Court Opinion

ID: 4071497
Source: CourtListenerOpinion
Date Created: 2016-09-30 02:07:56.410752+00
Date Added: 2024-06-11T07:45:20.367066
License: Public Domain

ACCEPTED
                                                                                                                           03-15-00113-CV
                                                                                                                                   6486239
                                                                                                                THIRD COURT OF APPEALS
                                                                                                                           AUSTIN, TEXAS
                                                                                                                      8/13/2015 2:31:09 PM
                                                                                                                         JEFFREY D. KYLE
                                                                                                                                    CLERK

                                                                                                     FILED IN
                                                                                              3rd COURT OF APPEALS
                                                                                                  AUSTIN, TEXAS
RANCE CRAFT                                                                                                    (512) 936-2872
ASSISTANT SOLICITOR GENERAL                                                                   8/13/2015 2:31:09 PM
                                                                                      RANCE.CRAFT@TEXASATTORNEYGENERAL.GOV
                                                                                                 JEFFREY D. KYLE
                                                                                                      Clerk
                                                    August 13, 2015

    Mr. Jeffrey D. Kyle, Clerk                                      Via File & Serve Xpress
    Third Court of Appeals
    P.O. Box 12547
    Austin, Texas 78711-2547

        Re: EMC Corporation v. Glenn Hegar, Comptroller of Public Accounts of the
            State of Texas; and Ken Paxton, Attorney General of the State of Texas,
            No. 03-15-00113-CV

    Dear Mr. Kyle:

           Appellees Glenn Hegar, Comptroller of Public Accounts of the State of
    Texas, and Ken Paxton, Attorney General of the State of Texas, provide this notice
    that the Court recently released an opinion in another appeal that disposes of what
    Appellant EMC Corporation accurately describes as “[t]he central question in this
    case.” Appellant’s Br. 1.

           On July 28, 2015, the Court issued its decision in Graphic Packaging Corp. v.
    Hegar, No. 03-14-00197-CV, 2015 WL 4603683 (Tex. App—Austin July 28, 2015, no
    pet. h.) (copy attached). The deadline for filing a motion for rehearing or a motion
    for reconsideration en banc was August 12, 2015. TEX. R. APP. P. 49.1, 49.7.
    Neither motion was filed by that date.

           In Graphic Packaging, the Court “conclude[d] that a taxpayer may not use
    the three-factor formula in chapter 141 [of the Tax Code] to apportion its margin to
    Texas for franchise tax purposes.” Graphic Packaging, 2015 WL 4603683, at *1.
    The Court reasoned that the franchise tax does not fall within chapter 141’s
    definition of an “income tax,” which is the only kind of tax to which that chapter’s
    apportionment formula applies. Id. at *3-*7.

         The holding in Graphic Packaging resolves EMC’s third issue in the
    Comptroller’s favor and makes it unnecessary for the Court to reach EMC’s first
  POST OFFICE BOX 12548, AUSTIN, TEXAS 78711-2548 TEL: (512) 463-2100               WEB: WWW.TEXASATTORNEYGENERAL.GOV
                                         An Equal Employment Opportunity Employer
Mr. Jeffrey D. Kyle
EMC Corp. v. Hegar
No. 03-15-00113-CV
August 13, 2015
Page 2

and second issues. See Appellant’s Br. 2; Graphic Packaging, 2015 WL 4603683, at
*7 n.5.

     Please distribute this letter to the Justices of the panel assigned to this case.
Thank you for your assistance with this matter.

                                       Sincerely,

                                       /s/ Rance Craft

                                       Rance Craft
                                       Assistant Solicitor General
                                       Texas Bar No. 24035655

RLC/vlc

cc:    Doug Sigel (via File & Serve Xpress)
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--- S.W.3d ----, 2015 WL 4603683 (Tex.App.-Austin)
(Cite as: 2015 WL 4603683 (Tex.App.-Austin))

