Be cause the intere sts of the Comptroller and the Attorne y Gene ral a lign, we ref

er to them 1 collectively

as the “ Comptroller.” SeeTex. Tax Code Ann. § 112.053 (West 2008) (r equiringthe Comptroller and the Attorne y Gene ral to be na

med as de fenda

nts in franc hise tax protest suit ). 

### TEXA S C OU R T OF A PPEAL S, THIR D DIST R ICT , AT AU STIN

NO. 03-0 7 -00 640 -CV
App e lla nt , TG S- NO P EC G e ophy sic al C om pany// C r os s- App e lla nt s, Susa n Co m bs, Successor- in-Interest

to Car ole K eet on Strayhorn, Com ptroller of P ubl ic Acc ounts of t he St at e of Te xa s, and G r e g A bbot t, At to r ne y G e ne r al o f the St at e of Te xa s
v. Appellees, Susan Com bs, S uccessor -in-Intere st to Car ole K eet on Strayhorn , Com ptroller of P ublic Ac c ount s o f the St at e of Te xa s, and G r e g A bbot t, At to r ne y G e ne r al o f the St at e of Te xa s//

Cr os s- App e lle e , TG S- NO P EC G e ophy sic al C om pany

F ROM THE DISTRICT CO URT OF TRAVIS COUNTY , 126TH JUDICIAL DISTRICT NO. D-1- GN-05- 0006 37 , HO NORAB LE GISELA D. TRIANA , JUDGE PRESIDI NG

O P I N I O N This appea l arises fr om a fra nchise tax dispute invol v i n g t h e apportionment of g ross rec eipts from the licensing of g eophy sical and se ismic data. The pa rties filed c ross-motions for summary judgme nt, a

nd the trial court g rante d summary judgme nt in favor of the Comptroller 1 on the issue of tax lia b i l i t y b u t , finding that the Comptroller abused he r discre tion in deny ing appellant TG S-NOPEC Geophy sical Company ’s re quest s t o waive penalties and inter est, the trial court g rante d summary judgme nt to TGS on that issue. TGS appea ls the t rial cour t’s summaryTh e do c ume nt e nte re d into b y TG S and e a c h o f i ts c us tom e rs is e nti tle d “ Ma ste r L ic e ns e 2 Ag ree ment.” Prior to 2008, franc hise taxes were imposed based on e ach tax able entity ’s taxable capital 3 and e arn e d s ur

plu s. Th e le g isl a tur e ame nd e d the tax co de , e ff e c tiv e Janu ary

1, 20 08 , to imp os e fra nchise tax es based on eac h taxable entity ’s taxable marg in. SeeAct of Ma y 2, 2006, 79th L eg ., 3 rdC
. S
. , ch
. 1 , § 2 , 2 0 0 6 T ex . Ge n . L aw s 1 , 6 (a m en d i n g T ex . T ax C o d e A n n . § 1 7 1
. 0 0 2 ). Al t h o u gh we r ecognize that TGS was subject to the prior la w during the audit per iods at issue in this appeal and , th e re fo re , T GS’ s f

ra nc his e ta xes w e re ba se d o n it s taxab le c a pit a l and e arn e d s ur

plu s, thi s differ ence does not aff

ect our ana l y s i s o f t h e is sues bef ore us. F or conve nience , we c ite to the curr ent ver sion of the tax code unless otherw ise stated. 2 judgme nt of tax l iability , and the Comptrolle r c r oss-appe als from the tria l court’s summary judgme nt
reve rsing the i m p o s i t i on of pena lties and interest. B eca use we find no err or, we aff irm the trial
c ourt ’s jud g me nt.
BACK GR OUND

TGS licenses g eophy sical a n d seismic data to its customers throug hout the Un ite d St a te s and

a br oa d. Th is d a ta is us e d by oil and g a s c omp anie s to e xplor e fo r a nd de ve lop oil and gas deposits and can be licensed to more than one customer. TG S charg es ea ch customer a flat f e e f o r a n o n - e xc lu s iv e li c e n s e to u s e th e d a ta
. T h e d ata is t y pically provided to customer s on 2 mag netic tape . Once the data is de livered to the c ustomer, t he customer uses the data at its discretion with limi ted re strictions on transfer ability and who c an view the data. The State of Texas imposes fra nchise tax es on eac h business, or taxable entity , that does business in th i s state. SeeTex. Tax Code Ann. § 171.001 (West 2008). F ranc hise taxes
are imposed annually

based on business done in Texas during the previous ac co u nting y ear . Id. § 1 71 .1 53 2 ( Wes t 20 08 ). Sub je c t to va ri ou s e xce pti on s a

nd e xemp tio ns , th e fran chi se ta x rate for most businesses is one per cent of that business’s taxable marg in. Id. § 171.002 (West 2008). 33

Secti o n 1 7 1
. 1 0 1 o f t he tax code desc ribes the c alculation used to de termine taxable marg in. Id. § 17 1. 10 1 (We st 20 08 ). To de te rm ine the a mou nt of fr anc his e ta x o we d, a bu sin e ss’ s taxab le marg in must be apportioned between business done in Texas and busi ness done elsewhe re. Id. § 171.106 (West 2008). This calc ulation is done by m u l t i p l y i n g a business’s taxable marg in by a fr action, the numerator of which is the business’s g ross rec eipts from business done in T exas, a nd the denominator of which is the business’s g ross rec eipts from al l of its business. Id. §§ 171.103 (dete rmining g ross rec eipts for business done in Te x as); .105 (de termining g ross rec eipts for e ntire business); .106(a) (appor

tioning taxable marg in) (West 2008). This appea l conc er n s a dis pute about the numer ator, or T GS’s g ross rec eipts for bu sin e ss d on e in Tex a s. Th e ta x co de c ur re ntl y re qu ir e s T GS t o p ay

fr anc his e ta xes b a se d o n it s g ross rec eipts for it s licensing activities in Texas. See id. §§ 171.002, .103(a) (4). Prior to 1997, the tax code did not specify

how t o apportion g ross rec eipts from licensingactivities for f ranc hise tax purposes. SeeAct of Aug . 13, 1991, 72nd L eg ., 1st C.S., ch. 5, § 8.06, 1991 Tex. Gen. L aws 134, 156 (codifie d as amende d at Tex. Tax Code Ann. § 171.103(4) ); Act of Ma y 27, 1993, 73rd L eg ., R.S., ch. 546, § 3, 1993 Tex. Gen. L aws 2043, 2043 (c odified as a mended at Tex. Tax Code Ann. § 1 71 .1 03 2( a )( 4) ). TG S th e re fo re re lie d on op ini on s and le tte r ru lin g s is su e d b y the Com ptr oll e r t o apportion its gr oss rec eipt s and calculate the amount of fr anchise taxes owed. Prior to 1997, for fra nchise tax purposes, the Comptroller treated the licensingof g eophy sical and s eis mic data a s “sale s of an intang ible” and apportioned gr oss rec eipts from licensingactivities based on the location of the pa y or. SeeTex. Com ptroller of Pub. Ac counts, STAR Docum en t No s . 9103L 1087B07 (issued Mar . 8, 1991), available at htt p:/ /a ixtc p. c pa .s tate .tx.u s/o pe nd oc s/o pe n0 7/1 08 7b 07l.h tml ;“ ST A R” r e f e r s to th e “ St a te T a x A u to mate d Re s e ar c h ” Sy s te m, a v a il a b le on the 4 Com ptr oll e r’ s w e bs ite a t htt

