Income/Franchise:
Texas Appellate Court Holds Only Net Proceeds from Selling Commodity Futures Includable in Sales Factor

Case No. 03-21-00111-CV, Tex. Ct. App. (8/24/22). A Texas appellate court (Court) affirmed a lower court ruling that only the net proceeds – not gross – from sales of commodity futures contracts and related options were includable in the taxpayer’s apportionment factor denominator for Texas franchise tax purposes, and, thus, the taxpayer was not entitled to a refund of taxes paid. Citing a previous ruling that involved a taxpayer with a similar issue now pending before the Texas Supreme Court [see Case No. 03-21-00011-CV, Tex. Ct. App. (10/14/21) and previously issued Multistate Tax Alert for more details on the earlier case], the Court explained that because the securities at issue were not treated as inventory of the taxpayer for federal income tax purposes, the receipts from selling the securities did not fall within the scope of Texas Tax Code section 171.106(f) (requiring gross proceeds from the sale of a loan or security treated as inventory for federal income tax purposes to be included for apportionment purposes). Therefore, according to the Court, only the net proceeds from the sale of those securities should be included for Texas apportionment factor purposes. Please contact us with any questions.