2015 Hot Topics in State Taxation: Apportionment, Nexus Among Most Active Topics

The Bloomberg BNA Tax Management Weekly State Tax Report filters through current state developments and analyzes those critical to multistate tax planning.

By Craig B. Fields, Nicole L. Johnson and Eva Y. Niedbala

Craig B. Fields is a partner in the New York office of Morrison & Foerster LLP. He is co-chair of the firm’s Tax Department and is chair of the firm’s State and Local Tax Group. He is also a member of the Bloomberg BNA State Tax Advisory Board. Nicole L. Johnson and Eva Y. Niedbala are associates in the New York City office of Morrison & Foerster LLP. The authors can be reached at CFields@mofo.com, NJohnson@mofo.com and ENiedbala@mofo.com

There have been many important decisions in state and local taxes this past year. The U.S. Supreme Court issued three significant decisions, and state courts have continued to rouse fervor across the country. Apportionment and nexus continue to be the most debated issues.

U.S. Supreme Court

The U.S. Supreme Court decided three significant state tax cases last year: Direct Marketing Association v. Brohl;1Alabama Department of Revenue v. CSX Transportation, Inc.;2 and Comptroller of the Treasury v. Wynne.3

On March 3, 2015, the U.S. Supreme Court decided Direct Marketing Association v. Brohl. In that case, the U.S. Supreme Court held that the Tax Injunction Act did not bar Direct Marketing Association's (DMA) commerce clause challenge to Colorado's sales and use tax reporting statute.

In 2010, Colorado enacted legislation imposing notice and reporting obligations on out-of-state retailers that did not collect sales or use tax in the state. The U.S. Court of Appeals for the Tenth Circuit found that the Tax Injunction Act barred DMA's challenge to the statute in the federal courts. The U.S. Supreme Court reversed, finding that the terms “assessment, levy or collection,” as used in the Tax Injunction Act, did not encompass Colorado's sales and use tax reporting requirements and that DMA's challenge, if successful, would not “enjoin, suspend or restrain” the state's enforcement of its tax laws.

The Court remanded the case to determine whether Colorado could properly argue that the lawsuit is barred by the doctrine of comity. On remand, the Tenth Circuit upheld Colorado's tax reporting requirements and found that the legislation does not discriminate against nor unduly burden interstate commerce.4

In a surprise to many, Justice Kennedy stated in his concurring opinion that given the changes in technology and consumer sophistication, “it is unwise to delay any longer a reconsideration of the Court's holding in Quill.”5 He concluded that the Quill holding “should be left in place only if a powerful showing can be made that its rationale is still correct.” Several states have already started to mount challenges to Quill.

The day after issuing its decision in Direct Marketing, the U.S. Supreme Court issued its opinion in Alabama Department of Revenue v. CSX Transportation, Inc., which considered whether Alabama discriminated against railroad carriers in violation of the Railroad Revitalization and Regulation Reform Act of 1976 by imposing a sales tax on railroad carriers' purchases of diesel fuel.

The U.S. Supreme Court reversed the U.S. Court of Appeals for the Eleventh Circuit, holding that while the Eleventh Circuit properly concluded that a railroad's competitors, consisting of motor carriers and water carriers, were a similarly situated comparison class, it erred in refusing to consider whether Alabama could justify its varying treatment of those carriers. Under Alabama's taxing scheme, railroad carriers paid a 4 percent sales tax for diesel fuel, while motor carriers paid an excise tax of 19 cents per gallon and water carriers were exempt from tax on such purchases.

The U.S. Supreme Court remanded the case to the Eleventh Circuit to consider whether Alabama's motor fuel tax is the rough equivalent of Alabama's sales tax on diesel fuel and whether Alabama was justified in exempting water carriers from either type of tax.

On May 18, 2015, the U.S. Supreme Court affirmed the Maryland Court of Appeals' decision in Comptroller of the Treasury v. Wynne, holding that Maryland's personal income tax scheme violates the commerce clause of the U.S. Constitution.

