Glenn Hegar, Comptroller of Public Accounts of the State of Texas And Ken Paxton, Attorney General of the State of Texas// Sirius XM Radio, Inc. v. Sirius XM Radio, Inc.// Glenn Hegar, Comptroller of Public Accounts of the State of Texas And Ken Paxton, Attorney General of the State of Texas ( 2022 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
ON REMAND
NO. 03-18-00573-CV
Appellants, Glenn Hegar, Comptroller of Public Accounts of the State of Texas; and
Ken Paxton, Attorney General of the State of Texas// Cross-Appellant, Sirius XM Radio, Inc.
v.
Appellee, Sirius XM Radio, Inc.// Cross-Appellees, Glenn Hegar, Comptroller of Public
Accounts of the State of Texas; and Ken Paxton, Attorney General of the State of Texas
FROM THE 261ST DISTRICT COURT OF TRAVIS COUNTY
NO. D-1-GN-16-000739, THE HONORABLE SCOTT H. JENKINS, JUDGE PRESIDING
OPINION
This appeal arises from a suit filed by Sirius XM Radio, Inc. to recover franchise
taxes paid under protest to Glenn Hegar, Comptroller of Public Accounts of the State of Texas.
See Tex. Tax Code § 112.052. The matter appears before this Court on remand from the Texas
Supreme Court. See Sirius XM Radio, Inc. v. Hegar, 643 S.W.3d 402, 413 (Tex. 2022). In light
of the supreme court’s holding as to the location of Sirius XM’s performance of its services, we
now consider whether the evidence is legally sufficient to support the trial court’s conclusion that
Sirius XM properly apportioned its receipts for services performed in Texas for tax years 2010
and 2011. See Tex. Tax Code § 171.106(a). For the reasons that follow, we affirm the district
court’s judgment.
BACKGROUND
Franchise Tax
Texas imposes a franchise tax on each taxable entity that does business in this
state or that is chartered or organized in this state. See id. § 171.001(a). A taxable entity’s
franchise-tax obligation is determined by multiplying the “taxable margin” by the applicable
tax rate. See id. § 171.002 (“Rates; Computation of Tax”). Determining an entity’s “taxable
margin” is a three-step process. See id. § 171.101(a)(1)-(3) (“Determination of Taxable
Margin”). First, the taxable entity’s “margin” is calculated, which is generally a percentage of
total revenue. See id. § 171.101(a)(1). Next, the taxable entity’s margin is apportioned to its
business done in Texas. See id. § 171.101(a)(2). Finally, allowable deductions are subtracted
from the apportioned margin to yield the entity’s “taxable margin.” See id. § 171.101(a)(3).
Here, the parties’ dispute centers on the apportionment step in determining Sirius
XM’s taxable margin for the tax years 2010 and 2011. Apportionment is accomplished by
“multiplying a business’s total margin by an apportionment factor.” See Hallmark Mktg. Co. v.
Hegar, 488 S.W.3d 795, 796 (Tex. 2016). In its simplest terms, an apportionment factor
represents the percentage or fractional proportion of an entity’s gross receipts from its business
done in Texas relative to its gross receipts from its business everywhere, including in Texas.
See Tex. Tax Code § 171.106(a) (“Apportionment of Margin to this State”); Hallmark Mktg.,
488 S.W.3d at 796 (explaining that apportionment-factor numerator “consists of receipts from
business done in Texas and the denominator consists of receipts from all business”). Under this
formula, doing more business in Texas results in higher franchise taxes. OGCI Training, Inc. v.
Hegar, No. 03-16-00704-CV, 2017 Tex. App. LEXIS 10096, at *3-4 (Tex. App.—Austin
Oct. 27, 2017, no pet.) (mem. op.). Therefore, critical to the apportionment step is a
2
determination of the taxable entity’s gross receipts from its business done in Texas, which
includes receipts from “each service performed in this state.” Tex. Tax Code § 171.103(a)(2)
(“Determination of Gross Receipts from Business Done in This State for Margin”).
