Under Texas Margin Tax provisions, a combined group’s cost of goods sold (COGS) deduction may include expenses from a member that cannot independently claim a COGS deduction. The Comptroller has taken the narrow view that each unitary group member is viewed in isolation when determining COGS expenses that may be included in the combined group’s COGS deduction. Texas taxpayers that have determined certain subsidiaries in a unitary group did not qualify for a COGS deduction should review their COGS computation to determine whether refund claims may be filed consistent with the reasoning in this opinion.
We expect the Texas Comptroller to appeal to the Texas Supreme Court. Review by the Texas Supreme Court is discretionary and is initiated by filing a Petition for Review.