American Airlines Wins Tax Refund, $107k

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April 9, 2026 Get Citation Alerts Download PDF Add Note

Kelly Hancock, Acting Comptroller of Public Accounts of the State of Texas and Ken Paxton, Attorney General of the State of Texas v. American Airlines, Inc.

Texas Court of Appeals, 15th District

• Citations: None known
• Docket Number: 15-24-00113-CV
• Nature of Suit: Administrative Law - Tax

• Disposition: AFFIRMED

• Opinion

• Authorities (0)

• Cited By (0)

• Summaries (0)

• Similar Cases (44.6K)

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Disposition

AFFIRMED

Lead Opinion

Affirmed and Opinion filed April 9, 2026.

                                 In The

                   Fifteenth Court of Appeals

                          NO. 15-24-00113-CV

KELLY HANCOCK, ACTING COMPTROLLER OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS, AND KEN PAXTON, ATTORNEY GENERAL
OF THE STATE OF TEXAS, Appellants

                                    V.
               AMERICAN AIRLINES, INC., Appellee

                On Appeal from the 98th District Court
                        Travis County, Texas
               Trial Court Cause No. D-1-GN-16-000621

                                OPINION

  In this franchise-tax case, American Airlines, Inc. (“American”) argues that

the federal Anti-Head Tax Act (“AHTA”) preempts the Texas franchise tax as
applied to American’s revenues from baggage fees, passenger ticket sales, and
freight transportation (the “transportation revenues”). See 49 U.S.C. § 40116(b)(4)
(prohibiting state taxes on the gross receipts from air commerce or transportation).1
In response, the Texas Comptroller argues the franchise tax is a composite tax
based on a taxable entity’s entire business, and, therefore, cannot be determined
based on isolated revenue streams. This as-applied federal preemption challenge
to the Texas franchise tax is an issue of first impression.

   We conclude that the AHTA preempts the franchise tax as applied to

American’s transportation revenues in its 2015 franchise-tax report. Accordingly,
we affirm the trial court’s judgment granting American a refund for the amount of
franchise tax it paid on its baggage fee revenue and denying the Comptroller’s
counterclaim seeking to tax all of American’s transportation revenues.

                                 BACKGROUND

I. The Texas Franchise Tax

   This appeal requires an understanding of how the Texas franchise tax

operates. The franchise tax “is imposed on the privilege of doing business in
[Texas].” Hegar v. Gulf Copper & Mfg. Corp., 601 S.W.3d 668, 673 (Tex. 2020).
It is “levied on a taxable entity’s ‘taxable margin.’” See Sunstate Equip. Co., LLC
v. Hegar, 601 S.W.3d 685, 690 (Tex. 2020) (quoting Tex. Tax Code § 171.002). 2

   To pay the franchise tax, a taxable entity must file an annual franchise-tax

report with the Comptroller containing the financial information necessary to
calculate its franchise-tax liability. Tex. Tax Code. § 171.202(a). The calculation
begins with the entity’s “total revenue,” which is “derived by adding together
1
The parties do not dispute that American’s transportation revenues are receipts from
“air commerce or transportation.”
2
Unless otherwise noted, all references to the Texas Tax Code refer to the version in
effect for the 2015 franchise-tax report year. A “report year” refers to the year a franchise-tax
report is due, but the report contains financial information from the prior fiscal year.

                                           2

select amounts reportable as gross income on a federal tax return, subtracting bad
debts and other items included on the federal return, and excluding receipts
associated with various transactions.” Graphic Packaging Corp. v. Hegar, 538
S.W.3d 89, 93 (Tex. 2017) (citing Tex. Tax Code §§ 171.101(a), .1011).

  Once total revenue is determined, the entity must subtract the greater of four

alternatives: (1) cost of goods sold (“COGS”); (2) compensation; (3) thirty percent
of total revenue (the “seventy percent margin adjustment”); or (4) one million
dollars. Tex. Tax Code § 171.101(a)(1). This subtraction yields the entity’s
“margin.” Id. In its 2015 franchise-tax report, American used the seventy percent
margin adjustment to calculate its margin.