Sirius XM’s Franchise-Tax Dispute
Sirius XM is a foreign corporation that provides a subscription-based satellite
radio service, consisting of more than 150 channels of music, sports, news, talk, entertainment,
traffic, and weather channels to subscribers throughout the United States. During the 2010 and
2011 tax years, over 70 percent of Sirius XM’s programming consisted of original content
produced by Sirius XM specifically for its subscribers and could be obtained only by subscribing
to Sirius XM’s services. This original content was produced from multiple studios owned and
operated by Sirius XM, primarily in New York City and Washington, D.C., and in smaller remote
studios. Sirius XM had no permanent studios in Texas but transmitted a small radio show called
“Willie’s Place” from Hillsboro, Texas, and later from Fort Worth, Texas, for some portion of
2010 and 2011.
In its franchise-tax returns for tax years 2010 and 2011, Sirius XM calculated its
margin from the total revenue generated by its subscriptions. See id. § 171.101(a)(1). Sirius XM
then apportioned its reported subscription receipts for each year based on the locations where it
produced and transmitted its programming, a portion of which was in Texas. To calculate the
apportionment factor for these receipts, Sirius XM compared the cost of performing these
activities inside Texas to the cost of performing these activities everywhere, including Texas.
See id. § 171.103.
3
The Comptroller subsequently audited Sirius XM’s 2010 and 2011 returns and
disagreed with the methodology employed by Sirius XM in apportioning its subscription
receipts. In the Comptroller’s view, Sirius XM performs its services “at the radio receiver,”
where its signal is unscrambled, and as a result, a subscription receipt for a Sirius XM customer
in Texas is a receipt from “a service performed in this state.” See id. § 171.103(a)(2).
Consequently, at the conclusion of the audit, the Comptroller adjusted Sirius XM’s
apportionment factor to reflect the percentage of Sirius XM subscribers located in Texas. Sirius
XM paid, under protest, the additional tax and interest calculated as a result of the audit and then
filed suit in district court to obtain a refund. See id. § 112.052. Following a bench trial, the
district court concluded that the Comptroller’s adjustment to Sirius XM’s apportionment factor
was incorrect, rendered a judgment in favor of Sirius XM, and issued findings of fact and
conclusions of law.
The Comptroller’s Appeal
The Comptroller then appealed the district court’s decision to this Court,
challenging the district court’s conclusions as to where Sirius XM’s services were performed and
how the apportionment of those services in Texas should be calculated. See Hegar v. Sirius XM
Radio, Inc., 604 S.W.3d 125, 126 (Tex. App.—Austin 2020), rev’d, 643 S.W.3d 402, 413 (Tex.
2022). We determined that for the purpose of apportionment, (1) “service performed in this
state” means that the “receipt-producing, end-product act” occurs in Texas, and (2) the evidence
was insufficient to support the district court’s fact finding that Sirius XM’s “receipt-producing,
end-product” was the “production and distribution” of Sirius XM programming. Id. at 132-33.
In short, we concluded that the contracted-for service, from the standpoint of the subscriber, was
4
the delivery of Sirius XM programming and that under the “receipt-producing, end-product act”
standard, this occurred at the point of decryption, at the chip set in the subscriber’s radio. Id.
at 135. Because Sirius XM apportioned its subscriber receipts by comparing the cost of its
production and distribution in Texas with the cost of its production and distribution everywhere,
we similarly concluded that the trial court’s finding as to the apportionment of its services in
Texas was not supported by the evidence. Id. As a result, we did not consider the issue of
whether the comparative cost-of-performance method employed by Sirius XM to calculate its
apportionment factor for its services was proper under the Tax Code and the Commissioner’s
administrative rules.1
On petition for review, the Texas Supreme Court rejected the Comptroller’s
“receipts-producing, end-product act” standard for determining where a service is performed.
See Sirius XM, 643 S.W.3d at 410. The court held that “service performed in this state,” as that
phrase is used in Section 171.103(a)(2) of the Tax Code, “requires looking to the physical
location of the taxpayer’s personnel or equipment that performs the service for which the
customer pays.” Id. Applying that standard, the supreme court rejected the Comptroller’s
contention that Sirius XM performs its service where its transmission is decrypted. Id. at 411.
