Graphic Packaging Corporation v. Glenn Hegar, Comptroller of Public Accounts of the State of Texas And Ken Paxton, Attorney General of the State of Texas

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-14-00197-CV

Graphic Packaging Corporation, Appellant

v.

Glen Hegar, Comptroller of Public Accounts of The State of Texas; and Ken Paxton,
Attorney General of The State of Texas, Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 353RD JUDICIAL DISTRICT
NO. D-1-GN-12-003038, HONORABLE STEPHEN YELENOSKY, JUDGE PRESIDING

OPINION

This appeal presents the issue of how a taxpayer apportions the share of its taxable

margin to its Texas operations for franchise tax purposes. According to the Comptroller of Public

Accounts and the Attorney General (collectively the Comptroller), a taxpayer may not use the

three-factor formula in chapter 141 of the Tax Code, the Multistate Tax Compact, for franchise tax

purposes but must use the single-factor formula in section 171.106(a) of the Tax Code. See Tex. Tax

Code §§ 141.001, arts. III, IV, 171.106(a).1 Facing cross-motions for summary judgment on this

issue, the district court ruled in favor of the Comptroller. Because we conclude that a taxpayer may

not use the three-factor formula in chapter 141 to apportion its margin to Texas for franchise tax

purposes, we affirm the district court’s judgment.

1
References in this opinion to chapters 141 and 171 are to those chapters in the Tax Code.
 BACKGROUND

Graphic Packaging Corporation is a corporation headquartered in Marietta, Georgia

that sells packaging for consumer products throughout the United States. Because Graphic operates

in multiple states including Texas, the amount of its Texas franchise tax liability is assessed and

apportioned based on its “taxable margin” attributable to Texas. See id. §§ 171.002(a) (setting rate

of franchise tax as percent of taxable margin), .101 (stating alternatives for determining taxable

margin), .106 (stating alternatives for determining apportionment of margin to Texas); see also id.

§ 171.001(a) (imposing Texas franchise tax against “each taxable entity that does business in this

state or that is chartered or organized in this state”); Combs v. Newpark Res., Inc., 422 S.W.3d 46,

47–8 (Tex. App.—Austin 2013, no pet.) (describing structure and formula for calculating franchise

tax, which is “tax on the value and privilege of doing business in Texas” (citing In re Nestle USA,

Inc., 387 S.W.3d 610, 612 (Tex. 2012) (orig. proceeding)).

When it initially filed its 2008 and 2009 Texas franchise tax reports, Graphic

apportioned its margin to Texas using the single-factor formula in section 171.106(a):

Except as provided by this section, a taxable entity’s margin is apportioned to this
state to determine the 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 business done in this state, as determined under Section 171.103, and the
denominator of which is the taxable entity’s gross receipts from its entire business,
as determined under Section 171.105.

Tex. Tax Code § 171.106(a); see also id. §§ 171.002, .103 (describing calculation for determining

gross receipts from business done in Texas for margin), .105 (describing calculation for

determinating gross receipts from entire business for margin). The single-factor formula multiplies

2
a taxpayer’s margin by a gross-receipts fraction, which generally is the taxpayer’s gross receipts from

its business conducted in Texas divided by its gross receipts from the taxpayer’s total business. Id.

§ 171.106(a); see id. §§ 171.101, .1011–.1013 (addressing components of margin determination).

On its 2010 Texas franchise tax report, Graphic apportioned its margin to Texas

differently using the three-factor formula in article IV of section 141.001. See id. § 141.001, arts.

III.1, IV. This formula equally weighs property, payroll, and sales factors. See id. art. IV.9

(apportioning “[a]ll business income . . . to this state by multiplying the income by a fraction, the

numerator of which is the property factor plus the payroll factor plus the sales factor, and the

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 based on its election to apportion its margin

to Texas based on the three-factor formula. Id.; see id. § 111.104 (addressing refund claims).

Graphic does not own or operate any manufacturing operations in Texas and only engages in retail

and wholesale activities in 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 single-factor

formula of chapter 171 would have yielded.

The Comptroller concluded that Graphic was required to use the single-factor formula

in section 171.106(a), then denied Graphic’s refund claims and assessed additional franchise tax,

penalty, and interest 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 2010 tax report

years, and the hearings were combined. The Comptroller upheld the assessment against Graphic for

the 2010 tax report year and the denial of Graphic’s refund claims. After the Comptroller denied

3
Graphic’s motion for rehearing, Graphic paid the 2010 assessment under protest and filed this

combined refund and tax-protest suit against the Comptroller. See id. §§ 112.052 (authorizing

taxpayer suit after payment under protest), .151 (authorizing taxpayer suit for refund).

