*92A taxpayer that conducts business in multiple states must apportion its business revenue among the states in which it does business. For the Texas franchise tax, section 171.106 of the Tax Code provides for such apportionment under a single-factor formula, which compares the taxpayer's gross receipts derived from its Texas business to its gross receipts everywhere. Another provision of the Tax Code, section 141.001, adopts the Multistate Tax Compact. This Compact sets out a three-factor formula for apportioning "business income" for an "income tax" and provides that a taxpayer subject to a state income tax may elect to apportion its income "in the manner provided by the laws of such state" or may elect to apportion using the Compact's three-factor formula. TEX. TAX CODE § 141.001, arts. III.1, IV.9.
At issue here is whether the franchise tax is an "income tax" to which the Compact applies, thus invoking the Compact's election and apportionment provisions. If it is an income tax, additional issues include (1) whether Tax Code section 171.106 nevertheless precludes a taxpayer from using the Compact's three-factor formula, or (2) whether Texas' membership in the Compact prevents the Texas Legislature from requiring a taxpayer to use only the single-factor formula when apportioning its tax base to Texas.
*93The court of appeals did not consider the latter two issues.
I. Background
Graphic Packaging Corporation sells consumer product packaging throughout the United States, including Texas. Because Graphic does business in Texas, it must pay a franchise tax. This tax applies to every for-profit entity doing business or chartered in Texas that is distinct from its owners. In re Nestle USA, Inc. ,
For tax years 2008-2009, Graphic initially used section 171.106's gross-receipts fraction to apportion its margin.
The Texas Comptroller disagreed. He denied the refunds and assessed a deficiency for 2010, concluding that section 171.106's gross-receipts fraction was the exclusive method to determine the franchise tax. Graphic subsequently paid the assessed 2010 taxes under protest after unsuccessfully pursuing administrative relief.
After exhausting its administrative remedy, Graphic filed suit in district court, seeking $821,961 for tax years 2008-2010 on the ground that it was entitled to apportion its margin using chapter 141's three-factor apportionment formula.
II. Is the Texas franchise tax an income tax?
Graphic argues that the franchise tax is an "income tax" because it satisfies chapter 141's definition of the term. Chapter 141 defines "income tax" as
a tax imposed on or measured by net income including any tax imposed on or measured by an amount arrived at by deducting expenses from gross income, one or more forms of which expenses are not specifically and directly related to particular transactions.
TEX. TAX CODE § 141.001, art. II.4. Graphic contends that its taxable "margin" for franchise tax purposes under chapter 171 is essentially the same thing as its "net income" under chapter 141. According to Graphic, both are determined by "deducting expenses from gross income," one or more of which "are not specifically and directly related to particular transactions."
Chapter 171 specifically pertains to the franchise tax and provides several alternatives for calculating a taxpayer's margin. TEX. TAX CODE §§ 171.001(a), .101. The calculation begins with "total revenue," a figure derived by adding together select amounts reportable as gross income on a federal tax return, subtracting bad debts and other items included on the federal return, and excluding receipts associated with various transactions.
But this calculation is not the tax base for all taxpayers. A taxpayer whose total revenue does not exceed $20 million may calculate its franchise tax using simply its total revenue.
For the tax years at issue, Graphic calculated its margin by subtracting the cost of goods sold from total revenue. Because those expenses included indirect costs "not specifically or directly related to a particular transaction," Graphic concludes the franchise tax also constituted an "income tax" under chapter 141, entitling it to elect apportionment under that chapter's three-factor formula. See TEX. TAX CODE § 141, arts. II.4, III.1 (providing taxpayers subject to an income tax an apportionment election);
The court of appeals disagreed, concluding that the correlation between a taxpayer's margin and net income was insufficient to make the franchise tax an income tax.
The Comptroller, of course, agrees that the franchise tax is not an income tax but adds that the most direct resolution of the issue lies in an uncodified provision included in the 2006 act that restructured the franchise tax. There, the Legislature stated: "The franchise tax imposed by Chapter 171, Tax Code, as amended by this Act, is not an income tax and Pub. L. No. 86-272 does not apply to the tax." Act of May 2, 2006, 79th Leg., 3d C.S., ch.1, § 21,
But of course the Legislature's stated intent not to create an income tax cannot alter the facts. If the franchise tax is indeed a tax on net income as chapter 141 defines income tax, the Legislature's disclaimer is for naught. But some ambiguity exists here. While deductions for the cost of goods or wages are perhaps sufficiently close to chapter 141's income tax definition, other deductions that permit a fixed amount or percentage to be subtracted from total revenue are, as the court of appeals observed, "not the same as 'deducting expenses from gross income.' "
In the court of appeals, Graphic argued that the choice was a binary one, contending "that 'a tax on business activity' must be either an 'income tax' or a 'gross receipts tax' as those terms are defined in chapter 141."
