Annapolis, Md. (June 18, 2003) -- State nexus, required by the Commerce Clause of the Constitution for states to impose tax on business entities, continues to be an issue as state legislatures and courts seek ways to prevent the loss of tax revenue.
The Maryland Court of Appeals has ruled that two Delaware corporations that do no business in Maryland, own no tangible property in Maryland, but are subsidiaries of parents that do business in Maryland, are subject to Maryland tax.
The corporations, subsidiaries of Syms, Inc. and Crown Cork & Seal Company, Inc., won at the state Tax Court and Circuit Court level, but the Court of Appeals reversed. The court said that both businesses were sham corporations without economic substance, "and that tax avoidance was the clear motivating factor and only business purpose."
"The line has been pushed a little toward the state side," said George Farrah, director of state services for BNA Tax Management. "Even though there may be a few factors which indicate that you're a real corporation, it wasn't enough in these cases. You have to do more than just window dressing to not be found a sham."
-- Roger Russell
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