The taxpayers, Maryland residents and shareholders in an S corporation that earned income in several states, claimed an income tax credit on their Maryland income tax return for taxes paid to other states. The personal income tax on residents in Maryland consists of a state income tax and a county income tax. Residents who pay income tax to another jurisdiction for income earned in that other jurisdiction are allowed a credit against the state tax but not the county tax. The U.S. Supreme Court held that the tax scheme failed the internal consistency test and was inherently discriminatory. “The effect of this scheme,” the U.S. Supreme Court explained, “is that some of the income earned by Maryland residents outside the state is taxed twice” and that it “creates an incentive for taxpayers to opt for intrastate rather than interstate economic activity.”

Likely to be addressed by the Maryland courts in 2016 is Maryland's response to the Supreme Court's decision. In 2014, in anticipation of a potentially unfavorable decision in Wynne, the Maryland General Assembly retroactively revised the interest rate to be used for refunds. Under the new statutory scheme, interest on refunds of personal income tax resulting from Wynne is to be paid at a 3 percent rate, whereas interest on all other personal income tax refunds is paid at a 13 percent rate. Actions have already been filed challenging this interest rate reduction.



In Harley-Davidson, Inc. v. Franchise Tax Board, the California Court of Appeal, 4th Appellate District affirmed the lower court's decision that two special purpose entities (SPEs) had substantial nexus with California through an agency relationship.6 The court also held, however, that California's combined reporting scheme, which allows an in-state group of unitary entities to elect to file on a separate company or combined basis, but requires a multi-state group of unitary entities to file on a combined basis, violates the commerce clause of the U.S. Constitution.

With respect to the nexus issue, the court found that the SPEs had substantial nexus with California despite not having a physical presence in the state. The court reasoned that there was sufficient evidence to support an agency relationship between the SPEs and one of the taxpayer's financing subsidiaries that conducted business in California.

Regarding the combined reporting issue, the court concluded that California's combined reporting scheme facially discriminates against interstate commerce because the ability to elect between separate company reporting or combined reporting is determined solely by where the unitary business is engaged in business.

The court remanded the case to determine whether the state's differing treatment of intrastate and interstate businesses passes strict scrutiny. On Sept. 16, 2015, the Supreme Court of California denied the taxpayer's petition for review of the Court of Appeals' decision regarding the nexus issue.


In Capital One Financial Corporation v. Hamer, the Illinois Circuit Court of Sangamon County applied a significant economic presence test to determine that a company had a substantial nexus with Illinois for purposes of the state's corporate income tax.7

In a case of first impression, the court addressed the issue of what connections are required for there to be a “substantial nexus” between an out-of-state entity and the state of Illinois. The court held that the significant economic presence test adopted by the Supreme Court of Appeals of West Virginia in Tax Commissioner of West Virginia v. MBNA America Bank, N.A.8 is the “fairest test of corporate income tax given the current internet based world” and explained that “[t]he test promulgated in MBNA is best suited to determine whether or not a foreign corporation has a substantial nexus with the taxing state. This test is fair, flexible and easily applied.”

Applying that test, the court found that the taxpayer had a significant economic presence within Illinois because it: (1) “collect[s] millions of dollars in fees and interest from Illinois residents”; (2) “systematically and continuously engage[s] Illinois consumers via the telephone, email, and direct mail solicitation to apply for credit”; (3) “use[s] Illinois courts to recover debts on delinquent accounts”; and (4) “file[s] and enforce[s] judgment liens in Illinois.”

The company appealed the Circuit Court's order to the Illinois Appellate Court.