                                                           payer apportions the share of its taxable margin to its
Only the Westlaw citation is currently available.          Texas operations for franchise tax purposes. Accord-
                                                           ing to the Comptroller of Public Accounts and the
                                                           Attorney General (collectively the Comptroller), a
NOTICE: THIS OPINION HAS NOT BEEN RE-
                                                           taxpayer may not use the three-factor formula in
LEASED FOR PUBLICATION IN THE PERMA-
                                                           chapter 141 of the Tax Code, the Multistate Tax
NENT LAW REPORTS. UNTIL RELEASED, IT IS
                                                           Compact, for franchise tax purposes but must use the
SUBJECT TO REVISION OR WITHDRAWAL.
                                                           single-factor formula in section 171.106(a) of the Tax
                                                           Code. See Tex. Tax Code §§ 141.001, arts. III, IV,
             Court of Appeals of Texas,
                                                           171.106(a). FN1 Facing cross-motions for summary
                      Austin.
                                                           judgment on this issue, the district court ruled in favor
     Graphic Packaging Corporation, Appellant
                                                           of the Comptroller. Because we conclude that a tax-
                         v.
                                                           payer may not use the three-factor formula in chapter
Glen Hegar, Comptroller of Public Accounts of The
                                                           141 to apportion its margin to Texas for franchise tax
State of Texas; and Ken Paxton, Attorney General of
                                                           purposes, we affirm the district court's judgment.
           The State of Texas, Appellees

                                                                    FN1. References in this opinion to chapters
               NO. 03–14–00197–CV
                                                                    141 and 171 are to those chapters in the Tax
                Filed: July 28, 2015
                                                                    Code.

FROM THE DISTRICT COURT OF TRAVIS
                                                                              BACKGROUND
COUNTY, 353RD JUDICIAL DISTRICT NO.
                                                                Graphic Packaging Corporation is a corporation
D–1–GN–12–003038, HONORABLE STEPHEN
                                                           headquartered in Marietta, Georgia that sells packag-
YELENOSKY, JUDGE PRESIDING
                                                           ing for consumer products throughout the United
James F. Martens, Amanda G. Taylor, Danielle V.
                                                           States. Because Graphic operates in multiple states
Ahlrich, Lacy L. Leonard, Martens Todd Leonard
                                                           including Texas, the amount of its Texas franchise tax
Taylor & Ahlrich, Austin, TX, Edwin P. Antolin, Amy
                                                           liability is assessed and apportioned based on its
L. Silverstein, Silverstein & Pomerantz, LLP, San
                                                           “taxable margin” attributable to Texas. See id. §§
Francisco, CA, for Appellant.
                                                           171.002(a) (setting rate of franchise tax as percent of
                                                           taxable margin), .101 (stating alternatives for deter-
Cynthia A. Morales, Assistant Attorney General,            mining taxable margin), .106 (stating alternatives for
Rance Craft, Office of the Attorney General, Austin,       determining apportionment of margin to Texas); see
TX, for Appellees.                                         also id. § 171.001(a) (imposing Texas franchise tax
                                                           against “each taxable entity that does business in this
Before Chief Justice Rose, Justices Goodwin and            state or that is chartered or organized in this state”);
Field                                                      Combs v. Newpark Res., Inc., 422 S.W.3d 46, 47–8
                                                           (Tex.App.–Austin 2013, no pet.) (describing structure
                    OPINION                                and formula for calculating franchise tax, which is
Melissa Goodwin, Justice                                   “tax on the value and privilege of doing business in
    *1 This appeal presents the issue of how a tax-        Texas” (citing In re Nestle USA, Inc., 387 S.W.3d 610,

