Author: Austin Law

On December 22, 2017 the Texas Supreme Court issued an important decision regarding the Texas Franchise Tax in Graphic Packaging Corp. v. Hegar.

Background:                  

Graphic Packaging Corporation sold consumer product packaging throughout the United States, including Texas. As a business entity operating in Texas, Graphic Packaging was subject to the Texas Franchise Tax. To calculate the amount of Franchise Tax Graphic Packaging owed, it used a three factor apportionment formula found in Tax Code § 141.001. Section 141.001 allows the use of a three-factor formula when calculating the tax base for the purposes of an income tax. The three-factor formula consisted of Graphic Packaging’s sales, payroll, and property in Texas over its total sales, payroll, and property in the United States. Graphic Packaging argued that Texas Franchise Tax is analogous to an income tax, and as such the three factor formula—which lowered its taxable amount—was appropriate.

However, the Comptroller argued that the use of a three-factor apportionment formula was prohibited because Texas Tax Code § 171.106 allowed only for the use of single-factor apportionment formula: sales in Texas over total sales in the United States.

Procedure:

Graphic Packaging filed suit in District Court arguing that the Texas Franchise Tax was an income tax. The district court granted summary judgment in favor of the Comptroller and the Court of Appeals affirmed, holding that the Texas Franchise Tax was not an income tax and that the use of a three factor-formula was not appropriate.

Texas Supreme Court’s Decision:

The Texas Supreme Court considered three issues in its review of the appellate court’s decision: (1) whether the Texas Franchise Tax is an income tax, (2) whether Tax Code § 171.106 precludes a taxpayer from using the three-factor formula, and (3) whether Texas’ membership in the Multistate Tax Compact prevents the Texas Legislature from requiring a taxpayer to use only the single-factor formula when apportioning its tax base to Texas.

The Texas Supreme Court elected not to decide whether the Franchise Tax is an income tax. Instead the Court affirmed the appellate court’s holding, favoring the Comptroller, on issues two and three.

First, the Court decided that the text of § 171.106—requiring the use of a single-factor formula— produced an irreconcilable conflict with § 141.001—allowing the use of a three-factor formula. To resolve the conflict, the Court held that statutes passed later in time prevailed over older statutes. The court also held that statutes that were more specific on an issue superseded more general statutes. Section § 171.106 was passed roughly two decades after § 141.001, and it was more specific on how to calculate the tax base for the Franchise Tax, thus § 171.106 controlled.

Next, the Court held that Multistate Tax Compact—which Texas is a member—did not prevent the Texas Legislature from making the single-factor formula the exclusive means of calculating the tax base for the Franchise Tax because it was not a binding regulatory compact.

Doug Sigel and Josh Veith of Ryan Law, LLP have co-written an article that was featured in the August 2017 edition of IPT Insider.

The article is linked below and primarily covers the five bills passed during the 85th Texas Legislative Session, which all affect the Texas franchise tax. To read the IPT Insider August 2017 edition in its entirety, you must register through www.IPT.org.


“The Current State of the Texas Franchise Tax” – IPT Insider, August 2017

Both taxpayers and practitioners should examine these rule changes carefully. These key changes have a significant impact on the procedure aspects of the Texas administrative process. For a full version of the adopted rules discussed below, click here.

34 Texas Administrative Code § 1.4

The Comptroller of Public Accounts adopts amendments to § 1.4, concerning representation and participation. The amendment provides guidance for parties participating in the contested case process and divides the existing language into subparagraphs by related topics.

  • § 1.4 is effective as of July 13, 2017.

34 Texas Administrative Code § 1.8

The Comptroller of Public Accounts adopts amendments to § 1.8, concerning resolution agreements. The amendments update and formalize the procedures by which the parties may fully resolve a contested case by entering into a resolution agreement.

  • § 1.8 is effective as of July 13, 2017.

34 Texas Administrative Code § 1.18

The Comptroller of Public Accounts adopts new § 1.18, concerning filing documents. Existing § 1.18 is adopted for repeal concurrently with this new section. New § 1.18 explains where contested case documents must be filed.