Even were we to agree with Graphic that its franchise tax for the years in question amounted to the same thing as chapter 141's income tax (an issue we do not decide), Graphic must still establish that the Legislature did not, or could not, make chapter 171's single-factor apportionment formula the exclusive means for apportioning the Texas franchise tax. We turn then to the issues the court of appeals did not consider: (1) whether Tax Code section 171.106 precludes a taxpayer from using the Compact's three-factor formula, and (2) whether Texas' membership in the Compact prevents the Legislature from requiring the taxpayer to use only the single-factor formula to apportion the franchise tax.
III. Does Tax Code § 171.106 preclude a taxpayer from using the Compact's three-factor formula to apportion the franchise tax?
The Comptroller argues that section 171.106 requires that a taxpayer use the single-factor, gross-receipts formula when apportioning its margin for franchise tax purposes. Section 171.106 provides:
Except as provided by this section, a taxable entity's margin is apportioned to this state to determine the amount of tax imposed under Section 171.002 by multiplying the margin by a fraction, the numerator of which is the taxable entity's gross receipts from business done in this state, as determined under Section 171.103, and the denominator of which is the taxable entity's gross receipts from its entire business, as determined under Section 171.105.
TEX. TAX CODE § 171.106(a) (emphasis added). Although the section provides for limited exceptions, the Comptroller notes that the Compact's three-factor formula is not one of them. The only exceptions "provided by this section" are: (1) different apportionment fractions related to investment companies and retirement plans,
*97Graphic responds that sections 141.001 and 171.106 can be harmonized so that neither is rendered meaningless. The Compact's election feature, which anticipates that a state may adopt a formula that differs from the Compact's formula, harmonizes the two, according to Graphic, making the Compact formula and the Texas formula equally enforceable alternatives. Graphic submits that a plurality of the Michigan Supreme Court similarly harmonized and preserved the Compact's apportionment election notwithstanding a subsequently enacted statute providing for a mandatory state apportionment formula. See Int'lBus. Mach. Corp. v. Dep't of Treasury ,
The Comptroller agrees that section 171.106(a) does not make the gross-receipts formula the sole apportionment method but only because the section internally provides its own exceptions. TEX. TAX CODE § 171.106. For example, the tax base derived from the sales of services to or for a regulated investment company is apportioned with a fraction based on company shares, whereas a tax base derived from the sales of services to an employee retirement plan is apportioned with a fraction based on plan beneficiaries.
We agree that reading the Compact to provide an alternative method of apportioning margin creates an irreconcilable conflict with section 171.106. Permitting a taxpayer to elect under Article III.1 to apportion margin using Article IV's three-factor, income-apportionment formula cannot be reconciled with *98section 171.106(a)'s directive to apportion margin using the single, gross-receipts fraction "[e]xcept as provided by this section."
The Code Construction Act codifies these traditional rules, which resolve the conflict here in favor of section 171.106(a). First, the act provides that "if statutes enacted at the same or different sessions of the legislature are irreconcilable, the statute latest in date of enactment prevails." TEX. GOV'T CODE § 311.025(a). The Legislature adopted the Compact in 1967, but added the "except as provided" clause to section 171.106 in 1991. See Act of May 17, 1967, 60th Leg., R.S., Ch. 566, § 1,
But Graphic asserts that the only way for section 171.106 to prevail over the Compact's apportionment-election provision is to hold that section 171.106 impliedly repealed section 141.001, at least as applied to the franchise tax. And Graphic submits that the presumption against implied repeals should guide us here. See Standard v. Sadler ,
The Comptroller responds that in 1991 the Legislature in fact expressly barred all applications of the Compact to the franchise tax, including those relating to income apportionment, when it "shifted the primary basis for the franchise tax [ ] from capital to 'net taxable earned surplus'-i.e., income." Nestle ,
As the court of appeals noted, former section 171.112 was captioned and primarily addressed "gross receipts for taxable capital."
