Gulf Copper rebuilds offshore drilling rigs. Its employees and subcontractors manufacture new rig components and install them on rigs. The manufacturing process continues into installation. The Gulf Copper case addresses two critical components of the Texas franchise tax base of “margin”: (1) the availability of the revenue exclusion for payments to subcontractors who assist in rebuilding offshore drilling rigs and (2) the scope of cost of goods sold for businesses who manufacture and install component parts on offshore drilling rigs.

The Gulf Copper case is presently pending before the Texas Supreme Court.

On December 12, 2018, Gulf Copper and the Comptroller filed opening briefs on the merits.

Gulf Copper and the Comptroller are each presently required to file responses on January 2, 2019, followed by a reply to the written response. The parties’ lawyers anticipate seeking extension of these deadlines.

The Supreme Court has not yet granted either party’s petition for review, so it is possible that they will not hear the case.

Martens, Todd, Leonard & Ahlrich will continue to provide updates related to this case. If you have a client that claims the subcontractor revenue exclusion, or that subtracts COGS when preparing their state franchise tax filings, be sure to pay special attention to further developments.

Martens, Todd, Leonard & Ahlrich is a trial and appellate law firm headquartered in Austin, Texas, handling only tax cases. The firm specializes in Texas sales tax and Texas franchise tax controversies. The firm’s attorneys have handled cases all the way through the Texas Supreme Court and U.S. Supreme Court. The firm’s attorneys speak and write frequently on a variety of Texas sales tax and franchise tax topics and have published articles in publications such as the Journal of State Taxation, the Texas Bar Journal, the Texas Lawyer, and the Texas Tech Administrative Law Journal.

Please call or e-mail Jimmy Martens, Danielle Ahlrich, or Chase Howell if you have questions about this case.