p:/ /c pa sta r2 .c pa .s tate .tx.u s/q

_mu lti .h tml
. I n 2006, the leg islature amende d and consolidated section 171.103 with section 171.1032. 5 SeeAct of Ma

y 2, 2006, 79th L eg ., 3rd C.S., ch. 1, § 5, 2006 Tex. Gen. L aws 1, 19-20. 4 9005L 1019F09 ( issued May 23, 1990), available at htt p:/ /a ixtc p. c pa .s tate .tx.u s/o pe nd oc s/o pe n0 7/ 10 19 f0 9l. htm l ; 8209T0476C03 (issued Sept. 10, 1982), available at htt p:/ /a ixtcp. cpa.s tate .tx.u s/ op e nd oc s/o pe n2 8/04 76 c03 t.h tml
. Finding that patents, copy rig hts, trademar

ks, licenses a

nd 4 fra nchises we re “ ty

pes of similar intang ible assets,” the leg islature ame nded the tax code, e ffe ctive J anuar y 1, 1998, to tax trade marks, fr an ch i s es , and license s in the same manne r as patents and copy rig hts. See Act of May 30, 1997, 75th L eg ., R.S., ch. 1185, §§ 5-6, 1997 Tex. Ge n. L aws, 4569, 4569-70 (e ffe ctive Jan. 1, 1998) (orig inally codified at Tex. Tax Code An n . §§ 171.103(4), .1032(a) (4))
. T h e f

i s c a l n o t e e s t i m a t e p r e p ar e d b y t h e C o mp t r o l l e r

f o r t h e 1 9 9 7 a m e n dme nts 5 pr ov ide d in

re le va nt p art :
Current fr anchise tax l aw sourc es the re ceipts fr om t ra d em arks, franc hises, and licenses use d in Texas to the state of leg al domicile of the c orporation remitting the pay ments. [R ece ipts fr om p]atents and copy rig hts a re [apportioned] to Texas if the p a te n t o r c o p y r igh t [ is ] used

in Texas. This bi ll would equalize treatment among the se ty pe s o f s imi lar i nta

ng ibl e a sse ts: Th e re c e ipt s w ou ld b e [ap po rt ion e d] to Texas if the assets we re used in Te xas. . . . Th e c ha ng e s r e late d to so ur c ingre c e ipt s from ce rtain intang ible assets would provide a small revenue g ain. Comptroller of Pub. Accounts, F i s ca l Note Estimate, Te x . S.B. 861, 75th L eg ., R.S. (1997) (em ph a sis a dd e d) . A s a

re su lt o f t

he 19 97 ame ndme nts , taxpay e rs lik e TG S we re re qu ir e d to apportion g ross rec eipts from licensingactivities based on the location of us e instead of the loc ation of the pa y or. SeeTex. Tax Code Ann. § 171.103(4)
.5 Th e Com ptr oll e r a ud ite d T GS a

nd a sse sse d a dd iti on a l f

ra nc his e ta xes, pe na lti e s,
and int e re st of

a pp ro xima te ly

$1 .8 mil lio n f

or the 19 97 -2 00 0 a

nd 20 01 -2 00 3 a

ud it p e ri od s. Th e se assessments ar ose fr om TGS’s failure to corr ectly apportion i ts g ross rec eipts as required unde r the 1997 amendments to sec tions 171.103 and 171.1032 of the tax co d e. On December 6, 2004, the Comptroller issued an ame nded notice of audit results for the 1997-2000 audit period finding that TGS owed a dditional franc hise taxes in the amount of $232,437.46, plus interest of $78,489.33. The Comptroller issued a notice of audit results for the 2001-2003 audit per iod o n December 7, 2004, finding that TGS owed additional fra nchise taxes in the amount of $1,162,310.65, plus penalties of $116,231.07 and intere st of $139,021.20.

After evaluati n g t h e factors listed in Com ptroller administrative r ule 3.5, the Comptroller waived the penalty for the f irst audit period but denied w aiver of th e p en al t y

for the second a udit period. See34 Tex. Admin. Code § 3.5 (2008). The Comptroller also denied TG S’s
re qu e st t o w a ive int e re st fo r b oth a ud it p e ri od s. TG S pa id t

he a dd iti on a l taxes, pe na lti e s, and int e re st under pr otest and filed suit to rec over a ref und as per

mitted under sec tion 112.052 of the tax code. SeeTex. Tax Code Ann. § 112.052 (West 2008).

TGS and the Comptroller filed c ross-motions for summary judgme nt. The trial cour

t g rante d summary judgme nt in favor of the Comptroller on the tax liability issue and conclude d that TGS’s tax liability

for the two a

udit periods in question was $1,394,748.11. The tria l court denie d the Comptroller’s motion for summary judgme nt on the issue of penalties and interest and g rante d summary judgme nt in favor of

TGS concludingthat TGS should be awa rded a ref und of all pena lties
and int e re st a sse sse d a

nd pa id f or bo th a ud it p e ri od s in th e a mou

nt o f $ 33 9, 57 9. 03 , p lus int e re stAlth o u g hth e r e is a d is c r e p an c y

o f $ 5 , 8 3 7
. 4 3 b e tw e e nth e to ta l a mo u n t o f p e n a lt ie s and 6 interest asse ssed by the Comptroller in the notices of a udit results for both audit periods a nd the total amou nt r e fu nd e d to TG S inthe tr ia l c ourt ’s summa ry ju dgment, n e ith e r p art

y c ha lle ng e s th is dis c re pa nc y on a pp e a l. 6 from the date paid. On appe al, TGS cha lleng es the trial c ourt’s summary judgme nt in favor of the 6 Comptroller on the issue of tax l iability , and the Comptroller c halleng es the trial c ourt’s summary jud g me nt i n f

avo r o f T GS o n th e iss ue of pe na lti e s a

nd int e re st.
AN AL YSI S I n three issues, TGS complai n s t h at the trial c ourt err ed in deter mining TGS wa s liable for a ddit i onal fra

nchise taxes. First, TGS ar g ues that the trial c ourt incorr ectly deter mined that former

sections 171.103(4) a

nd 171.1032(4) a

pplied to the g ro s s rec eipts g ener ated by TGS from its licensing activities. Second, TGS argues that the trial court err ed in its conc lusion that the Com ptr oll er was un ifor

mly a sse ssi ngand

c oll e c tin g fr anc his e ta xes a nd , th e re fo re , w a s n ot i n violation of the United States and Texas Consti tutions. Finally , TGS argues that the trial c ourt err ed in affir ming the Comptroller’s use of TG S’s customers’ shipping or billing a ddress a s the location of license use. The Comptroller counter s that the trial cour t corre ctly

applied the r eleva

nt statutory pr ov isi on s to de te rm ine that T GS w a s li a ble fo r a dd iti on a l f

ra nc his e ta xes; the tr ia l c ourt c or re c tly conclude d that the Comptroller did not violate the Unit ed S tates or Tex as Constitut ion; and, based on the evidence in the r ecor d, the trial cour t corre ctly aff irmed the Comptroller’s use of shipping or bil lin g ad dres s as the loc a tio n o f l ic e ns e us e . O n c ro ss- a pp e a l, h ow e ve r, the Com ptr oll e r a sse rt s7

that the trial cour

t erre d in its conclusion that the Compt ro l l er abused he r discre tion in im posing penaltie s an d i n t ere st ag ainst TGS. For the rea sons set forth below, w e find no e rror in the tr ia l c ourt ’s jud g me nt.
Stan dard of Revie w

