American Multi-Cinema, Inc.// Glenn Hegar, Comptroller of Public Accounts of the State of Texas And Ken Paxton, Attorney General of the State of Texas v. Glenn Hegar, Comptroller of Public Accounts of the State of Texas And Ken Paxton, Attorney General of the State of Texas// Cross-Appellee, American Multi-Cinema, Inc.

Opinion

ACCEPTED 03-14-00397-CV 4435411 THIRD COURT OF APPEALS AUSTIN, TEXAS 3/10/2015 11:14:24 AM JEFFREY D. KYLE CLERK No. 03-14-00397-CV _______________________________________________ FILED IN 3rd COURT OF APPEALS In the Court of Appeals AUSTIN, TEXAS For the Third Judicial District 3/10/2015 11:14:24 AM Austin, Texas JEFFREY D. KYLE Clerk _______________________________________________ AMERICAN MULTI-CINEMA, INC.

Appellant & Cross-Appellee, v. GLENN HEGAR, COMPTROLLER OF PUBLIC ACCOUNTS OF THE STATE OF TEXAS, AND KEN PAXTON, ATTORNEY GENERAL OF THE STATE OF TEXAS

Appellees & Cross-Appellants. _______________________________________________ ON APPEAL FROM THE 200TH DISTRICT COURT, TRAVIS COUNTY, TEXAS TRIAL COURT CAUSE NO. D-1-GN-12-003831 _______________________________________________

APPELLANT & CROSS APPELLEE’S ORAL ARGUMENT HANDOUTS _______________________________________________ Mark W. Eidman RYAN LAW FIRM, LLP Texas Bar No. 06496500 100 Congress Avenue, Suite 950 Mark.Eidman@RyanLawLLP.com Austin, Texas 78701 512.459.6600 Telephone Doug Sigel 512.459.6601 Facsimile Texas Bar No. 18347650 Doug.Sigel@RyanLawLLP.com Counsel for Appellant & Cross-Appellee Olga Goldberg Texas Bar No. 24083081 Olga.Goldberg@RyanLawLLP.com

March 10, 2015 No. 03-14-00397-CV _______________________________________________

In the Court of Appeals For the Third Judicial District Austin, Texas _______________________________________________ AMERICAN MULTI-CINEMA, INC.

Appellant & Cross-Appellee, v. GLENN HEGAR, COMPTROLLER OF PUBLIC ACCOUNTS OF THE STATE OF TEXAS, AND KEN PAXTON, ATTORNEY GENERAL OF THE STATE OF TEXAS

Appellees & Cross-Appellants. _______________________________________________ ON APPEAL FROM THE 200TH DISTRICT COURT, TRAVIS COUNTY, TEXAS TRIAL COURT CAUSE NO. D-1-GN-12-003831 _______________________________________________

APPELLANT & CROSS APPELLEE’S ORAL ARGUMENT HANDOUTS _______________________________________________

FINDINGS OF FACT FOR PHASE ONE & ORDER ON PHASE ONE OF BENCH TRIAL ...................................................... TAB 1

FINDINGS OF FACT FOR PHASE TWO, AND MAY 16, 2014 LETTER FROM JUDGE NARANJO .............................................................................. TAB 2

“INTANGIBLE PROPERTY” DEFINED.............................................................. TAB 3

KEY LANGUAGE OF TEX. TAX CODE § 171.1012 ............................................ TAB 4

CLARIFICATION IN (t) ..................................................................................TAB 5 Respectfully submitted,

/s/ Doug Sigel Doug Sigel Texas Bar No. 18347650 Doug.Sigel@RyanLawLLP.com RYAN LAW FIRM, LLP 100 Congress Avenue, Suite 950 Austin, Texas 78701 Telephone: (512) 459-6600 Facsimile: (512) 459-6601

Attorney for Appellant & Cross-Appellee

Certificate of Service

I certify that a copy of the Appellant & Cross Appellee’s Oral Argument Handouts was served on Appellees & Cross-Appellants, Glenn Hegar and Ken Paxton, through counsel of record Charles Eldred, Office of the Attorney General, Financial Litigation, Tax and Charitable Trusts Division, P.O. Box 12548, Austin, Texas, 78711, Charles.Eldred@texasattorneygeneral.gov, by electronic mail on March 10, 2015.

