The Comptroller of Public Accounts adopts amendments to §3.591, concerning margin: apportionment, without changes to the proposed text as published in the January 20, 2023, issue of the Texas Register (48 TexReg 200). The rule will not be republished. The amendments are in response to the Texas Supreme Court opinion in Sirius XM Radio, Inc. v. Hegar, No. 20-0462 (Tex. March 25, 2022).

In its opinion, the Supreme Court stated: "We see no reason for the 'receipt-producing, end-product act' test to play any role in our decision." Accordingly, the comptroller deletes the receipt-producing, end-product act discussion and examples in subsection (e)(26)(A) and removes references to the deleted examples throughout the section.

The comptroller also amends subsection (e)(26)(A) to incorporate the Supreme Court decision that "...the most natural reading of 'service performed in this state' supports locating the performance of the service at the place where the taxpayer's personnel or equipment is physically doing useful work for the customer." The amended rule interprets the Court's phrase "useful work for the customer" to mean "work that the customer hired the taxable entity to perform," and that the phrase does not include "activities that enable the taxable entity to do business in general or are not directly used in the provision of a service to the customer." The amended rule replaces "equipment" with "property" to recognize that, in some cases, property may be used to perform services, and the property may not be equipment. For example, a beekeeper that offers pollination services to agricultural customers uses honeybees to perform the useful work for the customer. While honeybees are property, it is not clear that they would be considered "equipment."

The comptroller similarly amends subsection (e)(26)(B) to provide additional guidance for determining the fair value of services when they are performed both inside and outside of Texas for a single charge.

The comptroller did not receive any comments regarding adoption of the amendment.

The amendments are adopted under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture), which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of Tax Code, Title 2 (State Taxation).

The amendments implement Tax Code, §171.103 (Determination of Gross Receipts from Business Done in this State for Margin).