  The entity must then apportion its margin to Texas by multiplying its margin

by an “apportionment factor.” The apportionment factor equals the percentage of
the entity’s gross receipts from its Texas business divided by the gross receipts
from its entire business. Id. §§ 171.101(a)(2), .106(a). This calculation yields the
entity’s “apportioned margin.” Id. The entity’s “taxable margin” equals its
apportioned margin less any other allowable deductions. Id. § 171.101(a)(1)–(3).
Finally, the entity calculates its franchise-tax liability by applying the applicable
tax rate to its taxable margin. Id. §§ 171.002, .0023, .1016.

II. Procedural Background

  American is a global airline headquartered in Fort Worth, Texas. It operates

a fleet of approximately 1,000 aircraft domestically and internationally. In 2014,
American filed its franchise-tax report under protest, contending that the AHTA
preempted the franchise tax as applied to American’s receipts from its
transportation revenues. Subsequently, the Comptroller requested an opinion from
the United States Department of Transportation (“DOT”)—the federal agency
responsible for administering the AHTA—that the AHTA did not preempt the
3
franchise tax as applied to American’s transportation revenues. The DOT
disagreed with the Comptroller’s position. Thereafter, the Comptroller refunded
American the franchise tax it paid on its transportation revenues for report year
2014.

    In 2015, American filed its franchise-tax report under protest based on the

same AHTA preemption argument it made the prior year. American’s protest
concerned approximately $1 billion of baggage fee revenue it included in its 2015
report. Subsequently, American filed a refund suit for $107,577.04 attributable to
the inclusion of its baggage fee revenue. In response, the Comptroller
counterclaimed to recover $1,802,668.83 in additional franchise tax, arguing that
American should have included an additional $36 billion of revenue from
passenger ticket sales and freight transportation.

    Following a bench trial, the trial court rendered judgment for American on

its refund claim, awarding American $107,577.04 plus interest, and denied the
Comptroller’s counterclaim. The trial court found that the franchise tax, as applied
to American’s transportation revenues, is a tax on gross receipts because “[t]here
are no deductions or exclusions” from those revenue sources. It also found that
“American would pay the franchise tax on 70% of the gross receipts from those
sources that are apportioned to the State of Texas.” Thus, the trial court concluded
that the AHTA preempts the franchise tax as applied to American’s transportation
revenues “because it is an impermissible tax on ‘gross receipts’ from ‘air
commerce or air transportation.’” See 49 U.S.C. § 40116(b)(4). This appeal
followed.

                                      4
                       STANDARD OF REVIEW

  We review questions of federal preemption and statutory construction de

novo. Texas Mut. Ins. v. PHI Air Med., LLC, 610 S.W.3d 839, 846 (Tex. 2020);
Hegar v. Am. Multi-Cinema, Inc., 605 S.W.3d 35, 40 (Tex. 2020). We defer to the
trial court’s findings of fact if supported by legally and factually sufficient
evidence. Anderson v. City of Seven Points, 806 S.W.2d 791, 794 (Tex. 1991).

  Evidence is legally insufficient to support a finding when “(1) the record

discloses a complete absence of evidence of a vital fact; (2) the court is barred by
rules of law or of evidence from giving weight to the only evidence offered to
prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a
mere scintilla; or (4) the evidence establishes conclusively the opposite of a vital
fact.” United Rentals N. Am., Inc. v. Evans, 668 S.W.3d 627, 640 (Tex. 2023).
We review the evidence in the light most favorable to the finding, crediting
favorable evidence if a reasonable factfinder could, and disregarding contrary
evidence unless a reasonable factfinder could not. City of Keller v. Wilson, 168
S.W.3d 802, 807 (Tex. 2005).

  In a factual sufficiency review, we consider all the evidence and set aside a

finding “only if it is so contrary to the overwhelming weight of the evidence as to
be clearly wrong and unjust.” Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986).
Additionally, the trier of fact is the sole judge of the weight and credibility of
witness testimony. Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757, 761
(Tex. 2003).

                               ANALYSIS

  The Comptroller raises two issues on appeal, one legal and one factual.

