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(iv)Royalties from an affiliated taxable entity that
does not transact a substantial portion of its business or regularly
maintain a substantial portion of its assets in the United States
are excluded from Texas gross receipts and gross receipts from an
entity's entire business.
(B)Gross receipts from the sale of intangible assets.
Except as otherwise provided in this section, gross receipts from
the sale of intangible assets are sourced to the location of payor.
(C)Examples.
(i)Example 1. The owner of seismic data grants a license
to an oil company to access the seismic data. Even though a license
is part of this transaction, the receipts are from the use of the
underlying intangible property, the seismic data (which cannot be
copyrighted), not from the use of a license. Accordingly, the receipts
are sourced under subparagraph (B) of this paragraph to the location
of the payor.
(ii)Example 2. An inventor licenses a patent to a
manufacturer. When the manufacturer licensee thereafter produces the
patented item, it uses the patent, and its payments to the inventor,
owner of the patent, are receipts from the use of a patent under subparagraph
(A) of this paragraph. The receipts that the inventor receives are
included in Texas receipts to the extent that the patent is used in
production, fabrication, manufacturing, or other processing in Texas.
(iii)Example 3. The owner of copyrighted material
grants a license to a publisher to publish the copyrighted material.
When the publisher publishes the copyrighted material, it uses the
copyright, and its payments to the owner are receipts from the use
of a copyright under subparagraph (A) of this paragraph. The receipts
that the copyright owner receives from the use of its copyright is
included in Texas receipts to the extent the copyright is used in
Texas.
(22)Qualified stock purchase under IRC, §338(h)(10)
(Certain stock purchases treated as asset acquisitions). Receipts
that are treated as receipts from the sale of assets by the target
taxable entity under IRC, §338(h)(10) are sourced according to
the rules that apply to sales of such assets. For the purposes of
this paragraph, the purchaser of the target's stock is considered
the purchaser of the assets.
(23)Real property. Gross receipts from the sale, lease,
rental, sublease, or subrental of real property, including mineral
interests, are sourced to the location of the property. Royalties
from mineral interests are considered revenue from real property.
(24)Sales taxes. State or local sales taxes that are
imposed on the customer, but are collected by a seller are not included
in the seller's gross receipts. However, discounts that a seller is
allowed to take in remittance of the collected sales tax are gross
receipts to the seller.
(25)Securities. Gross receipts from the sale of securities
are sourced to the location of the payor. If securities are sold through
an exchange, and the payor cannot be identified, then 8.7% of the
revenue is a Texas gross receipt. For reports originally due prior
to January 1, 2021, a taxable entity may use 7.9% instead of 8.7%.
(26)Services. Except as otherwise provided in this
section, gross receipts from a service are sourced to the location
where the service is performed.
(A)Location of performance. Except as provided in
other subparagraphs, a service is performed at the location of the
receipts-producing, end-product act or acts. If there is a receipts-producing,
end-product act, the location of other acts will not be considered
even if they are essential to the performance of the receipts-producing
acts. If there is not a receipts-producing, end-product act, then
the locations of all essential acts may be considered.
(i)Example 1. Admission fees, subscription fees, or
other charges for an audience to observe live or pre-recorded performances
are sourced to the locations where the recipients observe the performance.
The location where the live performance was rehearsed, the location
where the pre-recorded performance was recorded, and the location
where the admission fee or other charge was paid are not determinative.
(ii)Example 2. Gross receipts from the architectural
design of a structure, are sourced to the location or locations where
the architect performed the work. The delivery location of any tangible
work product, such as a blueprint, is not determinative. However,
if the tangible work product of the architect is considered to be
the sale of tangible personal property rather than the sale of a service,
such as the sale of house plan books, the gross receipts are sourced
as provided in paragraph (29) of this subsection, concerning tangible
personal property.
(B)If services are performed both inside and outside
Texas for a single charge, then receipts from the services are Texas
gross receipts on the basis of the fair value of the services that
are performed in Texas. In determining fair value, the relative value
of each service provided on a stand-alone basis may be considered.
Units of service, such as hours worked, may also be considered. The
cost of performing a service does not necessarily represent its value.
If costs are considered, costs should be limited to costs directly
related to the service and not overhead costs.
(i)Example 1. A law firm with offices in Texas and
Louisiana charges a client by the hour. Hours billed for work conducted
in Texas are Texas gross receipts.
