In a recent decision with potentially broad implications, the Texas Supreme Court held in favor of a taxpayer on a question involving the treatment of capital losses for purposes of the Texas franchise tax. In Hallmark Marketing Co, LLC v. Hegar, 2016 Tex.LEXIS 314 (Tex. April 15, 2016), the Texas Supreme Court held that Hallmark was not required to reduce the denominator of its apportionment factor by net losses generated from the sale of investments. The Court based its decision on the plain language of Section 171.105(b) of the Texas Tax Code which states that “only net gain” from the sale of an investment or capital asset is included in the denominator. Notably, both the taxpayer and the Comptroller agreed that in arriving at a net gain amount from the sale of investments, both gains and losses from the sale of assets are taken into account based on a prior appellate court decision in Calvert v. Electro-Science Investors, Inc., 509 S.W.2d 700 (Tex. Civ. App. – Austin 1974, no writ). While noting that it was not bound by the decision in Electro-Science, the Court stated that it did not have to relitigate that issue as Hallmark did not generate a net gain under any calculation. The Hallmark decision carries significant implications for any taxpayers that generate losses from the sale of investments and capital assets. Any taxpayer that has generated such losses in the recent past will want to review its Texas franchise tax reports in light of this decision.