The Maryland Circuit Court affirmed the Maryland Tax Court's decision in ConAgra Brands, Inc. v. Comptroller of the Treasury,9 holding that an intangible management company had sufficient nexus with Maryland as the case was “factually similar” to Gore Enterprise Holdings, Inc. v. Comptroller of the Treasury.10

The tax court below held that the company did not have economic substance and could not have functioned as a corporate entity without the support it received from its parent, a Maryland taxpayer. The tax court further held that as the company depended on royalty payments from its parent for the vast majority of its annual revenue, the company had sufficient nexus with the state. The tax court, however, waived interest after the date of the filing of the appeal. The Maryland Circuit Court vacated the part of the tax court's decision which dealt with waiver of interest and held that the company was responsible for interest accrued after the date of Gore’s issuance.

This decision is the latest in a number of cases where Maryland courts have upheld assessments against intangible management companies based on the theory that these companies lack economic substance separate from their corporate parents.

Multistate Tax Compact Litigation


On the last day of 2015, the Supreme Court of California reversed the California Court of Appeal's decision in The Gillette Company v. Franchise Tax Board and held that the Multistate Tax Compact (compact) constitutes state law and is not a binding, reciprocal contract among the compact's member states.11 The court further found that the California Legislature had the unilateral authority to eliminate the compact's equally weighted three-factor apportionment election formula, and the Legislature intended to eliminate the election when it amended a state statute to specify a double-weighted sales factor apportionment formula that “shall” apply “[n]otwithstanding” the compact's provisions, which continued to exist in another section of the state's code.

To determine if the compact was binding, the court applied a four-factor analysis: (1) whether the compact creates reciprocal obligations; (2) whether the compact's effectiveness depends on the conduct of other members; (3) whether any provision prohibits unilateral member action; and (4) whether a joint organization or body has been established to regulate the members. Analysis of each of the factors led the court to conclude that the compact was not a binding contract.

The court also held that the reenactment rule did not require the compact election provision to be reenacted to eliminate the election language because amending the statute, which established a double-weighted sales factor formula, provided reasonable notice of the change in law. As a result, there was no violation of the reenactment rule.

We are waiting to see if a petition for certiorari is filed with the U.S. Supreme Court.


A continuing parade of decisions in Michigan regarding the compact began on July 14, 2014, when the Supreme Court of Michigan held in IBM Corporation v. Department of Treasury that a company was entitled to use the compact's equally weighted three-factor formula election for purposes of computing the business income tax portion and the modified gross receipts tax portion of the company's 2008 Michigan Business Tax liability.12

In the opinion below, the lower court had “reluctantly” found that there was no way to harmonize a Michigan statute, which allowed a company to elect to apportion its income according to the compact's three-factor formula, and the Michigan Business Tax Act, which mandated the use of a single-factor formula. The Michigan Supreme Court, however, held that the two statutory provisions could be construed as providing a taxpayer with a choice between the apportionment method contained in the compact and the apportionment method contained in the Business Tax Act.

The Department of Treasury (department) filed a motion for rehearing and motion to stay the court's opinion.

In response to the Michigan Supreme Court's decision in IBM and while the motion for rehearing was pending, on Sept. 11, 2014, Michigan Gov. Rick Snyder signed into law Public Act No. 282 (“PA 282”), which purports to retroactively repeal the compact, effective as of Jan. 1, 2008.13

Then, on Nov. 14, 2014, the Michigan Supreme Court denied the department's motion for rehearing and motion to stay. The case was then remanded to the Michigan Court of Claims.

On April 28, 2015, the Michigan Court of Claims found that there was no indication that the Supreme Court considered the merits of the retroactive application of PA 282 when it denied the department's motion for rehearing and motion to stay. After deciding that the Supreme Court had not addressed PA 282, the Court of Claims concluded that PA 282 precluded the company from claiming a refund based on the compact's three-factor formula.14 That decision is currently being appealed to the Court of Appeals.

