Sirius Xm Radio, Inc. v. Glenn Hegar, Comptroller of Public Accounts and Ken Paxton, Attorney General of the State of Texas

Supreme Court of Texas
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No. 20-0462
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Sirius XM Radio, Inc.,
Petitioner,

v.

Glenn Hegar, Comptroller of Public Accounts and Ken Paxton,
Attorney General of the State of Texas,
Respondents

═══════════════════════════════════════
On Petition for Review from the
Court of Appeals for the Third District of Texas
═══════════════════════════════════════

Argued November 30, 2021

JUSTICE BLACKLOCK delivered the opinion of the Court.

Sirius XM Radio produces radio programming, which it transmits
using satellites. Subscribers pay monthly fees to access Sirius’s
programming. To calculate the franchise tax it owes to the State of
Texas, Sirius must first calculate its “receipts from . . . each service
performed in this state.” TEX. TAX CODE § 171.103(a). The principal
question before this Court is whether Sirius’s monthly subscription fees
from Texas users are receipts from a “service performed in this state.”
Sirius argues that the service it performs for its Texas subscribers
is the production of radio shows and the transmission of a radio signal,
nearly all of which takes place outside Texas. According to Sirius, a
service is “performed in this state” if the people or equipment performing
the service are physically located in Texas. The Comptroller disagrees.
It argues that the service Sirius performs for its Texas subscribers is the
provision of access to its encrypted radio signal, which takes place on
each subscriber’s radio in Texas. The Comptroller reads the Tax Code
to allocate services to Texas if the “receipt-producing, end-product act”
takes place in this state. Here, the Comptroller contends, the “receipt-
producing, end-product act” is the enabling of each subscriber’s radio to
receive Sirius’s signal.
As explained below, we agree with Sirius. We therefore reverse
the judgment of the court of appeals and remand the case to that court
for consideration of the parties’ remaining arguments.
I
A
Texas’s franchise tax is calculated by multiplying the taxable
entity’s “taxable margin” by the tax rate. TEX. TAX CODE § 171.002.
Determining an entity’s “taxable margin” requires three steps: margin
calculation, apportionment, and deductions. Id. § 171.101(a). Entities
first calculate their “margin,” which is generally a percentage of their
total revenue. Id. § 171.101(a)(1). The next step is “apportioning the
taxable entity’s margin to this state as provided by Section 171.106.” Id.
§ 171.101(a)(2). This step yields the “apportioned margin.” Id. The
apportioned margin is calculated by multiplying the margin by a

2
fraction, whose “numerator . . . is the taxable entity’s gross receipts from
business done in this state” and whose “denominator . . . is the taxable
entity’s gross receipts from its entire business.” Id. § 171.106(a).
Finally, subtracting allowable deductions from the apportioned margin
yields the entity’s “taxable margin,” to which the tax rate is applied. Id.
§ 171.101(a)(3).
Only the second step—apportionment to Texas—is at issue here.
Determining the apportioned margin requires calculating what
percentage of the entity’s gross receipts are “from business done in this
state.” Id. § 171.106(a). Section 171.103 describes the required
calculation. The only element of the calculation in dispute is “the
taxable entity’s receipts from . . . each service performed in this state.”
Id. § 171.103(a)(2). The parties’ principal disagreement is whether
Sirius’s receipts from subscriber fees paid by Texas customers are
“from . . . service performed in this state.” Id.
The Tax Code authorizes the Comptroller to adopt lawful rules
for “the collection of taxes and other revenues under this title,” which
includes Chapter 171. Id. § 111.002. The administrative rules
applicable to this case provided that receipts from services “are
apportioned to the location where the service is performed,” and if
services are performed in more than one state, then the value
apportioned to Texas is the “fair value of the services that are rendered
in Texas.” 32 Tex. Reg. 10044, 10047 (2007), amended in part by 46 Tex.
Reg. 460 (2021) [hereinafter former 34 TEX. ADMIN. CODE § 3.591(e)(26)].