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612 (Tex.2012) (orig.proceeding)).                          based on its election to apportion its margin to Texas
                                                            based on the three-factor formula. Id.; see id. §
    When it initially filed its 2008 and 2009 Texas         111.104 (addressing refund claims). Graphic does not
franchise tax reports, Graphic apportioned its margin       own or operate any manufacturing operations in Texas
to Texas using the single-factor formula in section         and only engages in retail and wholesale activities in
171.106(a):                                                 Texas. Thus, applying the three-factor formula that
                                                            includes payroll and property factors as well as a sales
                                                            factor reduced its franchise tax liability lower than the
  Except as provided by this section, a taxable entity's
                                                            single-factor formula of chapter 171 would have
  margin is apportioned to this state to determine the
                                                            yielded.
  amount of tax imposed under Section 171.002 by
  multiplying the margin by a fraction, the numerator
  of which is the taxable entity's gross receipts from           The Comptroller concluded that Graphic was
  business done in this state, as determined under          required to use the single-factor formula in section
  Section 171.103, and the denominator of which is          171.106(a), then denied Graphic's refund claims and
  the taxable entity's gross receipts from its entire       assessed additional franchise tax, penalty, and interest
  business, as determined under Section 171.105.            for under-reporting in the 2010 tax report year. See id.
                                                            § 171.106(a). Graphic requested hearings as to the
                                                            amount of its franchise tax liabilities for the 2008 to
     Tex. Tax Code § 171.106(a); see also id. §§
                                                            2010 tax report years, and the hearings were com-
171.002, .103 (describing calculation for determining
                                                            bined. The Comptroller upheld the assessment against
gross receipts from business done in Texas for mar-
                                                            Graphic for the 2010 tax report year and the denial of
gin), .105 (describing calculation for determinating
                                                            Graphic's refund claims. After the Comptroller denied
gross receipts from entire business for margin). The
                                                            Graphic's motion for rehearing, Graphic paid the 2010
single-factor formula multiplies a taxpayer's margin
                                                            assessment under protest and filed this combined
by a gross-receipts fraction, which generally is the
                                                            refund and tax-protest suit against the Comptroller.
taxpayer's gross receipts from its business conducted
                                                            See id. §§ 112.052 (authorizing taxpayer suit after
in Texas divided by its gross receipts from the tax-
                                                            payment under protest), .151 (authorizing taxpayer
payer's total business. Id. § 171.106(a); see id. §§
                                                            suit for refund).
171.101, .1011–.1013 (addressing components of
margin determination).
                                                                 In its petition, Graphic brought four separate
                                                            “counts” to support its claims for the 2008 to 2010 tax
     *2 On its 2010 Texas franchise tax report,
                                                            report years. It asserted that (i) it properly elected
Graphic apportioned its margin to Texas differently
                                                            chapter 141's three-factor formula to apportion its
using the three-factor formula in article IV of section
                                                            margin to Texas for franchise tax purposes; (ii) the
141.001. See id. § 141.001, arts. III.1, IV. This for-
                                                            franchise tax's single-factor formula, as applied to
mula equally weighs property, payroll, and sales fac-
                                                            Graphic, violates the United States Constitution; (iii)
tors. See id. art. IV.9 (apportioning “[a]ll business
                                                            the franchise tax's rate structure, as applied to Graphic,
income ... to this state by multiplying the income by a
                                                            violates the United States Constitution; and (iv) al-
fraction, the numerator of which is the property factor
                                                            ternatively, the Comptroller abused his discretion in
plus the payroll factor plus the sales factor, and the
                                                            failing to waive penalties and interest.
denominator of which is three”). Graphic also filed
refund claims and amended franchise tax reports for
the 2008 and 2009 tax report years, seeking a refund            Graphic moved for summary judgment on its first
                                                            ground, and the Comptroller filed a response and a