The supreme court concluded, instead, that the relevant service provided by Sirius XM is radio
production and broadcasting and that “Sirius has little personnel or equipment in Texas that
performs the radio production and transmission services for which its customers pay monthly
subscription fees.” Id. at 412.
1
Sirius XM, by cross-appeal, asserted that the trial court erred in concluding that it was
not allowed to include certain expenses (revenue share and hardware subsidies) in its cost-of-
goods-sold deduction. See Tex. Tax Code § 171.1012 (“Determination of Cost of Goods Sold”).
We overruled Sirius’s XM cross-appeal on this issue, and on petition for review, Sirius XM did
not challenge that portion of our decision.
5
Consequently, the supreme court reversed our judgment and remanded the case so
that we could consider the issue that we did not address in our previous opinion. Id. at 413. That
is, the court remanded for us to examine—in light of its holding on the predicate question of
where Sirius XM’s services are performed—whether the evidence presented by Sirius XM
concerning its comparative cost of performance is sufficient to support the district court’s
judgment and, specifically, its conclusion that Sirius XM correctly apportioned its receipts for
its services performed in Texas in tax years 2010 and 2011. Id. at 412; see Tex. Tax Code
§§ 171.101(a)(2), .106(a).
DISCUSSION
Fair Value of Services
As previously discussed, once a taxable entity determines that it has performed at
least some services in Texas during the relevant tax year, it must include its receipts from those
services in calculating its apportionment factor. OCGI Training, 2017 Tex. App. LEXIS 10096,
at *4. In other words, the taxable entity must tabulate the sum of its receipts attributable to its
services performed in Texas and include those receipts in tabulating its gross receipts from
“business done in Texas.” See Tex. Tax Code § 171.103(a)(2) (providing that “in apportioning
margin, the [taxable entity’s] gross receipts . . . from its business done in this state” includes
“receipts from . . . each service performed in this state”). The gross receipts from business done
in Texas then serves as the numerator in calculating the apportionment factor. Id. § 171.106(a)
(providing that “numerator . . . is the taxable entity’s gross receipts from business done in this
state”; “the denominator . . . is the taxable entity’s gross receipts from its entire business”).
6
Former Rule 3.591(e)(26) of the Comptroller’s rules provided that receipts
from sales of a service “are apportioned to the location where the service is performed.”2 See
former 34 Tex. Admin. Code § 3.591(e)(26) (Tex. Comptroller of Pub. Accounts, Margin:
Apportionment). Further, as is specifically relevant to this dispute, when services are performed
in multiple states, the receipts from these services are apportioned as Texas receipts based on the
“fair value of the services that are rendered in Texas.” Id. Consequently, under the Rule, service
receipts from multi-state services are apportioned using the following formula:
Apportionment factor for services = fair value of services performed in Texas /
fair value of services performed everywhere
OGCI Training, 2017 Tex. App. LEXIS 10096, at *4 (citing former 34 Tex. Admin. Code
§ 3.591(e)(26)).
In this case, there is no dispute that in tax years 2010 and 2011, Sirius XM
performed its broadcasting and transmission services in and outside of Texas and that under
Rule 3.591(e)(26), it was required to apportion the receipts for these services as Texas receipts
based on the fair value of the services. Instead, the parties’ dispute on remand centers on the
methodology used by Sirius XM to apportion the fair value of its service performed in Texas.
At trial, Sirius XM presented expert testimony to establish what it contends is the
proper apportionment factor for the fair value of its services in Texas during 2010 and 2011 tax
years. Michael Starkey, an expert in quantitative business modeling, testified that in analyzing
2
Rule 3.591(e)(26) was amended effective January 24, 2021. See 46 Tex. Reg. 460(2021). Unless otherwise noted, all references to Rule 3.591(e)(26) in this opinion are to the
former version of the rule, which is the version applicable to this case. See 32 Tex. Reg. 10044(2007), amended in part by 34 Tex. Reg. 9472 (2009).