We r e vie w the tr ia l c ourt ’s de c isi on to gra nt s umm ary

jud g me nt de novo
. Natividad v. Alex sis, Inc. , 875 S.W .2d 695, 699 (Tex
. 1 9 9 4 ). T he standa rds for r eviewinga tra ditional summary judgme nt are well established: the m ovant m ust show there is no g enuine issue of material fac t and that it is entitl ed to judgme nt as a matter of law; i n deter mining whether there is a disputed
mate ri a l f a c t iss ue pr e c lud ing summa ry jud g me nt, the re vie wi ngc ourt mus t a c c e pt a ll e vid e nc e in favor of the nonmovant as t rue; and the court must indulge ever y rea sonable infe renc e in favor of the nonmovant and re solve any doubts in the nonmovant’s favor
. Se e Cat he yv . B oo th , 900 S.W .2d 339, 34 1 ( Te x. 19 95 ); Nixon v. Mr. Prop. Mgmt. Co. , 690 S.W .2d 546, 548-49 (Te x . 1985). A plaintiff
mus t e sta bli sh a ll e le me nts of the c a us e of a c tio n a s a

matte r o f l aw. Te x. R. C iv. P. 1 66 a (c ); City of Houston v. C lear Creek

Basin Auth. , 5 89 S.W. 2d

67 1, 67 8 ( Te x. 19 79 ). A d e fe nd ant, ho we ve r, mus t dis pr ov e a t le a st on e e sse nti a l e le me nt of e a c h of the pla int if f’ s the or ie s of re c ov e ry

or c on c lus ive ly establish eac h element of

an af firmative de fense to preva il. See Friendswood Dev

. Co. v. McD ade + Co. , 926 S.W .2d 280, 282 (Tex. 1996).

As a g ener al rule, a

par t y m ay

not appea l the denial of a motion for summary judgme nt beca

use it is an interlocutory order and, there fore , is not appeala ble. Se e Cin c inn ati

Life Ins. Co. v. Cates , 927 S.W .2d 623, 625 (Tex. 1996)
. Howeve r, when both par ties move for summar

y jud g me nt a

nd the dis tr ic t c ourt

g ra nts on e mot ion

and de nie s th e oth e r, the un su c c e ssf ul p art y8

may appea l both the gr ant of the pr evailingparty ’s motion and the denial of its own. S

ee Holmes v. Morales , 924 S.W .2d 920, 922 (Tex. 1996)
. I n these c ircumstance s, we re view the summary judgme nt evidence prese nted by both sides, determine a ll questions presented, and render the judgme nt the trial court should have rende red. Se e FM Pr op s. Op e ra tin g Co . v . Ci ty of Au sti n , 22 S.W. 3d 86 8, 87 2 (T e x . 2 000) ; Commissioners Court v. Agan , 940 S.W .2d 77, 81 (Tex. 1997). Where the district c ourt does not state the ba sis for g rantingsummary judgme nt, the app ell ant must neg ate a ll gr ounds that support the judg ment. S e e S ta t e F a rm F i r e & C a s . C o . v . S

. S

. & G

. W. , 85 8 S. W.2 d 3 74 , 3 81 (T e x. 19 93 ); Carr v. B r a s her , 776 S.W .2d 567, 569 (Tex. 1989). I f the
a pp e lla nt f a ils to n e g a te e a c h g ro un d o n w hic h th e jud g ment may hav e be e n r e nd e re d, we mus t uphold the summary

judgme nt. Se e Car

r , 776 S.W .2d at 569.
TG S’ s T ax Li ab ili ty I n its first issue, TGS challeng es the trial c ourt’s interpr etation and a pplication of former sections 171.103(4) and 171.1032(a )(4) . TGS argues that its business activities include sales of intang ible assets and that it de rives no benef it f rom the “use of its lice nses.” The ref ore, f or purposes of c alculatingits franc hise tax l iability , TGS argu es t h at it is not subj ect to sec tions 171.103(4) a

nd 171.1032(a) (4) a s they exis ted at the time. We disag ree . As a pre liminar y m at t er, sections 171.103(4) a nd 171.1032(a) (4) we re a mended in 1 99 7 d ur ingthe fi rs t a

ud it p e ri od . Prior to th e 19 97 a me ndme nts , th e se statut e s p ro vid e d, in
re le va nt p art :9

Se c ti on 1 71 .1 03 . D e te r m ina ti on o f G r os s R e c e ipt s fr om Busi ne ss D one in t his St at e for Tax abl e Ca pit al. I n a pp or tio nin g ta xab le c a

pit a l, the g ro ss re c e ipt s of a co rp or atio n fr om i ts b us ine ss done in this state is the sum of the cor poration’s re ceipts fr om . . . (4) ea ch royalty for the use of a

patent or c opy

rig ht in this state . . . .
SeeAct of Aug . 13, 1991, 72nd L eg ., 1st C.S ., ch. 5, § 8.06, 1991 Te x . Gen. L aws 134, 156 (c urre nt version at Te x . Tax Code Ann. § 171.103).
Se c ti on 1 71 .1 03 2. De te r m ina ti on o f G r os s Re c e ipt s from Busi ne ss Do ne in t his St at e for Tax abl e Ear ne d Sur plus . (a) Ex cept f

or the g ross rec eipts of a c orporat i o n t h at are subject to the provisions of Section 171.1061, in apportioning taxable ear ned surplus, the g ross rec eipts of a c orporation from its business done in this state is the sum of the c orporation’s rec eipts from . . . (4) eac h roy alty for the use of a pate nt or copy rig ht in this state . . . .
SeeAct of Ma

y 27, 1993, 73rd L eg ., R.S., ch. 546, § 3, 1993 Tex. G en . L aws 2043, 2043 (sinc e amende d and consolidate d with Tex. Tax . Code Ann. § 171.103). Thus, prior to 1997, these statutes did no t e xpre ssl y

pr ov ide fo r t

he a pp or tio nme nt o f gro s s r e c e i p t s f ro m li c e ns e s o r l ic e ns inga c tiv iti e s. I n light of this omission, TGS relied on opi n i o n s from the Com ptroller, which tr eate d TGS’s licensing activities as the sa le of a n intang ible and appor

tioned g ross rec eipts from such a ctivities b as ed on the location of the payor. See T e x. Co mp tr o ll e r o f Pu b
. A c c o u n ts , ST A R D o c u me nt Nos. 9103L 1087B07 ( issued Mar. 8, 1991) ; 9005L 1019F09 ( issued May 23, 1990); 8209T0476C03 (issued Sept. 10, 1982).10 At the Comptroller’s re quest, the leg is la tu r e a me n d e d th e s ta tu te s , e f f e c ti v e January

