Weekly Round-Up: Maryland Blurs Boundaries Between Constitutional Nexus and Unitary Business Principle


Recently, the already murky waters surrounding nexus were further muddied when a Maryland court asserted nexus using a theory we deem the "unitary business nexus principle," which seems to combine several state tax principles, Andrew D. Grace, a senior associate in the State and Local Tax group of KPMG LLP's Washington National Tax practice, writes in this week's issue of the Weekly State Tax Report.

In Comptroller of the Treasury v. Gore Enterprise Holdings Inc., 209 Md. App. 524 (2013), Maryland's Court of Special Appeals held that the in-state presence of a parent corporation created nexus for two out-of-state subsidiaries. While not entirely clear, the court's decision appears to be based on the taxpayers' relationship with an in-state entity, according to Grace.

The subsidiaries, the Maryland court observed, were unitary with the parent because they were dependent on the parent for their core business functions, had shared officers, and were essentially under complete control of the parent. The court concluded that the subsidiaries' unitary relationship with their in-state parent created nexus with the out-of-state entities. In a footnote, the court appeared to address arguments that it was confusing nexus principles with the unitary business principle, noting that "where, as here, a parent company undoubtedly has [nexus], the only question is whether the subsidiary partakes in the parent's unitary business; if so, it inherits the parent's nexus, and the tests are effectively merged."

The unitary business principle does not operate to create nexus for a corporate taxpayer that otherwise has no contacts with the taxing state, and the Maryland court's misapplication of the unitary business principle raises a number of thorny issues, according to Grace.

Grace goes on to caution that while the potential remains for this decision to be overturned on appeal, other taxpayers operating both within and outside of Maryland must be aware of the state's broad assertion of nexus and the potential risk it poses to their businesses.

For Grace's complete analysis of the decision and its implications, check out this week's issue of the Weekly State Tax Report.

In other developments…

Morrison & Foerster LLP releases its Spring 2013 issue of State+Local Tax Insights.

Senate passes Marketplace Fairness Act with amendment , a new Alert by PwC provides.

Weekly Map: State Beer Excise Tax Rates, 2013 , by the Tax Foundation.

Compiled by Priya D. Nair
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