More recently, on Sept. 29, 2015, in a group of consolidated cases in Gillette Commercial Operations North America & Subsidiaries v. Department of Treasury, the Court of Appeals affirmed the Court of Claims' decisions which had upheld the constitutionality of PA 282.15 In upholding the constitutionality of PA 282, the Court of Appeals concluded that the compact was not a binding contract or interstate compact and, therefore, the repeal of the compact did not violate the contract clause of either the U.S. or Michigan Constitutions. The court also found that PA 282 did not violate due process because: (1) the companies had no vested right in the tax laws or the continuance of the tax laws; (2) the Legislature had legitimate purposes for giving PA 282 retroactive effect, which were to correct a perceived statutory misinterpretation and to eliminate significant revenue loss due to that misinterpretation; (3) the Legislature acted promptly to enact PA 282 after the Michigan Supreme Court's IBM decision; and (4) the six-and-one-half year retroactive period was sufficiently modest.

The Gillette taxpayers have filed an application for leave to appeal with the Michigan Supreme Court.


In Kimberly-Clark Corporation & Subsidiaries v. Commissioner of Revenue, the Minnesota Tax Court found that a company did not meet its “heavy burden” to demonstrate that the Legislature's repeal of the compact's equally weighted three-factor apportionment formula violated the contract clause of the U.S. or Minnesota Constitutions.16 The court explained that although the compact “unambiguously provide[s] for the apportionment election, no compact provision contains or constitutes a separate clear and unmistakable promise that the state would not alter or repeal the election.”

The Minnesota Supreme Court granted review on Aug. 14, 2015, and arguments were held on Jan. 11, 2016.


In another compact decision, the Oregon Tax Court in Health Net, Inc. & Subsidiaries v. Department of Revenue held that a company was required to apportion its income using the statutory single-sales factor formula and could not elect to use the compact's equally weighted three-factor formula.17

For the years at issue (2005-2007), Oregon was a full member of the compact, and provisions of the compact, including the apportionment election provision, had not been expressly repealed. However, a statutory provision adopted in 1993 provided that if Oregon's own tax statutes were inconsistent with the compact, Oregon's tax statutes would control. In 1993, Oregon's tax statutes required a double-weighted sales factor and, for the years at issue, Oregon required the use of a single-sales factor formula. The tax court found that the Legislature intended to disable the compact's election provision when the Legislature enacted the 1993 legislation. As a result, Oregon's single-sales factor requirement controlled.

The tax court further found that the Legislature's disablement of the compact election provision did not violate the contract clause of either the U.S. or Oregon Constitutions inasmuch as the compact was not a binding contract between the member states and that the compact clause of the U.S. Constitution does not provide an independent limit on state legislatures when no approval by Congress is necessary.


In Texas, in Graphic Packaging Corporation v. Hegar, the Texas Court of Appeals held that the Texas franchise tax is not an income tax as defined by the compact and, therefore, a company was not permitted to elect the compact's equally weighted three-factor formula and was required to apportion its taxable margin to Texas using a single-sales factor formula.18

Having decided that the franchise tax does not fall within the compact's definition of an income tax, the Court of Appeals did not reach the issue of whether the compact's apportionment election and three-factor formula were impliedly repealed when the Legislature enacted single-sales factor apportionment for the franchise tax.

A petition for review was filed by the company in the Texas Supreme Court on December 14, 2015.



Five months after its decision in Wynne, the U.S. Supreme Court vacated the decision of the Supreme Judicial Court of Massachusetts in The First Marblehead Corporation v. Commissioner of Revenue19 and remanded that case for further consideration in light of Wynne.20

In First Marblehead, the Massachusetts court applied the internal consistency test by examining whether there was actual duplicative taxation. However, in Wynne, the U.S. Supreme Court explained that the internal consistency test is designed to help courts identify tax schemes that disadvantage interstate commerce as compared to intrastate commerce “[b]y hypothetically assuming that every state has the same tax structure” (emphasis added).

Therefore, on remand, the Massachusetts Supreme Judicial Court will need to apply the internal consistency test as explained in Wynne to determine whether the Massachusetts tax scheme at issue in the case is unconstitutional.

New Jersey.

