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Decoding Texas Franchise Tax Section 171.103(a)(1): NuStar Energy Case

Updated: Jan 7

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Texas Franchise Tax Section 171.103(a)(1)

The NuStar Energy Case: A Closer Look at Texas Franchise Tax Laws

The recent ruling in NuStar Energy, L.P. v. Hegar by the Texas Court of Appeals is a crucial case for taxpayers in Texas. This blog post aims to dissect the complexities of this case, breaking down its background, the court's decision, and why it matters to Texas taxpayers.

Background of the Case

The dispute in NuStar Energy v. Hegar centered on the apportionment of gross receipts for calculating a business's franchise tax obligation in Texas. NuStar Energy, a company operating in multiple jurisdictions, sought to recover franchise tax payments made under protest. The key issue was whether the Comptroller had adopted an invalid rule contradictory to Section 171.103(a) of the Tax Code, which guides the apportionment of gross receipts.

Section 171.103(a) of the Texas Tax Code: "(a) Subject to Section 171.1055, in apportioning margin, the gross receipts of a taxable entity from its business done in this state is the sum of the taxable entity's receipts from: (1) each sale of tangible personal property if the property is delivered or shipped to a buyer in this state regardless of the FOB point or another condition of the sale;"

Application in the Case: The court had to interpret whether sales of fuel to foreign vessels at Texas ports should be included in NuStar's Texas gross receipts, even though the fuel was used outside Texas.

Positions of the Parties Based on the Law

  • NuStar Energy's Position: NuStar interpreted this provision to mean that only sales where the buyer is located in Texas, or where the property is used or sold within Texas, should count towards the franchise tax. They argued that their sales of fuel to foreign vessels, which were delivered at Texas ports but used outside the state, should not be included in the gross receipts for Texas franchise tax purposes.

  • The Comptroller's Position: The Comptroller argued that according to the law, any sale of tangible personal property that is delivered in Texas should be included in the gross receipts, irrespective of the buyer's location or where the property is ultimately used or sold. The focus, according to the Comptroller, is solely on the point of delivery within Texas.

The Court’s Ruling

The Texas Court of Appeals sided with the Comptroller, affirming the trial court's judgment that the rule was facially valid. The ruling hinged on interpreting Section 171.103(a)(1) of the Texas Tax Code, which includes sales of tangible personal property delivered or shipped to a buyer in Texas, irrespective of the FOB point or other sale conditions.

NuStar's argument was based on a “place of market” approach, suggesting that the tax should only apply where the buyer is located. However, the court favored a “place of delivery” approach, determining that the tax applies based on where the property is delivered or shipped in Texas, regardless of the buyer's location.

Implications for Texas Taxpayers

This ruling is significant for Texas taxpayers, especially businesses operating across state lines. The “place of delivery” approach means that businesses will be taxed on sales of tangible personal property delivered in Texas, even if the buyer is out of state. This can potentially increase the tax obligations of businesses that have significant physical presence or delivery footprints in Texas.

Why Texans Should Pay Attention

Texans should be aware of this case for several reasons:

  1. Increased Tax Burden: Businesses might pass on the increased tax costs to consumers, affecting the prices of goods and services.

  2. Business Decisions: The ruling may influence how businesses structure their operations and sales strategies in Texas.

  3. Future Litigations: This decision sets a precedent that could affect future disputes and interpretations of the Tax Code.

  4. Legislative Changes: Awareness can spur discussions and potential legislative actions to address concerns raised by this ruling.


NuStar Energy v. Hegar is a landmark case that clarifies Texas's franchise tax application. It highlights the complexities of tax laws and their implications for businesses and consumers. As taxpayers and residents of Texas, staying informed about such cases helps us understand the tax landscape and prepare for its impacts on our daily lives and business operations.


The content provided in this blog post is for informational purposes only and is not intended as legal advice. While we strive to ensure the accuracy and timeliness of the information presented, the rapidly changing nature of legal and regulatory environments means that we cannot guarantee its current applicability or completeness.

This blog post does not create an attorney-client relationship between you and Le Tax Law, PLLC. It should not be used as a substitute for competent legal advice from a licensed professional attorney in your jurisdiction.

Readers are advised to consult with a qualified attorney to understand how these legal developments may apply to their specific circumstances. If you are seeking legal advice or assistance, we encourage you to reach out to our experienced team.


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