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) Page 1 --- 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, © 2015 Thomson Reuters. No Claim to Orig. US Gov. Works. Page 2 --- S.W.3d ----, 2015 WL 4603683 (Tex.App.-Austin) (Cite as: 2015 WL 4603683 (Tex.App.-Austin)) 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 © 2015 Thomson Reuters. No Claim to Orig. US Gov. Works. Page 3 --- S.W.3d ----, 2015 WL 4603683 (Tex.App.-Austin) (Cite as: 2015 WL 4603683 (Tex.App.-Austin)) 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 © 2015 Thomson Reuters. No Claim to Orig. US Gov. Works. Page 4 --- S.W.3d ----, 2015 WL 4603683 (Tex.App.-Austin) (Cite as: 2015 WL 4603683 (Tex.App.-Austin)) 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.”). © 2015 Thomson Reuters. No Claim to Orig. US Gov. Works. Page 5 --- S.W.3d ----, 2015 WL 4603683 (Tex.App.-Austin) (Cite as: 2015 WL 4603683 (Tex.App.-Austin)) 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- © 2015 Thomson Reuters. No Claim to Orig. US Gov. Works. Page 6 --- S.W.3d ----, 2015 WL 4603683 (Tex.App.-Austin) (Cite as: 2015 WL 4603683 (Tex.App.-Austin)) 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. § © 2015 Thomson Reuters. No Claim to Orig. US Gov. Works. Page 7 --- S.W.3d ----, 2015 WL 4603683 (Tex.App.-Austin) (Cite as: 2015 WL 4603683 (Tex.App.-Austin)) 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 © 2015 Thomson Reuters. No Claim to Orig. US Gov. Works.