Texas Supreme Court Ruling Sirius XM and Apportionment

  |   April 4, 2022

The Texas Supreme Court (the “Court”) issued its ruling in regards to Sirius XM (the “Company”) and the method of apportioning receipts from services to Texas. 

Here are the top-level takeaways:

  • The Court ruled based on Texas’ methodology of sourcing receipts to Texas (service performance), only receipts from programs produced in Texas should be in the numerator of the Texas apportionment factor.
  • The Court rejected the Comptroller’s argument based on the location of its subscribers, arguing that the “receipt-producing, end product act” takes place in Texas. The Company stated that the services it provides for the Texas subscribers are mostly performed outside of Texas, such as New York and Washington D.C.   

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  • The Court stated “determining the location of performance requires looking to the physical location of the taxpayer’s personnel or equipment that performs the service for which the customer pays,” and rejected the Comptroller’s position that the Company’s receipts should be apportioned to where the customer receives the benefit of the service. 
  • The Court stated, the “receipt-producing, end product act” test aimed to reveal what qualifies as the service performed, rather than where the actual service is performed. Here, the Comptroller used the test to determine the location of the service, which the Court stated is not consistent with Texas law.    
  • The Court further stated that Texas law specifically states “service performed in this state,” which supports the Company’s argument that it should only source receipts to Texas based on the place where employees or equipment are physically doing work for the customer.   
  • Texas has always used the service performance methodology to source receipts from services, which is an origin-based method. The Court stated that there has not been any case law or other legal interpretation that the “receipt-producing, end-product act,” as argued by the Comptroller, has been established in Texas.   

If you are a service company performing services outside of Texas and have customers located in Texas, please contact the REDW State and Local Tax team to discuss this recent ruling. 

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