      TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN


                                       NO. 03-13-00034-CV



                              Titan Transportation, LP, Appellant

                                                  v.

  Susan Combs, Comptroller of Public Accounts of the State of Texas; and Greg Abbott,
                 Attorney General of the State of Texas, Appellees


     FROM THE DISTRICT COURT OF TRAVIS COUNTY, 353RD JUDICIAL DISTRICT
      NO. D-1-GN-11-002866, HONORABLE LORA J. LIVINGSTON, JUDGE PRESIDING



                                           OPINION


               Titan Transportation, LP, appellant, sued Susan Combs, Comptroller of Public

Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas

(collectively, the State), seeking a refund of franchise taxes that Titan paid under protest along with

a refund or credit for an alleged overpayment of taxes. See Tex. Gov’t Code §§ 403.201-.221

(governing protest suit after payment under protest); Tex. Tax Code §§ 112.001-.156 (governing

taxpayer suits). Titan asserted that the State erroneously denied it a revenue exclusion it had claimed

for payments made to its subcontractors during the relevant tax year.1 In the alternative, Titan




       1
          See Act of May 19, 2006, 79th Leg., 3d C.S., ch. 1, § 5, 2006 Tex. Gen. Laws 1, 10
(amended 2013) (current version at Tax Code § 171.1011(g)(3)) (excluding certain “flow-through
funds” from taxpayer’s “total revenue” computation).
asserted it was entitled to deduct the subcontractor payments as a “cost of goods sold” (COGS).2

Following a bench trial, the trial court rendered judgment that Titan was not entitled to either the

revenue exclusion or the COGS deduction for the relevant tax year. On appeal, Titan asserts that the

trial court misinterpreted and misapplied the applicable tax provisions and that, as a matter of law,

it qualifies for either the revenue exclusion or the COGS deduction. We will reverse the trial court’s

judgment, render judgment that Titan is entitled to exclude the subcontractor payments from its total

revenue, and remand the case to the trial court for a determination of the amount of refund to which

Titan is entitled.


                     OVERVIEW OF THE FRANCHISE-TAX STATUTE

                Under the current franchise-tax scheme, franchise taxes are assessed against a taxable

entity’s “taxable margin.” Tax Code § 171.002(a), (b). This incarnation of the franchise-tax statute

has been substantively amended several times since it was enacted in 2006. The Tax Code

provisions applicable to this case are those in effect on January 1, 2008.3 Under that version of the

statute, the formula for determining taxable margin and calculating a taxpayer’s franchise-tax

obligation can be summarized as follows:




        2
          See Act of May 19, 2006, 79th Leg., 3d C.S., ch. 1, § 5, 2006 Tex. Gen. Laws 1, 8
(amended 2013) (current version at Tex. Tax Code § 171.101(a)) (allowing taxpayer to elect to
deduct COGS from total revenue); Act of May 19, 2006, 79th Leg., 3d C.S., ch. 1, § 5, 2006 Tex.
Gen. Laws 1, 13-16 as amended by Act of June 15, 2007, 80th Leg., ch. 1282, §§ 14, 15, 2007 Tex.
Gen. Laws 4282, 4290-91 (amended 2013) (current version at Tax Code § 171.1012) (governing
calculation of COGS deduction).
        3
          Citations in this opinion will be to the current version of the Tax Code only when
intervening amendments are not relevant to the disposition of the issues on appeal.

                                                  2
       1.      Calculate Total Revenue;

       2.      Subtract applicable deductions to determine Margin:

                      (i)     no deductions if Total Revenue is $10 million or less (qualifying
                              taxpayer to use E-Z computation method); or

                      (ii)    deduct the greater of COGS, compensation, or a flat 30%;

       3.      Multiply Margin by the percentage of gross receipts from Texas business
               to determine Apportioned Margin (or Apportioned Total Revenue for E-Z
               computation filers);

       4.      Subtract any other allowable deductions to determine the taxable entity’s
               Taxable Margin;

       5.      Multiply Taxable Margin by the applicable tax rate (.575% for E-Z computation
               filers, 0.5% for entities primarily engaged in wholesale or retail trade, or 1% for all
               others) to determine franchise-tax obligation; and

       6.      Subtract any allowable credits or discounts.


See Tax Code §§ 171.002 (general tax rates), .0021 (discounts for small businesses), .1011

(computation of total revenue), .1012 (determination of COGS deduction amount), .1013

(determination of compensation deduction amount), .1016 (E-Z computation method and rate for

taxpayers with no more than $10 million in total revenue), .106 (how to calculate apportionment

factor); Act of May 19, 2006, 79th Leg., 3d C.S., ch. 1, § 5, 2006 Tex. Gen. Laws 1, 8 as amended

by Act of June 15, 2007, 80th Leg., ch. 1282, § 11, 2007 Tex. Gen. Laws 4282, 4287 (amended

2013) (current version at Tax Code § 171.101) (determination of taxable margin). Under this version

of the franchise-tax statute, there are four distinct methods for determining a taxpayer’s taxable

margin and three different tax rates that may be applied to determine the amount of franchise

tax that is due. See id. § 171.1016; Act of May 19, 2006, 79th Leg., 3d C.S., ch. 1, § 5,


                                                 3
2006 Tex. Gen. Laws 1, 8 as amended by Act of June 15, 2007, 80th Leg., ch. 1282, § 11,

2007 Tex. Gen. Laws 4282, 4287 (amended 2013). Effective January 1, 2014, taxpayers not using

the E-Z computation method will also have the option to deduct a flat $1 million from total revenue

if that sum is greater than the COGS, compensation, or 30% deductions. Tax Code § 171.101(a).

Although the computation methods and tax rates may vary, the first step for all taxable entities and

all methods of computing taxable margin is to calculate the taxpayer’s “total revenue.”

               Section 171.1011 of the Tax Code provides the method for calculating a taxable

entity’s total revenue. In general, total revenue is income reported to the federal IRS less various

categories of revenue that the statute specifies are to be excluded, excepted, deducted, or otherwise

limited. Id. § 171.1011. For example, all taxpayers may deduct certain flow-through funds, while

only taxable entities in select industries are permitted to exclude other types of flow-through funds.

Compare id. § 171.1011(f)–(g) (flow-through-funds exclusions) with id. (g-1), (g-3), (g-4)

(flow-through-funds exclusions for specific industries); see also In re Nestle USA, 387 S.W.3d 610,

615 (Tex. 2012) (discussing franchise-tax scheme). A manifest purpose of excluding “flow-through

funds” is to except from taxation gross receipts that do not constitute actual gain or income to the

taxpayer. See, e.g., Tax Code § 171.1011(f), (g), (g-1), (g-3), (g-4).