We are happy to report that the New Jersey Appellate Division affirmed the New Jersey Tax Court's decision in Lorillard Licensing Company LLC v. Director, Division of Taxation that the Division of Taxation (division) may not apply dual nexus standards for throwout purposes.21

In 2011, the New Jersey Supreme Court interpreted the throwout rule narrowly to find it constitutional on its face in Whirlpool Properties, Inc. v. Director, Division of Taxation.22 In so doing, it held that throwout does not apply when another state may constitutionally impose a tax on the taxpayer--regardless of the tax decisions by the other state. The Appellate Division applied Whirlpool Properties and held that, because New Jersey successfully asserted an economic nexus standard for Corporation Business Tax constitutional subjectivity purposes, in applying throwout, that same standard must also apply for other states' subjectivity.23

On Dec. 22, 2015, the division filed a notice of petition for certification seeking discretionary review by the New Jersey Supreme Court.

On Jan. 6, 2016, the New Jersey Tax Court approved its Jan. 14, 2014, decision in Lorillard Licensingfor publication, making the tax court decision precedential. The Appellate Division opinion also has been approved for publication in the N.J. Tax Court Reports.


The Supreme Court of Oregon agreed with the Oregon Tax Court's holding in Powerex Corporation v. Department of Revenue that sales of natural gas are sales of tangible personal property that must be sourced for purposes of the sales factor based on their ultimate destination.24 The Supreme Court, however, disagreed with the tax court that electricity is not tangible personal property. With respect to natural gas, the Supreme Court agreed that the pipelines that transmit natural gas serve roles similar to those of common carriers. Finding that an ultimate destination approach for sourcing is followed “where delivery by a seller is to a common carrier for further shipment,” the court concluded that sales of natural gas to purchasers located in California should not be sourced within Oregon. With respect to electricity, the Supreme Court remanded the case to the tax court to determine whether the electricity transmission systems were “the functional equivalent of common carriers,” as in the case of natural gas, and whether sales of electricity should, therefore, likewise be sourced to their ultimate destination.


In Skechers USA, Inc. II v. Wisconsin Department of Revenue, the Wisconsin Tax Appeals Commission (commission) held that a corporation, which primarily owned trademarks, patents and copyrights, and licensed the intellectual property and had no property or payroll in Wisconsin, had no sales in Wisconsin.25 The Commission found that during the years at issue, i.e., prior to 2009, sales of intangible property were sourced to where the income-producing activity took place. The corporation's income-producing activity occurred outside Wisconsin. As a result, the corporation's sales factor was zero and it had no income apportionable to Wisconsin. As the corporation would have zero tax due, the commission declined to review whether the corporation had nexus with the state. The commission noted that the Department of Revenue did not argue that the structure had as its principal purpose the avoidance of tax.

Addback Statutes

New Jersey.

We are happy to report that in Duke Energy Corporation v. Director, Division of Taxation, the New Jersey Tax Court held that electric utilities taxes paid by a company to North Carolina and South Carolina were not taxes “on or measured by profits or income, or business presence or business activity” and, therefore, were not required to be added back to the company's federal taxable income for New Jersey Corporation Business Tax (“CBT”) purposes.26 The tax court reasoned that the addback provision was intended to capture only taxes paid to other states on net income, and the electric utilities tax paid by the company did not fit into that category. The tax court concluded that the North Carolina Utilities Tax and South Carolina Utilities Tax were materially similar and neither was measured by the company's net income.

In Springs Licensing Group, Inc. v. Director, Division of Taxation, the New Jersey Tax Court held that a foreign company that licensed trademarks was required to file a CBT return in New Jersey and pay tax on royalty payments that it received from its parent notwithstanding that the parent added back royalties deducted on its CBT returns and paid tax.27 The court found that the parent corporation could have sought an exception from the addback, or the subsidiary or parent corporation could have requested alternative apportionment.

