By Suzanne Palms and Andrew Appleby

The Arizona Court of Appeals held that Home Depot U.S.A., Inc. (Home Depot) was required to include in its combined Arizona income tax return the income of an out-of-state subsidiary that licensed the retailer’s trademarks. Relying on R.R. Donnelley & Sons Co. v. Arizona Dep’t of Rev., 229 P.3d 266 (Ariz. Ct. App. 2010), the court concluded the trademark subsidiary was a part of Home Depot’s unitary business because the operations of the two entities were substantially interdependent. The court found the subsidiary’s sole business was the management of Home Depot’s trademarks, and that without Home Depot’s continuing efforts to promote its brand, the trademarks that constituted the subsidiary’s only assets would have been worthless. The court also found that although the subsidiary had substantial income during the tax years in question, it had only four employees, which was indicative, in the court’s opinion, that the subsidiary’s income was generated solely by Home Depot’s marketing efforts. Home Depot U.S.A., Inc. v. Arizona Dep’t of Rev., No. 1 CA-TX 12-0005 (Ariz. Ct. App. Dec. 5, 2013).