Westcott Communications, Inc. v. Strayhorn

• Decision Date: 20 March 2003
• Docket Number: No. 03-02-00351-CV.,03-02-00351-CV.
• Citation: 104 S.W.3d 141
• Parties: WESTCOTT COMMUNICATIONS, INC.; Law Enforcement Television Network, Inc.; Westcott ECI, Inc.; and Ti-In Acquisition Corporation, Appellants, v. Carole Keeton STRAYHORN, Comptroller of Public Accounts, and Greg Ab-bott, Attorney General of the State of Texas, Appellees.
• Court: Texas Court of Appeals

104 S.W.3d 141

WESTCOTT COMMUNICATIONS, INC.; Law Enforcement Television Network, Inc.; Westcott ECI, Inc.; and Ti-In Acquisition Corporation, Appellants, v. Carole Keeton STRAYHORN, Comptroller of Public Accounts, and Greg Ab-bott, Attorney General of the State of Texas, Appellees.

No. 03-02-00351-CV.

Court of Appeals of Texas, Austin.

March 20, 2003.

Rehearing Overruled April 24, 2003.

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Ray Langenberg, Mark W. Eidman, Steve Selby, Scott, Douglass & McConnico, LLP, Austin, for appellants.

Blake A. Hawthorne, Assistant Attorney General, Taxation Division, Austin, for appellees.

Before Justices KIDD, YEAKEL and PURYEAR.

OPINION

DAVID PURYEAR, Justice.

In this case, we are asked to decide whether revenues from training programs produced in Texas and subsequently delivered to subscribers throughout the nation via satellite can be taxed under the franchise tax statute as "services performed within the state." Westcott Communications, Inc., Law Enforcement Television Network, Inc., Westcott ECI, Inc., and Ti-In Acquisition Corporation (collectively, "Westcott") appeal a summary judgment granted by the district court in favor of Carole Keeton Strayhorn, Comptroller of Public Accounts, and Greg Abbott, Attorney General (collectively, "Comptroller").¹ Westcott contends that the services it provides are performed outside the state, specifically, at the point of reception, and therefore the receipts from those services should be apportioned to the states where its subscribers reside. Westcott also contends that apportioning the receipts for services that take place in the stream of interstate commerce to the state of performance imposes an impermissible burden on interstate commerce and subjects it to multiple taxation in violation of the Commerce Clause of the United States Constitution and to unequal treatment in violation of both the United States and Texas Constitutions. Because we view the services provided by Westcott as being performed within the state and do not view the imposition of the franchise tax as violating any constitutional provisions, we will affirm the district court's judgment.

FACTUAL BACKGROUND

This case involves franchise tax report years 1992 to 1994. During those report years, Westcott produced educational, informational, and training programming and delivered the programming to subscribers throughout the nation via satellite broadcast and videotape. These educational and training services were provided to schools, law enforcement personnel, nurses, and other professionals. Westcott's headquarters, broadcast transmission equipment, and production facilities are located in Texas. Additionally, Westcott produced, filmed, edited, and broadcast its training services in and from Texas. Westcott provided its subscribers with satellite dishes and supporting equipment to receive the programming. Subscribers could also choose to receive the programs via videotape rather than satellite.

Westcott filed franchise tax returns that apportioned its subscription revenues based on the locations where the satellite and videotapes were received. The Comptroller audited Westcott and determined that all the satellite subscription revenues should be reapportioned to Texas because Westcott's primary production facilities were in Texas.² Westcott paid under protest and sued the Comptroller for a refund. In the district court, both parties moved for summary judgment. The district court granted the comptroller's motion and entered judgment denying Westcott's claim. Westcott appeals, arguing that for franchise tax purposes, revenues from Westcott's nationwide satellite broadcasts should be apportioned among the states where the broadcasts are received.

DISCUSSION

The parties do not dispute the fads material to this case. Consequently, the propriety of summary judgment is a question of law. See Natividad v. Alexsis, Inc., 875 S.W.2d 695, 699 (Tex.1994). Where both parties file a motion for summary judgment, and one is granted and one is denied, we determine all questions presented and render such judgment as the trial court should have rendered. See Commissioners Court v. Agan, 940 S.W.2d 77, 80 (Tex.1997). Therefore, we review the trial court's decision de novo to determine whether the Comptroller was entitled to judgment as a matter of law. See Natividad, 875 S.W.2d at 699.

