Supreme Court of Texas ══════════ No. 24-0037 ══════════

NuStar Energy, L.P., Petitioner, v. Kelly Hancock, Comptroller of Public Accounts of the State of Texas; and Ken Paxton, Attorney General of the State of Texas, Respondents

═══════════════════════════════════════ On Petition for Review from the Court of Appeals for the Third District of Texas ═══════════════════════════════════════

Argued September 10, 2025

JUSTICE DEVINE delivered the opinion of the Court.

Justice Lehrmann did not participate in the decision.

This franchise-tax dispute presents a question of statutory interpretation: does section 171.103(a)(1) of the Texas Tax Code attribute sales of tangible personal property to the location the buyer takes delivery (the place of transfer) or to the location the buyer uses or consumes the goods (the ultimate destination)? In a suit to invalidate state comptroller rules making the transfer point determinative, the

taxpayer asserts the regulations are invalid because they conflict with the statute. The taxpayer reads statutory language sourcing sales receipts to Texas when goods are “delivered or shipped to a buyer in this state” as referencing the ultimate destination for the goods rather than the place of transfer to the buyer. ^[1] The lower courts rejected the taxpayer’s construction of the Tax Code and upheld the comptroller’s rules. We affirm. The statute unambiguously sources receipts from sales of tangible personal property to Texas if the taxpayer yields possession and control of the goods to a buyer at a location in this state even if the buyer subsequently transports those goods to another jurisdiction for consumption or use. I Texas imposes a franchise tax on domestic and foreign entities conducting business in this state. ^[2] The tax approximates “the value of th[e] privilege to transact business in Texas,” including economic benefits like “the opportunity to realize gross income and the right to invoke the protection of local law.” 3 An entity’s franchise-tax liability is determined by multiplying its “taxable margin” by the applicable tax rate. ^[4] Determining taxable margin has three steps: (1) calculation of the entity’s margin (total revenue minus authorized deductions); (2) apportionment to Texas; and (3) subtraction of other allowable deductions. ^[5] Only apportionment is at issue here. ^[6] The Tax Code’s single-factor apportionment method is based on the proportion of the taxpayer’s total sales attributable to “business done in this state.” 7 This is a “sales-factor” formula that compares the taxpayer’s gross receipts from business done in Texas (the numerator) with its gross receipts from its entire business (the denominator). 8 The resulting percentage, ranging from 0% to 100%, is applied to the entity’s margin to determine the taxpayer’s apportioned margin. ^[9] Because an entity’s “franchise-tax liability increases as the ratio of Texas receipts to total receipts increases,” 10 apportioning gross receipts to Texas directly impacts the taxes due.

Section 171.103(a) of the Tax Code directs when various categories of commercial receipts are counted as “business done in this state.” 11 Relevant here, subsection (a)(1) sources gross receipts from sales of tangible personal property to Texas “if the property is delivered or shipped to a buyer in this state regardless of the FOB point or another condition of the sale.” 12 At issue in this rule-validity challenge are administrative rules sourcing gross receipts to Texas when the buyer has taken possession and control of goods in Texas, including Texas waters. ^[13] The examples provided in the challenged rules attribute gross receipts based on what is often referred to as the “place of delivery” or “place of transfer” to the buyer. Texas-based NuStar Energy, L.P. sells high-sulfur bunker fuel for use in large, oceangoing ships and delivers that fuel to primarily foreign- registered vessels at Texas ports. ^[14] For tax years 2011 to 2013, NuStar treated those sales as Texas transactions and paid franchise taxes accordingly. NuStar then requested a $2.4 million tax refund based on a revised apportionment factor that excluded the bunker-fuel sales from its Texas receipts because the nonresident purchasers do not (and legally cannot) use, sell, or otherwise consume bunker fuel in Texas or Texas waters. ^[15] NuStar took the position that these “dock sales” were not business done in Texas because the buyers are here only temporarily to take delivery, not to use or consume the goods NuStar has physically delivered to them in this state. ^[16] After the refund request was denied, NuStar exhausted administrative remedies and then filed a tax-refund suit against the Texas Comptroller of Public Accounts and the Texas Attorney General (collectively, the Comptroller). 17 NuStar also sought a declaration that administrative rules 3.591(e)(29)(A), (C), and (H) and 3.591(e)(31) 18 are S.W.3d 831, 835 (Tex. App.—Austin 2023) (quoting the applicable versions of the administrative rules formerly at 34 TEX. ADMIN. CODE § 3.591(e)(29)(A), (C), (H), (e)(31)). As the court noted, the rules were twice amended in nonmaterial ways during this litigation. See id. at 835 n.2. Of note, subsection (e)(31), which defines Texas’s maritime boundary, is now numbered as (e)(32). See 34 TEX. ADMIN. CODE § 3.591(e)(32); 46 Tex. Reg. 460, 464, 472 (2021) (adopting amendments to rule 3.591, including by “add[ing] new subsection (e)(31)” with subsequent paragraphs “renumbered accordingly”). Unlike the other disputed provisions, this subsection merely establishes the geographical limit in which a sale occurs in Texas waters; it does not include examples of transactions sourcing receipts to Texas. See 34 TEX. ADMIN. CODE § 3.591(e)(32).

