Lockheed Martin Wins Franchise Tax Case at the Texas Supreme Court

May 6, 2020

In a landmark victory, Lockheed Martin and Ryan Law Firm, PLLC win their franchise tax case. On May 1, 2020, the Supreme Court of Texas reversed and remanded its opinion in favor of Lockheed Martin. Lockheed Martin Corp. v. Hegar (18-0566). The issue being addressed was whether Lockheed Martin’s sales of F-16 fighter jets to foreign governments under the Foreign Military Sales (FMS) program were considered Texas sales for Texas franchise tax purposes.

In a cohesive FMS transaction involving the manufacture and sale of military goods to a foreign government, Lockheed Martin asserted that the foreign government was the “buyer,” and as such, the sale does not generate Texas receipts. The Comptroller countered that FMS transactions involving procurement consisted of two distinct and separate sales: (1) the contractor’s sale of the military goods to the U.S. government, and (2) the U.S. government’s resale of those goods to the foreign purchaser.

The Texas Supreme Court’s opinion held that Lockheed Martin’s “sale” of each F-16 fighter jet was to the respective foreign-government “buyer” for whom the aircraft was specifically manufactured and to whom it was ultimately delivered. The U.S. government’s involvement in each transaction was a “condition of the sale” that had no bearing on apportioning the receipts from that sale to Texas. Consequently, the receipts from the sales of the aircrafts are not sourced to Texas, and as a result, Lockheed Martin is entitled to a refund of franchise taxes.

For more information, please contact:

Doug Sigel
Practice Group Leader, Sales & Use and Income Tax
512-459-6611
doug.sigel@ryanlawyers.com

Rich Moore
Associate, Sales & Use and Income Tax
512-459-6613
richard.moore@ryanlawyers.com