The Texas Court of Appeals held that crude oil stored in tank farms in San Patricio County solely for export to foreign buyers was constitutionally immune from county ad valorem taxation under the Import-Export Clause of the U.S. Constitution. The court concluded the oil constituted property in the stream of export overseas and therefore could not be taxed by the county.  

The taxpayers, two affiliated U.S. entities of a foreign parent, sold crude oil exclusively to non-U.S. buyers. To fulfill those sales, the taxpayers transported crude oil via a third-party pipeline to export tanks in San Patricio County, where the crude oil was temporarily stored before being loaded onto vessels and shipped overseas. At no point was the oil sold into, or diverted to, the domestic market.  

Affirming the trial court’s decision, the Court of Appeals relied on U.S. Supreme Court and Texas Supreme Court precedent recognizing bright‑line constitutional immunity for property in the stream of export. The court emphasized that the oil’s foreign destination was fixed and irrevocable. The taxpayers’ sales contracts were exclusively with foreign buyers, and the oil was transported to San Patricio County solely to facilitate export. The temporary storage of the oil in export tanks was not a break in transit, but a necessary and integral step in the export process – allowing the oil to await vessel availability and loading for overseas shipment. Because the record established that the oil was committed to foreign export and never entered, or was capable of entering, the domestic market, the court held that San Patricio County was constitutionally prohibited from imposing ad valorem tax on the oil.

San Patricio Cnty. Appraisal Dist. v. Gunvor USA LLC, No. 13-24-00590-CV, 2026 WL 59714 (Tex. App. Jan. 8, 2026).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state legislature recently introduced a bill that would impose a 50% tax on a private detention facility’s gross revenue?

E-mail your response to SALTonline@eversheds-sutherland.com.

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The California Office of Tax Appeals held that storing inventory at a third-party warehouse constitutes “doing business” for income and franchise tax purposes.

The taxpayer was a Pennsylvania-based corporation making online sales of apparel through a third-party digital marketplace. The taxpayer also contracted with the marketplace to hold and ship inventory from warehouses (fulfillment centers) to customers in various states. In 2018, the California Department of Tax and Fee Administration (CDTFA) sent the taxpayer a letter informing it that CDTFA received information that appellant had inventory stored in fulfillment centers located in California and as such, met the definition of a retailer engaged in business in California for sales and use tax purposes. CDFTA informed the taxpayer that it was therefore required to register with CDTFA, file sales and use tax returns, and pay tax on sales made to consumers in California – all of which the taxpayer did.

Subsequently, the Franchise Tax Board (FTB) received the taxpayer’s gross sales information from the CDTFA and issued an assessment for the $800 minimum franchise tax plus penalties, and enforcement fee, and interest. The definition of “doing business” in California, specifically, Cal. Rev. & Tax. Code § 23101(b), includes a bright line test: (1) sales of the taxpayer in California exceed the lesser of $500,000 or 25 percent of the taxpayer’s total sales; (2) the real property and tangible personal property of the taxpayer in California exceed the lesser of $50,000 or 25 percent of the taxpayer’s total real property and tangible property; or (3) the amount paid in California by the taxpayer for compensation exceeds the lesser of $50,000 or 25 percent of the total compensation paid by the taxpayer. Although the taxpayer was nowhere near these thresholds, the OTA found that the taxpayer was doing business in California under subdivision (a) of section 23101, finding “appellant’s storage of inventory and sales in California during the 2019 tax year satisfies the criteria of ‘actively engaging in any transaction for the purpose of financial or pecuniary gain or profit’ for income tax purposes.”

This decision is a good reminder that one may be “doing business” in California under section 23101, subdivision (a), even if the bright-line thresholds in subsection (b) are not met, and that the California tax agencies communicate with each other.

Appeal of Fishbone Apparel, Inc., OTA Case No. 230212546, 2025-OTA-141 (December 29, 2025).

Meet Luna, our newest and youngest addition to this year’s SALT Pet of the Month family! At just eight weeks old, this five‑pound “Cavapoo,” a mix of King Charles Cavalier and Poodle, has already captured hearts in the family of Mike Kelley, Global Tax Counsel at Microsoft.

Her name was not chosen lightly. After serious family debate at the kitchen table, and several rounds of voting, a unanimous decision was finally reached. Luna officially earned her title, and like her namesake, she shines with confidence.

Luna is in the early stages of crate training, though she seems to view it less as a lesson and more as a negotiation. Armed with oversized puppy eyes, she appears to be running a parallel training program, one focused entirely on her humans.

We are delighted to welcome Luna to our SALT Pet of the Month family. Welcome, Luna!

We’re pleased to share that Greg Matson, the former Executive Director of the Multistate Tax Commission (MTC), has joined our SALT team as Counsel.

