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March 8, 2023

Texas Comptroller amends apportionment rule in response to recent litigation

The Texas Comptroller of Public Accounts (Comptroller) adopted, without changes to the proposed text, amendments1 to 34 Tex. Admin. Code Section 3.591 to reflect the Texas Supreme Court (Court) ruling in Sirius XM Radio, Inc.2 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.3 (See Tax Alert 2022-0539.)

The Comptroller's amendments modify the definition of "location of performance" in Section 3.591(e)(26)(A) by deleting the receipt-producing, end-product act discussion and examples4 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 are not 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) are 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 will be considered. Costs do not include those not directly used to provide a service to the customer.

The amended rule takes effect March 14, 2023.


While the Comptroller made several changes to the general sourcing provisions, the sourcing provisions for advertising services (Section 3.591(e)(1)) and internet hosting services (Section 3.591(e)(13)) were not modified. As such, companies doing business in Texas that derive gross receipts from the sale of services should understand how services are sourced in light of the Texas Supreme Court's opinion in Sirius and the revised rule, especially the rules for sourcing receipts from certain computer services and advertising services.


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 Final/Adopted 34 Tex. Admin. Code Section 3.591 (Tex. Reg. March 10, 2023).

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

3 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).

4 The examples are for "admission fees, subscription fees or other charges for audience observing a live or pre-recorded performance" and architectural design. In addition, the example in Section 3.591(e)(3)(I)(i) regarding receipts from movie theater ticket sales and a cable companies subscription receipts were amended to provide that such receipts are sourced under Section 3.591(e)(26), instead of to the audience location.