  • §1.18 is effective as of July 13, 2017.

34 Texas Administrative Code § 1.28

The Comptroller of Public Accounts adopts new § 1.28, concerning comptroller’s decisions and orders. The new section implements Senate Bill 1267, 84th Legislature, 2015 with respect to notice of a decision and finality of a decision and order.

  • § 1.28 is effective as of July 13, 2017.

34 Texas Administrative Code § 1.29

The Comptroller of Public Accounts adopts new § 1.29, concerning motion for rehearing. Existing § 1.29 is adopted for repeal concurrently with this new section. The new section implements Senate Bill 1267, 84th Legislature, 2015 and provides additional guidance to assist parties to a contested case in filing a motion for rehearing.

  • § 1.29 is effective as of July 13, 2017.

34 Texas Administrative Code § 1.31

The Comptroller of Public Accounts adopts new § 1.31, concerning computation of time. The new § 1.31 reorganizes information contained in current § 1.31 and provides additional guidance intended to assist parties in timely filing documents during a contested case.

  • § 1.31 is effective as of July 13, 2017.

34 Texas Administrative Code § 1.32

The Comptroller of Public Accounts adopts the repeal of § 1.32, concerning service. The comptroller is adopting a new § 1.32 that will replace the existing section.

  • § 1.32 is effective as of July 13, 2017.

34 Texas Administrative Code § 1.39

The Comptroller of Public Accounts adopts the repeal of § 1.39, concerning dismissal of a case. Existing § 1.39 is adopted for repeal concurrently with this new section. New § 1.39 provides a non-exhaustive list of the grounds upon which a party may file a motion to dismiss.

  • § 1.39 is effective as of July 13, 2017.

34 Texas Administrative Code § 1.41

The Comptroller of Public Accounts adopts the repeal of § 1.41, concerning ex parte communications. Existing § 1.41 is adopted for repeal concurrently with this new section. The new section provides additional guidance regarding ex parte communications. The substance of the existing section is restated and reorganized into separate subsections to improve readability.

  • § 1.41 is effective as of July 13, 2017.

We are pleased to announce the addition of Rich Moore to Ryan Law. Mr. Moore is licensed to practice law in Texas. Mr. Moore will assist in state and local tax controversy matters.

Before joining Ryan Law, Mr. Moore worked at PwC, where he focused his practice on international and mergers & acquisitions tax planning.

Mr. Moore received his Master of Laws from the Georgetown University Law Center, Juris Doctor from the Villanova University Charles Widger School of Law, and Bachelors in Business Administration from the University of Mary Hardin-Baylor.

On January 6, 2017, the Austin Court of Appeals denied the Texas Comptroller’s Motion for Rehearing in American Multi-Cinema, Inc. v. Hegar. The Court’s opinion can be found here. Ryan Law’s Doug Sigel has handled this case at the trial and appellate level. The Court of Appeals ruled in favor of the taxpayer on the issue of whether cost-of-goods sold deduction under the Texas margin tax applies to movie theatre exhibition costs. The opinion on rehearing changes the reasoning of the Court, but not the result.

 

About Ryan Law
Ryan Law is headquartered in Austin, Texas, with offices in Chicago, Houston, and Northern Virginia. Founded by tax and trial lawyers from some of the top law firms in Texas and the nation, the Firm handles a variety of complex tax issues, with an emphasis on all levels of tax recovery, audit defense, and tax appeals for many Fortune 500 companies.

Doug Sigel

Practice Group Leader for Sales and Income Tax

Ryan Law

(512) 459-6611

doug.sigel@ryanlawlllp.com

 

Doug Sigel writes article, “Sales and Use Tax Developments: The Tension Between Statutory Plain Language and Economic Substance in Effecting Legislative Intent” for IPT February 2015 Tax Report. To view the full article, please go to
https://www.ipt.org/iptdocs/Files/TaxReports/2015TaxReportFebruary.pdf

About Ryan Law
Ryan Law is headquartered in Austin, Texas, with offices in Dallas and Chicago. Founded by tax and trial lawyers from some of the top law firms in Texas and the nation, the Firm handles a variety of complex tax issues, with an emphasis on all levels of tax recovery, audit defense, and tax appeals for many Fortune 500 companies.

