A trucking company’s construction of the Texas apportionment rule for transportation companies was improper. In calculating its franchise tax liability, it had to use either:
- loaded miles only in both the numerator and denominator of its apportionment formula, or
- both loaded and unloaded miles in both the numerator and denominator of the formula.
Rule for Receipts From Transportation Services
Under the rule, transportation companies must report Texas receipts from transportation services in intrastate commerce by:
- including revenues derived from transporting goods or passengers in intrastate commerce within Texas; or
- multiplying total transportation receipts by total miles transporting goods and passengers that move in intrastate commerce within Texas divided by total miles everywhere.
The rule does not address how to treat unloaded miles. Unloaded miles are miles traveled pulling an empty trailer or without pulling a trailer.
Texas Comptroller’s Interpretation of the Rule
In a prior Letter Ruling, the comptroller, interpreting the rule, stated that taxpayers could either:
- include unloaded miles in both the numerator and denominator; or
- exclude unloaded miles from both the numerator and denominator.
The comptroller noted a need for symmetry between the numerator and the denominator when sourcing receipts. The comptroller’s interpretation of its own rule is entitled to deference. It will be upheld as long as it is reasonable.
Company’s Improper Construction of the Rule
The company argued that the rule allowed it to use:
- only loaded miles in the numerator; and
- both loaded and unloaded miles in the denominator.
However, this construction of the rule would lead to unreasonable results. Thus, the company did not meet its burden of proving entitlement to a reduction in its intrastate mileage calculation.
Decision, Hearing No. 114,930, Texas Comptroller of Public Accounts, September 10, 2018, ¶404-399