Comptroller Appeals Offshore Rig Repair Co. Win in Texas Franchise Tax Case

Recently, a Texas district court awarded full relief to Gulf Copper, an offshore rig repair company, upholding its position on both the Revenue Exclusion for Real Property Subcontractors and the Cost of Goods Sold (“COGS”) formula. See Gulf Copper & Manufacturing Corp. v. Hegar, No. D-1-GN-14-004620, 53rd Judicial District, Travis County, Texas (Judgment Feb. 22, 2016). The Comptroller assessed nearly four-times the amount of franchise tax that Gulf Copper had originally paid based on arguments that (1) a fee-sharing contract was required to exclude subcontractor payments, and (2) the COGS calculation is more limited than the statute plainly provides. The district court rejected Comptroller’s arguments and his tax assessment in favor of Gulf Copper. By its ruling, the court allowed Gulf Copper (among other things) to include in its COGS subtraction the amount of costs incurred to remove defective portions of customers’ offshore oil rigs, and the costs to install new components.

On April 13, 2016, the Comptroller filed its Notice of Appeal, appealing this case to the Texas Third Court of Appeals (No. 03-16-00250-CV). Our law firm’s board-certified civil appellate specialist, Amanda Taylor, anticipates that briefs will be filed between August and October 2016, and that the case will thereafter be set for oral argument. Ms. Taylor believes the appeal will result in important determinations for Texas taxpayers about how the franchise tax operates and the limits on the Comptroller’s ability enact self-serving rules that are contrary to the statute.

For more information, contact or Jimmy Martens, Danielle Ahlrich, or Amanda Taylor with Martens, Todd, Leonard, Taylor & Ahlrich, the law firm that tried Gulf Copper’s case and is handling the appeal at (512) 542-9898.