CONAGRA FOODS RDM, INC.
COMPTROLLER OF THE TREASURY
Circuit Court for Anne Arundel County Case No.
Arthur, Leahy, [*] Woodward, JJ. [**]
ConAgra Foods RDM, Inc., formerly known as ConAgra Brands,
Inc. ("Brands"),  is an intellectual property
holding company and a direct and indirect wholly owned
subsidiary of ConAgra Foods, Inc., formerly known as ConAgra,
Inc. ("ConAgra"). Brands was incorporated in 1996
in Nebraska and has a principal office in Omaha, Nebraska.
During the time period of 1996 through 2003, ConAgra
conducted business operations in Maryland and filed
corporation income tax returns in Maryland. For the same time
period, Brands did not file any Maryland corporation income
tax returns. Because Brands received royalties from ConAgra,
appellee, the Comptroller of the Treasury
("Comptroller"), on August 30, 2007, assessed
Brands $2, 768, 588 in back taxes, interest, and penalties
for the tax years of 1996 through 2003. Brands appealed this
assessment, and the Comptroller affirmed by issuing a Notice
of Final Determination on January 23, 2009.
February 23, 2009, Brands appealed to the Tax Court. After a
hearing, the Tax Court ruled, in a Memorandum of Grounds for
Decision dated February 24, 2015, that Brands lacked economic
substance as a business entity separate from ConAgra and thus
allowed the Comptroller to impose the tax assessment. The Tax
Court, however, abated the interest accrued from the date of
the appeal to that court to the date of its decision, and all
penalties. Brands and the Comptroller filed petitions for
judicial review in the Circuit Court for Anne Arundel County,
which resulted in the court affirming the Tax Court's
decision, except for the latter's abatement of interest
accruing from March 24, 2014 to February 24, 2015. Brands
then filed this timely appeal.
presents eight questions for our review, which we have
rephrased and condensed into three:
1. Was there substantial evidence to support the Tax
Court's ruling that Brands lacked economic substance as a
business entity separate from ConAgra and thus had the
constitutionally required nexus and minimum contacts with
Maryland to subject Brands to income taxation by Maryland for
the royalties received by Brands from ConAgra and its
subsidiaries arising out of the latters' business
activities in Maryland?
2. Was there substantial evidence to support the Tax
Court's ruling that the Comptroller had the statutory
authority to use a blended apportionment formula to determine
Brands's Maryland income and that the blended
apportionment formula clearly reflected Brands's income
allocable to Maryland?
3. Did the Tax Court properly interpret the tax statute when
it waived interest on the income tax due from Brands that
accrued from the date of the filing of its appeal to the Tax
Court (February 23, 2009) to the date of the issuance of that
court's decision (February 24, 2015)?
reasons set forth below, we uphold the decision of the Tax
Court in all respects and thus affirm in part and reverse in
part the judgment of the circuit court.
is a conglomerate known for its agricultural products and
products in the processed food industry including, but not
limited to, Hunts, Orville Redenbacher, Butterball Turkey,
and ACT II. In the late 1990s, ConAgra had multiple wholly
owned subsidiaries (also known as independent operating
companies), including Swift-Eckrich, Inc., Hunt-Wesson, Inc.,
and Beatrice Cheese, Inc. The multitude of ConAgra's
wholly owned subsidiaries began to present management
problems for ConAgra, and in 1996, ConAgra began a program
focused on corporate centralization.
such centralization initiative occurred in April 1996 when
ConAgra decided to centralize management of the intellectual
property owned by it and its subsidiaries. To effectuate this
goal, ConAgra incorporated Brands in Nebraska. Brands issued
2, 207 shares of common stock, distributing 1, 000 shares to
ConAgra, 594 shares to Swift-Eckrich, Inc, 560 shares to
Hunt-Wesson, Inc., and 53 shares to Beatrice Cheese, Inc. In
exchange, Brands acquired forty-six initial trademark groups
and subsequently acquired numerous other trademark groups
from these entities. Brands then entered into license
agreements for the trademark groups with ConAgra and the
three subsidiaries, under which ConAgra and these
subsidiaries paid Brands royalties.