1, 1998, to pr ovide for the apportionment of g ross rec eipts from license s based on the loc ation of use. Th e se ame ndme nts pr ov ide d in re le va nt p art :
Se c ti on 1 71 .1 03 . D e te r m ina ti on o f G r os s R e c e ipt s fr om Busi ne ss D one in t his St at e for Tax abl e Ca pit al. I n ap po rt ion ing ta xab le c a pit a l, the g ro ss re c e ipt s of a c or po ra tio n f ro m it s b us ine ss d o n e i n t h i s s t ate is the sum of the c orporation’s rec eipts from . . . (4) the us e o f a patent, copy

rig ht, tradema

rk, fr anchise , or lic e ns e in this st ate . . . .
SeeAct of Ma

y 30, 1997, 75th L eg ., ch. 1185, § 5, 199 7 T ex . Ge n. L aws 4569, 4569-70 ( curr ent version at Te x . Tax Code Ann. § 171.103) (empha sis added) ( “for mer § 171.103(4) ”).
Se c ti on 17 1. 10 32 . De te r m ina ti on of G r os s Re c e ipt s fr om Busi ne ss D one in t his St at e for Tax abl e Ear ne d Sur plus . (a) Ex cept f

or the g ross rec eipts o f a co rp oration that ar e subjec t to the provisions of Section 171.1061, in apportioning taxable ear ned surplus, the g ross rec eipts of a c orporation from its business done in this state is the sum of the c orporation’s re ce i p t s from . . . (4) the us e of a pa te nt, c op y

ri g ht, trade mark, fr anchise , or lic e ns e in this st ate . . . .
See id. , § 6, 1997 Tex. Ge n. L aws 4569, 4570 (since a mended a nd consolidated with Tex. Tax. C ode Ann. § 17 1. 10 3) (e mph a sis a dd e d) (“ fo rm e r § 17 1. 10 32 (a )( 4) ” ). Thus , th e a me ndme nts e xpre ssl y provided for

apportionment of g ross rec eipts from license s based on the loc ation of use. TGS ar g u e s th a t t

h e tr ia l c o u rt e r

r e d in a p p ly in g th e 1 9 9 7 ame n dme n ts to T G S’ s lic e ns inga c tiv iti e s. Th e c rux of T GS’ s a rgume nt i s that T GS d e ri ve s n o b e ne fi t f ro m it s c us tom e rs ’ use of the se ismic data provided by TGS; there fore , TGS derives no be nefit fr om the use of a license.11

T GS ’s ar g ument misses the mark. The evidenc e showe d that TGS and its customers ente r into a contra ct entitled “Master L icense Ag ree ment,” which allows the customer to use, or license , TG S’ s p ro pr ie tary

se ism ic data . T his a g re e me nt i s n on -e xclu siv e in t hat T GS may lic e ns e the same data to multip l e cu s t omers. Unde r the ter ms of the ag ree ment, TGS’s customers a re de signated as “lice nsees,” and ea ch customer pay s a flat f

ee to T GS f

or the privileg e of using TGS’s proprie tary seismic data. The que stion whether T GS ’s activiti es fa ll within t he mea ning of former §§ 171.103(4) a

nd 171.1032(a) (4) pr esents a matter of stat u t o ry co nstruction. Our primar y g oal when c onstruing a

statute is to determine a nd g ive ef

fec t to the l egi s l ature ’s intent. See City of San Antonio v. C ity of Boerne , 1 1 1 S
. W
. 3 d 2 2 , 2 5 (T ex . 2 0 0 3 ). W e be gi nwi t ht h e p l ai nl an gu age of the statute at issue and apply its common meaning
. Id. Whe re the statut or y te xt is unambi g uo us , we a do pt a

c on str uc tio n s up po rt e d b y

the statut e ’s pla in l angua g e , unle ss t hat c on str uc tio n w ou ld lead to an a

bsurd re sult. Fleming Foods of Tex., Inc. v. Ry lander , 6 S.W .3d 278, 284 (Tex. 1999). Ba sed on th e p la in

la n g u a g e o f

f o r me r § § 1 7 1
. 1 0 3 ( 4 ) an d

1 7 1
. 1 0 3 2 ( a ) ( 4 ) and the evidenc e in the re cord, w e conc lude that the pay m ents rec eived by

TGS for lice nsing its c ustomers to use proprieta ry seismic data are g ross rec eipts from the use of a license
. SeeFor

mer §§ 171.103 ( 4 ) , . 1 0 3 2 ( a ) ( 4 )
. We r e je c t T G S’ s ar g u me n t th a t it s c u s to me r s , o r li c e n s e e s , ar e the intended taxpay ers under former §§ 171.103(4) and 171.1032(a) (4). The g ross rec eipts ear ned by TGS are derive d from TGS’s use of a license within the meaning of the statutes. I n contra st, TGS’s customers e arn g ross rec eipts from the use o f TGS’s data throug h the subsequent pr ovision of
e x p l o r a t i o no r

p r o d u c t i o n s e rv i c e s o r

t h e s a l e o f

t an g i b l e o r

i n t an g i b l e p e r s o n a l p r o p e rt y— e.g. ,12

oil, ga s, or other g eother

mal resour ces. The customers’ gross rec eipts do not arise from t he use of a license . Acc ording ly , we f ind no error

in the trial court’ s judgme nt concluding that former §§ 171.103(4) a

nd 171.1032(a) (4) a

pplied to the g ross recei pts ge nerated from TG S’s licensing activities. We overr

ule TGS’s first issue.
C o n s t itu t i o n a l C l a i ms 1. Uniform Assessment I n its second issue, TGS argues that the trial c ourt err ed i n its conclusion that the Comptrollerwas unifor mly assessingand collec ting f ranc hise taxes. TGS contends that the Com ptr oll e r h a s v iol a te d e qu a l pr ote c tio n b y a s s e s s i n g n on -u nif or m f ra nc his e ta xes a g a ins t si mil arl y sit ua te d ta xpay e rs . In s up po rt of thi s c la im, TG S c omp la ins that th e Com ptr oll e r a pp or tio ns g ro ss
rec eipts from t h e s ales and licensing of computer programs base d on location of the pa y or and that beca use TGS’s licensing of i ts proprieta ry seismic data is simil ar to the tra nsfer of a c omputer prog ram, the Comptroller should likewise a pportion TGS’s g ross rec ei p t s b as ed on location of the payor. The United States Constitution requires equa l protection of the la w. SeeU. S. Co ns t. amend. XIV, § 1. The requireme nts for equal protection under the United S tates Constitut ion and equal and uniform taxation under the Texas Constitution ar e substantially the same. See R ailroad Comm’n v. Channe l Indus. Gas Co. , 775 S.W .2d 503, 507 (Tex. App.—Austin 1989, writ denied)
. The Te x as Constitut ion’s mandate that all tax es be e qual and unifor m requi res that a ll persons falling within the same cla ss be taxed alike. S e e S h a r p v . Ca te rpillar, Inc. , 9 32 S.W .2d 230, 240 (Tex. App.—Austin 1996, writ denied). We be g in with the pr esumption that tax statutes, like otherBe cause it doe s not a ffe ct our analy sis, we cite to the c urre nt version of the Comptroller’ s 7 ru le s. 13 statu t es , ar e constitutional, and the pa rty challeng ing the constitutionalit y of a statute be ars the burde n of de m onstrating that it fails to satisfy constitutional requireme nts. See E nron Corp.

v . S pr ing In de p. Sc h. Di st. , 92 2 S.W. 2d 93 1, 93 4 (T e x. 19 96 ); Vi ns on v . B ur ge ss , 773 S.W .2d 263, 266 (Tex. 1989). The pr esumption of constitutionalit y is e specia lly strong with tax statutes. Vinson , 773 S.W .2d at 266. L ik e o t her e conomic mea sures that do not involve a f undamental r ight or int e re st, ta x statut e s are su bje c t to a ratio na l basis sta

nd ard of e qu a l pr ote c tio n a

nd du e pr oc e ss revie w. See R

ylander v . B &A Mktg. Co. , 997 S.W .2d 326, 333 (Tex. App.—Austin 1999, no pet.) (c i t i n g City of New Orleans v. Duke s , 4 27 U. S. 2 97 , 3 03 (1 97 6) ; W illiamson v. Lee Optical , 3 48 U. S. 483, 491 (1955)) . I n other wor ds, the statute will be upheld ag ainst an allege d violation of
e qu a l pr ote c tio n o r d

ue pr oc e ss s o lo nga s it

be ars a ra tio na l re latio ns hip to a le g iti mate state int e re st. See id. Tax classifications are likewise su b j ect to rational basis review
. See Caterpillar, Inc. , 93 2 S. W.2 d at 24 0; see also B &A Mktg. Co. , 997 S.W .2d at 333.

