By Stephen Burroughs and Timothy Gustafson

The Texas Comptroller determined that receipts received for the delivery of satellite programming to Texas subscribers should be sourced to the site of the subscriber’s set-top box for apportionment purposes. The taxpayer provides direct broadcast satellite television programming to subscribers in Texas and across the United States. For the years in dispute, the taxpayer did not include programming receipts in its Texas receipts factor numerator because the equipment used to receive, amplify and transmit programming signals was located outside of Texas, and therefore the taxpayer concluded the service was being performed outside of Texas. However, the Comptroller determined that “the act that produces the receipts at issue…is the act performed by the [set top box]” in Texas. The set-top box descrambled incoming satellite signals into viewable television programming and therefore, according to the Comptroller, provided the “end-product acts for which the customer contracts and pays to receive.” Texas’s place-of-performance sourcing statute resembles a market-based sourcing mechanism for satellite television providers. Tex. Comp. Dec. 104,224 (May 17, 2013).