Today, the Supreme Court of Texas (Court) reversed the decision of the Court of Appeals for the Third District of Texas in Sirius XM Radio, Inc., holding that the appropriate measure for determining whether services are performed in Texas, and therefore sourced to the state for apportionment purposes, is to identify where the taxpayer's employees or equipment performed the service (Sirius XM Radio, Inc., v. Hegar, No. 20-0462 (Tex. Mar. 25, 2022)). In so holding, the Court defined the statutory sourcing methodology as "locating the performance of the service at the place where the taxpayer's personnel or equipment is physically doing useful work for the customer." The Court also rejected the Texas Comptroller of Public Account's recharacterization of the taxpayer's service offering as decryption services, finding the taxpayer's business was appropriately described as the production and broadcasting of radio content.

In addition to reversing the appeals court's decision, the Court also remanded the case back to the Court of Appeals for a ruling on whether the taxpayer provided sufficient evidence to support its cost-based analysis of the fair value of services performed in the state — an issue not discussed in the lower court.

A more detailed Tax Alert on today's ruling is forthcoming.