PRESS
INFORMATION CONTACT:

Doug Sigel
Administrative Partner
Ryan Law
512.459.6611
doug.sigel@ryanlawllp.com

July 1, 2012
FOR IMMEDIATE RELEASE

Austin, Texas – Ryan Law, a national law firm focusing on corporate tax litigation, today announced Doug Sigel has joined the Firm as Partner in the Austin, Texas office.  Mr. Sigel’s law practice concentrates on state and local tax, especially litigation at the administrative, trial, and appellate levels.  His litigation experience spans 23 years, and in that time, he has represented corporate clients in all sectors of the economy in hundreds of administrative appeals and court cases.

Prior to joining Ryan Law, Mr. Sigel was a Partner at an Austin, Texas trial law firm.  He is a frequent speaker on a variety of tax topics for the Institute for Professionals in Taxation (IPT), the ABA Tax Section, Texas Society of CPAs, and many other tax-industry seminars.  He will also be speaking at upcoming seminars sponsored by the Hartman Forum, IPT, the Tulane Tax Institute, the Texas Society of CPAs, and the ABA Tax Section.  Mr. Sigel is a graduate of Northwestern University and the University of Texas School of Law.  He is also currently counsel to the Texas Ambulance Association and has assisted emergency medical services providers with their legal issues for over 15 years.

“Doug’s litigation expertise in resolving complex tax disputes will be a tremendous asset to our clients who are seeking effective resolution of their tax cases,” said Kory L. Ryan, Managing Partner of Ryan Law.  “Having Doug join our Firm represents a significant step in our strategy to recruit and nurture the top legal talent in the tax field on a national basis.”

“I am proud to move our large tax practice to Ryan Law and to be a part of the formative stages of building the preeminent tax law firm in North America,” said Mr. Sigel.  “Ryan Law is creating a national platform to serve our clients in a taxpayer-centered environment.  Other law firms attempt to integrate a tax practice into their full-service litigation and transactional practices, and such tax practices are subsequently encumbered by conflict issues, overhead costs, and varied fee structures.

We will be rapidly implementing our strategy to build a national law firm, dedicated to representing taxpayers in a very focused and relentless fashion, which will leverage technology, our strong relationships in the state tax industry, and our talented lawyers.  We will also work in a collaborative manner with our clients and their tax consultants and advisors to deliver legal services in an innovative and efficient manner, and will be very open to alternative fee arrangements.”

About Ryan Law
Ryan Law is headquartered in Austin, Texas, with offices in Dallas and Chicago.  Founded by tax and trial lawyers from some of the top law firms in Texas and the nation, the Firm handles a variety of complex tax litigation matters, with an emphasis on all levels of tax recovery, audit defense, and tax appeals for many Fortune 500 companies.

PRESS INFORMATION CONTACT:

Doug Sigel
Partner
Ryan Law
512.459.6611
doug.sigel@ryanlawllp.com

June 21, 2012
FOR IMMEDIATE RELEASE

Austin, Texas – Ryan Law, a national firm focusing on corporate tax litigation, today announced that Mark W. Eidman has joined the Firm as a Senior Partner based in the Austin, Texas office.  He will also maintain his position as Principal at Ryan, LLC, a leading global tax services firm headquartered in Dallas, Texas.  Mr. Eidman is one of the leading tax attorneys in the United States and has built one of the most successful tax practices in the nation.  He has represented corporate clients in hundreds of administrative appeals and court cases and has successfully litigated some of the largest state and local tax cases in the country.  He has significant experience in franchise, income, insurance, motor fuel, motor vehicle, property, sales and use, and severance taxes.  He has also advised numerous companies in the structuring of transactions and has worked to draft or implement legislation for the transportation, financial services, leasing, petrochemical, retail, semiconductor, and telecom industries.  During his 35-year career, Mr. Eidman has been involved in administrative proceedings and court cases in more than 40 states.