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cross motion for partial summary judgment as to that         de novo. Valence Operating Co. v. Dorsett, 164
ground. Consistent with the administrative proceed-          S.W.3d 656, 661 (Tex.2005). If the trial court does not
ings and prior decisions, the Comptroller contended          specify the grounds for its summary judgment, we
that Graphic was required to apportion its margin to         must affirm the summary judgment “if any of the
Texas using the single-factor formula in section             theories presented to the trial court and preserved for
171.106(a). See id. § 171.106(a); see, e.g., Texas           appellate review are meritorious.” Provident Life &
Comptroller of Pub. Accounts, SOAH No.                       Accident Ins. Co. v. Knott, 128 S.W.3d 211, 216
304–13–2728.13, 2013 WL 4508906, at *1–3 (June 7,            (Tex.2003).
2013) (citing prior decisions by Comptroller and re-
quiring claimant to use single-factor formula in sec-             Graphic's issues also concern statutory construc-
tion 171.106(a) to apportion its margin to Texas for         tion, a question of law that we review de novo. See
tax report years 2008 to 2011); see also 34 Tex. Ad-         First Am. Title Ins. Co. v. Combs, 258 S.W.3d 627,
min. Code § 3.591(c) (Comptroller of Pub. Accounts,          631 (Tex.2008). Our primary concern in construing a
Margin: Apportionment) (tracking language of section         statute is the express statutory language. See Galbraith
171.106(a) to describe apportionment formula for             Eng'g Consultants, Inc. v. Pochucha, 290 S.W.3d 863,
franchise tax purposes).                                     867 (Tex.2009). “We thus construe the text according
                                                             to its plain and common meaning unless a contrary
     The district court granted the Comptroller's par-       intention is apparent from the context or unless such a
tial motion for summary judgment and denied                  construction leads to absurd results.” Presidio Indep.
Graphic's motion for summary judgment without                Sch. Dist. v. Scott, 309 S.W.3d 927, 930 (Tex.2010)
providing its reasoning. Graphic non-suited its con-         (citing City of Rockwall v. Hughes, 246 S.W.3d 621,
stitutional and alternative claims, and the district court   625–26 (Tex.2008)). We “ ‘read the statute as a whole
rendered final judgment. This appeal followed.               and interpret it to give effect to every part.’ ” Railroad
                                                             Comm'n v. Texas Citizens for a Safe Future & Clean
                      ANALYSIS                               Water, 336 S.W.3d 619, 628 (Tex.2011) (quoting City
      Graphic brings three issues challenging the dis-       of San Antonio v. City of Boerne, 111 S.W.3d 22, 25
trict court's summary judgment ruling in favor of the        (Tex.2003)).
Comptroller. Graphic contends that it properly elected
to use the three-factor formula in chapter 141 to ap-        Is the franchise tax an “income tax” within the
portion its margin to Texas because: (i) section             meaning of chapter 141?
171.106(a) did not impliedly repeal chapter 141's                 Because resolution of Graphic's third issue is
election and formula; (ii) if section 171.106(a) did         dispositive to this appeal, we assume without deciding
impliedly repeal chapter 141's election and formula,         that section 171.106(a) did not impliedly repeal
the repeal was invalid because the Multistate Tax            chapter 141's election and formula and turn to
Compact is an interstate agreement that is binding on        Graphic's third issue. Graphic urges that a taxpayer
the party states unless and until they withdraw, and         has the option to choose chapter 141's three-factor
(iii) if chapter 141's election and formula were not         formula or chapter 171's single-factor formula to ap-
repealed, “the Texas franchise tax is an ‘income tax’        portion its margin to Texas for franchise tax purposes
as defined to be within the scope of the [Multistate         because “the Texas franchise tax is an ‘income tax’ as
Tax] Compact's applicability.”                               defined to be within the scope of the [Multistate Tax]
                                                             Compact's applicability.” According to Graphic, the
Standard of Review                                           franchise tax is a state “income tax” as defined in
    *3 We review a trial court's summary judgment            paragraph 4 of article II of section 141.001 and

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therefore it properly elected under paragraph 1 of                      4. Avoid duplicative taxation.
article III to apportion its margin based on the
three-factor formula. See Tex. Tax Code § 141.001,                      Tex. Tax Code § 141.001, art. I.
arts. II.4 (defining “income tax”), III.1 (authorizing
taxpayer option).
                                                                 *4 One of the grounds urged by the Comptroller
                                                            in his motion for summary judgment was that Chapter
     Section 141.001 adopts the Multistate Tax              141's three-factor formula did not apply because the
Compact.FN2 See id. § 141.001. Article III of section       election to apportion “income” in article III is only
141.001 is titled “Elements of Income Tax Law,” and         available to taxpayers subject to “an income tax” and
its paragraph 1 is titled “Taxpayer Option, State and       the franchise tax is not an “income tax.” Id. art. III.1;
Local Taxes.” See id. art. III.1. Paragraph 1 states in     see also id. arts. II.9 (“[T]he provisions of Articles III,
relevant part:                                              IV, and V of this compact shall apply only to the taxes
                                                            specifically designated therein.”), III.3 (“Nothing in
  Any taxpayer subject to an income tax whose in-           this article relates to the reporting or payment of any
  come is subject to apportionment and allocation for       tax other than an income tax.”). Graphic does not
  tax purposes pursuant to the laws of a party state ...    dispute that the district court properly granted sum-
  may elect to apportion and allocate his income in the     mary judgment in favor of the Comptroller if the
  manner provided by the laws of such state ... with-       Texas franchise tax does not fall within chapter 141's
  out reference to this compact, or may elect to ap-        definition of “income tax.” See Knott, 128 S.W.3d at
  portion and allocate in accordance with Article IV.       216 (requiring summary judgment to be affirmed “if
                                                            any of the theories presented to the trial court and
    Id. art. III.1; see also id. art. IV.2 (“Any taxpayer   preserved for appellate review are meritorious”). The
having income from business activity which is taxable       controlling issue then is whether the franchise tax falls
both within and without this state ... shall allocate and   within the meaning of “income tax” as defined in
apportion his net income as provided in this article.”).    chapter 141.