               After calculating total revenue, taxpayers may then employ the method of determining

taxable margin that produces the lowest franchise-tax obligation. Id. §§ 171.101(a) (“The taxable

margin of a taxable entity is computed by . . . determining the taxable entity’s margin, which is the

lesser of” the 30% cap method, COGS subtraction method, or compensation subtraction method or,

effective January 1, 2014, flat $1 million subtraction from total revenue), .1016 (allowing qualifying



                                                  4
taxpayers to elect to pay lower franchise-tax rate under E-Z computation method in exchange for

foregoing any deductions not specifically authorized by that section). The methods of calculating

taxable margin are characterized by the mutually exclusive subtractions from total revenue that are

authorized, the deadlines for electing which deductions to take, and the applicable tax rate. Under

the E-Z computation method, taxpayers with $10 million or less in total revenue may elect to forego

any deductions from total revenue in exchange for a 0.575% tax rate, which is significantly lower

than the general tax rate of 1%. See id. §§ 171.002 (general tax rate), .1016 (taxpayers electing E-Z

computation method “may not take a credit, deduction, or other adjustment” other than

apportionment of gross receipts attributable to business in Texas and, effective January 1, 2014,

discounts for small businesses). Taxpayers who do not qualify for the E-Z computation method—or

who would obtain more favorable tax treatment under another method—may take (1) a 30% general

deduction from total revenue, (2) a COGS deduction, (3) a deduction for qualifying compensation,

or (4) effective January 1, 2014, a $1 million flat deduction. See id. § 171.101(a). Taxpayers

electing to take a COGS or compensation deduction must “notify the comptroller of [that] election

not later than the due date of the annual report.” Id. § 171.101. In addition, any sums excluded from

total revenue cannot be included as part of either a COGS or compensation deduction, and certain

caps or limitations may apply to otherwise qualifying expenses. Id. §§ 171.1011(j) (sums excluded

from total revenue may not be included in COGS or compensation calculations), .1012 (f) (cap on

indirect and administrative overhead costs in COGS deduction), .1013(c) (compensation cap).

               After applicable deductions have been taken, taxable margin is determined by

apportioning the adjusted revenue between in-state and out-of-state business and, except for E-Z



                                                 5
computation filers, subtracting any other allowable deductions.          Id. §§ 171.101(a)(2), (3),

.1016(b)(2), (c). A taxpayer’s franchise-tax obligation is determined by multiplying its taxable

margin by the applicable tax rate and then subtracting any allowable credits or discounts. See id.

§§ 171.0021 (discounts for small businesses), .1016(d) (allowing E-Z comp filers to take small

business deduction beginning January 1, 2014). For taxpayers not using the E-Z computation

method, the tax rate is 0.5% for entities primarily engaged in wholesale or retail trade and 1% for

all others. Id. §§ 171.002 (general tax rates), .101 (determination of taxable margin), .1016 (E-Z

computation method and applicable tax rate); see also In re Nestle, 387 S.W.3d at 614-16 (providing

overview of franchise-tax statute and generally discussing how it operates). Taxable entities with

a tax obligation that is less than $1,000 or with total revenue under a threshold amount (currently

$1,000,000) are exempt from paying franchise taxes. Id. § 171.002(d).


                            TITAN’S FRANCHISE-TAX DISPUTE

               Titan is in the business of hauling, delivering, and depositing “aggregate” at

real-property construction sites, where it is used as an ingredient in concrete or as a foundation for

the construction of roads, buildings, and parking lots.4 Titan provides this service primarily through

the use of subcontractors, to whom it is contractually obligated to share a portion of the gross

receipts from the provision of those services.

               The underlying tax protest concerns Titan’s 2008 franchise-tax report. Titan filed that

report using the E-Z computation method after excluding from its total revenue certain



       4
         Aggregate is a combination of rock or gravel and dirt, sand, or “fines” (dirt that comes off
crushed rock).

                                                  6
“flow-through” payments to subcontractors, which reduced its gross revenue from $12.6 million to

a little over $2 million. At that time, Titan apportioned 100% of its total revenue to Texas-based

business. Based on Titan’s apportioned total-revenue calculation and application of the lower E-Z

computation tax rate, Titan reported a franchise-tax obligation of $11,524, which it timely paid

in full.

                  In claiming a substantial revenue exclusion, Titan relied on former section

171.1011(g)(3) of the franchise-tax statute, which provided as follows:


           A taxable entity shall exclude from its total revenue, to the extent [reported to the
           federal IRS as income], only the following flow-through funds that are mandated by
           contract to be distributed to other entities:

           ....

                   (3) subcontracting payments handled by the taxable entity to provide services,
           labor, or materials in connection with the actual or proposed design, construction,
           remodeling, or repair of improvements on real property or the location of the
           boundaries of real property.


Act of May 19, 2006, 79th Leg., 3d C.S., ch. 1, § 5, 2006 Tex. Gen. Laws 1, 10 (amended 2013)

(“the (g)(3) revenue exclusion” or “former section 171.1011(g)(3)”). However, after conducting a

“desk audit,” the Comptroller determined that (1) Titan was a trucking company rather than a

construction company and thus was not engaged in a type of business that qualifies to claim the

(g)(3) revenue exclusion; (2) without the (g)(3) revenue exclusion, Titan did not qualify to use the

E-Z computation method; and (3) Titan had not timely elected to use the COGS or compensation




                                                     7
methods.5 Accordingly, the Comptroller defaulted Titan to a 30% flat deduction on $12.6 million

of total revenue, applied a 1% tax rate to the entire sum, and recalculated Titan’s franchise-tax

obligation to produce a $77,290.81 deficiency for the relevant tax year, after having credited its

prior payment.

                 Titan paid the assessed deficiency plus interest ($88,461) under protest, which

resulted in its making a cumulative 2008 franchise-tax payment of nearly $99,985. See Tax Code

§ 112.051. Along with its protest payment, Titan submitted a letter to the Comptroller outlining its

reasons for claiming the (g)(3) revenue exclusion and also claiming a COGS deduction in the

alternative. In addition, Titan asserted, for the first time, that it had failed to claim an apportionment

factor for its Texas-based business and requested that the Comptroller recalculate its franchise tax

on that basis. Titan subsequently filed the underlying lawsuit, seeking a refund of amounts paid

under protest and additional sums it claimed represented a tax overpayment resulting from the failure

to apply the correct apportionment factor. See id. §§ 112.051-.060 (governing tax protest suits).