The franchise-tax calculation has changed over time, but from 1897 to 1991 it was based on some measure of the taxpayer's capital or net worth. Act approved Apr. 20, 1897, 25th Leg., R.S., Ch. 104, § 1,
IV. Does Texas' membership in the Multistate Tax Compact prevent the Legislature from requiring the taxpayer to use only the Texas formula to apportion the taxpayer's margin for purposes of the franchise tax?
Finally, Graphic submits that, if the Compact and chapter 171 cannot be harmonized, it is section 171.106 that must yield, not the Compact. In Graphic's view, the Compact is an agreement in which Texas and the other "party states have voluntarily and contractually agreed to cede their sovereignty as to its subject matter." Having ceded sovereignty pursuant to the Compact's terms, Graphic infers that no member state may legislate inconsistently with those terms until and unless that state formally repeals the entire Compact as per Article X.2.
The Comptroller responds that not all interstate compacts create binding contracts and that this Compact does not contractually bar the state from restricting the operation of its apportionment provisions in Texas. In fact, the Comptroller suggests that Graphic's interpretation of the Compact as a binding limitation on the state's taxing power would render it unconstitutional in many current and former Compact states, including Texas. See TEX. CONST. art. VIII, § 4 (providing that "[t]he power to tax corporations and corporate property shall not be surrendered or suspended by act of the Legislature, by any contract or grant to which the State shall be a party").
We agree that the Multistate Tax Compact is not a binding regulatory compact. The United States Supreme Court has indicated that binding regulatory compacts typically share similar features, such as: (1) the establishment of a joint regulatory body; (2) state enactments that require reciprocal action to be effective; and (3) the prohibition of unilateral repeal or modification of their terms. See Ne. Bancorp, Inc. v. Bd. of Governors of Fed. Reserve Sys. ,
For example, the Compact does not create a regulatory body. It creates the Multistate Tax Commission, TEX. TAX CODE § 141.001, art. VI, but that body does not possess regulatory authority. The Commission itself acknowledges as much in its amicus curiae brief in this Court.
This pact does not purport to authorize the member States to exercise any powers they could not exercise in its absence. Nor is there any delegation of sovereign power to the Commission; each State retains complete freedom to adopt or reject the rules and regulations of the Commission. Moreover, ... each State is free to withdraw at any time.
U.S. Steel Corp. v. Multistate Tax Comm'n ,
The Commission submits it is not the kind of regulatory body that operates by imposing requirements or that polices member compliance with Commission policy. The Commission's uniformity efforts are, by design, voluntary. The Commission thus "promot[es] uniformity or compatibility in significant components of tax systems" and "avoid[s] duplicate taxation," two of the Compact's stated purposes, by engaging the states in a voluntary process, not by compelling them to conform. See TEX. TAX CODE § 141.001, art. I. One example is the Commission's Uniformity Committee. Established to promote uniformity and compatibility in state tax laws, the committee is open to any state regardless of membership status or involvement in *102other Commission programs.
A second feature of a binding regulatory compact is the inclusion of "state enactments which require reciprocal action for their effectiveness." Seattle Master Builders ,
The Multistate Tax Compact does not require similar reciprocal action to affect its substantive terms. Gillette ,
A third characteristic of a binding regulatory compact is "conditional consent" that prohibits members from unilaterally repealing or modifying their participation. Seattle Master Builders,
But Graphic submits that an express withdrawal provision is an element of a binding contract among the member states, citing several examples. See, e.g. , TEX. FAM. CODE § 162.102, art. IX (Interstate Compact on Placement of Children); TEX. GOV'T CODE § 510.017, art. XI (Interstate Compact for Adult Offender Supervision); TEX. INS. CODE § 5001.002, art. XIV (Interstate Insurance Product Regulation Compact). The Comptroller responds that these compacts are distinguishable because they do not permit unconditional withdrawal. TEX. FAM. CODE § 162.102, art. IX (conditioning withdrawal on notifying *103party states' governors, delaying withdrawal's effective date for two years, and requiring continuing performance of obligations for placements made before withdrawal); TEX. GOV'T CODE § 510.017, art. XI.3-4 (requiring notice to compact agency of introduction of repealing legislation and performance of obligations that extend beyond withdrawal); TEX. INS. CODE § 5001.002, art. XIV.1 (requiring notice to compact agency and states of introduction of repealing legislation and performance of obligations that extend beyond withdrawal unless released by mutual agreement of the compact agency and states).
Graphic nevertheless contends that the withdrawal provision here does not permit piecemeal alterations, implicit revocation, or tacit elimination of Compact provisions. Graphic concedes that a state is free to withdraw from the Compact completely, but argues that a member state remains bound by the Compact's terms until it formally and completely withdraws.
