Petition for Writ of Mandamus - Filed - Supreme Court of Texas

§ 171.1012(k), (k-1). Other taxpayers that exercise the same Privilege as these favored
businesses, and that incur interest expense and expenses of leasing, are not allowed the same
deductions. Consequently, the calculation of COGS results in an amount of COGS that is
unreasonable, arbitrary, and capricious among taxpayers exercising the Privilege,
18. Finally, the calculation of compensation under Section 171.1013 allows
deductions for expenses associated with employees but not expenses associated with independent
contractors and limits the amount of the compensation deduction for employees. However,
taxpayers whose workers are employees enjoy the same Privilege as taxpayers whose workers
are independent contractors, and the value of that Privilege is not changed by a worker's status as
an employee or an independent contractor or the amount of an employee's compensation.
Consequently, the calculation of compensation results in an amount of compensation that is
unreasonable, arbitrary, and capricious among taxpayers exercising the Privilege.
19. As a result of the differences in total revenue, COGS, and compensation, the
Margin Tax calculation does not ascertain the value of the privilege of doing business in Texas
the same way for all taxpayers—it is not uniform. A dollar of income earned from exercising the
Privilege, regardless of the source of the income, has the same value to all taxpayers. A dollar of
expense incurred in exercising the Privilege, regardless of the nature of the expense, has the
same value to all taxpayers. See Bullock v. Sage Energy Co., 728 S.W.2d 465, 468 (Tex. App.—
Austin 1987, writ red n.r.e.). In calculating a franchise tax that is commensurate with the value
of that Privilege, it is not reasonable to restrict some deductions for income and expense items
only to some taxpayers who exercise that Privilege. To the extent the Legislature does allow
exclusions and deductions from the franchise tax base, those exclusions and deductions must be
available to all taxpayers in order for the franchise tax calculation to bear a reasonable
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