                 In addition to other claims not at issue on appeal,6 Titan maintained that it was


        5
             The “desk audit” consisted of the Comptroller’s auditor reviewing Titan’s 2008
franchise-tax report, information Titan posted on its website about its business activities, and Titan’s
responses to a questionnaire the auditor had sent to Titan with a letter stating that the review was
“not an audit” but “[did] not preclude an audit on [the same] period in the future.” The auditor did
not call or speak to anyone at Titan or inspect its facilities, equipment, job sites, or business records,
but primarily denied the exclusion on the basis of statements on Titan’s website that describe it as
“a major hauler of aggregates” that “provides truckload transportation of aggregates in North East
Texas.” Titan’s website is silent regarding activities the Comptroller would consider to qualify as
construction services.
        6
          In addition to the claims on appeal, Titan had asserted an equal-protection challenge and
sought a declaration that it is a “qualified courier and logistics company” for purposes of a
total-revenue exclusion that became effective January 1, 2012. See Tex. Tax. Code § 171.1011(g-7)
(revenue exclusion for qualified courier and logistics companies). The trial court granted summary

                                                    8
entitled to take the (g)(3) revenue exclusion based on the nature of its business activities and

contracts with its subcontractors that required Titan to pay 84% of its gross receipts to independent

contractors it had engaged to haul, deliver, and deposit aggregate at real-property construction sites.

Titan asserted that aggregate hauling and delivery was essential to construction work on real property

and that depositing those materials onsite by its subcontractors effected a change in the topography

of real property. Based on these circumstances, Titan claimed that the payments to its subcontractors

satisfied the statutory prerequisites for claiming the (g)(3) revenue exclusion because (1) the

payments were mandated by contract, (2) to be paid to someone other than Titan (the taxable entity),

and (3) the funds paid to the subcontractors were for the provision of “services, labor, or materials

in connection with the actual or proposed . . . construction, remodeling, or repair of improvements

on real property.” See id. § 171.1011(g)(3).

               In the alternative, Titan asserted that the subcontractor payments could be properly

deducted as a “cost of goods sold” under section 171.1012 of the franchise-tax statute and that it

should be allowed to amend its tax report to claim the deduction. See id. § 171.1012(i). Although

it is undisputed that Titan never takes legal ownership of the aggregate it supplies to construction

sites and does not sell anything that meets the statutory definition of “goods,”7 Titan asserted that




judgment in the State’s favor on Titan’s constitutional and declaratory-judgment claims, and Titan
has not appealed the trial court’s disposition of those claims.
       7
          The term “goods” is defined as “real or tangible personal property sold in the ordinary
course of business of a taxable entity.” Tax Code § 171.1012(a)(1). “Tangible personal property,”
however, “does not include: (i) intangible property; or (ii) services.” Id. § 171.1012(a)(3)(B). The
Comptroller characterizes Titan as a service provider that cannot claim a COGS deduction.

                                                   9
it qualified to take a COGS deduction based on the following language in section 171.1012(i) of the

Tax Code:


       A taxable entity furnishing labor or materials to a project for the construction,
       improvement, remodeling, repair or industrial maintenance . . . of real property is
       considered to be an owner of that labor or materials and may include the costs, as
       allowed by this section, in the computation of cost of goods sold.


Id. (emphasis added). Titan maintained that its subcontractor payments were deductible under this

provision as costs of labor and materials furnished to projects for the construction and improvement

of real property. Titan further asserted that under the plain language of section 171.1012(i), it was

deemed to be the owner of the labor and materials it furnished and was not required to acquire or

produce any goods in order to take a COGS deduction. Titan contended that if the subcontractor

payments were deductible as COGS, it would be entitled to include additional indirect and

administrative overhead expenses as part of the deduction, subject only to a 4% statutory cap. See

id. § 171.1012(f).

               Titan also sought recalculation of its tax obligation because it had applied an incorrect

apportionment factor in determining its taxable margin. Although Titan had originally applied a

100% apportionment factor, it claimed in its lawsuit that only 20.18% of its total revenue was

actually generated from business in Texas. See id. §§ 171.101(a)(2) (requiring apportionment of

taxable entity’s margin to this state to determine apportioned margin), .1016(b)(2) (requiring

apportionment of taxable entity’s total revenue to this state to determine apportioned total revenue).

Applying the lower apportionment factor to its total revenue, as reduced by either the (g)(3) revenue

exclusion or a COGS deduction, Titan asserted that its franchise-tax obligation for the relevant tax


                                                  10
year should have been significantly less than its original $11,524 tax payment. Accordingly, Titan

sought a refund of the difference between what it actually owed (which it claims on appeal is around

$2,500) and the $99,985 it had already paid, plus interest.

               While the case was pending, the Comptroller ultimately agreed that Titan was entitled

to apply a 20.18% apportionment factor and issued an amended tax assessment solely on that basis.

The Comptroller also determined that taxpayers are not precluded from taking a COGS or

compensation deduction if they need to recalculate returns based on the denial of a previously

claimed exclusion or deduction.

               However, the Comptroller continued to maintain that Titan was not eligible for either

the (g)(3) revenue exclusion or the COGS deduction because she interpreted the relevant statutory

provisions to require, among other things, that the taxpayer be a “construction company” that

provides services, labor, or materials that effect a physical change to the property. The Comptroller

asserted that Titan considered itself to be, and was in fact, a “transportation company,” not a

construction company. Furthermore, the Comptroller did not agree that Titan’s subcontractors

provided any service, labor, or materials that effected a physical change on real property. Instead,

she likened Titan to a mere courier who would drop mail off at the front desk of a construction site

or a delivery service who might deposit bricks in a pile on or near the site. Based on these

conclusions, the Comptroller recalculated Titan’s total franchise-tax obligation applying both

a 30% flat deduction and a 20.18% apportionment factor and determined that Titan’s total

franchise-tax obligation for the 2008 report year was actually $17,922.75. The Comptroller issued




                                                 11
an amended tax statement to that effect but only credited Titan with its original payment of $11,524,

leaving a deficiency of $6,399.12.8

                At trial, the evidence concerning Titan’s business operations was essentially

uncontroverted. Moreover, the State conceded that Titan was entitled to a 20.18% apportionment

factor, but only if the trial court agreed that Titan could neither exclude the subcontractor payments

from total revenue nor include those sums as part of a COGS deduction. The principal areas of

conflict concerned the correct interpretation of the applicable statutory provisions and the proper

characterization of Titan’s business activities given the undisputed evidence.