Combined/Consolidated Returns


In Rent-A-Center East, Inc. v. Indiana Department of Revenue, on remand from the Indiana Supreme Court, the Indiana Tax Court held that the Department of Revenue (department) improperly required the taxpayer to file on a combined basis with its affiliates.28

The tax court rejected the department's argument that the taxpayer had to file a combined tax return with its affiliates because it operated as a unitary business inasmuch as Indiana law does not require a member of a unitary group to file on a combined basis solely because there is a unitary business relationship. The court also rejected the department's argument that the taxpayer's transfer pricing study was not relevant to determining whether the taxpayer's income in Indiana was fairly reflected on its separate return because the study was based on federal tax law for evaluating intercompany transactions, i.e., I.R.C. Section 482, which was equally important for Indiana tax purposes, and there was no evidence that the study was flawed. As a result, the evidence did not indicate that the taxpayer engaged in any improper tax avoidance measures for which combined reporting was required.


In World Acceptance Corporation v. Commonwealth of Kentucky, the Kentucky Circuit Court for Franklin County granted the Department of Revenue's (department) motion to vacate the court's Aug. 14, 2015 opinion, which had held that a foreign parent corporation was entitled to file consolidated income tax returns for 2007 to 2010 with its wholly owned Kentucky subsidiary because the foreign parent was a “common parent corporation doing business in this state.”29

The court found that the foreign parent provided management, accounting, payroll and administrative services from its South Carolina headquarters to its subsidiary that engaged in business activities in Kentucky and that had a Tennessee resident employee who worked in Kentucky between 39 and 54 days during those years. The court explained that the foreign parent was not an includible corporation because the parent fell within one of the exceptions to the statutory definition of includible corporation as the parent's payroll, property and sales factors were either de minimis or zero. The court also held that a favorable letter ruling was not binding on the department because it was submitted anonymously and contained facts that were materially different from the facts reported on the income tax returns.

New York City.

We are happy to report that in In re Astoria Financial Corporation & Affiliates, a New York City Administrative Law Judge (ALJ) held that a company was not required to include in its combined New York City bank tax returns its Connecticut subsidiary that held non-New York mortgage loans.30 The ALJ concluded that the subsidiary had economic substance, was formed for legitimate business purposes and conducted its transactions with the company at arm's length. The ALJ also concluded that there was no agreement or arrangement with the subsidiary that caused the company's income to be improperly or inaccurately reflected.

Oral arguments before the New York City Tax Appeals Tribunal were held in November 2015.


We are equally happy to report that in Rent-A-Center, Inc. v. Department of Revenue, the Oregon Tax Court, Regular Division, held that Oregon's combined reporting statute during the tax year at issue provided that a unitary business could be demonstrated only by showing that centralized management, economies of scale and functional integration all existed.31 The Department of Revenue argued that a unitary business relationship could be demonstrated by showing that either one of those three factors existed and that the statute's use of the word “and” should be construed to mean “or.” The tax court disagreed and found that the legislative intent at the time of enactment was to require all three factors to be present.


In the first unitary business decision since Vermont shifted to combined unitary reporting in 2006, the Supreme Court of Vermont held in AIG Insurance Management Services, Inc. v. Vermont Department of Taxes that a multinational insurance group was not unitary with its wholly owned subsidiary that operated a ski resort in Vermont.32

The insurance group initially filed a corporate income tax return in Vermont which included the subsidiary as part of the parent's unitary group. The parent later filed an amended return which excluded the subsidiary and sought a refund.

The court held that the parent and the subsidiary were not unitary because there were no economies of scale, no centralized management and no functional integration. The court based its conclusion on the fact that the parent and subsidiary were engaged in different business lines, the parent had no actual control and the parent's involvement in the subsidiary amounted to no more than that of an investment. Given that there was no unitary relationship, the subsidiary was properly excluded from the parent's Vermont tax return even if the parent included the subsidiary as part of its unitary group in its tax returns in other states. The court acknowledged “that an entity's representations in other states can be a factor, but it cannot create a unitary operation where it does not otherwise exist.”