3
B
Sirius broadcasts more than 150 satellite-radio channels, over
70% of which run exclusively original content produced by Sirius. The
content is produced in studios mainly located in New York City and
Washington, D.C., although Sirius ran a small radio show in Texas for
a time. Content is broadcast by transmitting it to satellites from uplink
facilities in New Jersey, D.C., and Georgia. The satellites are launched
from Kazakhstan. Sirius has ten satellites orbiting 22,000 miles above
the earth. They transmit the signals they receive back down to Earth,
where they either reach radio sets or, in densely populated areas, one of
Sirius’s seven hundred terrestrial repeaters (twenty-two of which are in
Texas) that supplement its satellite coverage. The satellites are
controlled by Sirius’s facilities in Panama, Ecuador, and Georgia.1 Once
the signal reaches a customer’s radio, a “chip set”—that is, a pair of
integrated circuits—decrypts the radio signal, allowing the listener to
hear the programming.
Customers can access Sirius’s content by purchasing one of
Sirius’s radio sets and paying a subscription fee. Sirius has agreements
with auto makers to ensure that new vehicles have Sirius-enabled radios
installed. Subscribers typically purchase or lease vehicles with the
radios installed rather than purchasing and installing their own. Each
subscription is tied to one radio set. When a customer pays a
subscription fee, Sirius sends a signal from New York or D.C. that
activates the chip set in the satellite radio, which permits the chip set to

1 The state, not the country.

4
decrypt radio signals. In many cases, new automobiles come with an
active Sirius radio set, so Sirius sends a signal to deactivate and thereby
encrypt the radio signal only if the purchaser fails to renew the
subscription after his trial period ends.
Subscription fees are the primary source of Sirius’s revenue. The
chip set, which is equipped with technology to receive the activation
signal and decrypt radio signals, is located in the radio set, but—save
for a small number of terrestrial repeaters servicing a limited area—
none of the equipment or personnel used to send activation signals to
initiate decryption is located in Texas. Sirius creates content in various
states, but very little of it is made in Texas.2 It has many subscribers in
Texas.
In 2009 and 2010, Sirius paid franchise taxes in Texas. Those tax
years are at issue here. In calculating its margin, Sirius was permitted
to deduct from its revenue the “cost of goods sold” (COGS). TEX. TAX
CODE § 171.1012. Sirius included in that deduction certain
revenue-sharing payments and subsidies it paid to automobile
manufacturers to have its radios installed in vehicles. Sirius then
apportioned its reported subscription receipts for each year based on the
locations where it produced its programming and on the relative costs of
those activities in Texas and elsewhere.
The Comptroller’s Office audited Sirius. It determined that
Sirius should apportion based on the location of its subscribers, not
based on the location where its programs are produced. The Comptroller

2Sirius produced a channel called “Willie’s Place” in Hillsboro, Texas.
Taxation of that production is not at issue.

5
claimed Sirius underpaid by $878,364.39 for the 2010 tax year and
$1,674,907.38 for the 2011 tax year. According to the Comptroller, the
“service performed in this state” by Sirius was the service of
“unscrambling” the radio signal. The Comptroller reached this
conclusion based on its position that services must be apportioned to the
state in which the “receipt-producing, end-product act” takes place.
Additionally, in the Comptroller’s view, Sirius could not take a COGS
deduction for the revenue-sharing and subsidy agreements because they
did not qualify as “direct costs of acquiring or producing the goods.” TEX.
TAX CODE § 171.1012(c).
Sirius paid the assessed tax under protest, id. § 112.052, and sued
in district court in Travis County for a refund. Sirius did not dispute
that it performed a small amount of services in Texas, but it claimed
that the vast majority of its work in producing and broadcasting content
was performed elsewhere. The district court found that Sirius’s
“receipt-producing, end-product act” was producing and broadcasting its
content over satellite radio, not decrypting radio signals. It held that
Sirius performed this service both inside and outside of Texas and that
its receipts must therefore be apportioned to Texas based on the fair
value of the service performed in Texas. The court heard expert
testimony from Sirius, which included a cost study to determine the fair
value of its services performed in Texas. The court found this analysis
to be a credible method for determining fair value. The Comptroller did
not provide an opposing calculation on the fair-value question or offer
any of its own witnesses, instead arguing that the burden of proof was