                While there was no dispute that Titan provides trucking and hauling services (and is

a licensed motor carrier), the parties disputed whether Titan provides any “construction” services,

labor, or materials, which the State asserted is essential to qualify for either the (g)(3) exclusion or

the COGS deduction. The State argued that Titan provides only trucking and hauling services and

merely delivers construction materials to real-property construction sites. Titan, on the other hand,

argued that it also “installs” construction materials as part of its service, but it principally maintained

that it is not required to do any construction work to benefit from the relevant tax provisions. Other

disputed issues included whether the (g)(3) revenue exclusion requires a contract between Titan and




        8
         Neither the amended tax statement nor the State’s appellate brief addresses the disposition
of Titan’s protest payment of $88,461, which was not applied as a credit on the amended tax
statement even though the Comptroller had determined that Titan’s franchise-tax obligation, though
disputed, was significantly lower than the amount Titan actually paid for the 2008 tax year.

                                                    12
its customers that mandates Titan’s use of and payment to subcontractors. According to the State,

Titan’s subcontractor contracts are insufficient to meet the statutory requirements.9

               As established at trial, aggregate is a material that is integral to the construction of

roads, parking lots, and building foundations and is also used as a component in concrete. Titan’s

business involves hauling, delivering, and depositing aggregate at real-property construction sites.

Titan provides this service primarily through the use of subcontractors, with whom it executes

written contracts typically requiring that the subcontractors provide their own specialized trucks and


       9
           Effective January 1, 2014, section 171.1011(g)(3) was amended to require the exclusion
of “flow-through funds that are mandated by contract or subcontract to be distributed to other
entities” and that are “subcontracting payments made under a contract or subcontract entered into
by the taxable entity to provide services, labor, or materials in connection with the actual or proposed
design, construction, remodeling, remediation, or repair of improvements on real property or the
location of the boundaries of real property.” Tex. Tax. Code § 171.1011(g)(3) (emphases added).
The bill analysis for this enactment indicates that the amendment was proposed in response to the
Comptroller’s interpretation of section 171.1011(g)(3) as “allowing an entity to exclude
subcontracting payments only when the entity has a contract in place that states that a specific
portion of the work will be subcontracted” because the Comptroller’s interpretation was inconsonant
with the practices of the affected industry. Senate Research Ctr., Bill Analysis, Tex. H.B. 2766,
83d Leg., R.S. 2013. The proposed amendment was said to be necessary to clarify that the (g)(3)
revenue exclusion applies even in the absence of a prime contract explicitly requiring a contractor
to use subcontractors. Id.
        In addition to the broad exclusion in subsection (g)(3), the Legislature also added a specific
total-revenue exclusion applicable to taxable entities “primarily engaged in the business of
transporting aggregates,” which allows such entities to exclude from their total revenue
“subcontracting payments made by the taxable entity to independent contractors for the performance
of delivery services on behalf of the taxable entity.” Id. (g-8). The bill analysis states that the
amendment was proposed in response to the Comptroller’s refusal to allow aggregate transporters
to exclude payments to subcontractors that are mandated by a fee-splitting agreement, similar to
the ones Titan uses with its subcontractors. See House Ways & Means Comm., Bill Analysis,
Tex. H.B. 1733, 83d Leg., R.S. 2013. The bill analysis states that the proposed clarification was
required because the Comptroller’s actions in cases similar to Titan’s resulted in aggregate
transporters paying franchise taxes “based on an artificially inflated revenue amount.” See id.; see
also House Research Org., Bill Analysis, Tex. H.B. 500, 83d Leg., R.S. 2013 (noting that total
revenue exclusion for aggregate transporters was authored by Rep. Hildebrand as part of HB 1733).


                                                  13
equipment and that Titan pay the subcontractors 84% of the gross receipts Titan’s customers pay for

the services provided. The contracts also permit Titan to deduct from the 84% fee any amounts the

subcontractors owe to Titan, such as fuel expenses. The standard contract obligates Titan’s

subcontractors to provide “a complete transportation service” including “loading and unloading” and

“delivery of commodities from origin to destination in accordance with customer delivery

instruction.” While the truck drivers are required to have commercial driver’s licenses and licensed

trucks, they are not contractually required to have any construction or installation licenses or permits.

The contracts neither mention installation or deposition of the materials onsite nor require that the

truck drivers receive specialized training to install or deposit the aggregate materials.

                Titan does not have written contracts with its customers; thus, the only contractual

arrangements concerning subcontractor payments are in Titan’s written agreements with its

subcontractors.    Although Titan’s customers may generally be aware of the subcontracting

arrangement, they are not parties to those contracts. In some instances, however, a construction

contractor may require “pre-approval” of Titan’s subcontractors before onsite work is performed.

                When a subcontractor completes a job for Titan, a “delivery ticket” is issued to the

customer. The delivery ticket includes information identifying the subcontractor who performed the

services. Titan in turn issues its customer an invoice using the same subcontractor-identification

system so that (1) the invoice can be matched to the delivery ticket and (2) Titan can calculate the

amount owed to the particular contractor who provided the service on Titan’s behalf, in accordance

with the parties’ fee-splitting agreement. The record reflects that Titan’s customers are billed by the

ton and that the length of time to complete the hauling, delivery, and deposition of the construction



                                                   14
materials also affects the fee charged. The State maintains that this evidence establishes that Titan

is only being paid for transportation services and not construction work.

               Titan uses an accrual method of accounting, which means that Titan records its

income the moment the payment obligation accrues rather than when payment is collected. Under

this method, when the customer invoice is generated, the receipts are booked as revenue and the

subcontractor is simultaneously credited with the full contractually mandated percentage. This

accounting process typically results in the subcontractor receiving the contractually mandated

payment (less any reimbursable expenses) from Titan before Titan has received any payment from

its customer. Although Titan does not maintain separate accounts to segregate funds payable to each

subcontractor individually, Titan creates weekly “settlement statements” showing the revenue the

subcontractor generated on the top and the expenses owed to Titan on the bottom. On occasion, a

subcontractor may actually owe Titan money for a particular week, due to fuel or other expenses

owed to Titan. Based on the above-described payment process, the State contends that no customer

payments actually “flow through” Titan because those payments are not handed directly from the

customers to Titan and then to the specific subcontractors who performed the services.