1996 to 2003, Brands did not file Maryland tax returns, but
ConAgra and some of its subsidiaries did file Maryland tax
returns. After an audit, the Comptroller sent Brands a
"Notice and Demand to File Maryland Corporation Income
Tax Returns" in 2007. When Brands did not respond to the
Comptroller's notice and demand, the Comptroller issued a
"Notice of Assessment" for the tax years of 1996 to
2003 for a total of $2, 768, 588 in back taxes, interest, and
penalties as of August 30, 2007. Upon Brands's request,
an administrative appeal was held on December 4, 2007,
concerning the Comptroller's assessment. On January 23,
2009, the Comptroller issued a "Notice of Final
Determination[, ]" concluding that Brands then owed $3,
053, 222 in back taxes, interest, and penalties. Brands filed
a timely Petition of Appeal to the Tax Court on February 23,
two-day hearing concluding on October 7, 2010, the Tax Court
issued its opinion upholding the Comptroller's assessment
on February 24, 2015. The Tax Court stated that the
"initial inquiry [was] to determine whether [Brands] had
real economic substance as a business separate from
ConAgra." Citing to Comptroller v. SYL, Inc.,
375 Md. 78, cert. denied, 540 U.S. 984 and cert.
denied, 540 U.S. 1090 (2003) and Gore Enter.
Holdings, Inc. v. Comptroller, 437 Md. 492 (2014), the
Tax Court observed that, under the economic substance
doctrine set forth in those cases, an out-of-state subsidiary
"must have economic substance as a separate entity from
its parent to avoid nexus and taxation." After a review
of the evidence before it, the court concluded that Brands
lacked any economic substance separate from ConAgra. Because
a portion of Brands's income was produced from the
business of ConAgra and its subsidiaries in Maryland, the
court held that there was sufficient nexus to support the
income taxation of Brands.
Court then considered whether the Comptroller applied an
appropriate apportionment formula in calculating the income
tax that Brands owed to Maryland. The Tax Court determined
that the Comptroller's blended apportionment formula was
permissible, because "the Comptroller effectively
utilized ConAgra's own apportionment figures in
constructing the blended apportionment factor used in this
case." Finally, the Tax Court abated the interest
accruing after the date of filing the appeal to the Tax Court
(February 23, 2009) to the date of the Tax Court's
decision (February 24, 2015), and all
March 17, 2015, Brands filed a petition for judicial review
in the circuit court challenging the Tax Court's ruling
that it was subject to Maryland tax, as well as the
Comptroller's apportionment formula. The Comptroller
filed a cross-petition for judicial review challenging the
Tax Court's decision to abate all interest accruing from
the date of filing the appeal with the Tax Court to the
issuance of that court's decision. After a hearing on
September 21, 2015, the circuit court issued an opinion and
order on October 30, 2015, affirming the Tax Court in all
respects, except for the latter's abatement of interest
accruing from March 24, 2014 to February 24,
filed this timely appeal. Additional facts will be set forth
below as they become necessary to the resolution of the
questions presented in this appeal.
Court is an adjudicatory administrative agency; "our
review looks through the circuit court's . . . decision[
] . . . and evaluates the decision of the agency."
Gore, 437 Md. at 503 (some alterations in original)
(internal quotation marks omitted). The Court of Appeals has
further explained our review of a decision of the Tax Court
An administrative agency's findings of fact must meet the
substantial evidence standard. Frey [v.
Comptroller, ] 422 Md. [111, ] [ ] 137, 29 A.3d [475, ]
[ ] 490 (citations omitted). Thus, we determine
"'whether a reasoning mind reasonably could have
reached the factual conclusion the agency reached.'"
Frey, 422 Md. at 137, 29 A.3d at 490 (quoting
State Ins. Comm'r v. Nat'l Bureau of Cas.
Underwriters, 248 Md. 292, 309, 236 A.2d 282, 292
(1967)). It is not our place to "make an independent
original estimate of our decision on the evidence.... [or
determine for ourselves], as a matter of first instance, the
weight to be accorded to the evidence before the
agency." In Ramsay Scarlett & Co., Inc. v.