In its petition, Graphic brought four separate “counts” to support its claims for the

2008 to 2010 tax report years. It asserted that (i) it properly elected chapter 141’s three-factor

formula to apportion its margin to Texas for franchise tax purposes; (ii) the franchise tax’s single-

factor formula, as applied to Graphic, violates the United States Constitution; (iii) the franchise tax’s

rate structure, as applied to Graphic, violates the United States Constitution; and (iv) alternatively,

the Comptroller abused his discretion in failing to waive penalties and interest.

Graphic moved for summary judgment on its first ground, and the Comptroller filed

a response and a cross motion for partial summary judgment as to that ground. Consistent with the

administrative proceedings and prior decisions, the Comptroller contended that Graphic was

required to apportion its margin to Texas using the single-factor formula in section 171.106(a).

See id. § 171.106(a); see, e.g., Texas Comptroller of Pub. Accounts, SOAH No. XXX-XX-XXXX.13,

2013 WL 4508906, at *1–3 (June 7, 2013) (citing prior decisions by Comptroller and requiring

claimant to use single-factor formula in section 171.106(a) to apportion its margin to Texas for tax

report years 2008 to 2011); see also 34 Tex. Admin. Code § 3.591(c) (Comptroller of Pub. Accounts,

Margin: Apportionment) (tracking language of section 171.106(a) to describe apportionment formula

for franchise tax purposes).

The district court granted the Comptroller’s partial motion for summary judgment and

denied Graphic’s motion for summary judgment without providing its reasoning. Graphic non-suited

4
its constitutional and alternative claims, and the district court rendered final judgment. This

appeal followed.

ANALYSIS

Graphic brings three issues challenging the district court’s summary judgment ruling

in favor of the Comptroller. Graphic contends that it properly elected to use the three-factor formula

in chapter 141 to apportion its margin to Texas because: (i) section 171.106(a) did not impliedly

repeal chapter 141’s election and formula; (ii) if section 171.106(a) did impliedly repeal chapter

141’s election and formula, the repeal was invalid because the Multistate Tax Compact is an

interstate agreement that is binding on the party states unless and until they withdraw, and (iii) if

chapter 141’s election and formula were not repealed, “the Texas franchise tax is an ‘income tax’

as defined to be within the scope of the [Multistate Tax] Compact’s applicability.”

Standard of Review

We review a trial court’s summary judgment de novo. Valence Operating Co.

v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). If the trial court does not specify the grounds for its

summary judgment, we must affirm the summary judgment “if any of the theories presented to the

trial court and preserved for appellate review are meritorious.” Provident Life & Accident Ins. Co.

v. Knott, 128 S.W.3d 211, 216 (Tex. 2003).

Graphic’s issues also concern statutory construction, a question of law that we review

de novo. See First Am. Title Ins. Co. v. Combs, 258 S.W.3d 627, 631 (Tex. 2008). Our primary

concern in construing a statute is the express statutory language. See Galbraith Eng’g Consultants,

5
Inc. v. Pochucha, 290 S.W.3d 863, 867 (Tex. 2009). “We thus construe the text according to its

plain and common meaning unless a contrary intention is apparent from the context or unless such

a construction leads to absurd results.” Presidio Indep. Sch. Dist. v. Scott, 309 S.W.3d 927, 930

(Tex. 2010) (citing City of Rockwall v. Hughes, 246 S.W.3d 621, 625–26 (Tex. 2008)). We “‘read

the statute as a whole and interpret it to give effect to every part.’” Railroad Comm’n v. Texas

Citizens for a Safe Future & Clean Water, 336 S.W.3d 619, 628 (Tex. 2011) (quoting City of

San Antonio v. City of Boerne, 111 S.W.3d 22, 25 (Tex. 2003)).

Is the franchise tax an “income tax” within the meaning of chapter 141?