In In the Matter of the Appeal of ConAgra Foods, Inc., the California Board of Equalization (board) held that income recognized from a company's equity interests retained in one of the businesses that it sold constituted nonbusiness income, while income that it recognized from the debt and equity interests retained in another sold business constituted business income.33

In the first transaction, the company sold its chicken processing business to Pilgrim's Pride, a large public company with which the company shared no officers or directors, in exchange for cash and stock representing a minority interest in Pilgrim's Pride. The board concluded that inasmuch as there was no evidence suggesting that the company continued to exercise management or control over any of the assets sold, the subsequent income recognized by the company with respect to the stock it received in Pilgrim's Pride constituted nonbusiness income.

In the other transaction, the company contributed its fresh beef and pork operations to a new joint venture (JV) in exchange for cash, a 46 percent equity interest in the JV and notes issued by two subsidiaries of the JV, one of which was sold by the company to the JV in the transaction. The company appointed two of the JV's seven board members and entered into a supplier agreement with the JV under which the JV provided the company with fresh beef and pork products at fair market prices. The board found that the company's equity and debt interests materially contributed to its production of business income inasmuch as the company provided debt financing for the JV and continued to use fresh beef and pork from its operations as an integral part of its packaged food business.


In DirecTV, LLC v. Department of Revenue, the Supreme Judicial Court of Massachusetts held that an excise tax imposed only on satellite television providers did not violate the commerce clause of the U.S. Constitution.34

Two satellite television providers challenged a statute that imposed a 5 percent excise tax on satellite, but not cable television services. The court explained that the excise tax did not have a discriminatory effect as cable television providers were instead subject to local government fees, which could be imposed at a rate of up to 5 percent. Moreover, the court determined that the differences in the satellite television and cable television industries, specifically the heightened federal and local regulatory requirements for cable providers, were significant enough to permit discrepancies in how the two industries were taxed. The court stated that the excise tax imposed on the satellite providers was “an element of a balanced scheme of taxation that imposes corresponding burdens…on the cable and satellite companies.”

The U.S. Supreme Court denied certiorari on Nov. 2, 2015.

New York.

We are happy to report that in In re frog design, inc., the New York state Tax Appeals Tribunal (tribunal) reversed the determination of an Administrative Law Judge and held that the issued capital stock of a California corporation had a par value of $1 per share.35 The tribunal rejected the Division of Taxation's (division) computation of the company's license fee at the rate applicable to no par value stock (i.e., five cents per share), finding that a California provision setting the par value at $1 per share for all California corporations controlled for purposes of computing the company's license fee. The tribunal, therefore, directed the division to recompute the company's license fee at the rate applicable for stock with a par value of $1 per share (i.e., 0.05 percent of the par value of each issued share).


This past year's decisions have had an important effect on businesses and individuals across the U.S. This year will also no doubt produce decisions that will further shape state and local tax law.