Comptroller of the Treasury, 302 Md. 825, 838, 490 A.2d
1296, 1303 (1985) (citations omitted), we cautioned:
[T]hat a reviewing court may not substitute its judgment for
the expertise of the agency; that we must review the
agency's decision in the light most favorable to it; that
the agency's decision is prima facie correct and presumed
valid; and that it is the agency's province to resolve
conflicting evidence and where inconsistent inferences can be
drawn from the same evidence it is for the agency to draw the
302 Md. at 834-35, 490 A.2d at 1301 (citations
omitted)."[T]he interpretation of the tax law can be a
mixed question of fact and law, the resolution of which
requires agency expertise." Comptroller of the
Treasury v. Citicorp Int'l Commc'ns, Inc., 389
Md. 156, 164, 884 A.2d 112, 116-17 (2005) (citing NCR
Corp. v. Comptroller, 313 Md. 118, 133-34, 544 A.2d 764,
771 (1988)). In reviewing mixed questions of law and fact,
"we apply 'the substantial evidence test, that is,
the same standard of review [we] would apply to an agency
factual finding.'" Comptroller of the Treasury
v. Science Applications Intern. Corp., 405 Md. 185, 193,
950 A.2d 766, 770 (2008) (quoting Longshore v.
State, 399 Md. 486, 522 n. 8, 924 A.2d 1129, 1149 n. 8
The legal conclusions of an administrative agency that are
"premised upon an interpretation of the statutes that
the agency administers" are afforded "great
weight." Frey, 422 Md. at 138, 29 A.3d at 490
(citations omitted). Agency decisions premised upon case law,
however, are not entitled to deference. Frey, 422
Md. at 138, 29 A.3d at 490 ("When an agency's
decision is necessarily premised upon the 'application
and analysis of caselaw,' that decision rests upon 'a
purely legal issue uniquely within the ken of a reviewing
court.'" (quoting [People's Counsel for
Baltimore Cty. v.] Loyola College [in
Md.], 406 Md. [54, ] [ ] 67-68, 956 A.2d [166, ] [ ] 174
Id. at 504-05 (some alterations in original).
Taxation and the United States Constitution
state to tax a non-domiciliary company, like Brands, such
taxation must withstand constitutional scrutiny under the Due
Process and Commerce Clauses of the United States
Constitution. Gore, 437 Md. at 506-07. The
satisfaction of these constitutional restrictions on
government action have different purposes and requirements,
but these clauses also have "significant
parallels." South Dakota v. Wayfair, Inc., 138
S.Ct. 2080, 2093 (2018).
Process Clause imposes restrictions on the government to act
in a fair manner and provide "fair warning."
Gore, 437 Md. at 507. Under the Due Process Clause,
there are "two requirements:  a 'minimal
connection' between the interstate activities and the
taxing State, and  a rational relationship between the
income attributed to the State and the intrastate values of
the enterprise." Mobil Oil Corp. v. Comm'r of
Taxes of Vermont, 445 U.S. 425, 436-37 (1980).
Commerce Clause, on the other hand,
was designed to prevent States from engaging in economic
discrimination so they would not divide into isolated,
separable units. See Philadelphia v. New Jersey, 437
U.S. 617, 623, 98 S.Ct. 2531, 57 L.Ed.2d 475 (1978). But it
is "not the purpose of the [C]ommerce [C]lause to
relieve those engaged in interstate commerce from their just
share of state tax burden." Complete Auto
[Transit, Inc. v. Brady, 430 U.S. 274, 288 (1977)]
(internal quotation marks omitted).
Wayfair, 138 S.Ct. at 2093-94 (alterations in
original). The Commerce Clause requires that a tax "(1)
appl[y] to an activity with a substantial nexus with the
taxing State, (2) [be] fairly apportioned, (3) [ ] not
discriminate against interstate commerce, and (4) [be] fairly
related to the services the State provides."
Id. at 2091. The first prong of the Commerce Clause
"test simply asks whether the tax applies to an activity
with a substantial nexus with the taxing State. [S]uch a
nexus is established when the taxpayer [or collector] avails
itself of the substantial privilege of carrying on business
in that jurisdiction." Id. at 2099 (alterations
in original) (internal citation and quotation marks omitted).