On appeal, Westcott claims the Comptroller's assessment (1) violated the tax code because the Comptroller incorrectly determined the location where its services were performed; (2) violated the Commerce Clause because Westcott is subjected to the threat of multiple taxation; and (3) was not equal and uniform, in violation of the United States and Texas Constitutions.³

Service Performed in this State

Westcott argues that the Comptroller's franchise tax assessment for the years 1992 to 1994 apportioning all satellite subscription revenues to Texas violated the tax code because its services were performed where its subscribers were located, not where the preparations occurred. In other words, the services were performed where the customers received the service. Because much of its audience is located out of state, Westcott argues that the out-of-state receipts should be apportioned as services performed outside the state. Westcott claims that the true nature of its services is analogous to providing live seminars and transmitting cable television services, both of which would be taxed based on the location of the recipients. We disagree.

Subject to certain exceptions, the franchise tax is imposed on each corporation that does business in the state, is chartered by the secretary of state, or is authorized to do business in the state. See Tex. Tax Code Ann. § 171.001(a)(1) (West 2002);⁴ Bullock v. National Bancshares Corp., 584 S.W.2d 268, 270 (Tex.1979); Rylander v. Bandag Licensing Corp., 18 S.W.3d 296, 298-99 (Tex.App.-Austin 2000, pet. denied). In apportioning taxable capital, the gross receipts of a corporation from its business within the state is divided by its gross receipts from its entire business. See id. § 171.106(a). Determining the gross receipts from business done within the state includes receipts from "each service performed in the state." See id. § 171.103(2).

The supreme court has previously analyzed the franchise tax statute and stated that it requires "that the act done or the property producing the income must be located in Texas. It [is] the localization of the transaction in Texas and not the place of physical handing over or receiving of money that was significant." Humble Oil & Refining Co. v. Calvert, 414 S.W.2d 172, 180 (Tex.1967).⁵ In 1980, the Comptroller determined that "where the act is done' determines the geographical character of receipts derived from the performance of a service." Tex. Comp. Pub. Acc'ts Hearing No. 10,028, 1980 WL 5466 at *5 (Nov. 27, 1980) (quoting Humble Oil, 414 S.W.2d at 180). At no time since the Comptroller's 1980 interpretation regarding what determines the geographical character of receipts derived from the performance of a service has the language regarding "service performed in this state" been changed. If this longstanding interpretation were inconsistent with the purposes of the statute, we can assume that it would have been corrected by the legislature in the amendment process. "When the legislature reenacts without substantial change a statute that has been previously construed by an agency charged with its execution, a court should ordinarily adopt the agency construction." Southwestern Life Ins. Co. v. Montemayor, 24 S.W.3d 581, 585 (Tex.App.-Austin 2000, pet. denied); see also Humble Oil, 414 S.W.2d at 180 (statute construed by proper administrative officers reenacted without substantive change will receive same construction); Felix Frankfurter, Some Reflections on the Reading of Statutes, 47 Colum. L.Rev. 527, 543 (1947) ("The consistent construction by an administrative agency charged with effectuating the policy of an enactment carries very considerable weight.").

Construction of a statute by an administrative agency charged with its enforcement is entitled to serious consideration, so long as the construction is reasonable and does not contradict the plain language of the statute. Tarrant Appraisal Dist. v. Moore, 845 S.W.2d 820, 823 (Tex.1993). Construing "where services are performed" to be where the "act is done" is a perfectly reasonable construction of the franchise tax statute which says receipts from the sale of services must be apportioned to the location of the services. If the agency's interpretation is consistent with the language and the purposes of the statute, the court will accept it, even if other reasonable interpretations exist. See Gene Hamon Ford, Inc. v. David McDavid Nissan, Inc., 997 S.W.2d 298, 305 (Tex. App.-Austin 1999, pet. denied).

It is clear that where the "act is done" in this case is in Texas, rather than in the states of the subscribing clients. Westcott claims its services are analogous to subscription television services like cable television. It argues that its customers are paying Westeott to broadcast television programming to their business establishments, not to produce television programming. Westcott misstates its service. Westcott is not paid to broadcast or produce television programming. It is paid to provide training to its customers. This training can include live broadcast sessions, interactive question-and-answer sessions, testing, and other educational and training services, all done by employees from its Texas facilities. Westcott is unlike a cable television provider because its services go well beyond providing a broadcast signal to its customers. In light of these facts, we hold that it was reasonable for the Comptroller to conclude that Westcott's training services were performed in Texas and are therefore covered under the franchise tax statute as...