6
on Sirius. The Comptroller maintained that Sirius’s cost of performance
was not valid evidence of fair value.
The district court found that Sirius performed its services almost
exclusively outside Texas. It apportioned to Texas only 0.47% and 0.26%
of Sirius’s total receipts from the two years in question, whereas the
Comptroller would have apportioned 8.3% and 8.36%, respectively. The
court rendered judgment for Sirius and ordered the Comptroller to
refund over $2 million to Sirius. The court affirmed the Comptroller’s
denial of the disputed COGS deduction.
The Comptroller appealed the apportionment issue, and Sirius
filed a conditional cross-appeal concerning the COGS deduction. The
court of appeals reversed and rendered a take-nothing judgment against
Sirius. Agreeing with the Comptroller’s position that the phrase
“service performed in this state” in Section 171.103(a)(2) refers to the
“receipt-producing, end-product act,” the court of appeals held that the
service performed by Sirius for Texas subscribers was unscrambling the
radio signal. 604 S.W.3d 125, 132–33 (Tex. App.—Austin 2020). The
court thus agreed with the Comptroller on how to apportion Sirius’s
receipts to Texas. The court then held that the comparative cost of
Sirius’s activities inside and outside of Texas was not credible evidence
of fair value under its understanding of how to apportion Sirius’s
receipts. Id. at 135. The court of appeals also affirmed the district
court’s judgment regarding Sirius’s claimed COGS deduction. Id. at 137.
Sirius petitioned for review. It challenges only the court of
appeals’ holding that its receipts from Texas subscribers should be
apportioned to Texas.

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II
A
The parties’ disagreement is largely one of statutory
interpretation. The correct interpretation of a statute is a matter of law,
which we review de novo. Youngkin v. Hines, 546 S.W.3d 675, 680 (Tex.
2018).3
The parties also raise arguments concerning judicial deference to
a state agency’s interpretations of statutes. Texas courts have not
adopted the agency-deference doctrines employed by federal courts.
R.R. Comm’n v. Tex. Citizens for a Safe Future & Clean Water, 336
S.W.3d 619, 625 (Tex. 2011). Instead, this Court has said that “we will
generally uphold an agency’s interpretation of a statute it is charged by
the Legislature with enforcing, so long as the construction is reasonable
and does not contradict the plain language of the statute.” Id. (cleaned
up). Of course, a court must always endeavor to decide for itself what
the statutory text means so that it can determine whether the agency’s
construction contradicts the statute’s plain language. Tex. Comm’n on
Env’t Quality v. Maverick County, ___ S.W.3d ___, 2022 WL 413939, at
*4 (Tex. Feb. 11, 2022).

3 As always, the classic rules of statutory interpretation apply. See, e.g.,
KMS Retail Rowlett, LP v. City of Rowlett, 593 S.W.3d 175, 183 (Tex. 2019)
(“When interpreting statutes, we look to the plain meaning of the enacted
text.”); Crosstex Energy Servs., L.P. v. Pro Plus, Inc., 430 S.W.3d 384, 389 (Tex.
2014) (“If the statute is clear and unambiguous, we must read the language
according to its common meaning” without consulting “extrinsic aids.”); Tex.
Mut. Ins. Co. v. Ruttiger, 381 S.W.3d 430, 452 (Tex. 2012) (“[T]his Court
presumes the Legislature deliberately and purposefully selects words and
phrases it enacts, as well as deliberately and purposefully omits words and
phrases it does not enact.”).

8
The primary issue before this Court is whether Sirius’s receipts
from Texas subscribers are receipts from a “service performed in this
state.” TEX. TAX CODE § 171.103(a)(2).
Sirius argues that it performs little or no services in Texas. In its
view, the phrase “service performed in this state” means that the
personnel or equipment performing the service must be physically
located in Texas. Sirius contends that the service it performs is not the
decryption of radio signals but the production and broadcasting of radio
content, which happens outside Texas.
The Comptroller agrees that the proper test is the location where
the service is performed, not the location where the service is received.
But it contends that Sirius’s subscribers pay for decryption services in
order to access the broadcasted content and that Sirius performs this
service where the technology within the radio set is located. Therefore,
the Comptroller concludes, the value must be apportioned to Texas,
which is the location of the “receipt-producing, end-product act” of
unscrambling the radio signal.
Again, the Tax Code requires apportionment based on whether
receipts are from a “service performed in this state.” Id. § 171.103(a)(2).
But how does a court determine what a “service” is and where it is
“performed”? This is not the first case to raise such questions. We have
previously understood “service” to mean “performance of labor for the
benefit of another.” Van Zandt v. Fort Worth Press, 359 S.W.2d 893, 895
(Tex. 1962); see also Combs v. Newpark Res., Inc., 422 S.W.3d 46, 54
(Tex. App.—Austin 2013, no pet.) (noting that “service” is “useful labor
that does not produce a tangible commodity”). As for “performed in this

