The Texas Supreme Court held that receipts from licensing data to customers were properly characterized as the sale of an intangible asset and were sourced to the customer’s legal domicile under Texas’s location of the payor sourcing rule. TGS-NOPEC Geophysical Co. v. Combs, 2011 WL 2112763 (May 27, 2011).

TGS collects and stores seismic and geophysical data on subsurface terrains around the world and then, pursuant to a license agreement, licenses the data to its customers. TGS delivers the data to customers in tangible mediums—tapes, printed materials, or film. The Texas Comptroller argued that TGS’s receipts from licensing this data to customers in Texas were “licenses used in Texas” as set forth in Tex. Tax Code § 171.103(a)(4) because the revenue was derived from license agreements, and therefore, the receipts should be sourced to Texas (where the licenses were used). While the lower courts agreed with the Comptroller and upheld her assessment against TGS, the Texas Supreme Court reversed and held that TGS had correctly characterized its receipts as those from the sale of an intangible asset and sourced them to the licensee’s legal domicile. The Texas Supreme Court determined that TSG sold, not licensed, its data despite the fact that TSG termed its customer agreements “license agreements.”