               Although Titan always provides aggregate to construction sites, the construction

companies are not necessarily Titan’s customers. For any given transaction, Titan’s customer may

be a quarry (which is not engaged in any construction activities) or a construction company

developing or improving real property. In every case, the aggregate is owned by someone other than

Titan; neither Titan nor its subcontractors ever takes ownership of the aggregate that is provided to

construction sites. The State contends that this circumstance is fatal to Titan’s COGS-deduction



                                                 15
claim and any claimed deduction that requires that the taxpayer has “provided” or “furnished”

materials to a construction project.

               Upon arriving at a construction site, Titan’s subcontractors use specialized trucks to

deposit the aggregate where directed by the general contractor or site foreman. Sometimes, the

aggregate is deposited in a specified area so that it can be made into concrete. In most cases, the

material is deposited by Titan’s subcontractors in its final resting place at the construction site

through the use of end-dump or belly-dump trailers that are driven slowly across a designated area

to distribute the full load of aggregate. The aggregate is not “affixed” to the ground when Titan’s

subcontractor leaves. In addition, the aggregate frequently has to be leveled or “topped off” by the

construction company after it is deposited by Titan’s drivers; Titan never grades the aggregate after

it is unloaded. Furthermore, Titan neither obtains a construction permit to perform its work nor is

required to have a construction permit to complete its work, but often, a general contractor has a

permit that covers the whole job. The State contends that this evidence establishes that Titan does

not provide any construction services or labor.

               The undisputed evidence shows, however, that the service Titan provides in picking

up, transporting, and depositing the aggregate is more efficient for the construction companies and

saves them from having to use additional labor to put the aggregate to a useful purpose.

Lynrell Wesley, one of Titan’s customers, testified that “[Titan] would bring a trailer [of] rock,

however many a day I want, and space them out on a pad to save me labor.” He further observed,

“Well, if you’ve got drivers that will put material where you need it as opposed to just piling it up

somewhere and leaving, it saves me time and money and labor,” and stated that “[Titan] help[s]



                                                  16
installation . . . because they’re putting [the aggregate] where I need it.” He said he would “probably

not” use Titan solely for transportation of the material.

                After taking the case under advisement, the trial court concluded that Titan was not

entitled to a revenue exclusion under former section 171.1011(g)(3) of the Tax Code or a COGS

deduction under section 171.1012(i). The court agreed, however, that Titan was entitled to an

apportionment factor of 20.18%. At Titan’s request, the trial court issued findings of fact and

conclusions of law in support of the final judgment. This appeal followed. The State does not

challenge the 20.18% apportionment factor on appeal.


                                            DISCUSSION

                The decisive issues in this case concern the appropriate interpretation of provisions

of the franchise-tax statute as applied to undisputed evidence about the nature of Titan’s business.

In issue one, Titan argues that the trial court applied an incorrect interpretation of the (g)(3) revenue

exclusion because the evidence conclusively establishes that (1) Titan was contractually obligated

to pay 84% of its revenue to independent-operator subcontractors who provided the services for

which Titan received payment and (2) the subcontractors provided “services, labor, or materials in

connection with the actual or proposed design, construction, remodeling, or repair of improvements

on real property.” See Act of May 19, 2006, 79th Leg., 3d C.S., ch. 1, § 5, 2006 Tex. Gen. Laws 1,

10 (amended 2013). Titan further challenges the trial court’s contrary conclusions of law 2 and 5

as being incorrect as a matter of law and fact findings 4, 5, 6, 9, 13, and 14 as immaterial or




                                                   17
unsupported by factually or legally sufficient evidence.10 In the alternative, Titan contends in its


       10
        On appeal, Titan challenges all of the following fact findings (FOF) and conclusions of
law (COL):

       FOF 4:          “Titan Transportation’s customers paid Titan Transportation for
                       transportation services. Specifically, Titan Transportation’s customers paid
                       Titan Transportation to deliver aggregate, a building material.”

       FOF 5:          “Titan Transportation’s gross receipts were from purchases of . . .
                       transportation services.”

       FOF 6:          “Titan Transportation’s customers did not pay Titan Transportation for
                       construction services, construction labor, or construction materials. Titan
                       Transportation’s customers did not pay Titan Transportation to install
                       aggregate it transported.”

       FOF 7:          “Titan Transportation did not own any of the aggregate it transported.”

       FOF 8:          “Titan Transportation did not acquire or produce any goods sold in the
                       ordinary course of business.”

       FOF 9:          “Titan Transportation did not provide labor or materials to a construction
                       project.”

       FOF 13:         “Payments from Titan Transportation’s customers did not flow through Titan
                       Transportation to [its] subcontractors.”

       FOF 14:         “Payments from Titan Transportation’s customers were not payments handled
                       by Titan Transportation to provide services, labor, or materials in connection
                       with the actual or proposed design, construction, remodeling, or repair of
                       improvements on real property.”

       COL 2:          “Titan Transportation may not exclude its $10,683,668 in payments to its
                       subcontractors from gross revenue under Section 171.1011(g)(3).”

       COL 3:          “Titan Transportation is not entitled to a take a cost of goods sold deduction
                       under Section 171.1012(i).”

       COL 5:          “Titan Transportation’s Franchise tax is correctly calculated in Column E of
                       [the Comptroller’s amended tax statement]. Titan Transportation’s correct
                       tax due was $17,922.75.”

                                                18
second issue that it is entitled to the COGS deduction as a matter of law and challenges the trial

court’s fact findings 4 through 9 and conclusions of law 3 and 5. Because our disposition of Titan’s

first issue is case dispositive, we do not reach Titan’s second issue. See Tex. R. App. P. 47.1.