The leg islature has g iven the Comptroller broa d discretion to adop t rules for the col lec tion o f t a xes a

nd oth e r r e ve nu e s so lon g a s th e Com ptr oll e r’ s r

ule s d o n ot c on fl ic t w ith the laws of this state or the consti tution of this state or the United States. SeeTex. Tax . Code Ann. § 1 1 1
. 0 0 2(a) (West 2008). Fr anchise tax rules 3.549 and 3.557 classify reve nues fr om licenses and softwa

re sa les into differe nt categ ories. See 3 4 Tex. Admin. C ode §§ 3.549(e )(7) , (30)( A) .557(e) (6), ( 2 5 )(A) (2008). Rule 3.549(e) (30)( A) provide s that g ross rec eipts from license s are 7 apportioned ba sed on the location of use:14

(iii) . . . For

repor ts that are or igina lly

due on or af

ter January

1, 1998, reve nue that th e ow ne r o f a

tr a de mark , f

ra nch is e, or lice ns e re c e ive s is inc lud e d in Tex as re c e ipt s to the e xten t th e tr a de mark , f ra nc his e , o r l ic e ns e is u se d in T e xa s . P ar a g r a

p h( 7 ) o f t h i s s u b s e c t i o nc o n t r o l s t h e t r e a t m e n to f r e c e i p ts fr om t he sa le /li c e ns ingof

c omp ute r p ro g ra

ms.
34 Tex. Admin. Code § 3.549(e) (30)( A). In contra st, “[p] ara g raph ( 7) of this subsection” pr ovides that g ross re ce i p t s fr om the sales of c omputer prog rams ar e appor tioned based on the location of the payor: (7) Computer se rvice s and prog rams. . . . Rec eipts from t h e sale of a computer prog ram (as the term “computer prog ram” is de fined in § 3.308 of this tit le (re lating to C omp ute rs —H ard

wa re , So ft wa re , Se rv ic e s and

Sa le s) ) a re re c e ipt s f

ro m th e sa le of an intang ible asset and a re a pportioned to the leg al domicile of the pa y or.
Id. § 3 .5 49 (e )( 7) . T he Com ptr oll e r’ s r

ule s thus e sta

bli shdif fe re nt a pp or tio nme nt m e tho ds fo r g ro ss
rec eipts from the sale s of computer prog rams and gross rec eipts rec eived by an owne r of a trade mark, franc hise, or license
. Cf. 34 Tex. Admin. C ode § 3.549(e )(7) with i d. § 3.549(30)( A)(iii).

TGS contends that the Com ptroller has violate d equal pr otection bec ause she apportions re ceipts fr om TGS’s licensing activ i t i es d iffer ently than re ceipts fr om the licensing activities of computer

softwar e compa

nies. The c rux of TGS’s argument is that TGS is t axed differ ently than computer softwar e companies, not other ge ophy sical data companies. This Court has pre viously

rec og nized that a differ ence in industry products, oper ations, or business org anization will justify a differe nce in tax classification, so long as all persons withi n the s ame c lass are taxed simil arly
. S

ee Ca t er p illar, Inc. , 932 S.W .2d at 241 (findingno equal pr otection violation where simil ar g roups of taxpay ers we re taxed similarly ). Moreove r, the United States Supreme Court has15

c on sis te ntl y

he ld t hat “ [i]n st

ru c tur ingint e rn a l taxati on sc he me s th e Stat es have l arg e le e wa y in making classifications and drawinglines which in their judg ment produce rea sonable sy stems of taxation.” Nordlinger v. Hahn , 5 0 5 U. S
. 1 , 1 1 (1 9 9 2 ) ( qu o t i n g W illiams v. Ve rmont , 472 U.S. 14, 22 (1 98 5) ) ( int e rn a l qu otatio n o mitte d) ; Lehnhausen v. LakeShore Auto Parts Co. , 410 U.S. 356, 35 9 ( 19 73 ); see also Reg a n v. T a xation with Representation of W ashington , 461 U.S. 540, 547 (1983) ( “L eg islatures have espec ially broad latitude in creating c lassifications and distinctions i n tax statut e s. ” ); Carmichael v. Southern Coal & Coke Co. , 301 U.S. 495, 509 (1937) (“ This Court has repe atedly

held that inequalities which r esult from a singling out of one par ticular c lass for taxation or exemption, infringe no constitutional li mitation.”).

TGS has provided no pr oof that it was taxed differ ently than o t her g eophy sical data c ompanies. The Comptroller a sserts t hat t he franchise tax rules meet constitutional standards be c a us e the y are ratio na lly

re late d to a

le g iti mate state purp os e . Sp e c if ic a lly , th e Com

ptr oll e r a sse rt s that softwar e compa

nies and g eophy sical data companies “make differe nt products, have differ ent customers, a

nd operate differ ently .” The Comptroller argues that establishinga rule that apportions
rec e ip ts o f

g e o p h y s ic a l d a ta

c o mp an ie s d if

f e r e n tl y th anr e c e ip ts o f

c o mp u te r

s o f tw ar e c o mp an ie s ha s a le g iti mate sta

te purp os e . U nli ke TG S, a so ft wa re c omp any

do e s n ot n e c e ssa

ri ly ne g oti a te
and sig n in div idu a l li c e ns e a g re e me nts wi th e a c h o f i ts c us tom e rs . The Com ptr oll e r t hu s su g g e sts