First, he argues that the AHTA does not preempt the State from requiring

                                     5

American to include its transportation revenues in the Texas franchise-tax
calculation. In the Comptroller’s view, the franchise tax is not a tax on gross
receipts from air commerce or transportation because it is a composite tax levied
on taxable margin and calculated based on a taxable entity’s entire business, not
isolated revenue streams. Second, the Comptroller argues that even if revenue
streams could be isolated, there is insufficient evidence supporting the trial court’s
finding that no deductions or exclusions applied to American’s baggage fee
revenue. Before addressing the Comptroller’s arguments, we first discuss the
AHTA’s preemptive scope.

I. Preemption under the AHTA

  In 1970, Congress passed the Airport and Airway Development Act to assist

states and localities “in expanding and improving the nation’s air transportation
system.” See Aloha Airlines, Inc. v. Dir. of Tax’n of Haw., 464 U.S. 7, 8 (1983)
(citing Pub. L. 91–258, 84 Stat. 219). That same session, Congress established the
Airport and Airway Trust Fund “to funnel federal resources to local airport
expansion and improvement projects.” Id. at 8–9 (citing Pub. L. 91–258, § 208, 84
Stat. 236, 250–252). The Trust Fund revenues derived from “several federal
aviation taxes, including an 8% tax on domestic airline tickets, a $3 head tax on
international flights out of the United States, and a 5% tax on air freight.” Id. at 9.

  Subsequently, “the question arose whether States and municipalities were

still free to impose additional taxes on airlines and air travelers.” Id. The United
States Supreme Court held that the Airport and Airway Development Act did not
preclude states and localities from assessing head taxes on passengers boarding
flights at state airports. Evansville-Vanderburgh Airport Auth. Dist. v. Delta
Airlines, 405 U.S. 707, 721 (1972). Following that decision, Congress intervened
and determined that “the proliferation of local taxes burdened interstate air

                                       6

transportation, and, when coupled with the federal Trust Fund levies, imposed
double taxation on air travelers.” Aloha Airlines, 464 U.S. at 9. To address these
concerns, Congress enacted the AHTA. Id. at 9–10.3

   Under the AHTA, a state “may not levy or collect a tax, fee, head charge, or

other charge on . . . the gross receipts from” air commerce or transportation. 49
U.S.C. § 40116(b)(4). 4 States, however, may still levy or collect “taxes (except
those taxes enumerated in subsection (b) of [Section 40116]), including property
taxes, net income taxes, franchise taxes, and sales or use taxes on the sale of goods
or services.” Id. § 40116(e)(1).
Although the AHTA permits those taxes, a state cannot disguise an
impermissible gross-receipts tax simply by giving it the label of a permissible tax,
a practice that led courts to address the preemptive scope of the AHTA. For
example, in Aloha Airlines, the United States Supreme Court discussed whether the
AHTA preempted Hawaii’s property tax equaling four percent of the yearly gross
income of airline businesses. 464 U.S. at 10. There, the Court held that the
AHTA’s plain language prohibited “state taxes imposed on or measured by the
gross receipts of airlines.” Id. at 14, n.10. Additionally, the Court held that
Hawaii’s categorization of the tax as a “property” tax—rather than a “straight-
forward gross receipts tax”—did not “mask the fact that the purpose and effect of

   3
     The AHTA originated as Section 7(a) of the Airport Development Acceleration Act of

1. Aloha Airlines, 464 U.S. at 9–10 (citing Pub. L. 93–44, § 7(a), 87 Stat. 88, 90). Congress
   codified Section 7(a) into 49 U.S.C. § 1513. Id. In 1994, Congress recodified Section 1513 as
   49 U.S.C. § 40116, the current version of the AHTA. Act of July 5, 1994, Pub. L. No. 103–272,
   § 1, 108 Stat. 745, 1111 (codified at 49 U.S.C. § 40116).
   4
   The AHTA does not define “gross receipts.” As defined by Black’s Law Dictionary,
   “gross receipts” means “[t]he total amount of money or other consideration received by a
   business taxpayer for goods sold or services performed in a taxable year, before deductions.”
   Gross Receipts, BLACK’S LAW DICTIONARY (12th ed. 2024). Similarly, a “gross-receipts tax” is
   “[a] tax on a business’s gross receipts, without a deduction for costs of goods sold, or allowance
   for expenses and deductions.” Tax, BLACK’S LAW DICTIONARY (12th ed. 2024).