facially invalid as contrary to section 171.103(a)(1)’s plain language and objectives. ^[19] The parties teed up the rule challenge in cross-motions for partial summary judgment joining issue on what it means for goods to be “delivered or shipped to a buyer in this state” under section 171.103(a)(1). According to NuStar, the statute employs a “market-based” or “ultimate-destination” sourcing rule. ^[20] Under such a rule, sales receipts are attributable to the market for the seller’s goods as determined by the destination where the buyer intends to use, sell, or otherwise dispose of the property. NuStar contends that section 171.103(a)(1) must be read in this way because the phrase “in this state” grammatically modifies the words “a buyer,” not the words “delivered or shipped.” Construing “to a buyer in this state” as describing the buyer’s location for use or consumption, NuStar asserts that notwithstanding the transfer of possession and control to a buyer in Texas, goods have not been delivered “to a buyer in this state” if the buyer intends to subsequently transport the goods to an out-of-state location for use, sale, or other disposition. The Comptroller, by contrast, maintains that the buyer’s subsequent transportation or intended use of the goods is irrelevant under the statute’s plain language. Instead, the Comptroller construes the statute as employing a “place of delivery” or “place of transfer” test. According to the Comptroller, “delivered or shipped to a buyer in this state” simply means the seller has [1] physically transferred possession and control [2] to a buyer [3] at a location in Texas. Stated differently, section 171.103(a)(1) fixes the sales situs at the location where the transaction is consummated by the actual transfer of possession and control to the buyer. The trial court granted the Comptroller’s summary-judgment motion, denied NuStar’s motion, and declared that the disputed rules are valid. On permissive interlocutory appeal, 21 the court of appeals affirmed, holding that (1) section 171.103(a)(1) unambiguously apportions sales receipts to Texas “[based] on where the buyer received the property, not where the buyer is ultimately located when they plan to use, sell, or otherwise dispose of the property”; and (2) based on a plain reading of the statute, NuStar’s rule challenge fails on its fundamental premise. 22 II The proper interpretation of the apportionment statute is a legal question that ultimately settles the parties’ dispute about the validity of the challenged administrative rules. ^[23] This is a matter we consider de novo according to well-established and well-known principles. ^[24] Neither side has argued that section 171.103(a)(1) determines the sales situs by looking to the origin of a delivery or shipment. ^[25] Rather, the parties agree the statute employs a destination-based sourcing rule, 26 with both sides viewing the statute as unambiguous in its meaning. They part company, however, on what destination the statute specifies: where the goods are delivered to the buyer or where the buyer consumes or uses the property (if that differs from the transfer point). Though the parties read the statute differently, this disagreement does not render the statute ambiguous, 27 and we agree with the court of appeals that it is not. The text does not embrace NuStar’s use-or-consumption construction, which is therefore not a reasonable interpretation of the statute. An alternative reading that has been disclaimed by the parties—sourcing receipts to Texas only when the buyer is a Texas resident or does business in Texas—is equally untenable when section 171.103(a)(1) is considered within the broader statutory context. We therefore agree with the Comptroller that section 171.103(a)(1) employs a “place of delivery” or “place of transfer” test and that the Comptroller’s rules, which do the same, are not in conflict. A A party challenging the validity of an administrative rule bears the burden to demonstrate “that the rule’s provisions are not in harmony with the general objectives of the act involved, which we discern from the statute’s plain text.” 28 Starting there, section 171.103(a)(1) provides: [I]n apportioning margin, the gross receipts of a taxable entity from its business done in this state is the sum of the taxable entity’s receipts from: (1) each sale of tangible personal property if the property is delivered or shipped to a buyer in this state regardless of the FOB point or another condition of the sale . . . . 29 The terms relevant to the present dispute are not defined, so we begin by considering their ordinary meaning as informed by the statutory context. ^[30] “Delivered,” which always refers to a destination, means to “carry and turn over . . . goods . . . to the intended recipient,” to “hand over,” and to “yield possession and control.” 31 The statute uses “shipped” in the sense of sending or causing something to be transported. ^[32] This could refer to either an origination point or a destination except that the immediately following word—“to”—confirms that shipping is just an alternative way of effectuating delivery. “To” is a function word indicating movement toward a destination, 33 in this case “a buyer.” As we explained in Lockheed Martin Corp. v. Hegar, “to a buyer” distinguishes the intended recipient of the goods from a mere intermediary who takes possession only to facilitate further transport to the buyer. 34 And “in this state” obviously refers to a location or place in Texas. 35 Read syntactically, section 171.103(a)(1) sources sales receipts to Texas when tangible personal property was (1) handed over (2) to a buyer (3) in Texas. A simple, clear, and objectively determinable sales point. NuStar, however, says there is much more to it than that because a place-of-transfer sourcing point fails to accurately reflect the seller’s market for the goods when the customer intends to subsequently transport the property to its ultimate destination. Describing the sales-factor formula as generally accounting for the market state’s contribution to the seller’s revenue, 36 NuStar contends that “to a buyer

