Texas Franchise Tax Sourcing After NuStar: What Gets Delivered in Texas Stays in Texas

On March 13, 2026, the Texas Supreme Court handed down its decision in NuStar Energy, L.P. v. Hancock, No. 24-0037, and if you sell tangible goods in Texas, you need to understand what the court said.

NuStar Energy sold bunker fuel to foreign-registered ships at Texas ports. This is heavy fuel oil used to power large ocean-going vessels. Due to environmental regulations, the fuel could not even legally be burned within 200 nautical miles of the U.S. coast. By any functional measure, the fuel was consumed outside of Texas. NuStar had initially treated these sales as Texas transactions and paid franchise taxes accordingly, but later sought a $2.4 million refund based on a revised apportionment factor that excluded the bunker fuel sales from its Texas receipts.

NuStar’s argument was textual. Under Texas Tax Code Section 171.103(a)(1), receipts from the sale of tangible personal property are sourced to Texas if the property is “delivered or shipped to a buyer in this state.” NuStar argued that the phrase “buyer in this state” refers to where the buyer ultimately uses or consumes the goods, not the point of physical transfer. Under this reading, sales to ships that departed Texas waters would not be Texas-sourced receipts because the buyers’ ultimate use was outside Texas.

The Texas Supreme Court rejected this argument. The court held that the statute unambiguously adopts a place-of-delivery rule. During oral argument, Chief Justice Blacklock pressed NuStar’s counsel repeatedly, asking where the words “destination” or “ultimate” appear in the statutory text. NuStar could not point to them because they are not there. The statute says “delivered or shipped to a buyer in this state” and contains no reference to use, consumption, or market location.

Justice Busby noted that the Legislature “gets very detailed” elsewhere in the apportionment statute and chose not to add a destination qualifier here. The Comptroller’s counsel pointed out that the place-of-delivery rule has been in force since 1969, and upending it would disrupt settled expectations for taxpayers and the state treasury alike. The court agreed, holding that the Comptroller’s administrative rules were consistent with the plain statutory language and therefore valid.

The practical implications for Texas businesses are significant.

First, this resolves a question that had been creating uncertainty for companies that sell goods at Texas locations to buyers who take the goods elsewhere. Manufacturers shipping from Texas warehouses, energy companies delivering fuel at Texas ports, distributors handing off goods at Texas transfer points, all of these transactions are now unambiguously Texas-sourced receipts for franchise tax purposes, regardless of where the buyer ultimately takes or uses the goods.

Second, companies that have been excluding Texas-delivered sales from their apportionment numerator based on an ultimate-destination theory need to revisit their positions immediately. If those positions were taken on filed returns, the exposure includes not just additional franchise tax but penalties and interest dating back to the relevant filing periods. The Comptroller’s office will use this decision to support audit assessments.

Third, the court confirmed that FOB terms and title passage in sales contracts are irrelevant for franchise tax sourcing purposes. Both NuStar’s position and the Comptroller’s position treated contractual risk allocation as distinct from the sourcing analysis. The critical factor is where the buyer actually receives possession or control of the goods, not where the contract says title passes. This means you cannot restructure your franchise tax liability by changing contract terms alone; you need to change the actual delivery point.

There are some important boundaries to the holding. The NuStar decision addresses tangible personal property only. The sourcing rules for services under the Texas franchise tax are governed by separate provisions and generally look to where services are performed. While the court’s textualist approach may influence how courts handle sourcing disputes in the services context, the specific holding is limited to tangible property.

The decision also reinforces a broader principle about statutory interpretation in Texas: text controls. The court did not look beyond the plain language of Section 171.103(a)(1), and it did not need to. NuStar’s attempt to import a look-through or destination analysis into a statute that contains no such language failed at the most basic level. The Legislature knows how to write destination-based sourcing rules when it wants to. It didn’t do so here.

For Houston-area businesses in the energy sector, this decision has particular relevance. The energy industry involves enormous volumes of tangible goods, fuel, refined products, drilling equipment, pipeline materials, that are delivered at Texas locations and then moved around the world. Every one of those Texas delivery transactions is an unambiguously Texas-sourced receipt after NuStar. Companies should review their franchise tax apportionment calculations, confirm that Texas-delivered sales are properly included in the Texas numerator, and consult with their tax advisors if prior-year positions are potentially inconsistent with the court’s holding.

The sourcing analysis just got simpler. What gets delivered in Texas is sourced to Texas.