Opinion ID: 895322
Heading Depth: 2
Heading Rank: 4

Heading: Receipts From the Use of a License

Text: The Comptroller argues that because TGS uses a license agreement to transfer seismic data to its Texas customers, the receipts are from the use of a license in Texas. She further argues that the phrase use of a license encompasses licensing because there is no qualifying language in subsection (4) or in any other part of the sourcing statute to suggest that the licensing of data does not constitute the use of a license. The Comptroller concedes that previously the licensing of seismic data was sourced as a general intangible under the location of the payor rule, but she maintains that the Legislature changed that practice in 1997 when it decided to tax licenses like patents and copyrights, according to their place of use. TGS argues that the Comptroller and the court of appeals have confused receipts from licensing with receipts from the use of a license. TGS submits that there is a critical distinction between receipts from licensing transactions (in which a license is merely the transfer mechanism) and receipts from the use of a license (in which the license itself is a valuable asset). Because TGS's customers do not use a license but instead use seismic data, TGS submits that the receipts at issue are not from the use of a license but are from its customers' acquisition and use of TGS's data. TGS contends that its receipts are therefore essentially a limited sale of an intangible asset, geophysical data. Because this data is not one of the intangible assets listed in subsection (4), TGS concludes that the receipts it derives from this data must instead be sourced as other business under the catchall provision, subsection (6), and allocated to the state of the payor's domicile. TEX. TAX CODE § 171.103(a)(4), (6). As the arguments indicate, the term license has more than one meaning. It can be used as a verb to convey the act of giving permission or as a noun to represent the permission or right granted. See WEBSTER'S NEW INTERNATIONAL DICTIONARY 1425 (2d ed.1960). As such, its use in the statute is ambiguous. Instead of focusing on the word license, as the Comptroller and court of appeals have done, the word must be read in the context of the whole statute and consideration given to what it means to use a license. See City of Sunset Valley, 146 S.W.3d at 642; Mega Child Care, 145 S.W.3d at 176. Language cannot be interpreted apart from context. The meaning of a word that appears ambiguous when viewed in isolation may become clear when the word is analyzed in light of the terms that surround it. [7] The word use poses some interpretational difficulties as well because of the different meanings attributable to it. [8] Use and the use of a license therefore, draw their meanings from context, so we look not only to the words themselves but to the statute in its entirety to determine the Legislature's intent. [9] It is a fundamental principle of statutory construction and indeed of language itself that words' meanings cannot be determined in isolation but must be drawn from the context in which they are used. [10] The statute sources to Texas receipts from the use of a patent, copyright, trademark, franchise, or license to the extent they are used in Texas. TEX. TAX CODE § 171.103(a)(4). The canon of statutory construction known as noscitur a sociis, or it is known by its associates directs that similar terms be interpreted in a similar manner. See Fiess v. State Farm Lloyds, 202 S.W.3d 744, 750 n. 29 (Tex.2006) (quoting BLACK'S LAW DICTIONARY 1087 (8th ed.2004)). Thus, we interpret the similar terms license, patent, copyright, trademark, and franchise in a similar manner. Considering how the statute applies to patents and copyrights is therefore instructive. When a business wishes to manufacture a patented item, it must purchase the patent or obtain permission to use the patent from the owner. Permission is usually granted in the form of a license. When the licensee thereafter produces the patented item, it uses the patent, and its payments to the patent's owner are receipts from the use of a patent. See TEX. TAX CODE § 171.103(a)(4). The revenue or royalties that the patent owner receives is included in Texas receipts to the extent that the patent is used in production, fabrication, manufacturing, or other processing in Texas. 34 TEX. ADMIN. CODE § 3.549(e)(30)(A)(i). Even though a license is part of this transaction, the receipts are from the use of the underlying intellectual property, the patent, not from the use of a license. Similarly, when a business wishes to publish copyrighted material, the owner of the copyright must grant permission through a license. When the licensee publishes the copyrighted material, it uses the copyright, and its payments to the owner are receipts from the use of a copyright. See TEX. TAX CODE § 171.103(a)(4). Revenue the copyright owner receives from the use of its copyright is included in Texas receipts to the extent the copyright is used in Texas. 34 TEX. ADMIN. CODE § 3.549(e)(30)(A)(ii). Even though a license is part of this transaction, the receipts are from the use of the underlying intellectual property, the copyright, not from the use of a license. In these two situations, the owner of the intangible asset uses a license to convey limited rights to its intellectual property. But the revenue produced is not from the use of a license in Texas; it is from the use of the underlying intellectual property, the copyright or the patent. Similarly, the revenue TGS receives from conveying its geophysical data is not derived from the use of a license but from the use of the underlying intellectual property, the data. The term license in subsection (4) of the sourcing statute therefore refers to licenses that are themselves revenue-producing assets. It does not include the mechanism of licensing, which would subsume all intangible assets. Had that been the Legislature's intent, it would not have been necessary to name the intangible assets specifically as the Legislature has done in subsection (4). See In re M.N., 262 S.W.3d at 802 (presuming that the Legislature included each word in the statute for a purpose ... and that words not included were purposefully omitted).