601 S.W.3d 769, 775-76 (Tex. 2020) (holding that despite lack of 34

contractual privity between the buyer and seller, the U.S. government, which held privity with both, was a required intermediary under federal law, not the buyer contemplated by section 171.103(a)(1)). See in, WEBSTER’S, supra note 14, at 1139 (“a function word to 35

indicate location or position in space”); in, RANDOM HOUSE, supra note 14, at 964 (“used to indicate inclusion within space, a place, or limits”); see also ETC Mktg., Ltd. v. Harris Cnty. Appraisal Dist., 528 S.W.3d 70, 76 (Tex. 2017) (holding that a state tax implicating interstate commerce applies only to “an activity with a substantial nexus with the taxing state” (citing D.H. Holmes Co. v. McNamara, 486 U.S. ^[24], 30 (1998))). 36Compare Lockheed Martin, 601 S.W.3d at 777 (“Generally, a sales-factor apportionment formula is intended ‘to reflect the contribution of the market state to the taxpayer’s income.’” (quoting Hellerstein & Hellerstein, supra note 25, ¶ 9.18[3][a] (discussing sourcing revenue from sales of services))), with Sirius XM Radio, 643 S.W.3d at 407-08, 409 n.5 (suggesting that the sales-factor formula as adopted in Texas is not always directed to in this state” plainly requires the taxpayer and the taxing authority to look beyond the transfer point to determine the buyer’s location for the goods. In comparison to a place-of-transfer rule, the sourcing rule NuStar envisions would give rise to more complex administrative, practical, and recordkeeping burdens related to ascertaining and documenting a buyer’s post-acquisition journey to the place of consumption or use. ^[37] If that is what the statute mandated, so be it. ^[38] But it does not. While we can accept NuStar’s argument that “in this state” modifies “buyer,” the full prepositional phrase “to a buyer in this state” modifies the verb phrase “if the property is delivered or shipped,” specifying where the delivery or shipment is taking place to the buyer. If “in this state” were as grammatically constrained as NuStar posits, the action verbs would be mere surplusage. The express condition “if the property is delivered or shipped” would not matter one whit if the decisive inquiry is the location the buyer intends to use or consume the goods. Those words lack any function if the statute means what NuStar

capturing the customer market given that receipts from sales of services are sourced to the place services are “performed” not where they are “received” by the customer or their “effects felt”).

