Did CGG properly calculate its margin using the

COGS subtraction for franchise tax report year 2008?

Is CGG an “owner of goods” as defined by § 171.1012(i)? Is CGG a “ DEEMED ” owner Is CGG an “ ACTUAL ” owner per sub-(i), third sentence? per sub-(i), first sentence?

Does CGG own the property Does CGG furnish “labor”? (seismic data in MCDL)? Newpark (“‘Labor’ is a broad term that § 171.1012(i) (“based on all of the facts and encompasses a wide range of activities, including circumstances, including the various benefits and expenditure of physical or mental effort especially burdens of ownership vested in the taxable entity”) when fatiguing, difficult, or compulsory.”)

OR

Yes No Does CGG furnish “materials”? Does CGG sell that property in the Merriam’s (“Materials” are “elements, ordinary course of business? constituents, or substances of which something is composed or can be made; something (as data) that can be worked into a more finished form.”) Comptroller does not dispute that licensing of seismic

data through MCDL is a “sale.” See also, TGS-NOPEC (“transaction constitutes a ‘limited sale’”) No Yes Yes No Is that property a “good” for purposes Are the labor / materials furnished “to a of the COGS deduction? project” for the construction, improvement, etc. of real property? § 171.1012(a)(1) (“Goods” are “real or tangible Newpark (considered (1) essential and direct personal property” (TPP)); § 171.1012(a)(3)(A) component of drilling process, (2) Legislature (TPP is: (1) personal property that can be “seen, allowed deduction of similar costs, and (3) real weighed, measured, felt, or touched”); (2) “artificial” property activity could not proceed without the TPP, intellectual property for mass-distribution; or

labor/materials furnished) (3) “artificial” TPP, computer programs) No Yes Yes No CGG is an actual

CGG is CGG is a deemed CGG is owner. not a owner. not an

deemed actual owner. owner.

Taxpayers who qualify as “owners” under § 171.1012(i) “may make a subtraction under this section in relation to Consider Consider the cost of goods sold.” Deemed owners specifically “may actual deemed include the costs, as allowed by this section , in the owner owner computation of [COGS].” status. status. “This section” means the entirety of § 171.1012, including all allowable costs under (c), (d), and (f).

CERTIFICATE OF SERVICE

*3 I hereby certify that a true and correct copy of the foregoing has been electronically filed and served on all counsel below on November 17, 2015. Joseph D. Hughes Assistant Solicitor General O FFICE OF THE A TTORNEY G ENERAL P.O. Box 12548 (MC 059) Austin, Texas 78711-2548 (512) 936-1729 (512) 474-2697 [fax] jody.hughes@texasattorneygeneral.gov Charles Eldred Assistant Attorney General O FFICE OF THE A TTORNEY G ENERAL , F INANCIAL AND T AX L ITIGATION D IVISION P.O. Box 12548 Austin, Texas 78711 (512) 463-1745 (512) 477-2348 [fax] charles.eldred@texasattorneygeneral.gov

/s/ Amanda G. Taylor Amanda G. Taylor