“ a dmi nis tr a tiv e c on ve nie nc e ” a s o ne re a so n f or its dif fe re nt r ule s o f a pp or tio nme nt b e c a

us e it w ou ld be imprac tical for sof

tware companies to de termine “ wher e millions of off-the- shel f computer prog rams (inc luding g ames) w ere beingused.”16 I n Carmichael v. Southern Coal &Coke Company , the Supreme Court e x plained, A legis l at u re i s not bound to tax ever y member of

a cla ss or none. It may

make distinctions of degr ee having a rational basis, and when subjected to judicial scr utiny the y mus t be pr e sume d to re st o n th a t ba sis if the re is a ny c on c e iva ble state of

fa c ts wh ic h w ou ld s up po rt

it.
301 U. S. a t 5 0 9
. T h e Su p r e me Co u rt c o n f

ir me d th a t “ a dmi n is tr a ti v e c o n v e n ie n c e ” is s u f f ic ient justification for the diff

ere nce in tre atment for dif fer ent classe s of taxpay ers. Id. at 511. TGS has failed to show that its licensing activities are simil ar to those of computer sof

tware companies. F or this reason, we reje ct TGS’s claim that the Comptroller violated equal protec tion or due proc ess by
e sta bli sh in g a rul e that tr e a ts c omp ute r s of tw are c omp anie s d if

fe re ntl y tha n g e op hy sic a l data companies. We ove rrule T GS’s second issue.
2. Fair Apportionment I n its thi rd issue, TGS argues t hat the trial c ourt err ed in af firming the Comptroller’s de c isi on to us e sh ipp ing or bil lin g a dd re ss a s the loc a tio n of us e to c a lc ulate TG S’ s fr anc his e ta xes. As we unde rstand TGS’s a rgument, T GS co n t en ds that, by using TG S’s customers’ shipping or billing addr ess to deter

mine the lo ca t i on of use, the Comptroller ha s unfairly apportioned a

larg er sh are of TG S’ s g ro ss r e c e ipt s to Te xas and ha s the re by su bje c te d TG S to highe r fr anc his e ta xes i n violation of the Commerce Clause.

The United S tate s Su

p r e me Co u rt h a s e s ta

b li s h e d a f o u r - p art t e s t t o r e v ie w the validity of a state tax under the Commerce Clause. See Complete Auto Transi t v. Brady , 4 30 U. S. 274, 278-79, 288 (1977) . To satisfy this test: (1) the tax ing state must have a sufficie nt nexus , or17

contac t with the tax ed ac tivity or entity ; ( 2) the tax must be fair ly apportioned; (3) the tax mus t be fairly related to the bene fits, opportunities, and protec tion confer red by the taxing state; and ( 4) the tax m ust not discriminate ag ainst int er s t at e commer ce. See id. TGS contests only whether the Comptroller has fa irly

apportioned TG S’s gr oss rec eipts to Texas. There fore , we c onsider only that
a sp e c t of the fo ur -p art

te st. Th e purp os e of

fa ir a pp or tio nme nt “ is t o e ns ur e that each S tate ta xes o nly its fair sha re of an interstate transac tion.” Goldberg v. Swee t , 48 8 U. S. 25 2, 26 2 (1 995) ; se e als o Container Corp. v. Franchise Tax Bd. , 463 U.S. 159, 166 ( 1 9 8 3 ). T o b e fa irly apportioned a

tax must be both internally

and externally

consistent. S

e e Co n ta in e r

Co rp. , 4 6 3 U. S
. at 169. To be inte r n a ll y c o n s is te n t, a

tax mu s t b e s tr

u c tu r e d in a w ay th a t, if e v e r y s tate im p o s e d anid e n ti c a l t a x, no multipl e taxation would result. Go ldb e rg , 4 88 U. S. at 26 1. Th e Te xas a pp or tio nme nt f

or mul a is inter nally consistent beca

use it e mploy s a location of use rule. Se e ge ne ra lly Tex. Tax Code Ann. § 1 7 1
. 103(4); 34 Te x . Admin. Code § 5.349(e) (30)( A)(iii). Unde r this rule, TGS’s licensing
a c tiv iti e s are a

pp or tio ne d to Te xas i f t

he lic e ns e is u se d in

Te xas. I f th is ru le wa s a do pte d b y a ll states, the formula would allocate the gross receipts from eac h of TGS’s license s in the numerator of t h e appor

tionment factor ba sed on the location of use, and no sa le would be include d in the
numerator for more than one state. Se e Go ldb e rg , 4 88 U. S. at 26 4; see also Hoffman-LaRoche , Inc.

v. Franchise Tax Bd. , 161 Cal. Rptr. 838, 841 (Cal. C t. App. 1980). Bec ause no more than 100% of T G S’ s g r o s s r e c e ip ts w o u ld b e taxe d b y a ll s tate s , th e r e is n o r is k o f mu lt ip le taxation. Ac c or din g ly , w e c on c lud e that th e Te xas a pp or tio nme nt f

or mul a is i nte rn a lly

c on sis te nt.18 I n addition to being inter nally consistent, the Commerce Cl au se also re quires
a p p o rt i o n m e n tf

o r mu l a s t o b e e xt e r

n a l l y c o n s i s t e nt— i.e. , the re mus t be a re a so na ble re latio ns hip betwee n the tax base apportioned to a state and the intrastate va lues of the taxpay er’ s business. See Amerada Hess Corp. v. Direc tor, Div. of Taxation , 490 U.S. 66, 75 (1989). As the Supreme Court ha s e xpla ine d, “ [I ]n or de r t o sho w unf a ir a pp or tio nme nt, a

ta xpay e r ‘ mus t de mon str a te that th e re is no rational re lationship between t h e income attributed to the State and the intra state value s of the enter prise.’” Id. (q u o t i n g Container Corp. , 463 U.S. at 180). The evidenc e shows that TGS’s Texas customers use the licenses purcha sed from TGS in Texas. Bec ause Te x as af fords prote ctions
and be ne fi ts t o T GS f

or the us e of

its lic e ns e s in

Te xas, the state may

fa ir ly ta x the g ro ss r e c e ipt s derive d from TGS’s lice nsing a ctivities in Tex as. See id. We conclude that the Texas apportionment fo rm ula is e xter na lly c on sis te nt. To the extent TGS c halleng es the Comptroller’s use of TG S’s customers’ shipping or billin g addre ss to determine the loc ation of use, we find no merit in TGS’s argument. The tax code dir ects the Comptroller to “de termine the a mount of tax to be paid from information containe d in th e [ ta x] re po rt or any other information available to the Comptroll er . ” T e x. T a x Co d e A n n. § 111.008 (West 2008) (empha sis added). The rec ord shows that the Comptroller appor tioned TGS’s g ross rec eipts based on location of use within the meaningof the re levant statutes. See For mer §§ 171.103(4), .1032(a) (4). The only evidenc e TGS provided to the Comptroller re g arding location of use inc luded summary repor ts identify ing T GS’s customers’ shippingor billing addre sses. In the abse nce of other e vidence , we c onclude that the Comp t ro l l er ’s use of TG S’s customers’ shipping or bi lling address to deter mine location of use w as re asonable
. Se e ge ne ra lly19

Bullock v . Hewlett-Pac kard Co. , 6 2 8 S
. W
. 2 d 7 5 4 , 7 5 6 ( T e x. 1 9 8 2 ) ( u p h o l d i n g c o mp tr oll e r r

ule ba se d o n a dmi nis tr a tiv e c on ve nie nc e and e ffici e nc y

); Grave s v. Morales , 923 S.W .2d 754, 757 (Tex. App.—Austin 1996, writ denied) ( same).