7
the fair value of Sirius XM’s services rendered in Texas, he and his business associates obtained
“an enormous amount of data” from Sirius XM and management, including Sirius XM’s filings
with the Securities and Exchange Commission, to “build a model that helped us evaluate the
activities, functions, and other operations of Sirius XM wherever they are performed, and then
specifically what was performed in Texas versus everywhere else.” The results of this analysis
were summarized in an expert report, which was admitted as an exhibit. Starkey testified that he
used cost data because it was “systematic and reliable” in representing where Sirius XM
performed its activities. Starkey also testified that his analysis “focus[ed] on the unique aspect of
[Sirius XM’s] business that consumers actively seek out and ultimately, contract to receive.”
As a result, he did not include expenses for general support functions, such as administration
and sales, but he instead included expenses from value-producing activities, such as content
production and transmission. The only production and broadcasting services costs associated
with Texas during the 2010 and 2011 tax year was a radio program called “Willie’s Place,”
which transmitted from a truck stop for four hours each day and was operated by one employee.
According to Starkey, once adjusted to remove expenses associated with satellites, the portion of
fair value of Sirius XM services performed in Texas was 0.47% for tax year 2010 and 0.26%
in tax year 2011. In its findings of fact and conclusions of law, the district court found
“Mr. Starkey’s analysis is a credible method for determining fair value” and adopted, as fact
findings, his opinions regarding the percentage of the fair value of Sirius XM’s services
performed in Texas.3
3
Relevant to this apportionment calculation, the district court made the following
findings and conclusions:
8
The Comptroller asserts that the evidence presented by Sirius XM to establish fair
value is legally insufficient to support that trial court’s judgment for two reasons: (1) as a matter
of law, a taxable entity cannot rely on cost-of-performance data to apportion the fair value of
its services, and (2) in the alternative, Sirius XM failed to “meet its burden of proving the costs
that represent the fair value of services performed in Texas.” We will consider each of these
arguments in turn.
Standard of Review
When a party challenges the legal sufficiency of the evidence, we review the
evidence in the light most favorable to the judgment, crediting favorable evidence if a reasonable
fact finder could, and disregarding contrary evidence unless a reasonable fact finder could not.
City of Keller v. Wilson, 168 S.W.3d 802, 807 (Tex. 2005). We sustain a legal sufficiency
challenge if the record reveals: (1) the complete absence of evidence of a vital fact; (2) the court
is barred by rules of law or evidence from giving weight to the only evidence offered to prove a
[1.] Sirius XM’s headquarters, transmission equipment, and production studios
were located almost exclusively outside of Texas.
[2.] Additionally, Sirius XM produced, recorded, edited, and transmitted its
audio entertainment almost exclusively outside of Texas.
[3.] Sirius XM performed its satellite radio subscription services both inside
and outside Texas. Sirius XM’s subscription receipts are therefore apportioned to
Texas based upon the “fair value” of the service performed in Texas.
[4.] The fair value of Sirius XM’s service performed in Texas was .47% in
Report Year 2010 and 0.26% in Report Year 2011. These amounts exclude the
value of Sirius XM’s satellites in orbit.
[5.] The apportionment factors reported by Sirius XM “were consistent with
the fair value of Sirius XM’s service performed in Texas.”
9
vital fact; (3) the evidence offered to prove a vital fact is no more than a mere scintilla; or (4) the
evidence conclusively establishes the opposite of a vital fact. Id. at 810.
To the extent resolution of the Comptroller’s challenge turns on construction of
former Rule 3.591(e)(26) and its use of the phrase “fair value,” we review these issues de novo.
See Texas Mun. Power Agency v. Public Util. Comm’n of Tex., 253 S.W.3d 184, 192 (Tex.
2007). We construe administrative rules, which have the same force and effect as statutes, in
the same manner as statutes. Rodriguez v. Service Lloyds Ins. Co., 997 S.W.2d 248, 254 (Tex.
1999). Our primary objective in both statutory and rule construction is to ascertain and give
effect to the drafter’s intent. AEP Tex. Commercial & Indus. Retail Ltd P’ship v. Public Util.