         FN2. The purposes of the Multistate Tax                 Paragraph 4 of article II of section 141.001 de-
         Compact are to:                                    fines “income tax” as “a tax imposed on or measured
                                                            by net income including any tax imposed on or
                                                            measured by an amount arrived at by deducting ex-
           1. Facilitate proper determination of state
                                                            penses from gross income, one or more forms of
           and local tax liability of multistate tax-
                                                            which expenses are not specifically and directly re-
           payers, including the equitable appor-
                                                            lated to particular transactions.” Tex. Tax Code §
           tionment of tax bases and settlement of
                                                            141.001, art. II.4. As a threshold matter, we conclude
           apportionment disputes.
                                                            that chapter 141's definition of “income tax” is not
                                                            ambiguous and interpret the definition based on its
           2. Promote uniformity or compatibility in
                                                            plain text in the context of the statutory scheme. See
           significant components of tax systems.
                                                            Scott, 309 S.W.3d at 930; City of Round Rock v. Ro-
                                                            driguez, 399 S.W.3d 130, 137 (Tex.2013) (“When a
           3. Facilitate taxpayer convenience and           statute is clear and unambiguous, we do not resort to
           compliance in the filing of tax returns and      extrinsic aides such as legislative history to interpret
           in other phases of tax administration.           the statute.”).

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                                                            tions.” See id. § 141.001, art. II.4. Graphic focuses on
     Chapter 141 does not define the terms “net in-         the clause in chapter 141's definition of “income tax”
come” or “expenses” so we apply those terms' plain          that follows after the word “including,” see id.; see
meanings. See Scott, 309 S.W.3d at 930. “[N]et in-          also Tex. Gov't Code § 311.005(13) (noting that “in-
come” is the “excess of all revenues and gains for a        cluding is ‘term[ ] of enlargement’ ”), and the
period over all expenses and losses of the period.”         cost-of-goods alternative for determining margin.
INOVA Diagnostics, Inc. v. Strayhorn, 166 S.W.3d            Tex. Tax Code § 171.101. According to Graphic, a
394, 401 n. 7 (Tex.App.–Austin 2005, pet. denied)           taxpayer's “margin” for franchise tax purposes meets
(quoting Black's Law Dictionary 1040 (6th ed.1990));        the definition of “net income” as that term is used in
see also Webster's Third Int'l Dictionary 1519–20           chapter 141's definition of “income tax” because a
(2002) (defining “net” as “remaining after the deduc-       taxpayer may determine its tax base (its margin)—as
tion of all charges, outlay, or loss” and “net income”      Graphic did for the relevant tax years here—by sub-
as “balance of gross income remaining after deducting       tracting its cost of goods sold, including indirect costs,
related costs and expenses usu[ally] for a given period     and those indirect costs are “expenses” that are “not
and losses allocable to that period”). An “expense” is      specifically or directly related to a particular transac-
an “item of outlay incurred in the operation of a           tion.” Compare id. § 141.001, art. II.4 with id. §
business enterprise allocable to and chargeable against     171.1012(f) (allowing subtraction of specified “indi-
revenue for a specific period.” Webster's at 800.           rect or administrative overhead costs”); see also
                                                            Black's Law Dictionary 397 (9th ed.2009) (defining
                                                            “cost” as “amount paid or charged for something;
      We also conclude that the relevant language in
                                                            price or expenditure”).
chapter 171 is not ambiguous and similarly interpret
this language based on the plain text in the context of
the statutory scheme. See Scott, 309 S.W.3d at 930.              *5 Comparing the plain meaning of the term “net
Relevant to this appeal, a taxpayer's margin generally      income” to the statutory language describing the tax
is the smallest of four amounts: (i) total revenue minus    base for franchise tax, however, makes clear that the
specified cost of goods sold, (ii) 70% of total revenue,    franchise tax does not fall within chapter 141's defi-
(iii) total revenue minus $1 million, or (iv) total rev-    nition of “income tax.” Compare Tex. Tax Code §§
enue minus specified compensation. Tex. Tax Code §          171.101 (determination of “margin”), .106 (appor-
171.101; see id. § 171.1011 (stating calculation for        tionment of “margin” to Texas) with id. § 141.001,
determining total revenue from entire business);            arts. II.4, IV.2 (apportionment of “net income”).FN3
Newpark, 422 S.W.3d at 47. Alternatively, a taxpayer        Among the alternative tax bases for franchise tax
whose “total revenue from its entire business” does         purposes are “total revenue” and 70% of “total reve-
not exceed $10 million may use its “total revenue”          nue.” Id. §§ 171.101, .1016. Reading the plain lan-
instead of margin as its tax base for franchise tax         guage of these alternatives for determining a taxpay-
purposes. See Tex. Tax Code § 171.1016 (authorizing         er's tax base, we decline to conclude that either can
“E–Z” computation).                                         fairly be read to mean “net income.” See id. §
                                                            171.1011 (stating calculation for determining “total
                                                            revenue from entire business”); see also Webster's at
    Graphic argues that the franchise tax falls within
                                                            1519–20 (defining “net income”). Although “total
chapter 141's definition of “income tax” because the
                                                            revenue” is determined by subtracting certain exclu-
franchise tax is “imposed on or measured by an
                                                            sions such as bad debt, we decline to interpret it as
amount arrived at by deducting expenses from gross
                                                            synonymous with “net income.” See Scott, 309
income, one or more forms of which expenses are not
                                                            S.W.3d at 931 (“Courts must not give the words used
specifically or directly related to particular transac-