Standard of Review

               The dominant issue in this case concerns a matter of statutory construction, which we

review de novo. See State v. Shumake, 199 S.W.3d 279, 284 (Tex. 2006). Our primary objective

in construing statutes is to give effect to the legislature’s intent and, ordinarily, “‘the truest

manifestation’ of what lawmakers intended is what they enacted.” First Am. Title Ins. Co. v. Combs,

258 S.W.3d 627, 632 (Tex. 2008) (quoting Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson,

209 S.W.3d 644, 651-52 (Tex. 2006)). The language emerging from the legislative process

“constitutes the law, and when a statute’s words are unambiguous and yield but one interpretation,

‘the judge’s inquiry is at an end.’” Combs v. Roark Amusement & Vending, L.P., ____ S.W.3d ____,

No. 11-0261, 2013 WL 855737, at *2 (Tex. 2013) (quoting Johnson, 209 S.W.3d at 651-52). We

give an unambiguous statute its plain meaning without resorting to rules of construction or extrinsic

aids. Id.; see also Texas Lottery Comm’n v. First State Bank of DeQueen, 325 S.W.3d 628, 635, 637

(Tex. 2010) (branding such reliance “improper,” because “[w]hen a statute’s language is clear and

unambiguous, it is inappropriate to resort to rules of construction or extrinsic aids to construe the

language”); City of Rockwall v. Hughes, 246 S.W.3d 621, 626 (Tex. 2008). Accordingly, rules of

construction such as agency deference and strict construction generally come into play only when

a statute is ambiguous. See, e.g., Roark Amusement, 2013 WL 855737, at *2 (courts defer to agency

interpretation of ambiguous statute unless plainly erroneous or inconsistent with statutory language);


                                                 19
Texas Unemployment Comp. Comm’n v. Bass, 151 S.W.2d 567, 570 (Tex. 1941) (explaining when

ambiguous tax statutes must be strictly construed in favor of or against parties).

               Secondary issues in this case involve the trial court’s findings of fact and

conclusions of law. We do not defer to the trial court on questions of law. Perry Homes v. Cull,

258 S.W.3d 580, 598 (Tex. 2008). We do defer to a trial court’s fact-findings if they are supported

by legally and factually sufficient evidence. Id. For mixed questions of law and fact, we similarly

defer to the trial court’s factual determinations if supported by the evidence but review its legal

determinations de novo. Brainard v. State, 12 S.W.3d 6, 30 (Tex. 1999).


Construction and Applicability of the (g)(3) Revenue Exclusion

               The principal issue in this case concerns the proper construction and application of

former section 171.1011(g)(3) of the Tax Code, which provided:


       A taxable entity shall exclude from its total revenue, to the extent [reported to the
       federal IRS as income], only the following flow-through funds that are mandated by
       contract to be distributed to other entities:

       ....

               (3) subcontracting payments handled by the taxable entity to provide services,
       labor, or materials in connection with the actual or proposed design, construction,
       remodeling, or repair of improvements on real property or the location of the
       boundaries of real property.


Act of May 19, 2006, 79th Leg., 3d C.S., ch. 1, § 5, 2006 Tex. Gen. Laws 1, 10 (amended 2013).

The State construes this provision to impose a number of requirements that it contends neither Titan

nor its subcontractors have satisfied. Those requirements, summarily stated, are that the taxable



                                                 20
entity (1) must provide “design, construction, remodeling, or repair” services, labor, or materials;

(2) must have a written contract with its customers that prescribes the fee-splitting arrangement

between the taxable entity and its subcontractors; and (3) can only meet the “flow-through”

requirement if third-party payments are segregated and paid in a manner that guarantees that a

subcontractor only receives the actual dollars that the customer paid to the taxable entity for the

subcontractor’s work. The fundamental flaw in the State’s analysis is that the limitations it advances

are extra-textual and alter the statute’s plain meaning. See Roark Amusement, 2013 WL 855737, at

*2 (Comptroller’s “arguments that are incompatible with the statutory text” are “unpersuasive”).

The limitations are likewise not found in the related administrative rule, which merely echoes the

statutory language. See 34 Tex. Admin. Code § 3.587(e)(2)(C) (2013) (Comptroller of Pub.

Accounts, Margin: Total Revenue).

               As a threshold matter, the State asserts that Titan cannot claim the (g)(3) revenue

exclusion because it is not a construction company. According to the State, “[t]he issue that drives

every other issue in this case is whether [Titan] is only a transportation company, whether it is

instead a construction company, or whether it is a transportation company that is also a construction

company (and if so, to what extent).”         As the State reads the (g)(3) revenue exclusion,

“transportation costs are not deductible, but construction costs are.” In arriving at this conclusion,

the State contends the phrase “services, labor, or materials in connection with the actual or proposed

design, construction, remodeling, or repair of improvements on real property or the location of the

boundaries of real property” can only be read as applying the terms “design, construction,

remodeling, or repair” as individual modifiers to the terms “services, labor, and materials.” And



                                                 21
when so read, the State argues, it is clear that only taxable entities that are design, construction,

remodeling, or repair companies can claim the exclusion when they are subcontracting for services,

labor, or materials.

               In restructuring the language in former subsection (g)(3) to support its conclusion,

however, the State ignores the statute’s “in connection with” language. “In connection with” is a

phrase of intentional breadth. Indeed, depending on the context in which it is used, the scope of the

phrase “in connection with” can sometimes be so broad as to be ambiguous. Compare Maracich

v. Spears, 133 S. Ct. 2191, 2200-05 (2013) (acknowledging that phrase “in connection with” is

susceptible to broad interpretation and is essentially “indeterminat[e] because connections, like

relations, stop nowhere” but concluding that statutory provision at issue was not ambiguous in

context of statute as whole (alteration in original) (internal quote marks omitted)), United States

v. National Training & Info. Ctr., Inc., 532 F. Supp. 2d 946, 957-58 (N.D. Ill. 2007) (noting that

term “in connection with” is commonly used in statutes and holding that phrase was not

unconstitutionally vague in context in which it was used), and Ex parte Ellis, 309 S.W.3d 71, 88-89

(Tex. Crim. App. 2010) (although phrase “in connection with” was found to be unconstitutionally

vague as to one Election Code provision, phrase was not impermissibly broad when used in

another Election Code provision) with Comptroller of Treasury v. Clyde’s of Chevy Chase, Inc.,

833 A.2d 1014, 1023 (Md. 2003) (concluding that phrase “in connection with entertainment” in

admissions and amusement-tax statute was not clear and unambiguous because statute provided no

guidance as to level of nexus necessary to satisfy “connection” requirement). With regard to the

(g)(3) revenue exclusion at issue in the present case, we conclude that the phrase “in connection



                                                 22
with” is broad enough to encompass the services Titan provides to construction sites but, as limited

by its context, is not so broad as to be ambiguous or lead to absurd results. The limitations that the

State reads into the (g)(3) revenue exclusion, however, would contravene the breadth inherent in the

language the legislature adopted, and we cannot ignore that language unless applying its plain

meaning would lead to absurd results.