9
state,” we have previously looked to whether the “act done” is “located
in Texas.” Humble Oil & Refin. Co. v. Calvert, 414 S.W.2d 172, 180 (Tex.
1967). We see no reason to depart from these straightforward
understandings of the everyday words the statute uses. A “service” is
“performed in this state” if the labor for the benefit of another is done in
Texas.
Generally, all it takes to know where a taxable entity’s “useful
labor” is “done” is to ask where the employees do their work, since
businesses act only through their agents. When technology rather than
personnel performs the useful act, we look to the location of that
equipment, as the Comptroller and courts of appeals have done.
Hearing No. 10,028, 1980 WL 5466, at *5 (Tex. Cptr. Pub. Accts. Nov.
27, 1980) (looking to the “point of transmission” from broadcasting
equipment); Westcott Commc’ns, Inc. v. Strayhorn, 104 S.W.3d 141, 147
(Tex. App.—Austin 2003, pet. denied) (looking to the location of
“employees” and “facilities”).
We reject the contrary inference that the Legislature, by choosing
the passive voice—“performed in this state”—meant for us to ignore the
location of the service performer and focus only on the location where
the performance is received or its effects felt. The Legislature could have
easily designated the place of receipt or the location of the customer as
the site of taxation. In fact, the Legislature did so in the immediately
preceding provision, which calls for apportionment based on “each sale
of tangible personal property if the property is delivered or shipped to a
buyer in this state.” TEX. TAX CODE § 171.103(a)(1) (emphasis added).

10
In its original context in an administrative hearing decision, the
“receipt-producing, end-product act” test advanced by the Comptroller
is not to the contrary.4 It served only to distinguish between the
“support services” that enable the entity to do business and the “receipt-
producing” services for which a customer actually pays. As originally
employed, the test aimed to tell the Comptroller what qualifies as the
“service performed.” It did not tell the Comptroller where a service is
performed.
Here, however, the Comptroller would use the “receipt-producing,
end-product act” test to determine the location of the service. If pressed
into this role, the test is not consistent with the statute. Mechanical
application of the test would often require courts to focus on the location
where the service is received. But the Legislature chose the word
“performed”—not “received”—and any test that blurs this critical
distinction parts ways with the statute.
The focus should be on the statutory words themselves, not on
extraneous concepts like “receipt-producing” or “end-product act,” which
do not appear in the statute and, when applied, may or may not yield
the same result as a straightforward application of the words chosen by

4 On a fair reading of the administrative decision that first announced
the “receipt-producing, end-product act” test, the test was mainly an
afterthought, a way of distinguishing the administrative law judge’s decision
from related decisions in New York. Hearing No. 10,028, 1980 WL 5466, at *7.
It comes only after the ALJ rejected a “location of the audience test” and held
that taxation should be based on the “point of transmission.” Id. at *5. As
originally articulated, the “receipt-producing, end-product act” test was a way
to distinguish a service-receipt system from a property-and-payroll system by
focusing on the receipt derived from the service contracted for, not the other
acts the company pays its staff to do elsewhere (i.e., support services).

11
the Legislature. That is not to say the statutory text is always easy to
apply. It is not. But it should not be replaced by words of limitation or
expansion not chosen by the Legislature. Setting aside the atextual and
unhelpful “receipt-producing, end-product act” test, the most natural
reading of “service performed in this state” supports locating the
performance of the service at the place where the taxpayer’s personnel
or equipment is physically doing useful work for the customer.
B
What the text suggests, past precedent confirms. Apportionment
goes back to at least 1959, when the predecessor to the present statute
was adopted. Act of July 30, 1959, 56th Leg., 3d C.S., ch. 1, § 1, 1959
Tex. Gen. Laws 187. The 1959 statute itself was merely a “codification
of long-standing departmental practices.” Humble Oil & Refin. Co., 414
S.W.2d at 180. In general, the taxes many states impose on service
businesses can be sorted into “origin-based” and “destination-based”
varieties, or those that look to where the service originates versus those
that look to where it is received. See JEROME R. HELLERSTEIN ET AL.,

STATE TAXATION ¶¶ 9.18[3], 9.18[3][a] (3d ed. 2011).5 The district court
here held—and neither party contests—that Texas uses an origin-based
system. This means that Texas has long looked to where the service is
performed rather than where it is received. Going back to 1919, when

5 The Uniform Division of Income for Tax Purposes Act, which many
states adopted, also demonstrates the important distinction between taxation
based on where the income-producing activity occurs and where the market for
the sale is. Br. of Amici Council on State Tax’n and Tex. Taxpayers & Rsch.
Ass’n at 7 n.2, 8 n.3. The Comptroller’s 1980 decision, on which it places great
weight, also affirms the distinction. Hearing No. 10,028, 1980 WL 5466, at *4.