/s/ Doug Sigel Doug Sigel Notice sent: Final Interlocutory None DC BK14178 PG1280 t-iled in The Dist1iet Cotlrt Olsp Parties:_ _ _ _ _ _ _....,.-../..:; of Travis County, Texas ;;;>" ES JUN 23 2014 ~::r CAUSE NO. D-1-GN-12-003831 At 9 ~L/-a . M. Amalia Rodrigu~~rk

American Multi-Cinema, Inc., IN THE DISTRICT COURT OF Plaintiff, v.

Susan Combs, Comptroller of Public TRAVIS COUNTY, TEXAS Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas, Defendants. 200th JUDICIAL DISTRICT

n ij i!d Findings of Fact for Phase One D'ef~f 1. Plaintiff American Multi-Cinema, Inc. ('"AMC") is a corporation engaged in the movie theater business.

2. AMC timely brought suit under Section 112 and 171 of the Texas Tax Code to recover franchise tax paid in protest for Report Years 2008 and 2009.

3. AMC exhibits movies and other content (such as live sporting events and theatre) to pay- ing customers at its movie theaters.

4. When AMC exhibits movies and other content to its paying customers, it produces per- sonal property that can be seen, weighed, measw·ed, felt,.. or touched or that is perceptible to the senses in any other manner for sale in its ordinary course of business.

tll fi/;"* Conclusions of Law for Phase One 1. The Court has jurisdiction over this case.

2. When AMC exhibits movies and other content to its paying customers, AMC produces goods for sale in ordinary course of business under Section 171. I 012, and may therefore include the costs of exhibiting movies and other content to its paying customers in its cost-of-goods-sold deduction under Section 171.1012 of the Texas Tax Code.

3. Section 10(b) ofH.B. 500 does not apply to this case.

Signed on June 20,2014.

Darlene Byrne \ -=== Judge, !26th District Court Travis County, Texas L.

30 DC BK13263 PG1548

CAUSE NO. D-1-GN-12-003831

AMERICAN MULTI-CINEMA, INC., § IN THE DISTRICT COURTS Pb~tiff § § vs. § OF TRAVIS COUNTY, TEXAS § SUSAN COMBS, COMPTROLLER OF § 111 PUBLIC ACCOUNTS OF THE STATE § 200 JUDICIAL DISTRICT OF TEXAS, and GREG ABBOTT, § ATTORNEY GENERAL OF THE STATE § OFTEXAS, § Defendants §

tax paid under protest was tried to the Court. The trial was bifurcated. Plaintiff, American Multi-Cinema, Inc. (" AMC") appeared through counsel and announced ready for trial. Defendants Susan Combs, Comptroller of Public Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas ("Comptroller"), appeared through counsel and announced ready for trial. The Court has jurisdiction over the parties and the claims presented to the Court. After hearing the evidence and considering the applicable law and arguments of counsel, the Court finds that Section 10 (b) of H.B. 500 does not apply to this case in that it is not effective until September I, 2013 , which is after the timeframe of the controversy in this case and the Court further finds in favor of AMC and against the Comptroller. The Court orders that AMC is entitled to include the costs to exhibit films to its customers in its Cost of Goods Sold subtraction under Section 171.1012 of the Tax Code. The parties are ordered to schedule a date with the Court for a phase two of this trial to determine the refund an1ount, which can be set before any Judge.

JUDGE DARLENE BYRNE 126TH District Court Travis County, Texas

197 Notice sent. Find! lnteiloet:Jtol") ~~eRe DC BK14178 PG1281 Disp Parttes:_ _ _ _-:;;:;:;-.......:::::::;;..._-- Filed in The District Court of Travis County, Texas Dlsp code: cv Red gs:_ _ _ _ _ _ __ ES JUN 20 2014 Judge Q Lk\ Clerk f2-::J CAUSE NO. D-1-GN-12-003831 At 3'~1'f M. Amalia Rodriguez-Mendoza, Clerk

American Multi-Cinema, Inc., IN THE DISTRICT COURT OF Plaintiff, v.