TGS contends alter

natively that the Comptroller should have used the location whe re the g eophy sical data

was shot bec ause that would be a better indicator of location of use within the meaningof the tax code a nd TGS could more e asily identify t h at l o ca t i o n fr om its records. TG S argues that use of

the location whe re the g eophy sical data was shot would have apportioned f ewe r
re c e ipt s to Te xas, the re by re su lti ngin l ow e r fr anc his e ta xes fo r TG S. Th a t th e Com ptr oll e r c ou ld have used another means to de termine location of use within the meaning of the tax code does not make the me thod chosen by the Comptroller unrea so nable. See R ailroad Comm’n v. Mac khank Petroleum Co. , 190 S.W .2d 802, 804 (Tex. 1945) (“T his Court cannot strike down an administrative
or de r o n th e g ro un d th a t . . . a mor e e qu ita

ble on e c ou ld b e e nte re d. ” ); Ra ilr oa d Co mm ’n v . H um ble Oil & Refining Co. , 193 S.W .2d 824, 833 (Tex. Civ. App.—Austin 1946, writ ref’d n.r .e.) ( ag ency has discre tion when choosingmethod to car ry out leg islative mandate) . The Te x as Supreme Court h a s l o n g r e c o g n i z e d

t h a ta dm i n i s t r a t i v e a g e n c i e s ar e c r e a t e d t o c e n t r a l i z e e xp e rt i s e i nc e rt a in regulatory are as and, thus, courts shoul d g ive age ncies “a l arg e degr ee of latitude
. . . in the methods by which [an ag ency] accomplishes its reg ulatory function.” Corpus Chr isti v. Public Util. Comm’n , 5 7 2 S
. W
. 2 d

2 9 0 , 2 9 7 ( T e x . 1 9 7 8 ) ( ci t i n g Railroad Comm’n v. Houston Natural Gas Corp. , 289 S.W .2d 559 (Tex. 1956)). The leg islature has c har ged t h e C o m p troller to collec t the taxes imposed by

the tax code. SeeTex. Tax Code Ann. §§ 111.001 (c omptroller shall collec t tax es), 171.154 (fr anchise taxes sh al l b e p aid t o comptroller) (West 2008). TGS provided no e videnceWe l ike wi se re je c t T GS’ s argume nt t

hat it “ is n ot i n a

po sit ion to k no w” wh ere its 8 c us tom e rs us e the g e op hy sic a l data TG S pr ov ide s. Th e ta x c od e re qu ir e s TG S to keep ad equ ate rec ords of whe re geo p h y s ical data is used when mate rial to taxation. SeeTex. Tax Code Ann. § 171.211 (West 2008) (allowingcomptroller t o examine rec ords to deter mine fra nchise tax lia bil ity ); see also id. § 111.0041 (West 2008) (re quiringrec ords to be kept ope n for inspec tion fo r f our ye ars ); Monaghan v. S eis mograph Serv. Corp. , 108 So.2d 721, 724, 728-28 (Miss. 1959) (holding that company ’s fa ilure to maintain rec ords cannot justify claim of unfair a pportionment). W er e w e t o ad o p t T GS ’s ar gu m en t , we wo u l d “r en d er m ea n i n gl es s t h e r egu l at o ry s ch em e r eq u i ri n g a taxpay er to ke ep and produce rec ords.” Se e Sta te v . G las s , 7 23 S.W. 2d 32 5, 32 8 ( Te x. Ap p. —Aus tin 1987, writ ref

’d n.r.e .). 20 reg ardingits proposed method of deter mining location of use. O n this recor d, we c annot fa ult the Comptroller for usingthe shipping or billing addresses of TG S’s customers to deter mine location of use. We over

rule TGS’s third issue. 8
Pe nal tie s a nd I nte re st On cr oss- a

p p e a l, th e Co mp tr o ller cha lleng es the district cour t’s judgme nt finding that the Comptroller abused he r discre tion in refusing to waive pe nalties for the second a udit period and int e re st fo r bot

h au dit pe ri od s. We r e vie w t he Com ptr oll e r’ s d e c isi on

to w a ive pe na lti e s o r i nte re st for a n abuse of

discretion. See U

pjohn Co. v. Rylander , 3 8 S. W.3 d 6 00 , 6 11 (T e x. Ap p. —Aus tin 2000, pet. den i ed ). On the facts of this ca se, we ag ree with the district court that the Comptroller abused he r discre tion in refusing to waive pe nalties for t h e s ec o nd audit period a nd penalties a

nd int e re st f or bo th a ud it p e ri od s. The Comptroller’s a

uthor i t y t o waive penalties or inter est is gove rned by section 111.103 of the tax code an d s ec t ion 3.5 of the Comptroller’s rule s. SeeTex. Tax Code Ann.Be cause the proc edure s for re questing a wa iver in connec tion with an audit liabilit y and 9 the fa c tor s to be c on sid e re d b y the Com ptr oll e r i n d e te rm ini ngwh e the r t o g rant a wai ve r r e qu e st have no t c ha

ng e d s inc e Rul e 3. 5 w a s a do pte d in 19 92 , w e c ite to t

he c ur re nt r ule un le ss o the rw ise noted. 21 § 111.103 (West 2008 ); 3 4 T ex . Admin. Code § 3.5. Se c tio n 1 11 .1 03 a llo ws the Com ptr oll e r t o 9
se ttl e c la ims fo r p e na lti e s o r i nte re st i f t he tax pay er e xer c ise d r e a so na ble dil ig e nc e to c omp ly with the provisions of the tax code. Tex. Tax C ode Ann. § 111.103. Rule 3.5 of the Comptroller’s rules spec ifies the proc edure s for re questing a wa iver of penalties or interest as well as the factor s t o b e co nsidered by

the Comptroller when de termining whether to gr ant a wa iver re quest. See 34 Tex. Admin. C ode § 3.5. Since its a doption in 1992, Rule 3.5 has specifie d differ ent proc edure s for r equestinga wa iver of pe nalties or intere st (and diffe rent fa ctors to be considere d) dependingon whether the request for waiver was m ade in connection with an a udit or not. See 17 Tex. Reg . 98 (1992), adopted 17 Tex. Reg
. 1546 (1992) (codified at 34 Tex. Admin. Code § 3.5). Wit h reg ard to a waive r re quest on an a udit liabili ty , the rule in eff ect at the time of

TGS’s audit provided that

“ pe na lty or int e re st . . . may be wa ive d if the ta xpay e r exe rc ise d re a so na ble dil ig e nc e to c omp ly

wi th the tax laws of this state.” See34 Tex. Admin. C ode § 3.5(a )(1). Subsection (a)( 2) of Rule 3.5 deleg ates the initial author ity to w aive penalty and interest to the audit manag er, but subsection (a) (4) al l o ws a t ax p ay er

t o ra i s e t h e i s s u e a s a co n t es t ed ca s e ma t t er i n a re fu n d o r r ed et erm i n at i o nh ea ri n g. Id. § 3 .5 (a )( 2) , ( 4)
. Whe n re vie wi ng a pe na lty wa ive r re qu e st, Rul e 3. 5 r e qu ir e s th e Com ptr oll e r t o
c on sid e r n ine fa c tor s:

! t h e t a x p aye r ’ s a

u d i th i s t o r

y;
! the tax is sues involved;22

! a cha

ng e in comptroller policy during the audit per iod;
! siz e and sophistication of the taxpay er;
! whether

tax was collected but not re mitted;
! whether

returns w ere timely

filed;
! c omp le te ne ss o f r e c or ds ;
! de lin qu e nc ie s in

oth e r t a xes;
! relianc e on advic e provide d by the comptroll er’ s office which ca used imp os iti on

of pe na lty and int e re st.
Id. § 3.5(c) (1)- (9). When revie wing an int ere st waiver reque st, Rule 3.5 require s the Comptroller to c on sid e r t

hr e e fa c tor s:

! un du e de lay

c a us e d b y c omp tr oll e r p e rs onne l;
! relianc e on advice provided by the comptroller’ s office which ca used imposit ion of pena lty

and intere st; and
! natur a l di sa ste rs . Id. § 3.5(d)( 1)-( 3).