Although the Compact does not explicitly allow a member state to unilaterally modify its participation, neither does it prohibit a member from doing so. The Comptroller suggests that such silence is tantamount to approval. See Nat'l R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co. ,
The Compact states have consistently construed that silence to mean that members may unilaterally change or restrict the Compact's terms in their respective laws. Over 45 years ago, the Compact's membership unanimously ratified Florida's decision to repeal the Compact's income-tax articles in its own law and mandate a different apportionment method. Since then several former and current Compact members have also modified their laws to restrict the Compact's apportionment provisions in their jurisdictions.
The power to enact our state laws together with the power to amend or repeal existing state law is vested in the Texas Legislature. TEX. CONST. art III, § 1. The Legislature's power to amend or repeal an earlier statute is generally limited only by federal or state constitutional provisions or federal law. Walker v. Baker ,
Although some interstate compacts require congressional consent, this Compact did not. See U.S. Steel,
Because the Compact is not federal law, Graphic is left to contend that Tax Code section 171.106 violates the Contract Clause as an unconstitutional impairment of the Compact's apportionment provisions. See, e.g., 1A NORMAN J. SINGER , SUTHERLAND STATUTES AND STATUTORY CONSTRUCTION § 32:8 (7th ed. 2009) (describing state's authority to abrogate non-congressionally-approved compact as limited by "the constitutional prohibition against impairing the obligation of contract"). But, because of the severe consequence that may ensue when an earlier legislature contractually binds future legislatures, contractual intent must be unmistakable. Here it is not.
When states enter into contracts, the state's sovereign power may not "be held ... to have been surrendered, unless such surrender has been expressed in terms too plain to be mistaken." U.S. v. Winstar Corp.,
*105The Compact contains no unmistakable language waiving the state's exercise of the sovereign tax power. See TEX. TAX CODE § 141.001. Nothing in the Compact expressly prohibits the states from adopting an exclusive apportionment method that overrides the Compact's formula.
Graphic also refers to "taxpayers" as "[t]he parties that ... have an interest in enforcing party states' Compact obligations," but taxpayers are not parties to the Compact. Moreover, nothing in the Compact expressly or unmistakably makes taxpayers contractual, third-party beneficiaries of article III.1. See Tawes v. Barnes,
Finally, there is the matter of our own constitution that prohibits the surrender of the sovereign tax power. TEX. CONST. art. VIII, § 4. A state's sovereign power to tax encompasses not merely whether to tax, but also what to tax-including the use of an apportionment method to determine the tax base subject to state tax. And as noted, thirteen other current or former Compact members have similar constitutional provisions.
Consistent with our constitutional prohibition on contractually suspending the sovereign tax power, the Compact's historical background likewise permits no inference that the states unmistakably considered Articles III.1 and IV as contractually binding terms. Graphic submits that the Multistate Tax Compact was in response to proposed federal legislation half a century ago that threatened to preempt the field of interstate taxation. The California Supreme Court agreed that there was "little doubt that, decades ago, the possibility of congressional action helped spur adoption of the Compact." Gillette ,
Graphic nonetheless contends that the Compact's Article X.2 "allows only for complete withdrawal." Article X.2 provides:
*106"Any party state may withdraw from this compact by enacting a statute repealing the same." TEX. TAX CODE § 141.001, art. X.2. But as the Minnesota Supreme Court observed, "nothing in the statute dictate[s] the 'all or nothing' position advanced by [the taxpayer]. At best, the statute is silent," and silence may not be construed as a waiver of the State's sovereign tax authority. Kimberly-Clark , 880 N.W.2d at 851 ; accord Gillette ,
Finally, Graphic contends it should be allowed to use the Compact's formula because "[p]ermitting taxpayers to use the same apportionment formula in every state ... secures base line uniformity and compatibility." Whatever merit that argument might have had before the decisions in California, Minnesota, and Michigan, a uniform interpretation of the Compact in favor of a binding election is no longer possible. In California, Minnesota, and Michigan, Graphic will be required to use whatever mandatory apportionment formula that state requires. No compelling justification exists for why this restriction should apply to Texas and not to other Compact members.
