Court of Appeals of Texas, Third District, Austin
THE 345TH DISTRICT COURT OF TRAVIS COUNTY NO.
D-1-GN-15-004255, THE HONORABLE AMY CLARK MEACHUM, JUDGE
Justices Goodwin, Baker, and Kelly
J. Baker, Justice.
a suit for refund of franchise taxes paid under protest.
See Tex. Tax Code § 112.052 (authorizing such
suits). After a bench trial, the trial court rendered a
take-nothing judgment against the taxpayer, Dallas World
Aquarium Corp. (DWA). We will affirm the judgment of the
dispute arises from the Comptroller's franchise-tax audit
of DWA's tax report for the reporting years 2009-2012
(calendar years 2008-2011). The State of Texas levies
franchise taxes against a taxable entity's "taxable
margin," a portion of its total margin. See id.
§ 171.002(a). The Tax Code allows a taxpayer to
calculate its taxable margin as the lesser of: 70% of its
total revenue, its total revenue minus $1 million, its total
revenue minus the cost of goods sold (COGS), or its total
revenue minus certain compensation expenses. See id.
§ 171.101(a)(1). After a taxpayer determines its taxable
margin through one of the allowed methods, it apportions the
margin to gross receipts from business done in this State and
subtracts other allowable deductions. See id. §
171.101(a)(2), (3). The taxpayer then calculates its
franchise tax owed by multiplying the taxable margin by the
applicable tax rate. Id. § 171.002(a). DWA
determined its taxable margin for the reporting years at
issue using the COGS method.
trial, the parties filed agreed stipulations of fact, leaving
as the sole issue before the trial court the determination of
whether DWA may properly deduct certain expenses as COGS.
See id. § 171.1012(a) (defining
"goods" for purposes of COGS determination);
see also id. § 171.1012(c) ("The cost of
goods sold includes all direct costs of acquiring or
producing the goods."). DWA operates the Dallas World
Aquarium (the Aquarium). Per the stipulations:
• The Aquarium "is a rainforest and nature-based
sensory immersion experience."
• "DWA's principal source of revenue [for the
disputed period] was from admissions to" the Aquarium.
• "Guests paid for the experience by purchasing
admission to or membership in" the Aquarium.
stipulations also provided an agreed list of costs that DWA
may include in its COGS deduction and agreed tax refunds for
the relevant years "[i]f admission to the  Aquarium is
determined to be the sale of 'goods.'" The
stipulations framed the dispositive issue thusly: "The
parties dispute whether the sale of admissions to the Dallas
World Aquarium is the sale of 'goods' such that DWA
may include its cost of producing the sensory immersion
experience in cost of goods sold."
trial, two witnesses for DWA testified: its accountant and
one of its biologists. Both witnesses testified at length
about the "tangible" and "external"
things in the Aquarium- the fish, the birds, the mammals, the
plants, the trees, the humidity, the mist. They also
testified about how the disputed expenses-including cost of
flora, fertilizers, fauna, feed, zoological-staff salaries,
maintenance costs and staff wages, water filters, aquarium
pumps, and utilities- together provide the "external
experience" that DWA is "selling" to visitors
through its admission and membership fees.
rendering its take-nothing judgment, the trial court issued
findings of fact and conclusions of law per DWA's
request. The conclusions of law included the following:
"DWA's sensory immersion experience was not a
'good' for purposes of the Texas franchise-tax