Prior to joining Ryan Law, Mr. Eidman was a Partner at an Austin, Texas trial law firm, where he led the Tax Practice.  He also previously served as Director of the Hearings Division of the Texas Comptroller of Public Accounts, supervising all of the contested tax assessments in Texas.  Mr. Eidman has achieved industry recognition as a strategic thought leader and is a frequent speaker on a variety of tax topics for the Council On State Taxation (COST), the Institute for Professionals in Taxation (IPT), the Tax Executives Institute (TEI), and many other tax-industry associations.  He has served as Chairman of the Texas Comptroller’s Industry Liaison Group and has been honored as a Super Lawyer in the area of tax.  Mr. Eidman is a graduate of The University of Texas at Austin and The University of Texas School of Law.

“Mark’s unparalleled success handling corporate tax disputes will be a tremendous asset to our clients,” said Kory L. Ryan, Managing Partner of Ryan Law.  “Having the foremost tax attorney in Texas join our Firm represents a significant milestone in our strategy to acquire and retain the industry’s top legal talent.”

“I am proud to join Ryan Law’s impressive team of innovative tax lawyers in support of their mission to build the preeminent tax law firm in North America,” said Mr. Eidman.  “I look forward to continuing to provide our clients first-rate legal services and unsurpassed results.”  

About Ryan Law
Ryan Law is headquartered in Austin, Texas, with offices in Dallas and Chicago.  Founded by tax and trial lawyers from some of the top law firms in Texas and the nation, the Firm handles a variety of complex tax litigation matters, with an emphasis on all levels of tax recovery, audit defense, and tax appeals for many Fortune 500 companies.

PRESS INFORMATION CONTACT:

Mark W. Eidman
Senior Partner
Ryan Law
512.459.6600
mark.eidman@ryanlawllp.com

November 1, 2011
FOR IMMEDIATE RELEASE

Austin, Texas – Ryan Law, a law firm focusing on corporate tax litigation, continues its national expansion by opening an office in Chicago.

This marks the third location for the firm, which was founded in Dallas.  In May, it expanded and moved the company’s headquarters to Austin, Texas.

This strategic development will strengthen the firm’s national presence and better serve its steadily expanding client base.  The opening of the Chicago office is the latest step in Ryan Law’s long-term plan to grow into a national, full service tax litigation firm.

“This exciting development continues our strategic growth to become the nation’s premiere tax litigation firm,” said Kory L. Ryan, Managing Partner of Ryan Law.  “Our clients have a presence in numerous jurisdictions.  Often these organizations are forced to litigate the same issue in multiple states, using dozens of different law firms.  With Ryan Law, these clients can count on one firm to handle these complex issues that, many times, cross state lines.”

The firm intends to continue on the path of expanding its presence across the United States.

About Ryan Law
Ryan Law handles a variety of complex commercial litigation matters with an emphasis on all levels of tax-refund recovery, taxpayer defense, and tax appeals.  The firm serves a wide variety of clients, from individual taxpayers to Fortune 500 companies.  Founded by tax and trial lawyers from some of the top law firms in the nation, Ryan Law has quickly expanded to have national reach and presence.

 

 

May 1, 2011
FOR IMMEDIATE RELEASE

Austin, Texas – Ryan Law, a law firm focusing on corporate tax litigation, today announced it will launch a new office in Austin to better serve the law firm’s rapidly expanding client base.  The new suite will be located at One Congress Plaza, in the heart of downtown Austin.  The expansion continues the firm’s vision to build a national, full service tax litigation firm.

For the future, Ryan Law’s plans include a national expansion program, with strategic offices in several other cities throughout the United States.

About Ryan Law
Ryan Law was founded by tax and trial lawyers from some of the top law firms in Texas and the nation.  The Firm handles a variety of complex tax litigation matters, with an emphasis on all levels of tax recovery, audit defense, and tax appeals.

PRESS INFORMATION CONTACT:

Kory L. Ryan
Managing Partner
Ryan Law
512.459.6600
kory.ryan@ryanlawllp.com