Comm’n, 436 S.W.3d 890, 906 (Tex. App.—Austin 2014, no pet.). “We thus construe the
text according to its plain and common meaning unless a contrary intention is apparent from
the context or such a construction leads to absurd results.” Presidio Indep. Sch. Dist. v. Scott,
309 S.W.3d 927, 930 (Tex. 2010). Unless the rule is ambiguous, we follow its clear language.
Rodriguez, 997 S.W.2d at 254. Where there is vagueness, ambiguity, or room for policy
determination, we defer to the agency’s interpretation unless it is unreasonable, plainly
erroneous, or inconsistent with the language of the rule. TGS-NOPEC Geophysical Co. v.
Combs, 340 S.W.3d 432, 438 (Tex. 2011); Gulf Chem. Metallurgical Corp. v. Hegar,
460 S.W.3d 743, 747 (Tex. App.—Austin 2015, no pet.).
Analysis
We first consider the Comptroller’s argument that the evidence is legally
insufficient to support the trial court’s findings as to the fair value of Sirius XM’s services
performed in Texas because, as a matter of law, cost-of-performance data cannot be used to
10
establish fair value under former Rule 3.591(e)(26), and no other evidence as to the fair value of
services was presented by Sirius XM. See City of Keller, 168 S.W.3d at 810 (explaining that
legal-sufficiency challenge must be sustained “if the court is barred by rules of law or evidence
from giving weight to the only evidence offered to prove a vital fact”).
The phrase “fair value” is not defined in the Comptroller’s rules and does not
appear in any Tax Code provisions describing apportionment or discussing “business done in this
state” or “each service performed in this state.” See TGS-NOPEC, 340 S.W.3d at 439 (noting
that undefined terms are typically given their ordinary meaning unless a “different or more
precise definition is apparent from the term’s use in the context of the statute”); see also Tex.
Tax Code §§ 171.101, .103, .106. The dictionary definition of “fair,” when used as an adjective,
includes “being a sufficient, equitable, or adequate basis for judgment or evaluation.” Fair,
Webster’s Third New Int’l Dictionary (2002). “Value” is defined as “the monetary worth of
something,” Id., Value. Finally, “fair value” is defined as “a reasonable value (as set by
courts and regulatory commissions) for property.” Id., Fair Value. Based on these dictionary
definitions and the plain meaning of the terms, we conclude that the phrase “fair value,” as used
in former Rule 3.591(e)(26), means the monetary worth of the services at issue, based on an
objectively reasonable assessment. See Molinet v. Kimbrell, 356 S.W.3d 407, 411 (Tex. 2011)
(“The plain meaning of the text is the best expression of legislative intent unless a different
meaning is apparent from the context or the plain meaning leads to absurd or nonsensical
results.”).
In this appeal, the Comptroller has not offered any alternative interpretation of the
term “fair value” in former Rule 3.591(e)(26). Nevertheless, in support of his contention that
Sirius XM cannot rely on cost-of-performance data, the Comptroller argues that nothing in the
11
plain language of Rule 3.591(e)(26) suggests that “fair value” means “cost of performance.”4
According to the Comptroller, when former Rule 3.591(e)(26) was adopted in 2007, the term
“cost of performance” was a term of art used in the Uniform Division of Income for Tax
Purposes and adopted by other states, and the Comptroller was aware of this use of the
term “cost of performance.” See 32 Tex. Reg. 10044, 10047 (2007) (adopting Rule 3.591).
Therefore, the Comptroller reasons, the “use of the term ‘fair value’ [in the Rule] indicates that
something other than ‘cost of performance’ was intended.” See, e.g., In re M.N., 262 S.W.3d
799, 802 (Tex. 2008) (explaining that courts assume that drafter “included each word for a
purpose and that words not included were purposefully omitted”). While we do not disagree that
the rule drafters purposefully chose to use the term “fair value” and not the term “cost of
performance,” to the extent that the Comptroller suggests that this choice indicates that the terms
are necessarily exclusive, we cannot agree. Although the terms may have different meanings,
nothing in the plain language of the Rule dictates a specific method for calculating fair value
or excludes cost of performance as a reasonable means of assessing fair value for purposes of
apportionment.