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by the Legislature an ‘exaggerated, forced, or con-           income tax regardless of whether, in fact, the state
strained meaning.’ ” (citation omitted)).                     does or does not.

         FN3. See David A. Vanderhider, Comment:                 Tex. Tax Code § 141.001, art. IV.3. This provi-
         A Marginal Tax: The New Franchise Tax in           sion allows a taxpayer that does business in Texas to
         Texas, 39 St. Mary's L.J. 615, 646–47 (2008)       be eligible to apportion its net income to a member
         (noting that non-profitable taxpayer may owe       state that has an income tax because Texas has a
         franchise tax because it has positive margin       “franchise tax for the privilege of doing business.” See
         even though it has no net income).                 id. This provision then ensures apportionment of net
                                                            income for income tax purposes regardless of how
     Similarly, subtracting $1 million—a fixed              other member states tax businesses, at the same time
amount—from “total revenue” is not the same as              that it recognizes and distinguishes different types of
“deducting expenses from gross income.” Compare             tax, including distinguishing franchise and income
Tex. Tax Code § 171.101 with id. § 141.001, art. II.4.      tax. See id.; TGS–NOPEC Geophysical Co. v. Combs,
Further, the cost-of-goods-sold and compensation            340 S.W.3d 432, 439 (Tex.2011) (“We presume that
alternatives for determining a taxpayer's margin allow      the Legislature chooses a statute's language with care,
subtractions only for select costs. Id. § 171.1012(f). To   including each word chosen for a purpose, while
support Graphic's interpretation of the term “net in-       purposefully omitting words not chosen.”). Consistent
come,” the clause after “including” in chapter 141's        with paragraph 3 of article IV, article II defines dif-
definition would have to be rewritten to state “an          ferent types of tax, defines “tax” generally to include
amount arrived at by deducting [any] expense[ ] from        “any other tax which has a multistate impact,” and
gross income.” “We are not free to rewrite the statute      limits the reach of article III to “income tax.” See Tex.
in the guise of construing it.” See Foster v. Texas         Tax Code § 141.001, art. II.4–9 (defining various
Dep't of Criminal Justice, 344 S.W.3d 543, 548              types of tax and “tax” to mean “an income tax, capitol
(Tex.App.–Austin 2011, pet. denied) (citing Stockton        stock tax, gross receipts tax, sales tax, use tax, and any
v. Offenbach, 336 S.W.3d 610, 619 (Tex.2011)).              other tax which has a multistate impact” and limiting
                                                            article III to “tax[ ] specifically designated therein”);
                                                            see also id. art. III.3 (“Nothing in this article relates to
     Other provisions of chapter 141 provide further
                                                            the reporting or payment of any tax other than an
support for the interpretation of chapter 141's defini-
                                                            income tax.”).
tion of “income tax” as not including the Texas fran-
chise tax. See Texas Citizens, 336 S.W.3d at 628 (in-
terpreting statute as whole). For example, paragraph 3            *6 As to chapter 171, we assume that the legis-
of article IV of section 141.001 addresses apportion-       lature was aware of chapter 141 and its definition of
ing a taxpayer's “net income” to a member state for         “income tax” when it restructured the franchise tax in
that state's income tax. For that purpose, the provision    2006. See Acker v. Texas Water Comm'n, 790 S.W.2d
defines a taxpayer as:                                      299, 301 (Tex.1990) ( “A statute is presumed to have
                                                            been enacted by the legislature with complete
                                                            knowledge of the existing law and with reference to
  taxable in another state if (1) in that state he is
                                                            it.”). Section 171.106(a) expressly states that the sin-
  subject to a net income tax, a franchise tax measured
                                                            gle-factor formula applies “[e]xcept as provided by
  by net income, a franchise tax for the privilege of
                                                            this section.” See Tex. Tax Code § 171.106(a).
  doing business, or a corporate stock tax, or (2) that
                                                            Chapter 141's three-factor formula is not listed among
  state has jurisdiction to subject the taxpayer to a net
                                                            the alternative formulas in section 171.106. See id. §