               As used in former section 171.1011(g)(3), the phrase “in connection with” can only

be read as requiring some reasonable nexus between the services, labor, and materials for which the

taxpayer pays a subcontractor and “the actual or proposed design, construction, remodeling, or repair

of improvements on real property or the location of boundaries of real property.” It would be

inconsistent with the purpose of the franchise-tax statute as a whole to read the phrase as applying

whenever any connection—however remote or attenuated—exists between services, labor, and

materials and actual or proposed construction, remodeling, design, or repair work for real property.

Because the (g)(3) revenue exclusion removes certain gross receipts from the franchise-tax base, the

legislature must have intended the phrase “in connection with” to have a logical limit.

               The State suggests that the only reasonable limit is to impose a requirement that the

taxpayer’s subcontractor be engaged in activities that effect a material or physical change in the

property itself. This cannot be a proper construction of the statute, however, because it expressly

applies to “proposed” design, construction, remodeling, or repair work on real property and also

includes work pertaining to “the location of boundaries of real property,” neither of which would

involve an actual change to the physical character of real property. Given its context, the only

plausible interpretation of the “in connection with” language employed in the (g)(3) revenue



                                                 23
exclusion is that there must be a reasonable—i.e., more than tangential or incidental—relationship

between the activities delineated in the statute and the services, labor, or materials for which the

subcontractors receive payment. Given the breadth of the statute’s language, there is no textual

support for the State’s position that the statute is limited to construction companies and excludes

transportation companies. The critical inquiry, as it pertains to the dispute in this case, is whether

the services, labor, or materials provided have a reasonable connection to construction, remodeling,

design, or repair work on real property.

                In the present case, the required nexus is established by evidence that Titan provided

services that were logically and reasonably connected with the construction of improvements on real

property and, indeed, were directly related to the construction of such improvements. The

undisputed testimony at trial was that the use of aggregate is indispensable to the types of

construction projects for which Titan claimed the exclusion; the service of picking up and

transporting the aggregate to the construction sites was necessary and integral to the construction of

improvements on real property; and in most cases, the aggregate Titan hauled to the construction

sites had to be placed in a particular location on the site to be useful, and Titan’s subcontractors

deposited the material in a manner that saved the construction companies time, labor, and money.

The general contractors at the construction sites could have used their own laborers to complete these

indispensable tasks, and the fact that Titan was paid to undertake this work is the very definition of

a “service.” See Webster’s Third New Int’l Dictionary 2075 (2002) (defining “service” as “the

performance of work commanded or paid for by another”). Accordingly, we conclude that, as a

matter of law, Titan paid its subcontractors “to provide services . . . in connection with the actual or



                                                  24
proposed design, construction, remodeling, or repair of improvements on real property.” Act of

May 19, 2006, 79th Leg., 3d C.S., ch. 1, § 5, 2006 Tex. Gen. Laws 1, 10 (amended 2013). It is

immaterial whether the subcontractors’ activities could also be properly characterized as providing

labor or materials, as Titan maintains, because the provision of services is sufficient under the

statute’s plain language.

                The State contends that Titan’s operations are functionally similar to traditional

courier services that might be provided by an entity like FedEx. Based on this analogy, the State

contends that an interpretation of former section 171.1011(g)(3) that would permit Titan to exclude

its subcontractor payments from total revenue would lead to the “absurd result” that any courier

service making deliveries to a construction site could qualify for the (g)(3) revenue exclusion. To

some extent, the State’s proffered analogy embodies a logical fallacy. There are a number of

statutory requirements that must be satisfied before a taxpayer is entitled to claim the (g)(3) revenue

exclusion; however, the State’s analogy focuses only on discrete aspects of the statute and Titan’s

services to extrapolate to an “absurd result.” Assuming the courier services could meet the other

requirements to qualify for the exclusion in the first place, it is unlikely that such taxpayers would

be able to establish anything other than the most tangential relationship between the courier services

provided and the activities listed in former section 171.1011(g)(3). It seems to us highly unlikely

that a courier like FedEx would either know or care what is in packages it would be called on to

deliver to a construction site, and it would therefore be unable to establish a nexus between the

delivery service and the actual or proposed design or construction of improvements on real property

(or any of the other qualifying activities).



                                                  25
               We are also not persuaded that absurd consequences necessarily ensue from the plain

language of the statute based on the mere possibility that a courier service could theoretically qualify

for the exclusion to the extent of any deliveries to construction sites. A manifest purpose of former

section 171.1011(g)(3) has always been to avoid double taxation. Given such a purpose, we fail to

see how it would necessarily be “absurd” in all circumstances to allow a courier service utilizing

subcontractors to exclude subcontractor payments from the courier’s total revenue if such payments

do not truly represent gain or income to the courier service. Even if the subcontractor payments

might arguably resemble ordinary business expenses for compensation, the franchise-tax statute

allows taxpayers to deduct qualifying compensation costs to reduce their franchise-tax obligation.

Unlike compensation for employees or labor costs paid by sellers of goods, however, businesses that

typically employ independent-contractor arrangements would largely be denied parallel treatment

of payments that are the functional equivalent of compensation absent Tax Code provisions like the

(g)(3) revenue exclusion. Those provisions in the franchise-tax statute that permit the exclusion or

deduction of non-employee compensatory payments allow for a measure of parity where it might

logically be warranted. See, e.g., id. §§ 171.1011(g)(1) (sales commissions to nonemployees,

including split-fee real estate commissions), (g)(3) (subcontractor payments for services, labor, or

materials in connection with construction industry), (g-5) (payment made by live-event promotion

company to artist for performance), (g-6) (payments for destination management services), (g-7)

(subcontractor payments by qualified courier and logistics companies), (g-8) (subcontractor

payments by aggregate transporters), (g-10) (subcontracting payments by barite transporters), (g-11)




                                                  26
(subcontractor payments by landman service providers).11 To the extent the State’s concerns may

be theoretically justified, courts are not at liberty to rewrite statutes to reach a more desirable

result in the name of statutory construction. See, e.g., Stockton v. Offenbach, 336 S.W.3d 610, 619

(Tex. 2011).

                In any event, we need not consider whether the types of services FedEx might provide

to a construction site would be too remote or attenuated to qualify for the exclusion provided in

former section 171.1011(g)(3). It is sufficient that the record in the present case establishes that the

services Titan provides have a reasonable nexus with the actual construction of improvements on

real property, which satisfies the statutory requirement that services qualifying for the exclusion be

rendered “in connection with the actual or proposed design, construction, remodeling, or repair of

improvements on real property or the location of boundaries of real property.”

