f (o) thís appeal was served by email and eservice to Doug Sigel, attorney Appellant and Cross-Appellee, January 2I, To
doug. s i ge l@ry anlawl lp. com.
Charles K. Eldred Attomey Appellees' Surreply Regarding 171.1012(o) Page al.; 03-14-00397-CV