In holding that such nexus can be satisfied through
"economic and virtual contacts," the Court
overturned its previous precedent of requiring that a company
have physical presence within the State imposing taxation,
and in so doing, moved the nexus requirement in the Commerce
Clause and the Due Process Clause requirement of minimal
contacts into closer alignment. See id. at
2092-93 ("This nexus requirement is closely related to
the due process requirement that there be some definite link,
some minimum connection, between a state and the person,
property or transaction it seeks to tax." (internal
citation and quotation marks omitted)).
II. Lack of Economic Substance as a Separate
instant case, Brands is an out-of-state direct and indirect
wholly owned subsidiary of ConAgra. During the tax years in
question, Brands received royalties under the trademark
license agreements from ConAgra and its subsidiaries, a
portion of which was derived from the business activities of
ConAgra and its subsidiaries in Maryland. In SYL and
Gore, the Court of Appeals held that the
constitutional requirements for state taxation of
out-of-state wholly owned subsidiary corporations are
satisfied where the subsidiaries "'had no real
economic substance as separate business
entities.'" Gore, 437 Md. at
513-14 (quoting SYL, 375 Md. at 106) (bold emphasis
in Gore). In other words, the Due Process Clause
requirement of "minimum contacts" and the Commerce
Clause requirement of "nexus" are satisfied for
such subsidiaries "'based upon their parent
corporations' Maryland business[.]'"
Gore, 437 Md. at 514 (alteration in original)
(quoting SYL, 375 Md. at 109). Therefore, the
central issue raised in the instant case is whether Brands
had real economic substance as a business entity separate
from ConAgra. To resolve this issue, we must begin with a
close examination of SYL and Gore.
SYL, the Court of Appeals consolidated two cases in
which the Comptroller assessed Maryland taxes against foreign
intellectual property holding companies that were wholly
owned subsidiaries of parent companies doing business in
Maryland. 375 Md. at 80-81, 92.
first case involved the clothing company Syms, Inc.
("Syms"). Id. at 81. Syms created a wholly
owned subsidiary, SYL, Inc. ("SYL"), and
incorporated this subsidiary in Delaware. Id. Syms
then transferred all of its intellectual property to SYL, and
"SYL granted to Syms a license to manufacture, use and
sell the products covered by the trade names and trademarks
in [Syms]'s business[.]" Id. SYL received
royalties pursuant to its license agreement with Syms, and
SYL, in turn, would issue dividends to Syms - the owner of
all of SYL's stock. Id. at 81, 86. Although Syms
filed Maryland corporation income tax returns, SYL did not,
and in 1996, the Comptroller issued an assessment against SYL
"for the years 1986 through 1993 [in the] amount of
$637, 362 in corporate income taxes, including interest and
penalties." Id. at 81.
companion case involved Crown Cork & Seal Company
(Delaware) ("Crown Delaware"). Id. at 92.
Crown Delaware was a wholly owned subsidiary of Crown Cork
& Seal Company, Inc. ("Crown Parent"), which
was "a corporation engaged in the manufacturing and sale
of metal cans, crowns, and closures for bottles, can-filling
machines, and plastic bottles and containers, world-wide,
including in the State of Maryland." Id.
(internal quotation marks omitted). Crown Delaware was a
Delaware corporation created by Crown Parent to manage its
intellectual property, and Crown Delaware acquired
"thirteen domestic patents and sixteen trademarks"
from Crown Parent. Id. "Crown Delaware then
granted to Crown Parent an exclusive license . . . [and]
Crown Parent agreed to pay Crown Delaware a royalty based on
Crown Parent's sales." Id. at 94. Then,
Crown Delaware would provide Crown Parent with loans,
sometimes the same day as it received royalties from Crown
Parent. Id. at 96. Like SYL and Syms, Crown Delaware
did not file corporation income tax returns in Maryland, but
Crown Parent did. Id. at 92. The Comptroller issued
an assessment against Crown Delaware for $1, 421, 034 in back
taxes including interest and penalties, for the years 1989
through 1993. Id.
Crown Delaware took separate appeals to the Tax Court.