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171.106 (listing alternative formulas for apportioning      franchise tax). The legislature also contemporane-
margin to Texas). Had the legislature intended for          ously enacted a separate section that expressly stated
chapter 141's three-factor formula to be an alternative     that “[t]he franchise tax imposed by Chapter 171, Tax
for apportioning margin for franchise tax purposes, it      Code, as amended by this Act, is not an income tax.”
could have included it as one of the expressed alter-       Act of May 2, 2006, ch. 1, § 21, 2006 Tex. Gen. Laws
natives in section 171.106. See TGS–NOPEC, 340              1, 38.FN4
S.W.3d at 439; Riverside Nat'l Bank v. Lewis, 603
S.W.2d 169, 175 (Tex.1980) (holding because legis-                   FN4. That section of the Act also specified
lature knew how to include terms within statutory                    that “Pub.L. No. 86–272 does not apply to
definition and did not do so, statutory definition did               the tax.” Act of May 2, 2006, 79th Leg., 3d
not include terms “in light of [the term's] contempo-                C.S., ch. 1, § 21, 2006 Tex. Gen. Laws 1, 38.
raneous inclusion of the same terms in a separate                    Public Law Number 86–272 addresses net
provision”). Similarly, section 171.1014 addresses                   income tax, which is defined in the same
combined reporting and affiliated groups engaged in                  terms as the main clause of chapter 141's
unitary business and incorporates chapter 141's fac-                 definition of income tax. See Act of Sept. 14,
toring formula for property and payroll to determine a               1959, Pub.L. No. 86–272, Title I, § 103, 73
taxable entity's eligibility to be included in a combined            Stat. 556 (codified at 15 U.S.C. § 383)
group. See Tex. Tax Code § 171.1014. In the same act,                (“[T]he term ‘net income tax’ means any tax
the legislature expressly incorporated the factoring                 imposed on, or measured by, net income.”);
formula from chapter 141 when it wanted to do so, but                see also generally INOVA Diagnostics, Inc.
it did not do so as to the single-factor formula for                 v.     Strayhorn,      166 S.W.3d 394
apportioning margin. See Act of May 2, 2006, 79th                    (Tex.App.–Austin 2005, pet. denied) (dis-
Leg., 3d C.S., ch. 1, § 5, 2006 Tex. Gen. Laws 1,                    cussing Public Law Number 86–272 in con-
17–18 (codified at Tex. Tax Code § 171.1014); Tex.                   text of prior version of Texas franchise tax).
Tax Code § 171.106(a); Riverside, 603 S.W.2d at 175.
                                                                 Graphic relies on the definition of “gross receipts
     Graphic relies on the legislature's deletion of        tax” in chapter 141 to argue that “a tax on business
section 171.112(g) in the 2006 franchise tax restruc-       activity” must be either an “income tax” or a “gross
turing to support its argument. Former section              receipts tax” as those terms are defined in chapter 141.
171.112(g) stated that “[c]hapter 141 does not apply to     See Tex. Tax Code § 141.001, art. II.6. Paragraph 6 of
this chapter.” Act of Aug. 13, 1991, 72d Leg., 1st C.S.,    article II defines “gross receipts tax” to mean:
ch. 5, § 8.10, 1991 Tex. Gen. Laws 134, 162 (former
Tex. Tax Code § 171.112(g)). However, we do not
                                                              a tax, other than a sales tax, which is imposed on or
find the deletion as legislative intent to activate arti-
                                                              measured by the gross volume of business, in terms
cles III and IV of section 141.001 for Texas franchise
                                                              of gross receipts or in other terms, and in the de-
tax purposes. In 2006, the legislature deleted section
                                                              termination of which no deduction is allowed which
171.112 entirely because that section addressed gross
                                                              would constitute the tax an income tax.
receipts for taxable capital and the restructured fran-
chise tax replaced capital and earned surplus with
                                                                Id. Graphic argues that “income tax” and “gross
“margin” as the franchise tax's main tax base. See Act
                                                            receipts tax” are “all encompassing, and mutually
of May 2, 2006, ch. 1, § 2, 2006 Tex. Gen. Laws 1,
                                                            exclusive, categories.” Therefore, because the fran-
6–7 (codified at Tex. Tax Code § 171.002); see also In
                                                            chise tax does not fall within chapter 141's definition
re Nestle, 387 S.W.3d at 612 (discussing history of

