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January 18, 2023

Texas Comptroller proposed amendments to apportionment rule in response to recent litigation

The Texas Comptroller of Public Accounts (Comptroller) has proposed amendments to 34 Tex. Admin. Code Section 3.591 to reflect the Texas Supreme Court (Court) ruling in Sirius XM Radio, Inc.1 In Sirius, the Court held that gross receipts from the sale of services should be sourced based on an "origin-based" system. Thus, in determining whether services are performed in Texas for purposes of apportioning receipts, taxpayers should look to where their employees or equipment performed services.2 (See Tax Alert 2022-0539.)

The Comptroller's proposed amendments would modify the definition of "location of performance" in Section 3.591(e)(26)(A) by deleting the receipt-producing, end-product act discussion and examples3 and providing that "a service is performed at the location or locations where the taxable entity's personnel or property are doing the work that the customer hired the taxable entity to perform." Activities not directly used in the performance of the service would not be relevant in determining the location where the services were performed by the entity.

Provisions for sourcing services performed both inside and outside of Texas under Section 3.591(e)(26)(B) also would be amended to make clear that when costs are considered in determining the service's fair value only the direct costs of doing work the entity was hired by the customer to perform would be considered. Costs would not include those not directly used to provide a service to the customer.

Comments on the proposed rule must be received by the Comptroller by February 19, 2023 (i.e., "no later than 30 days from the date of publication of the proposal in the Texas Register," which is scheduled for January 20, 2023).

The earliest date the proposed changes could take effect is February 19, 2023.


Companies doing business in Texas that derive gross receipts from the sale of services should review the apportionment methodologies in light of the Texas Supreme Court's opinion in Sirius and the rule changes being proposed in response to that ruling. Interested parties should consider submitting comments if warranted.

Contact Information
For additional information concerning this Alert, please contact:
State and Local Taxation Group
   • Jamie Bowden (
   • Karen Currie (
   • Haley Smith (
   • Davila Niesen (
   • Chinh Nguyen (
   • Colleen Redden (

Published by NTD’s Tax Technical Knowledge Services group; Jennifer A Brittenham, legal editor



1 Sirius XM Radio, Inc. v. Hegar, No. 20-0462 (Tex. March 25, 2022).

2 In November 2022, the Texas Court of Appeals, Third Circuit (appeals court), on remand from the Court, held that the taxpayer provided sufficient evidence to support its cost-based analysis of the "fair value" of services performed in the state for purposes of sourcing gross receipts from the sale of services. Hegar v. Sirius XM Radio, Inc., No. 03-18-00575-CV (Tex. Ct. of App., 3rd Dist., Nov. 10, 2022).

3 The examples are for "admission fees, subscription fees or other charges for audience observing a live or pre-recorded performance" and architectural design.