The Maryland Tax Court held that the Comptroller can subject an out-of-state subsidiary holding company to tax because the subsidiary did not have real economic substance separate from its parent, which conducted business in the state. The Comptroller assessed ConAgra Brands, Inc. (Brands) for the 1996-2003 tax years, arguing that the company was a mere conduit used to shift its affiliates’ income out of Maryland. A Nebraska-based company, Brands had no employees or property in Maryland and did not otherwise conduct business in the state. Brands, however, held and managed the intellectual property of a number of affiliated companies, all of which were owned by ConAgra Foods, Inc. (ConAgra) and many of which did business in Maryland. Brands licensed the trademarks to the ConAgra subsidiaries from which they had been acquired in exchange for annual royalty payments. These annual royalties were the primary source of Brands’ income and were ultimately paid to ConAgra through various types of intercompany payments. The court focused its inquiry on “whether the taxpayer had real economic substance as a business separate from ConAgra.” The court observed that nearly all of Brands’ revenue was derived from payments from ConAgra and its subsidiaries, the flow of funds from Brands back to ConAgra was “entirely circular,” and “Brands could not have functioned” without the centralized “support services” provided by ConAgra. In addition, the court noted that Brands and ConAgra had interlocking directorates and that ConAgra was partly motivated to create Brands due to possible tax savings. As a result, the court concluded Brands lacked any economic substance separate from its parent. Citing the Maryland Court of Appeals’ decision in Gore Enterprise Holdings, Inv. v. Comptroller of the Treasury (prior coverage here), the court held that the parent’s business thus established taxable nexus for Brands. Because Brands had no property, payroll or sales in the state, the court upheld the Comptroller’s use of a “blended apportionment factor,” which included the apportionment factors of five related entities that filed returns in Maryland. The court waived interest and penalties, however, holding that the Comptroller’s assessment of both for the period following Brands’ appeal was inappropriate, because the state of the law at the time of the assessment was unclear, and Brands acted in good faith in contesting the Comptroller’s assessments. ConAgra Brands, Inc. v. Comptroller of the Treasury, No. 09-IN-OO-0150 (M.D. Tax Ct. Feb. 24, 2015).