Moreover, in previous guidance, the Comptroller has indicated that cost of
performance is an appropriate method for calculating fair value of services, at least in some
circumstances. In a 2008 letter ruling, the Comptroller considered how a fixed fee received by a
4
The Comptroller also points out that “when the legislature adopted the margin tax in
2006 without substantially changing the wording of the apportionment sections, it approved the
‘fair value’ standard [which the Comptroller had first adopted by rule in 1992] by legislative
acceptance.” See Reynolds Metals Co. v. Combs, No. 03-07-00709-CV, 2009 Tex. App. LEXIS
2466, at *12-13 (Tex. App.—Austin, Apr. 8, 2009, pet. denied) (mem. op.) (discussing
legislative-acceptance doctrine based on administrative interpretation of statute). Neither party,
however, has challenged the validity of Rule 3.291(e)(36) or suggested that its requirement that
taxable entities use “fair value” to apportion receipts for services is ambiguous, unreasonable, or
contrary to the plain language of the Tax Code.
12
brokerage-services company for accepting, executing, and clearing trades initiated over the
internet should be sourced in its franchise-tax reporting. See Tex. Comp. Pub. Accounts, Letter
No. 200807139L (July 24, 2008). In deciding this question, the Comptroller cited former Rule
3.591(e)(26) and then noted that because the services involved work done inside and outside of
Texas, “Texas receipts should be determined based on the fair value of the services performed in
Texas.” Id. The Comptroller then stated, “The costs attributed to the services in Texas relative
to the costs attributed to the out-of-state processing may be the best means of determining the
fair value of the services performed in Texas.” Id. Although the Comptroller did not elaborate
on the meaning of the term “fair value” in his letter ruling, we conclude that this interpretation of
Rule 3.591(e)(26)—that the relative fair value of services may be determined using cost-of-
performance data—is not plainly erroneous or inconsistent with the language of the Rule or the
Tax Code.5 We disagree with the Comptroller’s contrary assertion in this appeal that as a matter
of law former Rule 3.591(e)(26) prohibits Sirius XM from relying on cost-of-performance data
to apportion its receipts for services performed in Texas.
Next, we consider the Comptroller’s alternative argument that, even if
comparative cost-of-performance evidence may be used to establish fair value of services and to
5
Although not evidence of the Comptroller’s intent as to the meaning of the term “fair value”
in former Rule 3.591(e)(26), we note that the Comptroller subsequently amended the Rule to
state:
In determining fair value, the relative value of each service provided on a stand-
alone basis may be considered. Units of service, such as hours worked, may also
be considered. The costs of performing a service does not necessarily represent
its value. If costs are considered, cost should be limited to costs directly related
to the service.
46 Tex. Reg. 460 (2021) (emphasis added); but see Strayhorn v. Willow Creek Res., Inc.,
161 S.W.3d 716, 722 (Tex. App.—Austin 2005, no pet.) (noting that recent amendments to
statute by legislature “offer no insight into the intent to previous legislatures”).
13
apportion service receipts in certain circumstances, the cost-of-performance evidence presented
by Sirius XM in this case is legally insufficient to support the district court’s judgment. See City
of Keller, 168 S.W.3d at 807 (explaining a legal-sufficiency challenge must be sustained if “the
evidence offered to prove a vital fact is no more than a mere scintilla”). In response to this
argument, Sirius XM asserts, as a preliminary matter, that the Comptroller has failed to preserve
this challenge for appeal.