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Texas revised its franchise tax after the predecessor version was held
unconstitutional by the United States Supreme Court, see Looney v.
Crane Co., 245 U.S. 178, 191 (1917), Texas has used a single-factor test
based on sales receipts. Other states consider other factors in addition
to receipts. See, e.g., LA. STAT. ANN. § 47:606; OHIO REV. CODE
§ 5733.056. But Texas’s single-factor, origin-based system looks only to
where the service from which the receipts are derived is performed.
The case law applying an origin-based approach to the taxation of
services comparable to Sirius’s aids our inquiry. In Southwestern Bell
Telephone Co. v. Combs, the court of appeals focused on the location of
the “network, facilities, and/or personnel” of a telephone company. 270
S.W.3d 249, 262 (Tex. App.—Amarillo 2008, pet. denied). There, the
taxpayer charged consumers for access to its local telephone network in
order to complete long-distance calls. Id. at 257. The Comptroller’s
rules looked to whether there was “equipment located in Texas” to
determine whether the service was performed in Texas. Id. at 261. And
the court held that the services were performed in Texas because the
network and facilities from which the taxpayer’s personnel performed
the service were located in Texas. Id. at 262.
Likewise, the court of appeals in Westcott Communications, Inc.
v. Strayhorn, citing the “longstanding interpretation” of the
Comptroller, looked to the location of Westcott’s employees and of the
facilities from which Westcott transmitted its satellite broadcasts. 104
S.W.3d at 146–47. In that case, customers contracted with Westcott to
provide informational and training services that Westcott would
broadcast over satellite to its customers. Id. at 144–45. The court

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required Westcott to be taxed based on the location of its “broadcast
transmission equipment” and “production facilities.” Id. at 145. The
court rejected Westcott’s argument that “its services were performed
where its subscribers were located” or “where the customers received the
service.” Id. Instead, it held for the Comptroller on the grounds that
Westcott’s service was the provision of training, which it did through
personnel, facilities, and equipment located in Texas.6 Id. at 147.
Even the administrative decision that first announced the
Comptroller’s “receipt-producing, end-product act” test focused on the
place from which the broadcaster transmitted its signals through its
equipment. Hearing No. 10,028, 1980 WL 5466, at *5. The taxpayer
was a television broadcaster using equipment in both Texas and New
Mexico. Id. at *1. The administrative law judge held that the company
could be taxed on its transmissions from its Texas radio tower but not
its New Mexico tower. Id. at *5. The decision concluded, “The primary
thrust of this ruling is its recognition that revenue from broadcasting
represents receipts from a service that is performed at the point of
transmission, regardless of whether the broadcast waves traverse

6 Although the governing statutory text has not materially changed, the
arguments made by the Comptroller in Westcott before the ALJ were
functionally the opposite of the Comptroller’s position now. Hearing No.
35,481, 1998 WL 877860, at *4, *8 (Tex. Cptr. Pub. Accts. July 29, 1998) (“The
Tax Division’s arguments are readily summarized as follows: . . . (2) The
services are performed at the place where Petitioner’s employees who perform
the services are located . . . . The Tax Division takes the position that delivery
of electronic impulses is not determinative because services are apportioned
where performed rather than where delivered.”).