Because resolution of Graphic’s third issue is dispositive to this appeal, we assume

without deciding that section 171.106(a) did not impliedly repeal chapter 141’s election and formula

and turn to Graphic’s third issue. Graphic urges that a taxpayer has the option to choose chapter

141’s three-factor formula or chapter 171’s single-factor formula to apportion its margin to Texas

for franchise tax purposes because “the Texas franchise tax is an ‘income tax’ as defined to be

within the scope of the [Multistate Tax] Compact’s applicability.” According to Graphic, the

franchise tax is a state “income tax” as defined in paragraph 4 of article II of section 141.001 and

therefore it properly elected under paragraph 1 of article III to apportion its margin based on the

three-factor formula. See Tex. Tax Code § 141.001, arts. II.4 (defining “income tax”), III.1

(authorizing taxpayer option).

6
 Section 141.001 adopts the Multistate Tax Compact.2 See id. § 141.001. Article III

of section 141.001 is titled “Elements of Income Tax Law,” and its paragraph 1 is titled “Taxpayer

Option, State and Local Taxes.” See id. art. III.1. Paragraph 1 states in relevant part:

Any taxpayer subject to an income tax whose income is subject to apportionment and
allocation for tax purposes pursuant to the laws of a party state . . . may elect to
apportion and allocate his income in the manner provided by the laws of such state
. . . without reference to this compact, or may elect to apportion and allocate in
accordance with Article IV.

Id. art. III.1; see also id. art. IV.2 (“Any taxpayer having income from business activity which is

taxable both within and without this state . . . shall allocate and apportion his net income as provided

in this article.”).

One of the grounds urged by the Comptroller in his motion for summary judgment

was that Chapter 141’s three-factor formula did not apply because the election to apportion

“income” in article III is only available to taxpayers subject to “an income tax” and the franchise tax

2
The purposes of the Multistate Tax Compact are to:

1. Facilitate proper determination of state and local tax liability of multistate
taxpayers, including the equitable apportionment of tax bases and settlement
of apportionment disputes.

2. Promote uniformity or compatibility in significant components of
tax systems.

3. Facilitate taxpayer convenience and compliance in the filing of tax returns
and in other phases of tax administration.

4. Avoid duplicative taxation.

Tex. Tax Code § 141.001, art. I.

7
is not an “income tax.” Id. art. III.1; see also id. arts. II.9 (“[T]he provisions of Articles III, IV, and

V of this compact shall apply only to the taxes specifically designated therein.”), III.3 (“Nothing in

this article relates to the reporting or payment of any tax other than an income tax.”). Graphic does

not dispute that the district court properly granted summary judgment in favor of the Comptroller

if the Texas franchise tax does not fall within chapter 141’s definition of “income tax.” See Knott,

128 S.W.3d at 216 (requiring summary judgment to be affirmed “if any of the theories presented to

the trial court and preserved for appellate review are meritorious”). The controlling issue then is

whether the franchise tax falls within the meaning of “income tax” as defined in chapter 141.

Paragraph 4 of article II of section 141.001 defines “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 expenses from gross income, one or more forms of which expenses are not specifically

and directly related to particular transactions.” Tex. Tax Code § 141.001, art. II.4. As a threshold

matter, we conclude that chapter 141’s definition of “income tax” is not ambiguous and interpret the

definition based on its plain text in the context of the statutory scheme. See Scott, 309 S.W.3d at

930; City of Round Rock v. Rodriguez, 399 S.W.3d 130, 137 (Tex. 2013) (“When a statute is clear

and unambiguous, we do not resort to extrinsic aides such as legislative history to interpret

the statute.”).

Chapter 141 does not define the terms “net income” or “expenses” so we apply those

terms’ plain meanings. See Scott, 309 S.W.3d at 930. “[N]et income” is the “excess of all revenues

and gains for a period over all expenses and losses of the period.” INOVA Diagnostics, Inc.

v. Strayhorn, 166 S.W.3d 394, 401 n.7 (Tex. App.—Austin 2005, pet. denied) (quoting Black’s Law

8
Dictionary 1040 (6th ed. 1990)); see also Webster’s Third Int’l Dictionary 1519–20 (2002) (defining

“net” as “remaining after the deduction of all charges, outlay, or loss” and “net income” as “balance

of gross income remaining after deducting related costs and expenses usu[ally] for a given period

and losses allocable to that period”). An “expense” is an “item of outlay incurred in the operation

of a business enterprise allocable to and chargeable against revenue for a specific period.” Webster’s

at 800.

