On December 19, 2019, the New York Division of Tax Appeals (DTA) held that a corporate taxpayer must include royalties received from foreign affiliates in the computation of its entire net income for its 2007 through 2012 tax years. Matter of IBM Corp., DTA Nos. 827825, 827997, and 827998 (N.Y. Div. Tax App. Dec. 19
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No Alternative to Nexus: Parent’s Royalty Addback Does Not Eliminate Licensing Subsidiary’s New Jersey Filing Obligation
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By Nicole Boutros and Amy Nogid
The New Jersey Tax Court ruled that the Division of Taxation (“Division”) properly required a foreign (non-New Jersey domesticated) corporation to file corporation business tax (“CBT”) returns reporting licensing revenue from its parent attributable to New Jersey, based on New Jersey’s economic presence nexus standard, despite the parent’s royalty…
Rent-A-Member: Oregon Tax Court Rules Taxpayer Unitary with Its Captive Insurance Subsidiary but Not Its Franchising Subsidiary
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By Derek Takehara and Pilar Mata
The Magistrate Division of the Oregon Tax Court held that for the tax year 2003, (1) Rent-A-Center, a rent-to-own operator, and its wholly-owned franchising subsidiary, ColorTyme, were not unitary; (2) ColorTyme did not have nexus with Oregon; and (3) Rent-A-Center and its captive insurance subsidiary, Legacy Insurance Co. (Legacy)…
Unlike Sandals Resorts, Virginia Add-Back Exception Not All-Inclusive
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By Todd Betor and Timothy Gustafson
The Virginia Tax Commissioner ruled that the state’s intangible expense add-back exception is not all inclusive and does not apply to the gross amount of royalty payments made to a taxpayer’s affiliate based solely on the gross amount of the payments shown on another state’s tax return. The taxpayer…
Arizona Treats Patent Infringement Award as Business Income
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By Scott Booth and Timothy Gustafson
The Arizona Department of Revenue concluded in a Taxpayer Information Ruling that court-ordered proceeds from a patent infringement lawsuit were properly characterized as business income. The taxpayer held more than 200 patents that it developed or acquired for use in its own manufacturing process or patent licensing activities, one…
Illinois Gets the Works: Wendy’s Captive Insurance Company Scores Another Win
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Posted in Financial Services, Noteworthy Cases
By Scott Booth and Andrew Appleby
Although states continue to challenge the validity of captive insurance companies, Wendy’s has notched several taxpayer victories. In a win involving Scioto Insurance Company (Scioto), Wendy’s captive insurance company, the Illinois Appellate Court held that Scioto constituted a bona fide insurance company that was properly excluded from Wendy’s combined…
Add It Back: Virginia Denies Deduction for Royalties Paid to Affiliate
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By Jessica Kerner and Andrew Appleby
The Virginia Tax Commissioner concluded that a taxpayer was not permitted to deduct a portion of the royalties it had paid to an affiliate by narrowly construing the “subject to tax” exception to the state’s addback statute. This exception provides that the deduction will be permitted if the “corresponding…
Legal Alert: A Royal Opportunity: Amendments to New York’s Royalty Expense Add-back Statute Leave the Income Exclusion Intact for Prior Years
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Posted in New York, Policy and Legislation
On March 28, 2013, the New York State Legislature passed budget legislation (S.2609D/A.3009D) that replaces the existing New York State and City related-party royalty add-back requirements with provisions based on the Multistate Tax Commission’s model add-back statute. In addition, the legislation repeals the New York State and City royalty income exclusions, which permitted taxpayers to…
Pass the Kleenex: Massachusetts Appeals Court Affirms Appellate Tax Board’s Decision in Kimberly-Clark Case
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By Zachary Atkins and Jack Trachtenberg
The Commonwealth notched another win before the Massachusetts Appeals Court in a case of first impression affirming corporate excise tax assessments based on a disallowance of the taxpayers’ interest and royalty expenses for pre-addback (pre-2002) and addback tax years (post-2001). Under a clear and convincing evidence standard, the court…