A Texas Administrative Law Judge (ALJ) recently addressed whether receipts from sales of bunker fuel oil delivered to foreign-registered vessels in Texas ports and waters were Texas sourced receipts. The taxpayer, an oil and gas pipeline and storage company, sold bunker fuel oil to ships from various countries. On its original franchise tax returns, the taxpayer included receipts from the sale of fuel oil to foreign-registered vessels in Texas ports in its Texas apportionment factor. However, the taxpayer later filed amended returns claiming that its Texas receipts were overstated because it included the sales of fuel oil to foreign vessels. Under Texas law, receipts from sales of tangible personal property are sourced to Texas if the property is delivered or shipped to a buyer in the state. The FOB point, location of title passage, and other conditions of the sale are not relevant to the determination of Texas gross receipts. The taxpayer argued that receipts from sales of fuel oil to foreign vessels were not Texas receipts because the buyers were not operating in Texas and were therefore not “in the state.” The ALJ disagreed. In his view, the oil was delivered to vessels in Texas ports and Texas waters and therefore the receipts were Texas receipts. Moreover, under the Comptroller’s rules, revenue from transactions occurring in Texas waters were Texas receipts. The taxpayer also argued that the rule conflicted with the statute and the statute was unconstitutional, but the ALJ did not have jurisdiction to address these claims. The taxpayer also argued that Texas franchise tax laws were preempted by federal statute- the Maritime Transportation Security Act. However, the ALJ determined that the taxpayer failed to present any legal authority to support its preemption argument. Please contact Doug Maziur at 713-319-3866 with questions.
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