By Ted Friedman and Prentiss Willson

The Texas Comptroller determined that for Texas franchise tax purposes the apportionment factor of an out-of-state taxpayer engaged in the provision of technical training could not be adjusted to account for certain costs incurred in preparing and marketing the training sessions. The training sessions that were sold in Texas were taught by instructors located in Texas for the benefit of attendees located in Texas. The Comptroller explained that, for services performed within Texas, the focus is on the specific, end-product acts for which the customer contracts and pays to receive, not on nonreceipt-producing, albeit essential, support activities. The Comptroller reasoned that the activities performed at the taxpayer’s out-of-state headquarters were undoubtedly necessary and essential to the creation and marketing of the training services sold in Texas. However, the act the taxpayer’s customers contracted for and paid to receive, and the act that produced the receipts at issue, was the training performed in Texas. The Comptroller determined that the taxpayer’s apportionment factor must be based on the location where the training sessions were performed, not on the location where the developmental costs were incurred. Tex. Comp. Decision 107,606 (July 28, 2014).