Id. at 84, 93. In separate decisions, the Tax Court
concluded that Maryland did not have the authority to tax SYL
and Crown Delaware, because both companies were not
completely shell corporations and neither had a sufficient
nexus with Maryland. Id. at 88-90, 98-99. The
Comptroller appealed both cases, and the circuit court upheld
the Tax Court in separate rulings. Id. at 91, 99.
Again, the Comptroller appealed, but before the appeals were
heard by this Court, the Court of Appeals granted the
petitions for a writ of certiorari. Id.
appeal, the Court of Appeals examined this Court's
opinion in Comptroller v. Armco Exp. Sales Corp., 82
Md.App. 429, cert. denied, 320 Md. 634 (1990), and
cert. denied, 498 U.S. 1088 (1991). SYL,
375 Md. at 103-05. In that case, this Court considered
whether Maryland had the authority to tax three subsidiaries
created by Armco, Inc., General Motors, and Thiokol.
Id. at 103. These subsidiaries were known as
"Domestic International Sales Corporation[s] or DISC[s,
]" and their sole purpose was to buy goods from their
respective parents and then resell the goods to overseas
customers, incurring for the parent a federal tax benefit.
Id. at 103-04. This Court held that Maryland could
tax the income of the DISCs. Id. at 105. We noted
that the parent companies conducted business in Maryland.
Id. at 104. We also noted that the DISCs relied
completely on their respective parent corporations, because
each DISC had "no tangible property or employees and
c[ould] only conduct its activity and do business through
branches of its unitary affiliated parent." Id.
(internal quotation marks omitted).
Court of Appeals adopted our Armco reasoning and
applied it to SYL and Crown Delaware. Id. at 106.
The Court noted that SYL and Crown Delaware resembled the
DISC corporations in Armco, "except that SYL
and Crown Delaware had a touch of 'window dressing'
designed to create an illusion of substance."
Id. The Court continued:
Neither subsidiary had a full time employee, and the
ostensible part time "employees" of each subsidiary
were in reality officers or employees of independent
"nexus-service" companies. The annual wages paid to
these "employees" by the subsidiaries were
minuscule. The so-called offices in Delaware were little more
than mail drops. The subsidiary corporations did
virtually nothing; whatever was done was performed by
officers, employees, or counsel of the parent corporations.
The testimony indicated that, with respect to the operations
of the parents and the protections of the trademarks, nothing
changed after the creation of the subsidiaries.
Although officers of the parent corporations may have stated
that tax avoidance was not the sole reason for the creation
of the subsidiaries, the record demonstrates that sheltering
income from state taxation was the predominant reason for the
creation of SYL and Crown Delaware.
Id. (Emphasis added).
the undisputed record revealed that SYL was completely
dependent on Syms for income, and all income was returned to
Syms in the form of dividends. Id. at 84, 86.
SYL's Board of Directors were all officers of Syms,
except that one Board member, Edward Jones, was an accountant
employed by the firm Gunnip and Company - a firm SYL hired to
provide services, such as a mailing address, and to establish
a presence in Delaware. Id. at 86-87. Daily expenses
at SYL were minimal, the record indicating that SYL only
spent $2, 400 a year for services provided by Gunnip and
Company, which included $1, 200 a year for the
"salary" of Jones, SYL's sole employee.
Id. at 87. No expenses were for the protection of
any trademarks, and SYL's license agreement with Syms
provided Syms with full control over the trademarks and the
protection of the marks. Id. at 87-88.
Crown Delaware, the undisputed record revealed that Crown
Parent held the exclusive license to Crown Delaware's
intellectual property. Id. at 94. Crown Delaware and
Crown Parent's circular flow of money was evidenced by
Crown Parent paying Crown Delaware royalties and Crown
Delaware loaning money back to Crown Parent, sometimes on the
same day. Id. at 96. The day to day operations of
Crown Delaware were handled by Organization Services, Inc.
("OSI"). Id. at 94-95. For $100 a month,
OSI provided office space, a mailing address, and nine
part-time employees who were paid a total of $843.66 in wages
for 1993. Id. at 95-96. In short, Crown
Delaware's revenues "averaged around thirty-seven
million dollars annually" but only spent on average just
over two thousand dollars annually in expenses - none of
which were for legal fees. Id. at 97. The record was
devoid of any indication that Crown Delaware performed any
function to promote or preserve the intellectual property it
had acquired from Crown Parent. Id. at 97-98.