To preserve a complaint that expert testimony is legally insufficient because the
offered basis is unreliable, an objection must be timely made to the trial court. See Coastal
Transp. Co. v. Crown Centr. Petro. Corp., 136 S.W.3d 227, 233 (Tex. 2004). Requiring an
objection to the reliability of expert testimony gives the proponent a fair opportunity to cure
any deficiencies and prevents trial and appeal by ambush. City of San Antonio v. Pollock,
284 S.W.3d 809, 816-17 (Tex. 2009). In other words, if the challenge requires the court to
evaluate the underlying methodology, technique, or foundational data used by the expert, the trial
court must be given the opportunity to conduct this analysis first. Coastal Transp., 136 S.W.3d
at 233. Therefore, when expert opinion “is admitted in evidence without objection, it may
be considered probative evidence even if the basis of the opinion is unreliable.” Pollock,
284 S.W.3d at 818. Conversely, when opinion testimony is conclusory or speculative, it is not
relevant and will not support a judgment even when no objection to its admissibility was made at
trial. Id. Expert testimony is conclusory “if no basis for the opinion is offered” or if “the basis
offered provides no support for the opinion.” See Pike v. Texas EMC Mgmt., 610 S.W.3d 763,
787 (Tex. 2020) (quoting Pollock, 284 S.W.3d at 818).
Here, the Comptroller asserts that Starkey’s opinion testimony as to cost-of-
performance lacks probative value because he failed to include certain costs and exclude other
14
costs in his calculations. Specifically, the Comptroller complains that Starkey failed to include
as costs “performance royalties it paid for content it did not produce or own” and “hundreds of
millions of dollars it spent to subsidize the installation of the equipment necessary to hear Sirius
XM’s programming in Texas.” In addition, the Comptroller contends that Starkey should not
have included costs for research and development because it does not provide a benefit to the
customer. In sum, the Comptroller asserts that “[r]easonable minds could not conclude that
Sirius XM’s cost study represented the fair value of Sirius XM’s services in Texas when the
cost study excluded significant costs and it assigned no fair value to what was by far the most
valuable asset that Sirius XM used to produce its service.”
The Comptroller’s complaint is, in effect, that the underlying data relied on and
the methodology employed by Starkey to tabulate and compare Sirius XM’s cost of performance
are flawed and that, as a result, his opinion is unreliable and no evidence of fair value. Because
the Comptroller did not object to the admission of Starkey’s expert testimony at trial, and
because his challenge would require an evaluation of the foundational data and underlying
methodology that Starkey relied on to draw his opinions, the Comptroller cannot bring this
challenge now. See Pike, 610 S.W.3d at 787 (concluding that challenge to expert’s failure
to deduct certain costs when calculating “earnings before interest, taxes, depreciation, and
amortization” valuation concerned underlying methodology and technique and could not be
raised for first time on appeal). As a result, Starkey’s testimony as to comparative cost of
performance and his opinion of the fair value of Sirius XM’s services performed in Texas
relative to its services performed everywhere is considered probative evidence and thus legally
sufficient to support the district court’s judgment. See Pollock, 284 S.W.3d at 818.
15
In summary, we conclude that Sirius XM is not prohibited from relying on cost-
of-performance data to apportion its subscription receipts for services performed in Texas, and
that the evidence is legally sufficient to support the trial court’s findings as to Sirius XM’s
apportionment of its services performed in Texas. The Comptroller’s sole appellate issue on
remand is overruled.6
CONCLUSION
Consistent with the Texas Supreme Court’s decision deciding the issue of where
services are performed, and for the reasons described above on remand, we affirm the district
court’s judgment.
__________________________________________
Chari L. Kelly, Justice
Before Justices Goodwin, Baker, and Kelly
Affirmed on Remand
Filed: November 10, 2022
6
In the alternative, the Comptroller argues that the case should be remanded “in the
interest of justice” because the parties tried the case based on an unsettled legal theory as to
where services are performed. See Tex. R. App. P. 43.3 (rendition appropriate upon reversing
judgment unless remand is necessary). The Comptroller asserts that he “should have the
opportunity to present the trial court with evidence concerning fair value based on the new
guidance provided by the Supreme Court regarding the nature of Sirius XM’s service.”
Although the parties at trial took contrary positions as to how to apportion Sirius XM’s services,
nothing prevented the Comptroller from presenting contrary evidence or cross-examining Sirius
XM’s witnesses on Sirius XM’s proposed methodology. We disagree that the circumstances
warrant remanding this case.
16