                            © 2015 Thomson Reuters. No Claim to Orig. US Gov. Works.
                                                                                                            Page 8

--- S.W.3d ----, 2015 WL 4603683 (Tex.App.-Austin)
(Cite as: 2015 WL 4603683 (Tex.App.-Austin))

of a “gross receipts tax,” Graphic urges that it must be    it does not fall within chapter 141's definition of an
an “income tax.” Although we agree with Graphic that        “income tax.” See Tex. Tax Code § 141.001, art. II.4.
the franchise tax does not fall within chapter 141's        Because the franchise tax is not an “income tax”
definition of a “gross receipts tax,” we cannot agree       within the meaning of chapter 141, the three-factor
that it follows that the franchise tax falls within         formula was not an alternative apportionment formula
chapter 141's definition of “income tax.” As previ-         for Graphic, and Graphic was required to use the sin-
ously stated, article II of section 141.001 expressly       gle-factor formula in section 171.106(a) to apportion
recognizes and defines other types of taxes, including      its margin to Texas for franchise tax purposes for the
defining “tax” to include “any other tax which has a        2008 to 2010 tax years. Thus we must affirm the dis-
multistate impact.” See id. art. II.4–9. Thus, conclud-     trict court's summary judgment in favor of the Comp-
ing that the franchise tax does not fall within chapter     troller on this basis. See Knott, 128 S.W.3d at 216.FN5
141's definition of a “gross receipts tax” is not helpful
to Graphic's position.                                               FN5. Because we have concluded that this
                                                                     ground supports the district court's summary
     *7 Graphic also relies on a recent opinion from                 judgment, we do not reach Graphic's first and
the Michigan Supreme Court. See International Bus.                   second issues. See Provident Life & Accident
Machines Corp. v. Department of Treasury, 496 Mich.                  Ins. Co. v. Knott, 128 S.W.3d 211, 216
642, 852 N.W.2d 865 (2014). In that case, the Mich-                  (Tex.2003); see also Tex.R.App. P. 47.1.
igan Supreme Court held that Michigan's modified                     Further, because we interpret the relevant
gross receipts tax (MGRT) fit within the Multistate                  statutes based on their plain language, we do
Tax Compact's definition of an “income tax.” Id. at                  not address the parties' arguments based on
880. The court examined how a taxpayer's MGRT                        extrinsic aids. See City of Round Rock v.
base was calculated and concluded that the MGRT fit                  Rodriguez, 399 S.W.3d 130, 137 (Tex.2013).
within the definition because it taxed “a variation of
net income—the entire amount received by the tax-                            CONCLUSION
payer as determined from any gainful activity minus             For these reasons, we affirm the district court's
inventory and certain other deductions that are ex-         judgment.
penses not specifically and directly related to a par-
ticular transaction.” Id. In contrast, a taxpayer's mar-
                                                            Tex.App.-Austin, 2015
gin for Texas franchise tax purposes is not a “variation
                                                            Graphic Packaging Corporation v. Hegar
of net income” as margin is determined in several
                                                            --- S.W.3d ----, 2015 WL 4603683 (Tex.App.-Austin)
alternative ways, none of which results in taxing net
income. See Tex. Tax Code § 171.101 (describing
                                                            END OF DOCUMENT
alternatives for determining taxable margin). Thus, we
do not find Michigan's MGRT sufficiently similar to
the Texas franchise tax to find that case helpful to
Graphic's position.

     Applying the plain meaning of chapter 141's
definition of “income tax” in the context of the overall
structures of chapters 141 and 171, we agree with the
Comptroller that the franchise tax is not “a tax im-
posed or measured by net income” and, therefore, that

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