We also conclude that the relevant language in 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. Relevant to this appeal, a taxpayer’s margin generally is the smallest of

four amounts: (i) total revenue minus specified cost of goods sold, (ii) 70% of total revenue,

(iii) total revenue minus $1 million, or (iv) total revenue minus specified compensation. Tex. Tax

Code § 171.101; see id. § 171.1011 (stating calculation for determining total revenue from entire

business); Newpark, 422 S.W.3d at 47. Alternatively, a taxpayer whose “total revenue from its entire

business” does not exceed $10 million may use its “total revenue” instead of margin as its tax base

for franchise tax purposes. See Tex. Tax Code § 171.1016 (authorizing “E-Z” computation).

Graphic argues that the franchise tax falls within chapter 141’s definition of “income

tax” because the franchise tax is “imposed on or measured by an amount arrived at by deducting

expenses from gross income, one or more forms of which expenses are not specifically or directly

related to particular transactions.” See id. § 141.001, art. II.4. Graphic focuses on the clause in

chapter 141’s definition of “income tax” that follows after the word “including,” see id.; see also

Tex. Gov’t Code § 311.005(13) (noting that “including is ‘term[ ] of enlargement’”), and the

9
cost-of-goods alternative for determining margin. Tex. Tax Code § 171.101. According to Graphic,

a taxpayer’s “margin” for franchise tax purposes meets the definition of “net income” as that term

is used in chapter 141’s definition of “income tax” because a taxpayer may determine its tax base

(its margin)—as Graphic did for the relevant tax years here—by subtracting its cost of goods sold,

including indirect costs, and those indirect costs are “expenses” that are “not specifically or directly

related to a particular transaction.” Compare id. § 141.001, art. II.4 with id. § 171.1012(f) (allowing

subtraction of specified “indirect or administrative overhead costs”); see also Black’s Law

Dictionary 397 (9th ed. 2009) (defining “cost” as “amount paid or charged for something; price

or expenditure”).

Comparing the plain meaning of the term “net income” to the statutory language

describing the tax base for franchise tax, however, makes clear that the franchise tax does not

fall within chapter 141’s definition of “income tax.” Compare Tex. Tax Code §§ 171.101

(determination of “margin”), .106 (apportionment of “margin” to Texas) with id. § 141.001, arts. II.4,

IV.2 (apportionment of “net income”).3 Among the alternative tax bases for franchise tax purposes

are “total revenue” and 70% of “total revenue.” Id. §§ 171.101, .1016. Reading the plain language

of these alternatives for determining a taxpayer’s tax base, we decline to conclude that either can

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 1519–20 (defining “net income”). Although

“total revenue” is determined by subtracting certain exclusions such as bad debt, we decline to

3
See David A. Vanderhider, Comment: A Marginal Tax: The New Franchise Tax in Texas,
39 St. Mary’s L.J. 615, 646–47 (2008) (noting that non-profitable taxpayer may owe franchise tax
because it has positive margin even though it has no net income).

10
interpret it as synonymous with “net income.” See Scott, 309 S.W.3d at 931 (“Courts must not

give the words used by the Legislature an ‘exaggerated, forced, or constrained meaning.’”

(citation omitted)).

Similarly, subtracting $1 million—a fixed amount—from “total revenue” is not the

same as “deducting expenses from gross income.” Compare Tex. Tax Code § 171.101 with id.

§ 141.001, art. II.4. Further, the cost-of-goods-sold and compensation alternatives for determining

a taxpayer’s margin allow subtractions only for select costs. Id. § 171.1012(f). To support Graphic’s

interpretation of the term “net income,” the clause after “including” in chapter 141’s definition

would have to be rewritten to state “an amount arrived at by deducting [any] expense[ ] from gross

income.” “We are not free to rewrite the statute in the guise of construing it.” See Foster v. Texas

Dep’t of Criminal Justice, 344 S.W.3d 543, 548 (Tex. App.—Austin 2011, pet. denied) (citing

Stockton v. Offenbach, 336 S.W.3d 610, 619 (Tex. 2011)).

Other provisions of chapter 141 provide further support for the interpretation of

chapter 141’s definition of “income tax” as not including the Texas franchise tax. See Texas

Citizens, 336 S.W.3d at 628 (interpreting statute as whole). For example, paragraph 3 of article IV

of section 141.001 addresses apportioning a taxpayer’s “net income” to a member state for that

state’s income tax. For that purpose, the provision defines a taxpayer as:

taxable in another state if (1) in that state he is subject to a net income tax, a franchise
tax measured by net income, a franchise tax for the privilege of doing business, or a
corporate stock tax, or (2) that state has jurisdiction to subject the taxpayer to a net
income tax regardless of whether, in fact, the state does or does not.