1 Direct Mktg. Ass’n v. Brohl, 135 S. Ct. 1124 (2015).

2 Ala. Dep't of Revenuev. CSX Transp., Inc., 135 S. Ct. 1136 (2015).

3 Comptroller of the Treas.v. Wynne, 135 S. Ct. 1787 (2015).

4 Direct Mktg. Ass'n v. Brohl, No. 12-1175 (10th Cir. Feb. 22, 2016).

5 Quill Corp. v. North Dakota, 504 U.S. 298 (1992).

6 Harley-Davidson, Inc. v. Franchise Tax Bd., No. D064241 (Cal. Ct. App. May 28, 2015).

7 CapitalOne Financial Corp. v.Hamer, No. 2012-TX-0001/02 (Ill. Cir. Ct. May 11, 2015).

8 Tax Comm’r v. MBNA Am. Bank, N.A., 640 S.E.2d 226 (W. Va. 2006).

9 ConAgra Brands, Inc. v. Comptroller of the Treas., No. C-02-CV-15-993 (Md. Cir. Ct. Oct. 19, 2015).

10 Gore Enter. Holdings, Inc. v. Comptroller of the Treas., 87 A.3d 1263 (Md. 2014).

11 The Gillette Co. v. Franchise Tax Bd., No. S206587 (Cal. Dec. 31, 2015).

12 IBM Corp. v.Dep't of Treas., 852 N.W.2d 865 (Mich. 2014).

13 S.B. 156, Pub. Act 282, 97th Leg. (Mich. 2014).

14 IBM Corp. v.Dep't of Treas., No. 11-33-MT (Mich. Ct. Cl. Apr. 28, 2015).

15 Gillette Commercial Operations N. Am. & Subs.v.Dep't of Treas., No. 325258 (Mich. Ct. App. Sept. 29, 2015).

16 Kimberly-Clark Corp. & Subs. v.Comm'r of Revenue, No. 8670-R (Minn. Tax Ct. June 19, 2015).

17 Health Net, Inc. & Subs.v.Dep't of Revenue, No. TC 5127 (Or. T.C. Sept. 9, 2015).

18 Graphic Packaging Corp. v. Hegar, No. 03-14-00197-CV (Tex. Ct. App. July 28, 2015).

19 The First Marblehead Corp. v. Comm’r of Revenue, 23 N.E.3d 892 (Mass. 2015).

20 The First Marblehead Corp. v.Comm’r of Revenue, 136 S. Ct. 317 (Oct. 13, 2015).

21 Lorillard Licensing Co. LLC v. Dir., Div. of Taxation, No. A-2033-13T1 (N.J. App. Div. Dec. 4, 2015).

22 Whirlpool Properties, Inc. v.Dir., Div. of Taxation, 26 A.3d 446 (N.J. 2011).

23 It is noted that the companies in both Whirlpool Properties and Lorillard Licensing were represented by Morrison & Foerster LLP.

24 Powerex Corp. v.Dep't of Revenue, 346 P.3d 476 (Or. 2015). It is noted that the company in Powerex was represented by Morrison & Foerster LLP.

25 Skechers USA, Inc. II v. Wis. Dep't of Revenue, No. 10I173 (Wis. Tax App. Comm'n July 31, 2015).

26 Duke Energy Corp. v.Dir., Div. of Taxation, 28 N.J. Tax 226 (Tax 2014). It is noted that the company in Duke Energy was represented by Morrison & Foerster LLP.

27 Springs Licensing Group, Inc. v. Dir., Div. of Taxation, No. 010001-2010 (N.J. Tax Ct. Aug. 14, 2015).

28 Rent-A-Center East, Inc. v. Ind. Dep’t of Revenue, No. 49T10-0612-TA-00106 (Ind. T.C. Sept. 10, 2015).

29 World Acceptance Corp.v.Commonwealth, No. 14-CI-01193 (Ky. Cir. Ct. Nov. 10, 2015).

30 In re Astoria Fin. Corp.& Affiliates, TAT(H) 10-35(BT) (N.Y.C. Tax App. Trib. Oct. 29, 2014). It is noted that the company in In re Astoria was represented by Morrison & Foerster LLP.

31 Dep’t of Revenuev. Rent-A-Center, Inc., No. TC 5224 (Or. T.C. Jan. 26, 2015). It is noted that the company in Rent-A-Center was represented by Morrison & Foerster LLP.

32 AIG Ins. Mgmt. Servs., Inc. v. Vermont Dep't of Taxes, No. 2014-312 (Vt. Nov. 20, 2015).

33 In the Matter of the Appeal of ConAgra Foods, Inc., Case Nos. 597512, 785058, 799162 (Cal. Bd. of Equalization June 26, 2015).

34 DirecTV, LLC v. Dep’t of Revenue, 25 N.E.3d 258 (Mass. 2015).

35 In re frog design, inc., DTA No. 824375 (N.Y.S. Tax App. Trib. Apr. 15, 2015). It is noted that the company in In re frog was represented by Morrison & Foerster LLP.