Texas Tax Roundup | August 2022

• Published date: 20 September 2022
• Subject Matter: Tax, Income Tax, Sales Taxes: VAT, GST, Tax Authorities
• Law Firm: Freeman Law
• Author: Mr TL Fahring

Texas Tax Roundup | August 2022

Howdy folks, and welcome back to another action-packed edition of the Texas Tax Roundup! Let's see what shocking developments in the realm of Texas tax that the month of August had in store!

Court Cases

Franchise Tax

Apportionment

Conagra Brands, Inc. v. Hegar, No. 03-21-00111-CV (Tex. App.-Austin Aug 24, 2022, no pet. h.)-The Third Court of Appeals held that a taxpayer could not include gross receipts from certain securities in its apportionment-factor denominator for purposes of calculating its Texas franchise tax.¹

• The taxpayer in question was in the business of producing food products for sale to grocery stores, convenience stores and food service businesses. In order to mitigate the risks associated with potential fluctuations in the price of necessary components and raw materials, the taxpayer bought and sold commodity futures contracts.
• The taxpayer argued that these securities were inventory for federal tax purposes and that the gross proceeds from the sale of these securities should be included in its apportionment factor denominator. On appeal, however, the taxpayer didn't dispute the trial court's finding that the securities weren't inventory as defined in the Internal Revenue Code. Instead, the taxpayer argued that the securities were in substance inventory under the U.S. Supreme Court's decision in Corn Products Refining Co. v. Comm'r 350 U.S. 46 (1955).
• In Corn Products, the Supreme Court held that corn futures purchased by a manufacturer of products made from corn in order for the manufacturer to obtain an adequate supply of corn without having to expand its storage facilities weren't capital assets.
• The Third Court of Appeals determined that the Supreme Court didn't say that such futures were actually inventory but merely that they were so integral to the manufacturer's inventory-purchase system that they fell within the inventory exclusion from the definition of a capital asset in I.R.C. ' 1221(a). The Third Court of Appeals also noted that Congress had subsequently amended the Internal Revenue Code to create a specific exclusion from the definition of a capital asset for certain hedging transactions, which further showed that hedging transactions weren't inventory.

Sales Tax

Assignments of Refund

Piazza v. Hegar, No. 03-19-00246-CV (Tex. App.-Austin August 30, 2022, no pet. h.)-In the latest of a series of cases and administrative decisions stretching back over a decade, the Third Court of Appeals held that customers couldn't obtain refunds of sales tax that they had paid to Best Buy. During the periods in question, Best Buy had a rebate program where Best Buy would partially refund the retail price of certain goods but not the sales tax that the customers had paid on the full retail price. Best Buy had remitted these taxes to the...