11
Tex. Tax Code § 141.001, art. IV.3. This provision allows a taxpayer that does business in Texas

to be eligible to apportion its net income to a member state that has an income tax because Texas has

a “franchise tax for the privilege of doing business.” See id. This provision then ensures

apportionment of net income for income tax purposes regardless of how other member states tax

businesses, at the same time that it recognizes and distinguishes different types of tax, including

distinguishing franchise and income tax. See id.; TGS-NOPEC Geophysical Co. v. Combs,

340 S.W.3d 432, 439 (Tex. 2011) (“We presume that the Legislature chooses a statute’s language

with care, including each word chosen for a purpose, while purposefully omitting words not

chosen.”). Consistent with paragraph 3 of article IV, article II defines different types of tax, defines

“tax” generally to include “any other tax which has a multistate impact,” and limits the reach of

article III to “income tax.” See Tex. Tax Code § 141.001, art. II.4–9 (defining various types of tax

and “tax” to mean “an income tax, capitol stock tax, gross receipts tax, sales tax, use tax, and any

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 the reporting or payment of any tax

other than an income tax.”).

As to chapter 171, we assume that the legislature was aware of chapter 141 and its

definition of “income tax” when it restructured the franchise tax in 2006. See Acker v. Texas Water

Comm’n, 790 S.W.2d 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 it.”). Section

171.106(a) expressly states that the single-factor formula applies “[e]xcept as provided by this

section.” See Tex. Tax Code § 171.106(a). Chapter 141’s three-factor formula is not listed among

12
the alternative formulas in section 171.106. See id. § 171.106 (listing alternative formulas for

apportioning margin to Texas). Had the legislature intended for chapter 141’s three-factor formula

to be an alternative for apportioning margin for franchise tax purposes, it could have included it as

one of the expressed alternatives in section 171.106. See TGS-NOPEC, 340 S.W.3d at 439;

Riverside Nat’l Bank v. Lewis, 603 S.W.2d 169, 175 (Tex. 1980) (holding because legislature knew

how to include terms within statutory definition and did not do so, statutory definition did not

include terms “in light of [the term’s] contemporaneous inclusion of the same terms in a separate

provision”). Similarly, section 171.1014 addresses combined reporting and affiliated groups

engaged in unitary business and incorporates chapter 141’s factoring formula for property and

payroll to determine a taxable entity’s eligibility to be included in a combined group. See Tex. Tax

Code § 171.1014. In the same act, the legislature expressly incorporated the factoring formula from

chapter 141 when it wanted to do so, but it did not do so as to the single-factor formula for

apportioning margin. See Act of May 2, 2006, 79th Leg., 3d C.S., ch. 1, § 5, 2006 Tex. Gen. Laws 1,

17–18 (codified at Tex. Tax Code § 171.1014); Tex. Tax Code § 171.106(a); Riverside, 603 S.W.2d

at 175.

Graphic relies on the legislature’s deletion of section 171.112(g) in the 2006

franchise tax restructuring to support its argument. Former section 171.112(g) stated that

“[c]hapter 141 does not apply to this chapter.” Act of Aug. 13, 1991, 72d Leg., 1st C.S., ch. 5,

§ 8.10, 1991 Tex. Gen. Laws 134, 162 (former Tex. Tax Code § 171.112(g)). However, we do not

find the deletion as legislative intent to activate articles III and IV of section 141.001 for Texas

franchise tax purposes. In 2006, the legislature deleted section 171.112 entirely because that section

13
addressed gross receipts for taxable capital and the restructured franchise tax replaced capital and

earned surplus with “margin” as the franchise tax’s main tax base. See Act of May 2, 2006, ch. 1,

§ 2, 2006 Tex. Gen. Laws 1, 6–7 (codified at Tex. Tax Code § 171.002); see also In re Nestle, 387

S.W.3d at 612 (discussing history of franchise tax). The legislature also contemporaneously enacted

a separate section that expressly stated that “[t]he franchise tax imposed by Chapter 171,

Tax Code, as amended by this Act, is not an income tax.” Act of May 2, 2006, ch. 1, § 21,

2006 Tex. Gen. Laws 1, 38.4

Graphic relies on the definition of “gross receipts tax” in chapter 141 to argue that

“a tax on business activity” must be either an “income tax” or a “gross receipts tax” as those terms

are defined in chapter 141. See Tex. Tax Code § 141.001, art. II.6. Paragraph 6 of article II defines

“gross receipts tax” to mean:

a tax, other than a sales tax, which is imposed on or measured by the gross volume
of business, in terms of gross receipts or in other terms, and in the determination of
which no deduction is allowed which would constitute the tax an income tax.