says. Because we presume the Legislature chose its words with care, we must read the statute to give effect to all its terms and not treat any language as surplusage if possible. ^[39] Only a point-of-transfer construction does that. Giving effect to the statute’s plain language means that the outcome of the sourcing rule may differ depending on whether the buyer has subsequently transported the property to an extraterritorial destination or whether the seller has delivered or shipped the property to the buyer at the same location. But that does not run counter to the statute’s admonishment that sourcing is determined “regardless of the FOB point or another condition of the sale.” 40 The mode of transportation is not what makes the difference; what matters is the customer’s location when the seller surrenders the goods. Different transaction facts often produce different results. Section 171.103(a)(1) instructs that legal technicalities cannot override transaction realities, but this instruction does not mean that transaction facts must be ignored or disregarded just because they might also qualify as conditions of sale. The broader statutory context could, of course, suggest a different or more precise understanding of enacted language, 41 but not so here. In that regard, the words omitted from the statute are just as telling as those the Legislature adopted. ^[42] Section 171.103(a)(1) speaks only of delivery and shipment. If the Legislature intended to describe the buyer’s domicile, business location, or location for use or consumption of the property, different phrasing would be expected. After all, these are not abstruse concepts that defy clear explication. Yet section 171.103(a)(1) says nothing about the “ultimate” destination of the property the taxpayer sold; the “market” for that property; or the buyer’s “consumption,” “use,” or other “disposition” of the property. In notable comparison, subsection (a)(4) specifically defines “business done in this state” as including “the use of a patent, copyright, trademark, franchise, or license in this state.” 43 Given subsection (a)(4)’s phrasing, it is inexplicable that subsection (a)(1) would be written as it is if the Legislature intended the taxing situs to be determined by the location the buyer intends to use the goods. Nor would it be reasonable to construe section 171.103(a)(1) as incorporating a residency, domicile, home-state, or place-of-business destination. Subsection (a)(1) makes no mention of such things. In comparison, when the Legislature imposed a residency limitation elsewhere in Chapter 171, it used clear and specific language to convey that requirement. ^[44] The notion that the franchise tax’s sales-factor formula does (or should) capture the customer market for the taxpayer’s goods comes not from the statute’s text but from an unstated policy that may or may not have motivated the Legislature’s adoption of section 171.103(a)(1) as part of Texas’s franchise-tax scheme. As NuStar points out, the language in subsection (a)(1) is similar (though not identical) to section 16(a) of the Uniform Division of Income for Tax Purposes Act (UDITPA),^[45] a model uniform income tax scheme with a three-factor apportionment formula. ^[46] UDITPA is designed to address the issue of allocating multistate business income among the states having the power to tax at least some portion of that income. ^[47] This model law has been adopted in varying degrees by a majority of states and has also been incorporated into article IV of the 1967 Multistate Tax Compact (MTC), which functions as a framework for member states, including Texas, to adopt, modify, or ignore at their discretion. ^[48] In section 171.103(a)(1), Texas has adopted language similar to UDITPA section 16(a), but our franchise-tax statute—the context in which we read that language—differs in significant ways. ^[49] A uniform law will ideally be interpreted and applied in a way that promotes consistency with how other states interpret the same law, but only if it is possible to do so while remaining faithful to the statutory text as understood in the statute as a whole. ^[50] Here, NuStar would prefer our statute to be read as encompassing an ultimate-destination theory that alters the ordinary meaning of enacted language. To support that outcome, NuStar finds affirmation in authority from other jurisdictions that have considered the issue presented here. Not all of the cited cases actually decided the issue or construed materially similar language. ^[51] In several jurisdictions, the issue presented in this case has been addressed under statutes with a provision similar to section 171.103(a)(1), but even then, the authorities are not uniform in their conclusions. ^[52] We acknowledge that there may be some tension between our holding today and decisions from other jurisdictions that have reached contrary conclusions about very similar language. ^[53] But substantial variations among state taxing regimes reduce uniformity and diminish consistency concerns. ^[54] In any event, what is determinative here—and most important—is that our statute’s plain language trumps unstated policy objectives that might be gleaned from extratextual sources. ^[55] We will not work backwards from an unspoken purpose or rely on extrinsic sources to inject (and then resolve) ambiguity when, as here, the text is clear. Perhaps the Legislature prefers uniformity across jurisdictions as to the taxing situs for tangible personal property sales. Only the Legislature has the prerogative to determine whether uniformity is the ideal and, if so, whether the benefits of uniformity outweigh any disadvantages of excluding transactions like dock sales from the reach of our state’s franchise tax. But if our application of the statute’s plain language puts Texas out of step with other states, the remedy is legislative, not judicial. The judiciary’s role is not to determine what the policy is or to provide a fix if statutory language does not unfailingly achieve presumed policy goals. ^[56] Our duty is to enforce what the Legislature has committed to writing. As we have reiterated many times, including in our most recent franchise-tax opinion, we take statutes as we find them without adding or subtracting “to achieve an unstated purpose.” 57 But that is exactly what would have to happen to make section 171.103(a)(1) provide a sourcing rule based on something other than the point of transfer to the buyer. Accordingly, we reject NuStar’s ultimate-destination interpretation, which is atextual and contradicts the statute’s plain language. It follows then that NuStar’s rule-validity challenge, which is premised on an invalid construction of the statute, fails to overcome the presumption that the Comptroller’s rules are valid. ^[58] B NuStar’s complaints about the Comptroller’s rules are threefold. First, the rules transpose statutory text in ways that decouple “in this state” from “a buyer.” 59 Second, the rules generally impose a place-of-delivery test that sources receipts based on where the seller transfers possession or control of the property to the buyer. Third, the rules treat the taxpayer’s delivery to a purchaser in Texas differently from delivery to a common carrier in Texas, thereby creating a special “carve out” for extraterritorial transportation by common carrier. ^[60] We start with the “core administrative-law principle that an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate.” 61 “Where a statute’s language carries a plain meaning, the duty of an administrative agency is to follow its commands as written, not to supplant those commands with others it may prefer.” 62 An agency’s power to execute the law “does not include a power to revise clear statutory terms.” 63 Indeed, “the need to rewrite clear provisions of [a] statute” will often be an indication that the agency has “taken a wrong interpretive turn.” 64 NuStar is therefore correct to be skeptical of the Comptroller’s curious decision to transpose the text by converting the statute’s words, “delivered . . . to a buyer in this state,” into the rules’ words, “delivered in Texas to a purchaser” and like verbiage. If that transposition worked a substantive change in the statute’s operation, NuStar’s position would have considerable force. But in this case, the transposition does not appear to make any substantive difference. Under a proper construction of section 171.103(a)(1), the examples in the Comptroller’s rule are ultimately consistent with the statute’s place-of-transfer sourcing rule. As NuStar points out, the disputed subsections of the Comptroller’s rule are written as attributing receipts to Texas when goods are “delivered in Texas to a buyer” rather than “delivered to a buyer in Texas.” But under either phrasing, the destination is the same—the location the buyer took possession or control of the goods. Transposition of the statutory language would be problematic—or rather, more problematic—if the examples addressed shipments to a buyer because, as discussed above, “shipment in Texas to a buyer” would provide an origination-based sourcing rule instead of the destination-based sourcing rule section 171.103(a)(1)’s language and grammatical structure dictate. But the examples in the Comptroller’s rules do not source receipts from shipments made in Texas to destinations outside of Texas. Quite the opposite. What NuStar characterizes as a “carve out” for in-state delivery to a common carrier for out-of-state delivery actually describes a shipment to a buyer outside this state, and this distinction acknowledges that a sale is not consummated for franchise-tax purposes merely by placing the goods in an intermediary’s hands. The Comptroller’s rules thus survive NuStar’s challenge—not because the transposition was wise or warranted, but because NuStar has not shown that it substantively altered the controlling statute’s plain command that a Texas sale results only from delivery or shipment “to a buyer in this state.” III Under section 171.103(a)(1)’s unmistakably clear language, goods are delivered in the statutory sense where the buyer receives them in the actual sense. Because the challenged administrative rules are consistent with section 171.103(a)(1) as written, NuStar failed to overcome the presumption that the rules are valid. We therefore agree with the lower courts that those regulations withstand the taxpayer’s validity challenge. The court of appeals’ judgment is affirmed, and the case is remanded to the trial court for further proceedings consistent with this opinion.

John P. Devine Justice OPINION DELIVERED: March 13, 2026