                                           7
   

   the [tax was] to impose a levy upon the gross receipts of airlines,” thus making it
   “at least an ‘indirect’” tax on such receipts. Id. at 13–14 (quoting 49 U.S.C. §
   1513(a)).5 Therefore, the Court held that the AHTA preempted Hawaii’s property
   tax as applied to the “gross receipts derived from air transportation or the carriage
   of persons in air commerce.” Id. at 14.

   The Aloha Airlines court cited with approval an earlier New York state court
   decision addressing whether the AHTA preempted a New York franchise tax
   imposed specifically on aviation corporations. Id. at 14–15 (citing Air Transp.
   Ass’n of Am. v. New York State Dep’t of Tax’n and Fin., 91 A.D.2d 169 (App.
   Div.), aff’d, 59 N.Y.2d 917, cert. denied, 464 U.S. 960 (1983)). There, the tax
   equaled three-quarters of one percent of an airline’s “gross earnings” from in-state
   sources. Air Transp., 91 A.D.2d at 170. The “gross earnings” calculation included
   various components in addition to “gross receipts from the sale of air coverage.”
   Id. The New York court held that the AHTA preempted the tax “insofar as gross
   earnings [were] measured by gross receipts from air carriage.” Id. at 172
   (emphasis added).

   Fifteen years later, the Supreme Court of Hawaii analyzed whether the
   AHTA preempted Hawaii’s general excise tax as applied to an airline’s gross
   receipts derived from ground transportation. Kamikawa v. Lynden Air Freight,
   Inc., 89 Haw. 51, 54–55, cert. denied, 526 U.S. 1087 (1999). There, the tax
   equaled “four per cent of the gross income” of any service business in Hawaii. Id.

   5
   Section 1513(a) prohibited state taxes “directly or indirectly” on the gross receipts
   derived from air commerce or transportation. 49 U.S.C. § 1513(a). Although Section 40116(b)
   does not contain that same language, Congress recodified Section 1513(a) as Section 40116(b)
   “without substantive change.” Act of July 5, 1994, Pub. L. No. 103–272, § 1(a), 108 Stat. 745,

2. The words “directly or indirectly” were “omitted as surplus.” 49 U.S.C. § 40116 historical
   and revision notes (West 2024). Accordingly, cases applying Section 1513 are directly
   applicable to this appeal.

                                         8
   

   at 52, n.1 (quoting Haw. Rev. Stat. § 237–13(6) (1998)). To calculate taxable
   “gross income,” an entity multiplied its “worldwide revenue” by the ratio of its
   Hawaii ground costs to its worldwide costs, similar to an apportionment factor. Id.
   at 53, 57. The court upheld the tax insofar as it was “based exclusively on revenues
   derived from the sale of ‘non-air’ transportation and services.” Id. at 57. Stated
   differently, the AHTA required Hawaii “to measure gross income excluding gross
   receipts derived from the sale of ‘air transportation.’” Id.

   Most recently, in 2017, the Texas Comptroller ruled in an administrative
   proceeding that the AHTA preempts the Texas sales tax as applied to gross receipts
   from the sale of skydiving jumps. State Office of Admin. Hearings, Dkt. No. 304-
   15-3326.26, 2017 WL 3842067, at *8. The Comptroller’s ruling recognizes that
   the AHTA’s preemptive scope preempts state taxes—regardless of how they are
   labeled—if they are imposed on or measured by the gross receipts from air
   commerce or transportation.

II. American’s As-Applied Challenge

  The Comptroller does not directly address American’s as-applied challenge

to the Texas franchise tax in this case. American contends that AHTA preemption
depends on the franchise tax’s particular application to its transportation revenues,
not the franchise tax’s nature as a whole. The Comptroller, on the other hand,
focuses his arguments on the purpose and nature of the franchise tax as a
composite tax that does not tax American’s overall revenues.