I n h e r br ie f on ap pe a l, as we ll as he r mot ion fo r sum mary jud g me nt in the tr ia l c ourt , the Com ptr oll e r i nc or

re c tly a sse rt s th a t sh e was re qu ir e d to c on sid e r t he six no n- a

ud it f a c tor s in Rule 3.5(b) instead of

the nine audit fac tors in Rule 3.5(c) when de ciding whether to waive TG S’sThe six non-audit factors include : 10
! wh e the r t

he ta xpa y e r i s c ur re nt i n th e fi lin g of

a ll r e tur ns ;
! whether

th e taxp ay e r

is c u r r e n t i nth e p ay

me n t o f a ll taxe s an d

fee s due the state ;
! wh e the r p e na lty

ha s b e e n w a ive d o n o the r o c c a sio ns ;
! why

penalty was pre viously

waived or

denied;
! whether

the taxpay er ha s a g ood rec ord of t imely filing a nd paying past retur ns; and
! whether

the taxpay er ha s t ak en the necessa ry steps to corre ct the pr ob le m f or futur e fi lin g s. 34 Tex. Admin. C ode § 3.5(b) (2008). 23 pe na lti e s. The Comptroller does not e ven re fer ence the three fac tors i n Rule 3.5(d) r eg arding

10 int e re st w a ive rs . A n a g e nc y ’s de c isi on is a rb itr ary or re su lts fr om a

n a bu se of discr e tio n if the ag ency

fails to consider r eleva

nt fac tors, considers a

n irrele vant fa ctor, or weig hs only rele vant fac tors but stil l rea ches a completely

un re asonable result. Se e City of E l P as o v . P ub lic Ut il. Comm’n , 8 83 S.W. 2d

17 9, 18 4 ( Te x. 19 94 ); Gerst v. Ni xon , 411 S.W .2d 350, 360 n. 8 (Tex. 1966). I n c on sid e ri ngwh e the r a

n a g e nc y ha s a bu se d its dis c re tio n, a re vie wi ng c ourt mus t a sc e rt a in t ho se fac tors considere d by

the ag ency . Se e Ge rst , 4 11 S.W. 2d a t 36 0 n .8 ; Co n s u me r

s W ater, Inc. v. Public Util. Comm’n , 774 S.W .2d 719, 721 (Tex. App.—Austin 1989, no writ).

As e vid e nc e that sh e a c te d wi thi n he r dis c re tio n to wa ive on ly the pe na lty

fo r t he fi rs t audit period, the Comptroller submitted the af fidavit of Patrick Ramire z. Although Ramirez aver s that he has know ledg e of the fac tors in Rule 3.5 to be considere d when deciding whether to gr ant orThe wor ksheet for the sec ond audit period re flec ts that the 2001 return w as untimely and 11 that th e re wa s o ne late pa y me nt. 24 deny a wa iver re quest, his a ffidavit does not state which f actor s were considere d or applied by the Com ptr oll e r i n th is c a se . L ike wi se , th e Com ptr oll e r’ s w or

ks he e ts, su

bmi tte d a s attach ment s to Ramirez’s aff

idavit, do not state which fac tors wer e considere d by the Comptroller in determining whether to gr ant TGS’s wa iver re quests. Wit h reg ard to the Rule 3.5 fac tors to be consider ed, the workshee ts refle ct t hat TGS had no prior history of audit er

rors; TGS’s re turns wer e timely filed; 11 TGS’ s r e c o r d s w e r e c o mp le te ; an d th e r e w e r e n o d e li n qu e n c ie s in o th e r taxe s . T h e r e is also an
un e xpla ine d d isc re pa

nc y be tw e e n th e tw o p e na lty wo rk sh e e ts b e c a

us e the wo rk sh e e t f

or the fi rs t audit period states that TGS has an interna l tax /acc ounting de partment, but the wor ksheet for the second a udit period states that TGS has used a contra ct acc ountant for the past fiftee n y ear s, which would have included both a udit pe riods. Fur

ther, there is no indication on these workshe ets that the Comptroller considere d whether TGS relied on advice from the Comptroller’s of fice , which ca

used the impositi on of pena lties or interest, or whether t here was undue delay cause d by

Comptroller pe rs onne l. The re cord r efle cts and the pa rties ag ree d that TGS had consistently relied on le tter ruling s from the Comptroller’s office to a pportion TGS’s licensing rec eipts. The pena lty workshee t for the f irst audit period states that TGS used the wrong apportionment bec ause “ the taxpay er
wa s n ot awa

re of the c ha

ng e [in law]. ” Th e pe na lty wo rk sh e e t f

or the se c on d a

ud it p e ri od

re fl e c ts that pe na lti e s and int e re st we re imp os e d fo r the same e rr or s a s in the fi rs t a ud it peri od—na me ly TGS’s use of the wron g ap p o rtionment method. Although the Comptroller issued a letter r uling25

to TGS in 2002 ex plaining the 1997 amendments a nd the re sulting cha

ng e in the app o rt i o nment method for TGS’s licensingrec eipts, this letter was the only evidenc e of when TGS bec ame a war e of the c hang e in law.

Whil e we may presume that TGS, as a tax pay er w as aw are of the tax code, including rele vant chang es in the tax l aw, see Shiv ers v. Tex aco Ex ploration & Prod. , 965 S.W .2d 727, 735
n . 4 (T ex . Ap p . — T ex ark an a 1 9 9 8 ) ( ci t i n g Me x ia In de p. Sc h. Di st. v . City of M e x ia , 133 S.W .2d 118, 121 (Tex. 1939) (findingthat taxpay er w as charg ed with knowledg e of the l aw) ), an a g ency is bound to follow its own rules and proc edure s. See R odriguez v. Serv ice Lloyds Ins. Co. , 997 S.W .2d 248, 25 5 ( Te x. 19 99 ); Public Util. Comm’n v. Gulf States Util. Co. , 809 S.W .2d 201, 207 (Tex. 1991). An ag ency abuses its discr etion if it a cts without refe renc e to g uiding r ules or princ iples. Se e City of Amarillo v. Railroad Comm’n , 894 S.W .2d 491, 495 (Tex. App.—Aust i n 1 995, writ denied)
. B e c a us e we c ann ot a sc e rt a in whe the r t he Com ptr oll e r c on sid e re d th e re le va nt au dit fa c tor s in Rul e 3.5(c) and (d) —and the Comptroller’s br iefingto this C ourt (and the district court) states that she i n corr ectly

considere d the non-a

udit factors, instea d of the a udit factors—when dec iding whe ther to waiv e p en al t i es and inter est, we f ind no error

in the trial court’ s determination that the Comptroller abused he r discre tion in deny ing T GS ’s re quests. Se e Ge rst , 411 S.W .2d at 360 n.8; Consumers W

ater, Inc. , 7 74 S.W. 2d a t 721. We ove rr ule the Com

ptr oll e r’ s issu e on

c ro ss- a pp e a l.
CO NC LU SION Ha vin g ov e rr

ule d th e pa

rt ie s’ iss ue s, we a ff

ir m th e tr ia l c ourt ’s jud g me nt.26 __________________________________________ J an P. Patterson, J ustice Be fore J ustices Patterson, Pury ear and He nson Affir med Filed: August 15, 2008