AUSTIN - The amount of franchise taxes Sirius XM Radio should pay to Texas is based on where the company produces its programs – not where customers listen to them, according to the state’s highest court.
Radio programming produced by Sirius XM is transmitted by satellite, which subscribers pay monthly fees to access. The Texas Supreme Court was tasked to decide whether Sirius XM performed its services inside or outside of the state.
Court records show Sirius XM filed suit against the Texas Comptroller for refund of more than $2.5 million in franchise taxes paid under protest.
A trial court found Sirius XM’s services were performed “almost exclusively” outside of Texas, and the “fair value” of services it performed in the state was 0.47 percent (2009) and 0.26 percent (2010) of its total receipts, ordering the comptroller to refund the contested taxes with interest.
However, the Third Court of Appeals reversed the ruling and entered a take-nothing judgment in favor of the comptroller, court records show.
On appeal to the Texas Supreme Court, Sirius XM argued that a service is “performed in this state” if the people or equipment performing the service are physically located in Texas.
Conversely, the comptroller argued that the service Sirius XM performs for its Texas subscribers is the provision of access to its encrypted radio signal, which takes place on each subscriber’s radio in Texas.
“The Comptroller reads the Tax Code to allocate services to Texas if the ‘receipt-producing, end-product act’ takes place in this state,” the Supreme Court’s March 25 opinion states. “Here, the Comptroller contends, the ‘receiptproducing, end-product act’ is the enabling of each subscriber’s radio to receive Sirius’s signal.”
The Supreme Court agreed with Sirius XM, reversing the judgment of the court of appeals and remanding the case for consideration of the parties’ remaining arguments.
“In sum, Sirius has little personnel or equipment in Texas that performs the radio production and transmission services for which its customers pay monthly subscription fees,” the opinion states. “The court of appeals’ decision apportioning to Texas all of Sirius’s receipts from Texas subscribers must be reversed.”
Sirius XM is represented by the law firms of Hunton Andrews Kurth and Eversheds Sutherland.
Attorney General Ken Paxton represents the comptroller.
Case No. 20-0462