Susan Combs, Comptroller of Public TRAVIS COUNTY, TEXAS Accounts of the State of Texas, and Greg Abbott, Attorney General of the State of Texas, Defendants. 200th JUDICIAL DISTRICT

Findings of Fact for Phase Two

1. Plaintiff American Multi-Cinema, Inc. ("AMC") is a corporation engaged in the movie theater business.

2. AMC timely brought suit under Section 112 and 171 of the Texas Tax Code to recover franchise tax paid in protest for Report Years 2008 and 2009.

3. AMC exhibits movies and other content (such as live sporting events and theatre) to pay- ing customers.

4. The parties stipulated that Joint Exhibit l lists all of the costs that are includable either in (1) AMC's non-exhibition cost-of-goods-sold or (2) AMC's exhibition costs.

5. The parties stipulated that I 00% of the costs shown in regular type in Joint Exhibit 1 are includable either in AMC's non-exhibition cost-of-goods-sold or in AMC's exhibition costs.

6. The parties stipulated that some, but not all, of the costs shown in bold type in Joint Ex- hibit 1 are includable in AMC's exhibition costs ("Disputed Costs" ). All of the Disputed Costs are costs associated with AMC's theatres.

7. 13.42% of the Disputed Costs are exhibition costs. This includes 75% of the costs associ- ated with the square footage used to sell concessions, which the parties stipulate is 2.19% of the Disputed Costs. This also includes I 00% of the costs associated with the square footage used to project to movies and alternative content into the auditorium, which the parties stipulate is 9.67% of the Disputed Costs. Finally, this includes I 00% of the costs associated with the square footage of AMC's auditoriums housing the speakers and screens, which the parties stipulate is 1.56% of the Disputed Costs. This adds up to 13.42% of the Disputed Costs.

28 DC BK141 78 PG1282

8. The costs associated with the square footage for the auditoriums, other than the square footage housing the speakers and screens, are not exhibition costs.

9. Based on 13.42% of the AMC' s cost-of-goods-sold for Report Year 2008 is $1,091 ,269,621. AMC ' s refund for Report Year 2008 is $229,709, plus assessed interest, penalty, and statutory interest.

10. AMC's cost-of-goods-sold for Report Year 2009 is $1,108,701,467. AMC's refund for Report Year 2009 is $269,959, plus assessed interest, penalty, and statutory interest.

Conclusions of Law for Phase Two

1. The Court has jurisdiction over this case.

2. Pursuant to Judge Byrne's order in Phase One of this trial, AMC may include the costs of exhibiting movies and other content to its paying customers in its cost-of-goods-sold de- duction under Section 171.1012 of the Texas Tax Code.

3. Interpretations given to statutes by state agencies are entitled to deference when, as here, a tax arguably applied and the court is weighing competing interpretations of the amount owed. The Comptroller' s interpretation of the amount owed in the present case is rea- sonable under the plain language of Section 171.1012, Tax Code.

4. Under Judge Byrne's ruli ng and Section 171.1012 of the Tax Code, 13.42% of the Dis- puted Costs are includable in AMC's cost-of-goods-sold deduction. AMC is entitled to a refund of$258,417 for Report Year 2008 and $289,815 fo r Report Year 2009, plus statu- tory interest.

