Glenn Hegar, Comptroller of Public Accounts of the State of Texas, and Ken Paxton, Attorney General of the State of Texas v. CGG Veritas Services (U.S.), Inc.

ACCEPTED
03-14-00713-CV
7869726
THIRD COURT OF APPEALS
AUSTIN, TEXAS
11/17/2015 3:27:02 PM
JEFFREY D. KYLE
CLERK
NO. 03-14-00713-CV
__________________________________________________
FILED IN
3rd COURT OF APPEALS
IN THE COURT OF APPEALS AUSTIN, TEXAS
THIRD JUDICIAL DISTRICT OF TEXAS11/17/2015 3:27:02 PM
AT AUSTIN JEFFREY D. KYLE
________________________________________________Clerk

GLENN HEGAR, COMPTROLLER OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS; AND
KEN PAXTON, ATTORNEY GENERAL OF THE STATE OF TEXAS,
Appellant

v.

CGG VERITAS SERVICES (U.S.), INC.,
Appellee.

APPELLEE’S ORAL ARGUMENT
DEMONSTRATIVE EXHIBIT

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 Did CGG properly calculate its margin using the
COGS subtraction for franchise tax report year 2008?

Is CGG an “owner of goods” as defined by § 171.1012(i)?

Is CGG a “DEEMED” owner Is CGG an “ACTUAL” owner
per sub-(i), third sentence? per sub-(i), first sentence?

Does CGG own the property
Does CGG furnish “labor”? (seismic data in MCDL)?
Newpark (“‘Labor’ is a broad term that
§ 171.1012(i) (“based on all of the facts and
encompasses a wide range of activities, including
circumstances, including the various benefits and
expenditure of physical or mental effort especially
burdens of ownership vested in the taxable entity”)
when fatiguing, difficult, or compulsory.”)

OR Yes No
Does CGG furnish “materials”?
Merriam’s (“Materials” are “elements, Does CGG sell that property in the
constituents, or substances of which something is ordinary course of business?
composed or can be made; something (as data)
that can be worked into a more finished form.”) Comptroller does not dispute that licensing of seismic
data through MCDL is a “sale.” See also, TGS-NOPEC
(“transaction constitutes a ‘limited sale’”)

No Yes Yes No

Are the labor / materials furnished “to a Is that property a “good” for purposes
project” for the construction, of the COGS deduction?
improvement, etc. of real property?
§ 171.1012(a)(1) (“Goods” are “real or tangible
Newpark (considered (1) essential and direct personal property” (TPP)); § 171.1012(a)(3)(A)
component of drilling process, (2) Legislature (TPP is: (1) personal property that can be “seen,
allowed deduction of similar costs, and (3) real weighed, measured, felt, or touched”); (2) “artificial”
property activity could not proceed without the TPP, intellectual property for mass-distribution; or
labor/materials furnished) (3) “artificial” TPP, computer programs)

No Yes Yes No

CGG is CGG is a deemed CGG is an actual CGG is
not a owner. owner. not an
deemed actual
owner. owner.

Taxpayers who qualify as “owners” under § 171.1012(i)
“may make a subtraction under this section in relation to
Consider the cost of goods sold.” Deemed owners specifically “may Consider
actual include the costs, as allowed by this section, in the deemed
owner computation of [COGS].” owner
status. status.
“This section” means the entirety of § 171.1012,
including all allowable costs under (c), (d), and (f).
 CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing has been
electronically filed and served on all counsel below on November 17, 2015.

Joseph D. Hughes
Assistant Solicitor General
OFFICE OF THE ATTORNEY GENERAL
P.O. Box 12548 (MC 059)
Austin, Texas 78711-2548
(512) 936-1729
(512) 474-2697 [fax]
jody.hughes@texasattorneygeneral.gov

Charles Eldred
Assistant Attorney General
OFFICE OF THE ATTORNEY GENERAL,
FINANCIAL AND TAX LITIGATION DIVISION
P.O. Box 12548
Austin, Texas 78711
(512) 463-1745
(512) 477-2348 [fax]
charles.eldred@texasattorneygeneral.gov

/s/ Amanda G. Taylor
Amanda G. Taylor

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