The Texas comptroller of public accounts issued final regulations on apportioning income to Texas under Texas Administrative Code Section 3.591. The regulations generally are effective Jan. 1, 2008. Among other items, the regulations make significant changes to the treatment of receipts from services, to net gains on the sale of assets and investments, and to sales of digital property.
Sourcing of receipts from services based on “receipt-producing end-product act”
For apportionment purposes, Texas Tax Code 171.103(a)(2) provides that a receipt from services is considered a Texas receipt if the service is performed in Texas. The revised regulations define the location of performance as the place where the receipt-producing end-product act occurs. This concept is consistent with past positions of the comptroller but is not without controversy as it resembles a market-based approach that uses the location of the customer and is inconsistent with the statute. The revised rule is consistent with the court’s decision in Hegar v. Sirius XM Radio Inc. in which the Texas 3rd Court of Appeals ruled that the relevant activity for determining where service is performed was the location of the audience. Sirius XM Radio Inc. has appealed this ruling to the Texas Supreme Court.