On Friday, April 3 the Texas Supreme Court issued three decisions addressing the availability and scope of the cost of goods sold, or “COGS,” deduction.

Hegar v. American Multi-Cinema Inc.

The first, and most anticipated, decision is Hegar v. American Multi-Cinema, Inc.1  This case concerned whether AMC, the movie-theater chain, was eligible to deduct

In a continuing effort to clarify certain Texas Margins Tax issues, the Texas Comptroller of Public Accounts (Comptroller) issued Tax Policy News in July 2010, which provides additional guidance on the Texas Margins Tax costs of goods sold computation; apportionment; and margin tax recovery fees. Texas statutes and regulations do not provide significant guidance on how these provisions should be applied. 

Regarding the costs of goods sold deduction, the Comptroller clarified that this deduction may only be taken by taxpayers that produce “goods,” i.e., real property, tangible personal property, and specifically enumerated services related to video and radio programming. To the extent a taxpayer sells “mixed transactions”—transactions containing elements of both a “good” and a service—the taxpayer may only subtract as costs of goods sold those costs “in relation to” the good. However, a taxpayer may nonetheless deduct as costs of goods sold up to 4% of its back-office (“indirect or administrative overhead”) costs allocable to “the acquisition or production of goods.”Continue Reading Texas Margins Tax Roundup: Comptroller Provides Additional Margins Tax Guidance