## Facts

- TGS–NOPEC Geophysical Company developed proprietary seismic and geophysical data that it treated as confidential trade secrets.
- TGS generated revenue by granting customers limited rights, under master license agreements, to access and use that data.
- For many years, the Texas Comptroller sourced TGS’s receipts from these transactions as sales of intangibles using a “location of the payor” approach (generally the customer’s legal domicile).
- After audits covering 1997–2000 and 2001–2003, the Comptroller recharacterized the receipts as “receipts from the use of a license” and concluded most licenses were used in Texas, increasing Texas-apportioned receipts and franchise tax liability.
- TGS paid the additional franchise taxes (and associated amounts) under protest and sued, arguing the receipts should be sourced as a sale (limited transfer) of an intangible under the statute’s catch-all provision.

## Issues

1. Whether receipts from TGS’s transactions were “receipts from the use of a license” in Texas under Tex. Tax Code § 171.103(a)(4).
2. Whether the receipts instead constituted a limited sale of an intangible governed by Tex. Tax Code § 171.103(a)(6) and sourced by the payor’s legal domicile.

## Decision

- The Supreme Court of Texas reversed the court of appeals’ judgment upholding the Comptroller’s assessment.
- The court held the receipts were not “receipts from the use of a license” under § 171.103(a)(4).
- The court characterized the transactions as a limited sale of an intangible and placed the receipts within § 171.103(a)(6)’s catch-all, sourced under the “location of the payor” rule.
- The case was remanded for further proceedings consistent with that interpretation.

## Legal Principles

- For Texas franchise-tax apportionment, the sourcing category turns on the statutory classification of the underlying revenue-producing property, not merely the contractual mechanism (such as a license agreement) used to transfer limited rights.
- “Receipts from the use of a license” under Tex. Tax Code § 171.103(a)(4) is construed narrowly in context, covering situations where the license itself is the revenue-producing item within the statute’s enumerated framework, not every licensed transaction involving an intangible.
- Transactions involving unenumerated intangibles may be treated as limited sales of intangibles under Tex. Tax Code § 171.103(a)(6) and sourced by the payor’s location (deemed the payor’s legal domicile).
- Administrative interpretations should be applied coherently across analogous intangible-property transactions; inconsistent treatment may indicate an overbroad reading of the statutory “license-use” category.

## Conclusion

The Texas Supreme Court rejected use-based sourcing for TGS’s seismic-data licensing receipts, holding they fall under the catch-all as a limited sale of an intangible and must be apportioned using the payor’s legal domicile rather than where customers used the data.


TGS–NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432 (Tex. 2011)