TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, December 27, 2013

Court: Home Depot Cannot Use Out-of-State IP Affiliate to Shift Income From Arizona

Home DepotArizona Daily Sun:  Appeals Court: Companies Can’t be Split to Avoid Taxes:

National companies can’t divide up their business in ways designed solely to minimize their Arizona corporate tax liability, the state Court of Appeals has ruled.  [Home Depot v. Arizona Department of Revenue, No. 1-CA-TX-12-0005 (Ariz. Ct. App. Dec. 5, 2013)]

In a unanimous ruling, the judges rebuffed a bid by Home Depot USA Inc. to claim that an affiliate that owns the “Home Depot” trademark is not really part of the retail chain that is doing business in Arizona. The judges said the arguments presented by the company make no sense.

The ruling most immediately affects Home Depot with dozens of retail stores in the state. And the numbers may be huge.

Nationally, the company claims that the income from Home Depot stores in a three-year period at issue was $3.8 billion. But it says that revenues for that same period for the out-of-state affiliate known as “Homer” which happens to own the “Home Depot” trademark — and whose income the corporation argued could not be considered in Arizona — were $4.7 billion.

The exact dollar effect for Arizona was not listed in the court records. But the ruling has broader implications, affecting all major corporations and the ways they divide up their business.

(Hat Tip: Bob Kamman.)

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