Court of Appeals concluded that "SYL and Crown Delaware
had no real economic substance as separate business
entities." Id. at 106. Accordingly, the Court
held "that a portion of SYL's and Crown
Delaware's income, based upon their parent
corporations' Maryland business, is subject to Maryland
income tax." Id. at 109.
is the most recent case involving the taxation of a foreign
intellectual property holding company that is a wholly owned
subsidiary of a corporation doing business in Maryland. 437
Md. 492. In Gore, W.L. Gore & Associates, Inc.
("Gore") was a manufacturing company of
"fabrics, medical devices, electronics, and industrial
products" that operated factories in several states,
including Maryland. Id. at 499-500. In 1983, Gore
incorporated Gore Enterprise Holdings, Inc. ("GEH")
in Delaware to manage its patents. Id. at 500. Gore
assigned to GEH all of its patents and certain other assets
in exchange for GEH's entire stock. Id. GEH then
licensed the patents back to Gore for a royalty fee on all
products sold by Gore. Id. GEH also entered into a
licensing agreement with Gore that allowed Gore's
attorneys to control the legal defense to patent
infringement, licensing activities, and patent applications.
Id. In addition, GEH did not have any employees
until 1995, when it hired one employee to manage the patent
portfolio. Id. at 500-01.
1996, Gore incorporated Future Value, Inc. ("FVI")
in Delaware to manage Gore's excess capital. A
Gore-employed attorney incorporated it, and two members of
the Gore Board, along with GEH's Vice President,
comprised the FVI Board. Upon FVI's formation, GEH
transferred all of its investment securities to FVI, in
exchange for all of the shares of FVI. GEH then declared a
dividend to its sole shareholder, Gore, in the form of the
FVI stock. This made Gore the sole owner of FVI. FVI was
founded primarily to perform investment management functions,
but has also extended Gore a line of credit when Gore
experienced negative cash flow. As of 2008, FVI had three
employees that handled, monitored, and recorded the various
activities performed by FVI.
Id. at 501 (footnote omitted).
2006, the Comptroller assessed back income taxes, interest,
and penalties in the amount of $26, 436, 315 against GEH for
the years 1983 through 2003. Id. Concurrently, the
Comptroller assessed FVI $2, 608, 895 in back income taxes,
interest, and penalties for the years 1996 through 2003.
Id. The Tax Court upheld the Comptroller's tax
assessment, ruling that GEH and FVI lacked economic substance
separate from Gore, but the circuit court reversed.
Id. at 501-02. The Comptroller appealed to this
Court, and we upheld the Tax Court's ruling that GEH and
FVI were subject to Maryland tax. Id. at 502. GEH
and FVI petitioned the Court of Appeals for a writ of
certiorari, which was granted. Id.
Court of Appeals began its analysis by agreeing with the Tax
Court that the threshold issue on appeal was whether GEH and
FVI lacked economic substance as business entities separate
from Gore. The Court observed that the Tax Court marshaled
numerous factual findings, supported by substantial record
evidence. These included the following:
•There were no outside Directors of GEH or FVI and
prior to 1996 the W.L. Gore family dominated the Officer
• FVI was simply an intentional depository for assets
built up through royalties paid to the patent company, GEH.
•In effect, GEH does not create, invent or make
anything and must rely on W.L. Gore employees to invent the
new process or product. Thus, an idea generated by a
technologist with W.L. Gore is prepared by GEH through an
application for filing with the patent office. In most
cases, the employees of W.L. Gore review the patent
application and determine whether it should be pursued.
•The testimony in the case suggests that GEH relied on
W.L. Gore for a continuing stream of inventions and
discoveries as set forth in the materials that make up the
•The manufacture or sale of the product by W.L. Gore
obligates the payment of royalties to GEH under the License
• GEH as licensor to W.L. Gore, Inc., licensee, is
dependent on the licensee's activities to obtain
consideration for grants of the license. Although GEH has
separate corporate status, the interdependence reflected in
the third party License Agreements suggests that the patent
committee of GEH strongly considers the interest of W.L.
