News and Insights

Texas Proposes New Revisions to Sourcing Rules

Tax Development Feb 27, 2023

Texas Proposes New Revisions to Sourcing Rules

The Texas Comptroller’s proposed amendments to 34 TAC Sec. 3.591 on apportionment were published in the January 20, 2023 Texas Register. The proposed amendments are in response to the Texas Supreme Court’s decision in Sirius XM Radio Inc. v. Hegar (“Sirius”).1


In March 2022, the Texas Supreme Court delivered its opinion in the Sirius franchise tax case, finding that receipts from the provision of a service are sourced to the location of the performance, specifically the location of the taxpayer’s personnel or equipment that performs the service. As the Court did not provide guidance on how to allocate the service receipts when services are performed within and outside of the state, the case was remanded to the Court of Appeals. In November 2022, the Texas Court of Appeals affirmed the trial court’s determination of the amount of Sirius’ Texas receipts, which had been calculated based on the cost-of-performance methodology. After this decision, the Comptroller did not petition for review by the Texas Supreme Court. 

Proposed Amendments 2023

The proposed amendments modify the definition of location of performance in § 3.591(e)(26)(A) by removing the receipts-producing, end-product act standard and by providing clarification that a service is performed at the location where the entity’s personnel or equipment are doing the work they were hired to perform. Under the proposed amendments, any activities not directly used in the performance of the service should not be considered in determining where the service is performed. Further, the proposed amendments provide that a taxpayer may only include direct costs in determining the fair value of the service.

While the Court of Appeals ruled that a cost-of-performance analysis may be a valid method for determining the fair value of services performed in Texas, the proposed amendments do not require a cost-of-performance analysis. Ryan’s Texas Franchise Tax team has extensive experience assisting clients in gathering the facts necessary to establish the relevant services performed, identifying the requisite personnel and equipment performing those services, and supporting the fair value of the service performed in Texas for proper apportionment purposes. Contact one of the Ryan experts listed below to identify the fair value of your services. 

1 643 S.W.3d 402 (Tex. 2022).


Eric L. Stein

Sandi Farquharson

The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at