(ii)Example 2. A law firm with offices in Texas and
Louisiana charges a client a lump sum fee of $5,000 to draft a document.
Attorneys in the Texas office recorded 20 hours on the project, and
attorneys in the Louisiana office recorded 5 hours on the project
at the same billing rate. Texas gross receipts are $4,000. If the
law firm does not record hours worked on a project, other measures
of direct cost may be considered.
(iii)Example 3. A Texas-based landscaper provides
grounds maintenance services at its client's four offices in Texas,
and one office in Oklahoma, for an annual fee of $50,000. The landscape
services at each of the locations are substantially the same. Texas
gross receipts are $40,000. Although the cost of performing the landscaping
maintenance service at the Oklahoma office is higher than the cost
of performing the service at the other locations because of the additional
travel cost, the additional cost is not considered.
(C)Taxable entities that have margin that is derived,
directly or indirectly, from the sale of services to or on behalf
of a regulated investment company should refer to subsection (c)(1)
of this section for information on apportionment of such margin.
(D)Taxable entities that have margin that is derived,
directly or indirectly, from the sale of management, administration,
or investment services to an employee retirement plan should refer
to subsection (c)(2) of this section for information on apportionment
of such margin.
(E)Receipts from services that a defense readjustment
project performs in a defense economic readjustment zone are not Texas
gross receipts.
(27)Single member limited liability company (SMLLC).
For purposes of this section, the sale of a SMLLC by its sole owner
is the sale of a membership interest in the SMLLC. The membership
interest is an intangible asset, and receipts from the sale of a SMLLC
are sourced to the location of payor.
(28)Subsidies or grants. Proceeds of subsidies or
grants that a taxable entity receives from a governmental agency are
gross receipts, except when the funds are required to be expended
dollar-for-dollar (i.e., passed through) to third parties on behalf
of the agency. Receipts from a governmental subsidy or grant are sourced
in the same manner as the item to which the subsidy or grant was attributed.
For example, receipts from a grant to conduct research for the government
are receipts from a service and are sourced to the location where
the research is performed.
(29)Tangible personal property. Examples of transactions
that involve the sale of tangible personal property and result in
Texas gross receipts include, but are not limited to, the following:
(A)the sale of tangible personal property that is
delivered in Texas to a purchaser. Delivery is complete upon transfer
of possession or control of the property to the purchaser, an employee
of the purchaser, or transportation vehicles that the purchaser leases
or owns. FOB point, location of title passage, and other conditions
of the sale are not relevant to the determination of Texas gross receipts;
(B)the sale of tangible personal property that is
delivered in Texas to an employee or transportation agent of an out-of-state
purchaser. A carrier is an employee or agent of the purchaser if the
carrier is under the supervision and control of the purchaser with
respect to the manner in which goods are transported;
(C)the sale and delivery in Texas of tangible personal
property that is loaded into a barge, truck, airplane, vessel, tanker,
or any other means of conveyance that the purchaser of the property
leases and controls or owns. The sale of tangible personal property
that is delivered in Texas to an independent contract carrier, common
carrier, or freight forwarder that a purchaser of the property hires
results only in gross receipts everywhere if the carrier transports
or forwards the property to the purchaser outside this state;
(D)the sale of tangible personal property with delivery
to a common carrier outside Texas, and shipment by that common carrier
to a purchaser in Texas;
(E)the sale of oil or gas to an interstate pipeline
company, with delivery in Texas;
(F)the sale of tangible personal property that is
delivered in Texas to a warehouse or other storage facility that the
purchaser owns or leases;
(G)the sale of tangible personal property that is
delivered to and stored in a warehouse or other storage facility in
Texas at the purchaser's request, as opposed to a necessary delay
in transit, even though the property is subsequently shipped outside
Texas;
(H)the drop shipment of tangible personal property
in Texas. A drop shipment is a shipment of tangible personal property
from a seller directly to a purchaser's customer, at the request of
the purchaser, without passing through the hands of the purchaser.
This results in Texas gross receipts for the seller and the purchaser.
(30)Telecommunication services.
(A)Gross receipts from telephone calls that both originate
and terminate in Texas are sourced to Texas.
(B)Gross receipts from telephone calls that originate
in Texas but terminate outside of Texas or that originate outside
of Texas but terminate in Texas are not sourced to Texas.