Date:

~~~Judge, 419th District Cow-t Travis County, Texas

29 a T~£NT HlGHTOWER

ORLINDA NARANJO Staff Attorney (512) 854-4029 Judge (512) 854-4023

~~-=.--- DORA CANZZALES Offidul Court RcportHr DIANA CAPUCHINO 419TH DISTRICT COURT (512) 854-9329 C(!urt Operations Offit:cr (512) 854-402."1 HEMAN MARTON SWEAD' THAVIS COUNTY COURTHOUSE P. 0. 130X 1748 STEPHANIE WJI.LIAMS AUSTIN, TEXAS 78767 Court Clerk (5'12) 854-5854 FAX: (512) 854-2224

May 16,2014

Via Facsimile (5121477-2348 Via Facsimile (512) 459-6601 Charles K. Eldred Doug Sigel Office of the Attorney General Ray ley & Bowick, LLP P.O. Box 12548 The Ryan Law Firm Austin, Texas, 78711 100 Congress Ave., Suite 950 Austin: Texas, 78701

Re: Cause No. D-1-GN-12-003831; American Multi-Cinema, Inc. v. Susan Combs, Comptroller of Public Accounts of the State of Texas, and Gt·eg Abbott, Attorney General of the State of Texas; In the 200th Judicial District, Travis County, Texas

Dear Counsel:

Enclosed is a file-stamped Final Judgment in the above-referenced matter granting the Comptroller's proposed refund amount. Though not required, the Court thought it would be helpful to the parties to explain the basis of its ruling. In reachjng its decision the Coutt relied on Tracfone Wireless. Inc.. et al v. Comm 'non State Emergency Communications, 397 S.W.3d 173, 183 (Tex. 2012), which states that the interpretations given to statutes by state age.n cies are entitled to deference when, as here, "a tax unarguably applies and the court is weighing competing interpretations of the amount owed." The Comptroller's interpretation of the amount owed in the present case is reasonable under the plain language of Section 171.1012, Tax Code.

If you have any questi

nnc!OS\lres (I) xc: Ms. Amnlia Rodriguez-Mendoza. District Clerk

33 “Intangible property” defined

“property having no physical substance apparent to the senses : incorporeal property (as choses in action) often evidenced by documents (as stocks, bonds, notes, judgments, franchises) having no intrinsic value or by rights of action, easements, goodwill, trade secrets.” Webster’s Third New International Dictionary 1173 (2002)

“Property that lacks a physical existence. Examples include stock options and business goodwill.” Black’s Law Dictionary 1411 (Bryan A. Garner ed., 10th ed. 2014) § 171.1012. Determination of Cost of Goods Sold

(a)(3)(A) “Tangible personal property” means: (i) personal property that can be seen, weighed, measured, felt, or touched or that is perceptible to the senses in any other manner;

(a)(2) “Production” includes construction, installation, manufacture, development, mining, extraction, improvement, creation, raising, or growth.

(t) If a taxable entity that is a movie theater elects to subtract cost of goods sold, the cost of goods sold for the taxable entity shall be the costs described by this section in relation to the acquisition, production, exhibition, or use of a film or motion picture, including1 expenses for the right to use the film or motion picture. (2013 clarification)

1 Under the Code Construction Act, “[i]ncludes” and “including” are terms of enlargement and not of limitation or exclusive enumeration, and of the terms does not create a presumption that components not expressed are excluded.” Tex. Gov’t Code § 311.005(13). Clarification in (t) “In the absence of some showing, either by legislative history or otherwise, that the intent by the legislature in adopting the amendment was to clarify rather than change the statute in question, the presumption is of change rather than clarification.” Pub. Util. Comm’n of Tex. v. Harlingen, 311 S.W.3d 610, 620 n.7 (Tex. App.—Austin 2010, no pet.)

“if it can be gathered from a subsequent statute, in pari materia, what meaning the Legislature attached to the words of a former statute, this will amount to a legislative declaration of its meaning and will govern the construction of the first statute.” Cannon’s Adm’r v. Vaughan, 12 Tex. 399 (1854)

“While we think the plain language of Section 5 before its amendment made it mandatory that all petitioners attend the adoption hearing in person, if there could have been any doubt thereof it was removed by the amendment and its emergency clause, wherein the legislature clearly interpreted said Section as being mandatory.” Johnson v. Combs, 256 S.W.2d 207, 207-08 (Tex. App.—Eastland 1953, no writ)

“The legislature specifically noted [in the bill] that it intended subsection (j)(1) to be considered as a clarification of the existing law, not as a substantive change.” Sharp v. Caterpillar, Inc., 932 S.W.2d 230, 233-34 (Tex. App.—Austin 1996, no writ)

§ 171.012(t) Harlingen Caterpillar Years at issue RY 2008-2009 2007 RY 1988-1994 Clarification effective 9/1/2013 6/19/2009 9/1/1991

H.B. 500, Section 10(b) “Section 171.1012(t), Tax Code, as added by this section, is a clarification of existing law”