Gore in making its decisions.
• One witness for GEH who described herself as a
Patent Administrator confirmed that W.L. Gore employees would
prepare patent applications at no cost to GEH and that
payments were made for GEH in accordance with the Service
Agreement with W.L. Gore.
• [An economist for Petitioners] agreed that W.L. Gore
and GEH had globally integrated goals and that a synergy
existed between W.L. Gore and GEH due to the relationship
between patents and products.
• Testimony from [ ] Petitioners' witnesses
consistently suggested that nearly all of the third-party
licenses came about in order to produce benefits for W.L.
Gore or for the "W.L. Gore family of companies."
• In 1996, W.L. Gore was experiencing some negative cash
flow when W.L. Gore asked FVI for a line of credit to meet
current operating needs which continued through 1999. The
intercompany loans reflected the intercompany dependence of
• The audits reflected through the inter-corporate
transactions and Service Agreement that the Delaware Holding
Companies relied on W.L. Gore for revenues and services.
Id. at 516-17 (alterations in original) (footnote
Court then summarized the four primary factual conclusions
that led the Tax Court to properly rule that GEH and FVI
lacked economic substance as business entities separate from
 the subsidiaries' dependence on Gore for their
income,  the circular flow of money between the
subsidiaries and Gore,  the subsidiaries' reliance on
Gore for core functions and services, and  the general
absence of substantive activity from either subsidiary that
was in any meaningful way separate from Gore.
Id. at 517.
According to GEH and FVI, however, SYL was
distinguishable, because GEH and FVI "engaged in more
substantive activities than those in SYL."
Id. at 519. Specifically, "GEH acquired patents
from third parties, licensed patents to third parties, and
paid substantial fees for outside legal counsel and other
services." Id. The Court characterized these
activities as "more 'window dressing' than the
SYL subsidiaries," but concluded that
"these additional trappings do not imbue GEH and FVI
with substance as separate entities."
Id. (Emphasis in original). The Court elaborated:
"Indeed, Gore permeates the substantive activities of
both GEH and FVI. Petitioners' employees and operations
are so intertwined with Gore as to be almost inseparable, as
the 'Legal Services Consulting Agreement,' and
reliance on Gore-for everything from professional services,
to things like office space-so indicate." Id.
Synopsis of SYL and Gore
previously stated, under SYL and Gore a
nexus or minimal contacts with the State of Maryland that
satisfies the constitutional requirements for income taxation
by Maryland can be established when a foreign wholly owned
subsidiary lacks economic substance as a business entity
separate and apart from its parent company that does business
in Maryland. See Gore, 437 Md. at 517-18;
SYL, 375 Md. at 106. Whether a subsidiary lacks
economic substance as a separate business entity is to be
determined on a case by case basis, by considering four
general factors. Gore, 437 Md. at 517.
a court should consider how dependent a subsidiary is on its
parent company for income. Id. at 519. Gore
and SYL instruct that a court should consider the
amount of income a subsidiary receives from its parent
company or other companies owned by the parent company.
Id. at 515, 517; SYL, 375 Md. at 84, 86,
94. A court also should consider how much income is generated
from third parties and how that income may compare with other
sources of the subsidiary's income. See Gore,
437 Md. at 517.
a court should consider whether there is a circular flow of
money from the parent company to the subsidiary and then back
to the parent. Id. at 515; SYL, 375 Md. at
84, 86, 96. SYL and Gore teach us that the
flow of money back to the parent can be evidenced in several
different ways, such as dividends and loans. See
Gore, 437 Md. at 515. At its core, this inquiry is
whether the parent is the one who controls the flow of money
and ultimately receives back the money paid to the
subsidiary, subject to any expenses incurred by the
a court should consider how much the subsidiary relies on the
parent for its core functions and services. Included in the
core functions utilized by the subsidiary are office space
and equipment, personnel, and corporate services.
Id.; SYL, 375 Md. at 86-88, 96. The
corporate services provided by the parent can include cash
management, marketing, purchasing, accounting, payroll, tax