(C)Gross receipts from telecommunication services
other than those services in subparagraph (A) or (B) of this paragraph
are sourced to Texas if the services are performed in Texas. For example,
a telephone company that provides a long distance carrier access to
the telephone company's local exchange network in Texas is performing
a service in Texas. Any fee that the telephone company charges the
long distance carrier for access to the local exchange network in
Texas is a Texas receipt regardless of whether the access is related
to an interstate call. A fee that is charged to obtain access to a
local exchange network in Texas and that is based on the duration
of an interstate telephone call are not sourced to Texas.
(31)Television broadcaster licensing income. For reports
originally due on or after January 1, 2018, a broadcaster's gross
receipts from licensing income from broadcasting or otherwise distributing
film programming by any means are sourced to Texas if the legal domicile
of the broadcaster's customer is in this state. In this subparagraph,
the following words and terms shall have the following meaning:
(A)Broadcaster--A taxable entity, not including a
cable service provider or a direct broadcast satellite service, that
is a television station licensed by the Federal Communications Commission,
television broadcast network, cable television network, or television
distribution company.
(B)Customer--A person, including a licensee, who has
a direct connection or contractual relationship with a broadcaster
under which the broadcaster derives revenue.
(C)Film programming--All or part of a live or recorded
performance, event, or production intended to be distributed for visual
and auditory perception by an audience.
(D)Programming--Includes news, entertainment, sporting
events, plays, stories, or other literary, commercial, educational,
or artistic works.
(32)Texas waters. Gross receipts from transactions
that occur in Texas waters are sourced to Texas. Texas waters are
considered to extend to 10.359 statute miles, or nine nautical miles,
from the Texas coastline.
(33)Transportation services. Gross receipts from the
transportation of goods or passengers are sourced to Texas by:
(A)including gross receipts from the transportation
of goods or passengers that both originates and terminates in Texas;
or
(B)the multiplication of total transportation receipts
by the ratio of total compensated mileage in the transportation of
goods and passengers in Texas to total compensated mileage.
(f)Natural gas production.
(1)Gross receipts that a gas producer realizes from
the contract price of gas that the gas producer produces and that
the purchaser takes pursuant to the terms of sales are sourced to
Texas, if the gas is delivered in Texas.
(2)Gross receipts that a gas producer realizes from
a purchaser's payment under a sale or purchase contract for gas to
be produced even if no gas is produced and delivered to the purchaser,
are sourced to the location of the payor.
(3)Gross receipts that a gas producer realizes from
a purchaser's payments to terminate a gas purchase contract are sourced
to the location of the payor.
(4)Gross receipts that a gas producer realizes from
a contract amendment that relates to the price of the gas sold are
treated as gross receipts from the sales of gas and are sourced to
Texas if delivery is made to a location in Texas. Gross receipts that
the gas producer realizes from a contract amendment that relates to
a provision other than the price of gas sold are sourced to the location
of the payor.
(5)Gross receipts that a gas producer realizes from
litigation awards for a breach of contract, reimbursements for litigation-related
expenses (e.g., documented attorney's fees or court costs), or interest
(upon which the parties have agreed, that the records of the producer
reflects, or in an amount that a court has ordered) are sourced to
the location of the payor.
(6)Gross receipts that a gas producer realizes from
a judgment, compromise, or settlement relating to the recovery of
a contract price of gas produced are sourced to Texas to the extent
the contract specified delivery to a location in Texas. Gross receipts
that a gas producer realizes from a judgment, compromise, or settlement
that relates to several claims or causes of action shall be prorated
based upon the documented amounts due under the contract for each
claim or cause of action according to the records of the producer.
For example, a settlement sum of $100,000 for a pricing dispute of
$25,000 and for failure to pay for gas not taken in the amount of
$225,000, would result in receipts of $10,000 from gas sales (100,000
X 25,000/250,000) and receipts from other business of $90,000 (100,000
X 225,000/250,000). Records of the producer shall include, but are
not limited to the following: contracts, settlement agreements, accounting
records and entries, court pleadings and worksheets, including calculations
reflecting settlement amounts.
The agency certifies that legal counsel has
reviewed the adoption and found it to be a valid exercise of the agency's
legal authority.
Filed with the Office
of the Secretary of State on January 4, 2021
TRD-202100049 William Hamner
Special Counsel for Tax Administration
Comptroller of Public Accounts
Effective date: January 24, 2021
Proposal publication date: November 13, 2020
For further information, please call: (512) 475-2220
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