                The State next argues that the evidence establishes that Titan does not qualify for the

(g)(3) revenue exclusion for three additional reasons, all of which the State contends show that there

were not any payments that actually “flowed through” Titan to its subcontractors. First, the State

construes the statutory language “mandated by contract to be distributed to other entities” as

requiring that the taxable entity have a contract with its customers that requires the taxpayer to

subcontract out a specified portion of the work for which it is to receive payment. According to


        11
           We note parenthetically that, effective January 1, 2012, the Legislature amended section
171.1011 to provide that “[a] taxable entity that is a qualified courier and logistics company shall
exclude from its total revenue [reported to the federal IRS as income], subcontracting payments
made by the taxable entity to nonemployee agents for the performance of delivery services on
behalf of the taxable entity.” Tax. Code § 171.1011(g-7). Although not strictly relevant to the
statutory-construction issue presented in this case, this provision illustrates that it is not necessarily
“absurd” to apply the plain language of former section 171.1011(g)(3) to allow traditional courier
services to exclude qualifying flow-through payments to subcontractors.

                                                   27
the State, in light of the provision’s reference to “other entities,” an “other” can exist only in a

three-party situation (i.e., a transaction involving an additional entity other than the contracting

parties); as a result, the State argues that a taxpayer’s subcontract is insufficient standing alone. It

is undisputed that Titan has written contracts only with its subcontractors and that there are no

customer contracts requiring Titan to engage or pay subcontractors.

                As used in the (g)(3) revenue exclusion, we read the term “other” to mean someone

other than the taxable entity. Although a tripartite contractual relationship could give rise to a

qualifying payment obligation, such an arrangement is not required under a plain reading of the

statute. As previously stated, an evident purpose of the (g)(3) revenue exclusion is to prevent double

taxation of funds that are not truly gain or income to the taxpayer, and this purpose is satisfied

regardless of whether the mandate is contained in a contract with a customer or with a subcontractor.

Before any work has been completed, Titan executes contracts with its independent-contractor truck

drivers that require Titan to pass on a fixed percentage of the gross receipts for services provided;

these contracts thus satisfy the statutory requirement that qualifying payments be contractually

mandated to someone other than the taxpayer. Imposing the more stringent requirement the State

suggests would result in judicial rewriting of the statute.

                Second, the State argues that the revenue exclusion in former section 171.1011(g)(3)

must require a tripartite relationship because any other reading would conflict with section

171.1011(i), which states: “Except as provided by [section 171.1011(g)], a payment made under an

ordinary contract for the provision of services in the regular course of business may not be

excluded.” Id. § 171.1011(i) (emphasis added). According to the State, Titan’s contracts with its



                                                  28
subcontractors are merely ordinary contracts for the provision of services in the regular course of

business, and thus, allowing Titan to deduct payments to subcontractors under those contracts would

be contrary to the limitation in subsection (i). We do not fully understand this argument. Subsection

(i) explicitly excepts from its scope payments that are made under “ordinary contract[s] for the

provision of services in the regular course of business” as long as they meet the requirements for

excluding flow-through funds in subsection (g). Rather than illustrating that such contracts could

not reasonably be encompassed within the scope of the (g)(3) revenue exclusion, subsection (i) does

the opposite.

                Finally, the State asserts that funds can only be considered to “flow through” the

taxable entity if the taxpayer receives the payment first and then pays the subcontractor only when

the taxpayer has the money in hand. The State further argues that deduction of any reimbursable

expenses from a contractually mandated payment negates its character as “flow-through funds.”

Titan aptly refers to this as a “segregate, wait, and trace” requirement. Once again, the State seeks

to impose overly formalistic requirements neither found in the statute’s plain language nor supported

by the related administrative rule. The undisputed evidence at trial established that Titan employed

sufficient procedures to ensure that its subcontractors were paid from gross receipts attributable to

the work the subcontractors performed. The evidence showed that Titan and its subcontractors

entered into their engagement contracts before any services were performed. Upon making a

delivery, each subcontractor would provide a “delivery ticket” that included identifying information

about the subcontractor. Customer invoices were generated based on the “delivery ticket” and

similarly identified the subcontractor that performed the work. Receivables and payables were



                                                 29
tracked using these identification numbers. In accordance with the accrual method of accounting,

Titan booked the receivable when the invoice was generated and booked the 84% subcontractor

payment obligation at the same time. Titan generated “weekly statements” showing the contract

payment separately from the reimbursable expenses. For tax report year 2008, the evidence showed

that Titan earned and retained only 16% of its gross customer receipts and that the remainder of the

funds effectively passed through Titan to the subcontractors who performed the work. There is

nothing in the (g)(3) revenue exclusion that requires flow-through funds to be segregated and

subcontractors to be paid only the actual dollars Titan received for their work. We also do not agree

with the State that use of the accrual method of accounting is expressly or implicitly prohibited or

that the deduction of reimbursable expenses negates the “flow-through” nature of the funds. It would

ignore the economic realities of Titan’s business and could result in double taxation if Titan were

required to pay franchise taxes on payments made to its subcontractors pursuant to their fee-splitting

agreement. See Roark Amusement, 2013 WL 855737, at *3 & n.14 (“We believe that in the area of

tax law, like other areas of economic regulation, a plain-meaning determination [of the statute]

should not disregard the economic realities underlying the transactions in issue.”).

                Applying a proper construction of the statute, it becomes clear that the challenged

portions of the trial court’s findings of fact 4, 5, 6, and 9 are immaterial and that findings of fact

13 and 14 and conclusions of law 2 and 5 are erroneous as a matter of law. Accordingly, Titan is

entitled to claim the (g)(3) revenue exclusion for those subcontractor payments it made in

accordance with its contractual agreements to pay its subcontractors 84% of the gross receipts it




                                                  30
received for subcontractor services to haul, deliver, and deposit aggregate at real-property

construction sites.


                                          CONCLUSION

                The evidence admitted at trial conclusively establishes that a portion of Titan’s gross

revenue qualifies for the total-revenue exclusion in former section 171.1011(g)(3) of the

franchise-tax statute. Because the trial court concluded otherwise, we reverse the portion of the trial

court’s judgment denying Titan the (g)(3) revenue exclusion and render judgment that Titan is

entitled to claim that exclusion for the relevant tax year. We remand the cause to the trial court for

further proceedings to determine the exact amount of refund to which Titan is entitled.




                                        _____________________________________________

                                        J. Woodfin Jones, Chief Justice

Before Chief Justice Jones, Justices Pemberton and Field

Reversed, Rendered, and Remanded in Part

Filed: March 14, 2014




                                                  31