  As a result of his view, the Comptroller argues that Aloha Airlines’s

purported “purpose and effect test” is the “only binding precedent on this Court
specifically regarding AHTA preemption.” He argues the Texas franchise tax acts
in neither purpose nor effect like the taxes the Supreme Court or other state courts
have held preempted by the AHTA. Those taxes, according to the Comptroller,
9
“could be broken down by revenue stream and result[ed] in a levy on gross
receipts.” See, e.g., Aloha Airlines, 464 U.S. at 10 (four percent of gross income);
Air Transp., 91 A.D.2d at 170 (three-quarters of one percent of gross earnings);
Kamikawa, 89 Haw. at 52, n.1 (four per cent of gross income). By comparison, he
argues, the Texas franchise tax is a composite tax based on a taxable entity’s entire
business and levied on taxable margin. He claims that American’s challenge to the
franchise tax based on isolated revenue streams runs afoul of the tax’s nature. We
disagree.

  Aloha Airlines does not support the Comptroller’s “purpose and effect test”

argument. There, the Supreme Court used “purpose and effect” as a lens to assess
whether Hawaii’s property tax (despite its label) was “imposed on or measured by”
the gross receipts from air commerce or transportation. Aloha Airlines, 464 U.S. at
13–14, n.10. Since it was, it “constitute[d] at least an ‘indirect’ tax on the gross
receipts of airlines.” Id. at 14 (quoting 49 U.S.C. § 1513(a)). The Court did not
inquire into the Hawaii Legislature’s motivation for imposing the tax. Instead, the
Court’s reference to the tax’s “purpose” was intertwined with its analysis of the
tax’s practical effect. See id. at 13–14 (“The manner in which the state legislature
has described and categorized [the tax] cannot mask the fact that the purpose and
effect of the provision is to impose a levy upon the gross receipts of airlines.”).

  Nevertheless, the Comptroller argues the Texas franchise tax, in effect, is

not measured by or imposed on the gross receipts of American’s transportation
revenues because it is a composite tax calculated from a taxpayer’s entire business
and imposed on taxable margin. At most, he argues, the gross receipts from
American’s transportation revenues are an “element” of the taxable margin
formula, “not what the franchise tax is imposed on.”

  In support of his position, the Comptroller argues that total revenue must be

                                      10

calculated based on a taxable entity’s “entire business.” See Tex. Tax Code §
171.1011 (“Determination of Total Revenue from Entire Business”). He contends
that total revenue is not synonymous with gross receipts from isolated revenue
streams because the total revenue calculation permits various deductions and
exclusions, including for bad-debt expense and foreign royalties and dividends.
See id. § 171.1011(c)(1)(B). The Comptroller further asserts that the compensation
deduction’s availability confirms that the franchise tax is not based on gross
receipts. Finally, he argues the tax is not measured by isolated revenue streams
because the margin adjustment, apportionment factor, and applicable tax rate each
reflect an entity’s overall business structure and activities.

  The Comptroller’s emphasis on the franchise tax’s composite nature does

not respond to American’s as-applied challenge. The franchise tax’s deductions
and exclusions—insofar as they do not apply to American’s transportation
revenues—do not save the tax from AHTA preemption. See discussion infra
Section III. The Comptroller has recognized as much. For example, in State
Office, the Comptroller ruled that the AHTA preempts the Texas sales tax as
applied to gross receipts from the sale of skydiving jumps. 2017 WL 3842067, at
*8. Both the Texas sales tax and the Texas franchise tax permit various deductions
and exclusions. See Tex. Tax Code §§ 151.007(c)(2)–(3) (allowing exclusions for
refunded returns), .426 (allowing adjustments for bad debts, returned merchandise,
and repossessions). Thus, the mere existence of the franchise tax’s deductions and
exclusions does not save it from AHTA preemption.

  Further, in Air Transportation, the calculation for New York’s franchise tax

imposed on “gross earnings” included various components besides “gross receipts
from the sale of air coverage.” 91 A.D.2d at 170. Nonetheless, there the court
held that the AHTA preempted the tax “insofar as gross earnings [were] measured

                                       11

by gross receipts” from air commerce or transportation. Id. at 172. Likewise, here
the Texas franchise-tax calculation contains various components, including the
gross receipts from American’s transportation revenues. See Tex. Tax Code §
171.1011(c)(1)(A)(i) (requiring a taxable corporation to include its income, as
reportable on its federal tax return, in the taxable margin calculation). The
franchise tax’s deductions and exclusions—including the compensation
deduction—do not save it from AHTA preemption insofar as taxable margin
ultimately contains the gross receipts from American’s transportation revenues.6
So too for the apportionment factor. In Kamikawa, for example, Hawaii’s excise
tax included an apportionment factor, but there the court still required Hawaii “to
measure gross income excluding gross receipts derived from the sale of ‘air
transportation.’” 89 Haw. at 57.