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another state’s airspace.” Id. In other words, where the taxpayer’s
equipment emits the signal was the relevant location of performance.7
In sum, precedent confirms our reading of the Tax Code:
Determining the location of performance requires looking to the physical
location of the taxpayer’s personnel or equipment that performs the
service for which the customer pays. By contrast, we see no indication
that the “receipt-producing, end-product act” test advanced by the
Comptroller is well-established in prior case law. Oblique references to
it exist. See Westcott, 104 S.W.3d at 146–47. But it has never been used
to determine where a service is performed, at least not by courts. Even
the administrative decision from which it derives did not apply it as the
Comptroller now attempts to do. We see no reason for the
“receipt-producing, end-product act” test to play any role in our decision.
C
We turn now to the nature and location of the services performed
by Sirius. The court of appeals held that the act “that allowed each
Sirius XM customer to receive Sirius XM programming occurred when
Sirius XM decrypted the program by activating or deactivating the
customer’s chip set in their satellite-enabled radio, which Sirius XM

7 This was also the stance initially taken by the Comptroller’s Office in
a Letter Ruling provided to Sirius in 2008, which was subsequently
superseded. See Tex. Cptr. Pub. Accts., Letter Ruling No. 200806626L (2008),
https://star.comptroller.texas.gov/view/200806626L (2008) (superseded on
other grounds) (“Subscription revenue is considered receipts from the
performance of a service and should be apportioned to the location where the
service is performed, which is the point of transmission. Therefore, to the
extent all broadcasting occurs at the Company’s facilities located outside of
Texas, the subscription revenue should not be included in Texas gross
receipts.”).

15
could do remotely.” 604 S.W.3d at 133. It concluded, “This act occurred
where the satellite-enabled radio was located.”8 Id. In the court of
appeals’ view, “Sirius XM was not paid by its subscribers . . . to
broadcast or produce television or radio programming.” Id. at 134.
Instead, “Sirius XM’s programming was available to any person with a
satellite-enabled radio that contracted with Sirius XM to receive
programming,” and “the purpose of the contract, from the standpoint of
the subscriber, was the ability to receive the programming through his
or her satellite-enabled radio.” Id. at 135.
Like the district court, we disagree with this understanding of the
service Sirius performs. In tax cases, courts must “not disregard the
economic realities underlying the transactions in issue.” Combs v.
Roark Amusement & Vending, L.P., 422 S.W.3d 632, 637 (Tex. 2013).
The economic reality here is that Sirius is a radio production and
broadcasting company operating dozens of satellite radio channels from
locations outside Texas. Characterizing the service Sirius performs as
“decryption” elevates the technicalities of the transaction over the
economic reality of the service performed. It is of course true—in a
narrow, technical sense—that a Sirius subscriber pays to have his radio

8 Sirius alleges that the court of appeals improperly deferred to the
Comptroller’s interpretation of the statute. In Sirius’s view, the statutory
requirement that trial on contested franchise taxes be de novo, TEX. TAX CODE
§ 112.054, precludes the application of deference to agencies because the courts
must “try each issue of fact and law . . . as though there had not been an
intervening agency action or decision,” TEX. GOV’T CODE § 2001.173. The
Comptroller, however, does not ask for deference and does not attempt to
defend the court of appeals’ decision on deference grounds. Because the
Comptroller asks for no deference, we need not decide whether its position is
entitled to any special consideration.

16
set decrypt a signal. But the economic reality of Sirius’s business is that
decryption is not a service performed for the benefit of the customer at
all. Sirius’s encryption-decryption model is not for the customer’s
benefit. It is for Sirius’s benefit. Encryption is a barrier to access
imposed by Sirius—an artificial way to manufacture scarcity—in order
to extract subscription payments from customers. Those customers
want to listen to radio content. They do not want decryption. They
would prefer to have the content without the decryption, which would
make the content free. Sirius, of course, would not make money that
way.
Characterizing the service Sirius performs for Texans as
“decryption of radio sets in Texas” is like saying the service performed
by The Wall Street Journal Online is a “paywall-removal service,” rather
than the creation and distribution of news and opinion content its
subscribers want to read. But Sirius is no more in the “decryption
business” than The Wall Street Journal is in the “paywall-removal
business.” Both impose an artificial barrier to render more profitable
what would otherwise be a freely available—and perhaps economically
unviable—product. No one would pay for Sirius’s decryption without
Sirius’s radio content. No one would need to pay for Sirius’s radio
content without decryption, but the radio content would still be a
valuable service. Encryption allows Sirius to capture a share of that
value, but decryption is obviously not the useful labor that Sirius
performs.9

9Many of Sirius’s customers may never receive a single activation or
deactivation signal for their chip set, as they will drive their new car off the lot

