Sirius XM Prevails In Texas Supreme Court On Sourcing Of Receipts From Satellite Signal

• Published date: 25 April 2022
• Subject Matter: Litigation, Mediation & Arbitration, Tax, Trials & Appeals & Compensation, Income Tax, Tax Authorities
• Law Firm: Akerman LLP
• Author: Lauren A. Ferrante and David C. Blum

In a recently issued taxpayer-favorable opinion, the Texas Supreme Court overturned the court of appeals' decision holding that the state's performance-based sourcing statute for service receipts essentially looks to customer location. The Court, relying on the statute's plain language, then affirmed the taxpayer's methodology, which sourced its receipts to the location where the taxpayer's performance occurred. Sirius XM Radio, Inc. v. Comptroller, no. 20-0462 (Tex. Mar. 25, 2022) ("Sirius Op.").

The dispute concerned the receipts Sirius XM Radio, Inc. ("Sirius") earned from customer subscription fees to access Sirius' radio programming, which it transmitted using satellites. Sirius produced most of the content broadcast on its satellite radio channels, and its production primarily took place outside of Texas. Similarly, Sirius' "headquarters, transmission equipment, and production studios were located almost exclusively outside of Texas." Hegar v. Sirius XM Radio Inc., 604 S.W.3d 125, 128 (Tex. Ct. App. May 1, 2020). Sirius' satellites, which orbited thousands of miles above the planet, are controlled by Sirius' facilitates also located outside of Texas. Sirius' customers, located in Texas and other states, receive Sirius programming using satellite-enabled radios (many of which were located in customers' automobiles).

On audit, the Comptroller took the position that Sirius should have apportioned its customer subscription fee service receipts to the location of a customer's satellite-enabled radio rather than the location where Sirius produces its programs. The basis for the Comptroller's position was its interpretation of the statute at issue, which in this case, it claimed looked to "where the receipt-producing, end-product act is done," which it purported to be the location of a subscriber's radio, where the radio signal was decrypted and enabled for subscriber use. See Sirius Op. at 5-6. While the trial court found for Sirius, the court of appeals reversed, and Sirius petitioned for review.

Texas law, similar to the law of some other states, requires taxpayers earning income from the performance of services to apportion the income to Texas if the "service [is] performed in this state" (Tex. Tax Code Ann. ' 171.103(a)(2); see also 34 Tex. Admin. Code ' 3.591(e)(26)(b)). In this case, the statute's plain language was the Court's primary basis for rejecting the Comptroller's "receipt-producing, end-product act test" to determine the location where a...