   In a final attempt to save the Texas franchise tax from AHTA preemption,

the Comptroller, relying on Sunstate Equipment Company, argues the tax is
imposed on “taxable margin,” not gross receipts from air commerce or
transportation. 601 S.W.3d at 690. In Sunstate, the Supreme Court of Texas
explained that the COGS deduction is not “tantamount to an exemption” because
the franchise tax “is not a tax on revenue,” but is instead “levied on a taxable
entity’s ‘taxable margin.’” Id. (quoting Tex. Tax Code § 171.002).

   But neither Sunstate, nor any other case cited by the Comptroller, addressed

whether particular revenue streams within the taxable margin calculation may

   6
      Relatedly, the Comptroller argues that if American excludes its transportation revenues

from the franchise-tax calculation, then American would be required to take the compensation
deduction, thereby resulting in a deduction from its transportation revenues. This argument has
two flaws. First, it is internally inconsistent. If American removed its transportation revenues
from the calculation, the compensation deduction could no longer apply to them. Second, it is
irrelevant. Here, the relevant analysis is whether the franchise tax is impermissible if American
includes its transportation revenues in the calculation. In that case, American would be required
to take the seventy percent margin adjustment. See discussion infra Section III.

                                           12

render the franchise tax preempted by federal law. Moreover, those cases
addressed the appropriate use of the COGS margin deduction, not the seventy
percent margin adjustment involved here. See, e.g., Am. Multi-Cinema, 605
S.W.3d at 46 (holding movie theater could not deduct certain film exhibition costs
as COGS); Sunstate Equip. Co., 601 S.W.3d at 703–04 (holding heavy equipment
leasing company could not deduct certain costs associated with delivery and
pickup of equipment as COGS); Gulf Copper, 601 S.W.3d at 685 (holding
company that surveyed, repaired, and upgraded offshore oil-and-gas rigs could not
deduct certain subcontractor payments as COGS).

  In sum, AHTA preemption depends not on whether the Texas franchise tax

is a “straight-forward gross receipts tax,” Aloha Airlines, 464 U.S. at 13, but
instead on whether it is “imposed on or measured by” the gross receipts from
American’s transportation revenues. Id. at 14, n.10. Although the Texas
Legislature did not style the franchise tax as a straight-forward gross-receipts tax,
the AHTA preempts it insofar as taxable margin is “measured by gross receipts”
from American’s transportation revenues. See Air Transp., 91 A.D.2d at 172
(holding the AHTA preempted New York’s franchise tax “insofar as gross
earnings [were] measured by gross receipts from air carriage”); Kamikawa, 89
Haw. at 57 (holding the AHTA required Hawaii “to measure gross income
excluding gross receipts derived from the sale of ‘air transportation’”).

  Accordingly, we conclude that as applied to American’s 2015 franchise-tax

report, the AHTA preempts the Texas franchise tax insofar as it is imposed on or
measured by the gross receipts from American’s transportation revenues. We turn
now to whether there is sufficient evidence supporting the trial court’s finding that
there were, in fact, no deductions or exclusions applied to American’s
transportation revenues.

                                      13

III. Sufficiency of the Evidence

   The trial court made the following finding of fact:

   There are no deductions or exclusions from American’s revenues
   from passenger ticket sales, passenger baggage fees, and freight
   transportation. American would pay the franchise tax on 70% of the
   gross receipts from those sources that are apportioned to the State of
   Texas.

The Comptroller contends there is no evidence or insufficient evidence to support
this finding. We disagree.