17
Even if “decryption” were the relevant service, Sirius still does not
perform it in Texas. The record does not reflect any evidence that Sirius
sends its activation signals to initiate decryption in the chip set from
personnel or equipment within Texas. By all accounts, it has no
personnel or equipment here, aside from a small number of terrestrial
repeaters servicing a limited area. Thus, the decryption “service”—even
if it mattered—is performed from outside Texas, at the “point of
transmission.” Hearing No. 10,028, 1980 WL 5466, at *5.
To the extent that the Comptroller’s argument relies on the
presence of equipment in Texas—the car radios that receive signals from
Sirius—it is important to note that the receipts at issue here are from
subscriptions paid for access to radio content, not from the sale or lease
of radio sets. Even if Sirius “controls” the chip sets in the sense that it
alone can activate or deactivate them, Sirius does not own the
equipment in each subscriber’s car. The customer owns it. The radio
set itself is a physical good, not a service, so its transfer to the customer
would be taxed under a different scheme, if at all. The receipts in
dispute are from monthly subscriptions, not from the provision of radio
sets, which have been installed in nearly every new car sold for at least
the last decade, whether or not the driver ever pays for Sirius’s services.
In sum, Sirius has little personnel or equipment in Texas that
performs the radio production and transmission services for which its

with an active trial subscription and renew it each time without fail.
Customers who renew their initial subscriptions do not want Sirius to
affirmatively “decrypt” their signal but instead want Sirius to decline to
re-encrypt the signal. The non-performance of such an act is surely not the
“service performed” by Sirius for tax purposes.

18
customers pay monthly subscription fees. The court of appeals’ decision
apportioning to Texas all of Sirius’s receipts from Texas subscribers
must be reversed.
D
Even under our holding today, the parties would agree that some
small amount of Sirius’s services were performed in Texas.
Unchallenged Comptroller regulations require that, when services are
performed inside and outside of Texas, the taxpayer must apportion to
Texas the “fair value of the services that are rendered in Texas.”
Former 34 TEX. ADMIN. CODE § 3.591(e)(26).10 To establish the fair
value of its services in Texas, Sirius submitted in the district court a
study showing the cost of performing its services. The district court
accepted this analysis as sufficient evidence of fair value. The court of
appeals rejected it, but it did so only after agreeing with the Comptroller
on the underlying question of how to apportion Sirius’s subscription
receipts. 604 S.W.3d at 135–37.
Sirius did not raise this issue in its petition for review, but the
Comptroller briefed the issue as an alternative ground for affirmance.
The Comptroller contends that even if Sirius prevails on all other points,
there was still legally insufficient evidence establishing the fair value of
Sirius’s services performed in Texas. The Comptroller takes issue with
Sirius’s cost-based analysis of fair value, including its treatment of its
FCC license, its handling of its subsidies, its apportionment of
consulting fees, and so on.

10Counsel for the Comptroller agreed at oral argument that, in this
rule, “rendered” means the same thing as “performed.”

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As the court of appeals recognized, any assessment of the
evidence necessary to establish the fair value of services performed in
Texas hinges on which services are considered “performed in this state.”
The court of appeals engaged in no analysis of the appropriateness of
cost-based methods as such. Instead, its conclusion that Sirius failed to
present sufficient evidence of fair value flowed from its view that the
district court had misidentified the relevant service performed by Sirius.
Id. Because we now reverse on that predicate question, the basis for the
court of appeals’ objection to Sirius’s fair-value evidence falls away.
No court has yet considered the Comptroller’s argument that the
evidence of fair value Sirius proffered in the district court is insufficient
to support the district court’s judgment even if Sirius is right about how
to apportion its services. If the Comptroller continues to take that
position after today’s decision, it may raise the issue in the court of
appeals on remand.11
III
The judgment of the court of appeals is reversed. The case is
remanded to the court of appeals for further proceedings consistent with
this opinion.

11 The Comptroller contends that if we reverse the court of appeals’
judgment, we will have to reject the district court’s judgment too because it
also deployed the “receipt-producing, end-product act” standard. We disagree.
The district court found that Sirius’s receipt-producing act was producing and
broadcasting radio content. It appears to have used the “receipt-producing act”
formulation because the Comptroller insisted it be used. Whatever label the
district court used at the Comptroller’s request, as a practical matter it appears
the district court applied the correct, origin-based method of apportioning
Sirius’s services, consistent with our decision today.

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James D. Blacklock
Justice

OPINION DELIVERED: March 25, 2022

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