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

As detailed above, each step of the Margin Tax calculation is fraught with
arbitrary disparities among similarly-situated taxpayers. First, the calculation of Total
Revenue permits certain arbitrary exclusions for taxpayers in certain industries but not for
other taxpayer in other industries. There does not appear to be any rational basis for
treating these taxpayers differently from one another, and the disparate treatment
certainly does not have a fair or substantial relation to the Privilege being taxed.
Further, the different types of deductions subtracted from Total Revenue – COGS,
Compensation, or 30% of Total Revenue – create arbitrary distinctions among taxpayers,
and the differences within the calculations of these deductions exacerbate the disparities
between similarly-situated taxpayers.
The COGS deduction allows only certain
taxpayers to deduct certain costs of business. For example, a taxpayer that sells tangible
personal property may deduct the direct costs of acquiring or producing the goods, some
indirect costs, and up to 4% of overhead and administrative costs; however a taxpayer
that leases the same tangible personal property may not deduct any such costs unless one
of four narrow exceptions applies. See id. § 171.1012. Not only are sellers treated
differently from lessors, but lessors are treated differently from similarly-situated lessors
via four narrow exceptions for lending institutions, lessors of motor vehicles, lessors of
heavy construction equipment, and lessors of rolling stock. See id. § 171.1012(k), (k-1).
The calculation of Compensation also creates distinctions with no rational basis.
For no apparent reason related to the value of the Privilege, the Margin Tax allows a
company to deduct as Compensation wages paid to an employee, but does not allow a
similarly-situated company to deduct amounts paid to an independent contractor. See id.
11