   To support his argument, the Comptroller points to the total revenue

calculation in American’s 2015 franchise-tax report. The base of total revenue—
reflected by line 1 of the franchise-tax report—is “Gross receipts or sales.” Tex.
Tax Code § 171.1011(c)(1)(A)(i). “Gross receipts or sales” includes the amount a
corporation reports as income on its federal tax return (here, Form 1120, United
States Corporation Income Tax Return). Id. The Comptroller argues that
American reported a net value for income on its Form 1120. Further, the
Comptroller argues that in calculating total revenue, American reported negative
values of approximately $83 million for “Other income” and $1,225,565 for
“Gains/losses,” and excluded $87,391,913 from gross revenue.

   But there is ample evidence that the final total revenue output in American’s

2015 report included the gross receipts from American’s baggage fee revenue. For
instance, at trial American produced a statement posted to the Comptroller’s
website stating that “everywhere gross receipts will almost always equal total
revenue.” Additionally, Patrick Smith, American’s Managing Director and Chief
Tax Officer, testified that total revenue and gross receipts are “almost always
synonymous.” Smith also testified that if American included all its transportation
revenues in the franchise-tax report, there would be no deductions or exclusions
14
applied to the gross receipts from those revenue sources. Further, Teresa Bostick,
a tax analyst at the Comptroller’s office, testified at trial that the exclusions from
total revenue “are either excluded because they were never actually receipts by the
taxpayer or because they’re taxed elsewhere.” At her deposition, Bostick testified
that she was unaware of any revenue exclusions that specifically applied to
American’s transportation revenues.7 Accordingly, sufficient evidence exists that,
as applied to American’s 2015 franchise-tax report, there were “no deductions or
exclusions from American’s revenues from passenger ticket sales, passenger
baggage fees, and freight transportation.”

   The record also contains sufficient evidence that “American would pay the

franchise tax on 70% of the gross receipts from those sources that are apportioned
to the State of Texas.” At trial, Peter Thayer, the Comptroller’s auditor who
audited American’s 2015 report, testified that the Comptroller does not dispute that
American correctly used the seventy percent margin adjustment to calculate its
margin. Moreover, Thayer’s audit of American’s 2015 report, which included all
of American’s transportation revenues, applied the seventy percent margin
adjustment. Likewise, American’s witness, Smith, testified that if American had
included all its transportation revenues in its 2015 report, American would be
required to apply the seventy percent margin adjustment.

   Lastly, the trial court heard evidence that, mathematically, the seventy

percent margin adjustment to total revenue is equivalent to a seventy percent
adjustment to the tax rate.8 Thus, the Texas franchise tax, as applied to

   7
     While Bostick later retracted her statement at trial, the trial court permissibly credited

her deposition testimony. We do not disturb the trial court’s credibility determinations. See
Golden Eagle Archery, 116 S.W.3d at 761 (holding that the trier of fact is the sole judge of the
weight and credibility of witness testimony).
8
That is, if total revenue was $10, the seventy percent margin adjustment yields a margin
of $7. If then the tax rate was one percent, the tax would equal $0.07. But if the State replaced
15
American’s transportation revenues in its 2015 franchise-tax report, is a tax on a
direct percentage of American’s gross receipts from its apportioned transportation
revenues.9

   Accordingly, there is legally and factually sufficient evidence to support the

trial court’s finding that the Texas franchise tax is a gross-receipts tax as applied to
American’s transportation revenues.

                                   CONCLUSION

   The trial court correctly concluded that the AHTA preempts the Texas

franchise tax as applied to American’s transportation revenues “because it is an
impermissible tax on ‘gross receipts’ from ‘air commerce or air transportation.’”
See 49 U.S.C. § 40116(b)(4). Accordingly, the trial court correctly refunded
American $107,577.04 plus interest and denied the Comptroller’s counterclaim.
We affirm the trial court’s judgment.

                                                /s/ Scott K. Field
                                                Scott K. Field
                                                Justice

Panel consists of Chief Justice Brister and Justices Field and Farris.

the seventy percent margin adjustment with an equivalent adjustment to the tax rate (making the
tax rate 0.7 percent), the resulting tax would be the same ($10 multiplied by 0.7 percent equals
$0.07). This result holds regardless of the apportionment factor.
9
The tax rate is irrelevant to our analysis, as it merely represents the percentage of an
entity’s taxable margin that results in its tax liability. Tex. Tax Code § 171.002.

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