Greg has decades of experience working on complex state tax issues while representing taxpayers and states. That experience, coupled with his skills as an advocate and advisor, will form the basis of Greg’s counsel to our clients.

“Greg is one of the most respected voices in the state tax community,” said Jeff Friedman, Head of the SALT team. “I am absolutely over the moon to have my friend of 25 years join us. Greg is a humble advisor – often guiding a position without taking the credit or limelight. He is a careful listener and a thoughtful lawyer. I am looking forward to admiring his representation of our clients in the years ahead.”

To read the full press release, visit this link.

This week, SALT Partners Michele Borens, Jeff Friedman, and Tim Gustafson are pleased to present at COST’s 2026 SALT In A Digital World Workshop, where leading practitioners will unpack the key SALT issues that affect everyone using technology in their operations.

Our partners will explore how these developments are playing out across the SALT landscape. Panels include:

  • Litigating the Digital Frontier: State Tax Cases Driving Change – exploring significant state tax litigation and regulatory actions impacting digital platforms, online marketplaces, social media advertising, and emerging technologies as well as cases challenging nexus standards, sourcing rules for digital services, and the constitutionality of taxes on data and digital advertising.
  • Transfer Pricing in the Digital Age: State Tax Challenges – exploring the unique transfer pricing issues arising in the digital economy, from valuing intangible assets such as algorithms and user data to allocating revenue from targeted advertising and cloud services.
  • Single Sales Factor: Simplicity or Distortion? The Fair Apportionment Debate – examining the evolution of single sales factor, its impact on multistate businesses, and the controversies surrounding distortion, internal and external consistency, and alternative apportionment petitions.

We look forward to connecting with fellow practitioners and sharing practical insights from the front lines.

Register to join us!

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: California is currently considering a proposed bill that would take away what tax election?

E-mail your response to SALTonline@eversheds-sutherland.com.

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Members of the firm’s SALT team will be sharing insights on apportionment, sourcing, and key litigation trends at several industry events this week.

SALT Partner Tim Gustafson will present at the California Taxpayers Association’s 100th Annual Meeting of the Members in Sacramento, CA. His panel will explore evolving apportionment rules and their impact on taxpayers, including emerging issues in gross receipts classification, market‑based sourcing, and sales factor apportionment.

Register to join here.

Also this week, Partners Michele Borens and Jeff Friedman will join the speaker lineup at the TEI Seattle Chapter’s Tax Forum on Wednesday, February 25. Their session will examine strategies for sourcing receipts from modern digital commerce, comparing traditional apportionment methods with newer market‑based sourcing approaches. Michele and Jeff will also discuss key considerations in cost‑of‑performance states, along with trends in look‑through sourcing and alternative apportionment.

Find out more here.

Finally, on February 26, Counsel Charles Capouet and Associate Periklis Fokaidis will present a comprehensive review of the long‑standing SALT Scoreboard publication and the most significant state tax decisions from across 2025. With a particular focus on Q3 and Q4 developments, their session will recap key case opinions, analyze emerging litigation trends, highlight notable late‑year activity, and compare 2025’s results to prior years’ case tallies.

Register here.

On February 26, join Eversheds Sutherland attorneys Charles Capouet and Periklis Fokaidis for a comprehensive review of the long‑standing SALT Scoreboard publication and the most significant state tax decisions from across all of 2025, with a particular focus on Q3 and Q4 developments.

In addition to recapping the year’s key case opinions, Charles and Periklis will analyze emerging litigation trends, discuss notable late‑year activity, and compare 2025’s results to prior years’ case tallies.

Register here.

The taxpayer, a fleet management company that leases fleets of commercial vehicles to businesses, used leases containing a terminal rental adjustment clause (TRAC). Under these leases, the lessee paid estimated monthly rent based on the projected residual book value of the vehicle at lease termination. When the lease ended, the estimated rent was retrospectively adjusted to determine the actual rent owed.

At lease commencement, the taxpayer reported and remitted sales tax based on the estimated rent schedule. If the actual rent was lower, the taxpayer refunded the excess rent and the related sales tax to the lessee and then claimed credits on its sales and use tax returns to recover the overpaid sales tax.

The Department of Taxation and Finance (Department) audited the taxpayer and concluded it was not entitled to take such credits, resulting in additional sales tax due of nearly $3M. The Department’s position was that the sales tax liability was irrevocably fixed at the inception of the lease. The Tax Appeals Tribunal agreed with the Department.

On appeal, however, the appellate court ruled in the taxpayer’s favor. The court held that, in TRAC leases, initial payments are provisional estimates and the final consideration is not determined until the lease concludes. Accordingly, amounts ultimately refunded to lessees were never definitively contracted to be paid and therefore should not have been included in the sales tax base.

In re Gelco Corp. v. State of N.Y. Tax Appeals Trib., No. CV‑24‑1376 (N.Y. App. Div. 3d Dep’t Feb. 5, 2026).