Overview
- The Texas Supreme Court issued significant guidance on the sourcing rules for sales of tangible personal property.
- The decision focuses on whether the Texas Tax Code dictates that tangible personal property is sourced based upon the location of delivery or transfer, as opposed to the property’s ultimate destination.
- The decision in the Comptroller’s favor affirmed the trial and appellate court’s findings in favor of the rule based upon the location of the delivery or transfer.
Background
Sales of tangible personal property in Texas are sourced based upon Texas Tax Code Ann. Section 171.103(a)(1), which states that the sales are considered to be in Texas “…if the property is delivered or shipped to a buyer in this state regardless of the FOB point or another condition of the sale.” 34 Texas Admin. Code §3.591(e)(29) adds further color to the statutory language—it sources sales to Texas if “…the sale of tangible personal property…is delivered in Texas to a purchaser. Delivery is complete upon transfer of possession or control of the property to the purchaser, an employee of the purchaser, or transportation vehicles that the purchaser leases or owns.”
The Instant Case
The Supreme Court of Texas considered whether Texas law requires sales to be sourced to the ultimate destination or based upon where possession or control transfers to the buyer, in its recent decision in NuStar Energy, L.P. v. Hancock, No. 24-0037, slip op. (Tex. Mar. 13, 2026).
NuStar Energy, L.P. (“NuStar”) was engaged in the business of selling bunker fuel. This fuel is used in large, ocean-going ships, foreign vessels, and is delivered at ports in Texas. Initially, on its 2011-2013 returns, NuStar reflected these sales as Texas receipts for apportionment purposes. It subsequently amended these returns to exclude these sales since these foreign vessels did not (and legally could not) use or consume this fuel in Texas or Texas-controlled waters. The Comptroller of Public Accounts (the “Comptroller”) denied this refund; the trial court likewise ruled in favor of the Comptroller’s summary judgment motion, and an intermediate appellate court affirmed this decision.
The Court’s Decision
The court’s decision begins by noting that both parties agree that, in some form, the statutory language of Texas Tax Code Section 171.103(a)(1) requires sourcing of sales of tangible personal property to its destination (as opposed to origin). The parties differ as to what “destination” means in this context, however. The Comptroller insisted that the place where the property is delivered or transferred to the buyer controls, whereas NuStar contended that the ultimate destination for the tangible personal property should be the location to which the receipts are sourced for apportionment purposes.
The court then parsed the specific language of the statute, considering the court’s prior decision in Lockheed Martin Corp. v. Hegar, 601 S.W.3d 769 (Tex. 2020), and notes that the straight syntax requires sourcing to Texas when the property is “handed over” to a buyer in Texas. NuStar counterargued that the language “…to a buyer in this state” mandates a look beyond the mere location of the transfer of the property and requires an inquiry to the buyer’s location for the goods—the ultimate use test.
The court dismissed NuStar’s argument, noting that its interpretation of the statute would render the words “delivered or shipped” in the statute moot. It would be inconsistent with maxims of statutory construction to fail to give effect to the words the legislature used in drafting the statute. The court noted, “[t]he mode of transportation is not what [matters]; what matters is the customer’s location when the seller surrenders the goods.” It dismissed the argument that ultimate destination should control by assuming the legislature was intentional in the language of the statute, and had it meant that ultimate destination was to control as opposed to delivery or shipment, it would have said so. It drew a direct contrast to the language of Texas Tax Code §171.103(a)(4), governing receipts from intangible property, which explicitly sources receipts from certain items based upon their use in the state.
NuStar also argued that ultimate destination sourcing was a result compelled by provisions of the Uniform Division for Tax Purposes Act (“UDITPA”) and the Multistate Tax Compact (“MTC”), of which Texas is a signatory. It noted that other jurisdictions that have adopted UDITPA and are MTC participants have come to the decision that ultimate destination controls. The court tersely dismissed this argument, holding that the “…statute’s plain language trumps unstated policy objectives that might be gleaned from extratextual sources.” The court reasoned that if the legislature valued uniformity, it could change the plain language of the statute to provide such uniformity, but that there was no role for the judiciary to do so by fiat.
The court then turned its attention to NuStar’s issues with the Comptroller’s regulations. It raised an objection to the Comptroller deviating from the statutory language “delivered…to a buyer in this state” in its regulation to “delivered in Texas to a purchaser.” The court dismissed this change as a distinction without a substantive difference. It likewise dismissed NuStar’s protestations that language in the regulation created a carve-out for property delivered to a common carrier in Texas for delivery out-of-state because the provision in question was not patently inconsistent with the terms of the statute.
Forvis Mazars Insight: As with many judicial branch decisions, the NuStar case may present refund opportunities or exposure risk for taxpayers depending on their particular facts, and careful consideration of the holding is warranted as taxpayers begin to finalize their Texas franchise tax return that is due by November 15.
How Forvis Mazars Can Help
We can help you consider the approach you take to Texas apportionment for franchise tax purposes contemplating this decision, plan for the future, and address any past exposure or opportunities because of the decision.
For more information, reach out to a professional at Forvis Mazars.