* * * * *
We conclude from the above that the member states did not intend for the Compact to be a binding reciprocal agreement. The unmistakability doctrine, the lack of express restrictions in the Compact on the member states' power to delete or amend Articles III.1 and IV, the preexisting provisions in many member states' constitutions prohibiting contractual suspension of the tax power, the members' historical intent to preserve their sovereign tax powers, and the Compact's other provisions, such as the severability clause, persuade us that the member states did not intend for Articles III.1 and IV to be immutable, binding contractual terms. We therefore conclude that the Legislature acted within its plenary power in enacting Tax Code section 171.106 as the exclusive method for apportioning the Texas franchise tax and that the provision does not violate the *107Contract Clause or otherwise undermine the Compact's purpose or efficacy.
The court of appeals' judgment is accordingly affirmed.
Section 171.106's gross-receipts fraction compares the taxpayers gross receipts in Texas (the numerator) with its gross receipts from its entire business (the denominator) and uses that single-factor formula to apportion the taxpayer's margin to this state. Tex. Tax Code § 171.106(a).
The Compact applies a three-factor formula that gives equal weight to the taxpayer's sales, property, and payroll.
Chapter 112 of the Tax Code authorizes taxpayers suits for taxes paid under protest and for refunds. See
The IBM court, however, split evenly on whether the state's mandatory apportionment provision could be reconciled with the Compact's election feature.
Article X.2 provides: "Any party state may withdraw from this compact by enacting a statute repealing the same. No withdrawal shall affect any liability already incurred by or chargeable to a party state prior to the time of such withdrawal." Tex. Tax Code § 141.001, art. X.2.
Under the Contract Clause, "No State shall ... pass any ... Law impairing the Obligation of Contracts." U.S. Const. , art. I, § 10, cl. 1 ; see also Tex. Const. art. I, § 16 ("No ... law impairing the obligation of contracts, shall be made.").
Thirteen other current or former Compact members have similar constitutional prohibitions. See Alaska Const. art IX, § 1 ; Ark. Const. art. 16, § 7 ; Cal. Const. art. XIII, § 31 ; Haw. Const. art. VII, § 1 ; Ill. Const. art. IX, § 1 ; Mich. Const. art. IX, § 2 ; Minn. Const. art. X, § 1 ; Mo. Const. art. X, § 2 ; Mont. Const. art. VIII, § 2 ; N.D. Const. art. X, § 2 ; S.D. Const. art. XI, § 3 ; Wash. Const. art. 7, § 1 ; Wyo. Const. art. 15, § 14.
Six separate certiorari petitions targeted this case and two latter decisions by different panels of the Michigan Court of Appeals to the same effect. The United States Supreme Court recently denied all six petitions. Sunoco Prods. Co. v. Mich. Dep't of Treasury, --- U.S. ----,
The Commission's brief supports "the Comptroller's arguments that, despite its name, the Compact lacks the necessary elements of a binding regulatory agreement essential for Graphic Packaging to prevail on this issue." In addition to the Commission, the states of Alaska, California, Colorado, Hawaii, Idaho, Minnesota, Montana, New Mexico, North Dakota, Oklahoma, Utah, Washington and the District of Columbia join in an amicus brief prepared by the Oregon Attorney General that also supports the Comptroller's position. EMC Corporation, who has a similar franchise tax refund suit pending in the Austin Court of Appeals, and the Council on State Taxation, a nonprofit trade association based in Washington D.C., have filed amicus briefs supporting Graphic's arguments.
In addition to the current Compact membership, the Commission lists 33 other states that participate in its programs in one degree or another. See Member States, http://www.mtc.gov/The-Commission/Member-States (last visited on December 18, 2017). These states participate as either sovereignty members or associate members. Sovereignty members are states that support the purposes of the Multistate Tax Compact through regular participation in, and financial support for, the general activities of the Commission.
The Comptroller lists the following Compact members who have altered or eliminated Article IV's apportionment method and Article Ill's election option: Alabama,
The Commission lists Alaska, Hawaii, Kansas, Montana, and North Dakota as members who adhere to the three-factor formula. See State Apportionment of Corporate Income, Federation of Tax Administrators (February 2017), https://www.taxadmin.org/assets/docs/Research/Rates/apport.pdf.
The Commission lists those who have modified the Compact's apportionment formula as Alabama, Arkansas, Colorado, Dist. of Columbia, Idaho, New Mexico, Oregon, Texas, and Utah.
The Commission's listings do not account for two of its members, Missouri and Washington. According to the Commission's reference source, Missouri appears to adhere to the three-factor formula whereas Washington does not have a state income tax to which the Compact applies.
See n.7 supra.
See n.11, supra.
See nn.12-14, supra and accompanying text.