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