Id. Graphic argues that “income tax” and “gross receipts tax” are “all encompassing, and mutually

exclusive, categories.” Therefore, because the franchise tax does not fall within chapter 141’s

4
That section of the Act also specified that “Pub. L. No. 86-272 does not apply to the tax.”
Act of May 2, 2006, 79th Leg., 3d C.S., ch. 1, § 21, 2006 Tex. Gen. Laws 1, 38. Public Law Number
86-272 addresses net income tax, which is defined in the same terms as the main clause of chapter
141’s definition of income tax. See Act of Sept. 14, 1959, Pub. L. No. 86-272, Title I, § 103,
73 Stat. 556 (codified at 15 U.S.C. § 383) (“[T]he term ‘net income tax’ means any tax imposed
on, or measured by, net income.”); see also generally INOVA Diagnostics, Inc. v. Strayhorn,
166 S.W.3d 394 (Tex. App.—Austin 2005, pet. denied) (discussing Public Law Number 86-272 in
context of prior version of Texas franchise tax).

14
definition of a “gross receipts tax,” Graphic urges that it must be an “income tax.” Although we

agree with Graphic that the franchise tax does not fall within chapter 141’s definition of a “gross

receipts tax,” we cannot agree that it follows that the franchise tax falls within chapter 141’s

definition of “income tax.” As previously stated, article II of section 141.001 expressly recognizes

and defines other types of taxes, including defining “tax” to include “any other tax which has a

multistate impact.” See id. art. II.4–9. Thus, concluding that the franchise tax does not fall within

chapter 141’s definition of a “gross receipts tax” is not helpful to Graphic’s position.

Graphic also relies on a recent opinion from the Michigan Supreme Court. See

International Bus. Machines Corp. v. Department of Treasury, 852 N.W.2d 865 (Mich. 2014). In

that case, the Michigan Supreme Court held that Michigan’s modified gross receipts tax (MGRT)

fit within the Multistate Tax Compact’s definition of an “income tax.” Id. at 880. The court

examined how a taxpayer’s MGRT base was calculated and concluded that the MGRT fit within the

definition because it taxed “a variation of net income—the entire amount received by the taxpayer

as determined from any gainful activity minus inventory and certain other deductions that are

expenses not specifically and directly related to a particular transaction.” Id. In contrast, a

taxpayer’s margin for Texas franchise tax purposes is not a “variation of net income” as margin is

determined in several alternative ways, none of which results in taxing net income. See Tex. Tax

Code § 171.101 (describing 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.

15
 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 imposed or measured by net income” and, therefore, that it does not fall within

chapter 141’s definition of an “income tax.” See Tex. Tax Code § 141.001, art. II.4. Because the

franchise tax is not an “income tax” within the meaning of chapter 141, the three-factor formula was

not an alternative apportionment formula for Graphic, and Graphic was required to use the single-

factor formula in section 171.106(a) to apportion its margin to Texas for franchise tax purposes for

the 2008 to 2010 tax years. Thus we must affirm the district court’s summary judgment in favor of

the Comptroller on this basis. See Knott, 128 S.W.3d at 216.5

CONCLUSION

For these reasons, we affirm the district court’s judgment.

__________________________________________
Melissa Goodwin, Justice

Before Chief Justice Rose, Justices Goodwin and Field

Affirmed

Filed: July 28, 2015

5
Because we have concluded that this ground supports the district court’s summary
judgment, we do not reach Graphic’s first and second issues. See Provident Life & Accident Ins. Co.
v. Knott, 128 S.W.3d 211, 216 (Tex. 2003); see also Tex. R. App. P. 47.1. Further, because we
interpret the relevant statutes based on their plain language, we do not address the parties’ arguments
based on extrinsic aids. See City of Round Rock v. Rodriguez, 399 S.W.3d 130, 137 (Tex. 2013).

16