When did a foreign trademark holding company have Louisiana corporation-income-tax nexus from licensing intangible property used in the state?

Plain-English summary

A foreign trademark holding company had Louisiana nexus when its intangible property purposefully generated Louisiana-source income and its connection with the state was more than de minimis.

Income from use of copyrights, patents, trademarks, trade names, trade secrets, service marks, know-how, and other intangibles was allocated to the state where the intangible was used.

Three-part application stated in the ruling

The foreign corporation was subject to Louisiana corporation income tax when:

1. Its intangible generated or sourced income in Louisiana through a license, sublicense, franchise, or similar arrangement.
2. The income-producing activity was purposeful.
3. The corporation's Louisiana presence through the intangible and related activity was more than de minimis.

Public Law 86-272 did not protect intangible licensing

The federal statute protected a foreign corporation whose sole in-state activity was solicitation of tangible-personal-property sales. The ruling said licensing, sublicensing, or transferring intangible property for continuing commercial exploitation in Louisiana fell outside that protection.

Contrasting examples

No nexus existed where an unrelated out-of-state manufacturer paid for a trademark independently of retail sales, the holding company lost control after manufacture, unrelated retailers sold some marked goods in Louisiana, and neither the holding company nor its affiliates, agents, or representatives conducted other Louisiana activity.

Nexus did exist where a trademark holding company licensed its mark to a related manufacturer whose manufacturing facility was in Louisiana.

Common questions

Q: Did the mere presence of a trademark on goods in Louisiana always create nexus?

A: No. The first example found no nexus on its specific lack-of-control and lack-of-activity facts.

Q: Did Public Law 86-272 protect trademark royalties?

A: No, according to the ruling.

Q: Where was intangible income allocated?

A: To the state or states where the intangible was used.

Citations and references

• La. R.S. 47:287.11 — Louisiana corporation income tax
• La. R.S. 47:287.93(A) — allocation of income from intangible use
• Public Law 86-272, 15 U.S.C. § 381 et seq.
• U.S. Constitution, Due Process and Commerce Clauses — nexus standards discussed in the ruling
• LAC 61:III.101.C — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 02-001

Original ruling text

Revenue Ruling
No. 02-001
May 13, 2002
Corporation Income Tax
Taxation of Certain Trademark Holding Companies
Purpose: The purpose of this revenue ruling is to address whether or not certain foreign trademark
holding companies have nexus with the state of Louisiana for purposes of the corporation income
tax.
Discussion: Under LSA R.S. 47:287.11, corporations are taxed on their Louisiana taxable income.
Louisiana taxable income is defined as Louisiana net income after adjustments less the federal
income tax deduction. Louisiana net income is net income that is earned within or derived from
sources within the state of Louisiana. The Secretary of Revenue construes these provisions to allow
taxation of domestic and foreign (chartered outside of Louisiana) corporations to the full extent
permitted by the Constitution and laws of the United States.
Income that is earned within or derived from sources within the state of Louisiana includes income
that is earned from the use of intangible property in the state. Intangible property generally includes,
but is not limited to, copyrights, patents, trademarks, trade names, trade secrets, service marks, and
know-how. Under LSA R.S. 47:287.93(A), income from the use of intangibles is allocated to the
state or states in which the intangibles are used.
In order for a state to impose a tax, the Due Process and Commerce Clauses of the United States
Constitution require that the taxpayer have a certain minimum connection, or nexus, with the state.
Under the Due Process Clause, the United States Supreme Court has held that the minimum
connection would exist so long as a foreign corporation purposefully availed itself of the benefits of
an economic market in the taxing state. Under the Commerce Clause, a state s right to tax will be
upheld if the tax is applied to an activity with a substantial nexus to the state, is fairly apportioned,
does not discriminate against interstate commerce and is fairly related to the services provided by
the state.
A foreign corporation having income that is earned within or derived from sources within the state
is not subject to the Louisiana corporation income tax if the taxpayer is protected by Public Law 86272 (15 U.S.C. ⁄ 381 et seq.). Public Law 86-272 precludes a state from imposing a corporate tax
measured by net income when a foreign corporation’s sole activity in the state is the solicitation of
sales of tangible personal property. Public Law 86-272 does not protect activities that are more than
de minimus and that fall outside the scope of solicitation. A de minimus activity is one that is only a
trivial additional connection with the state and serves no independent business function separate
from the solicitation of sales such as in-state recruitment, training, and evaluation of sales
representatives. This revenue ruling focuses on transactions in which a foreign corporation derives
income from licensing, sublicensing, or otherwise transferring intangible property for continuing
commercial exploitation in this state. These types of transactions are not protected by Public Law
86-272.
Application: A foreign corporation that earns or derives Louisiana income solely through the use of
its intangible property within Louisiana will be subject to the corporation income tax when:

Revenue Ruling No. 02-001
Page 2 of 2
1.
The intangible property generates, or is otherwise a source of, income within the state for the
corporation, including through a license, sub-license, or franchise; and
2.
The activity through which the corporation obtains such income from its intangible property
is purposeful; and
3.
The corporation’s presence within the state, as indicated by its intangible property and its
activities with respect to that property, is more than de minimis.
Examples: The following examples are provided to illustrate the application of this revenue ruling
and are not intended to be exhaustive.
1.
A trademark holding company owns a trademark that it licenses to an unrelated
manufacturing company. The manufacturing company and all its plants are located outside
Louisiana. The manufacturing company manufactures products that display the trademark. The
payment for the use of the trademark is unrelated to the retail sales of the licensed products. Once
the products are manufactured, the trademark holding company loses all rights to control of the
trademark. For example, it cannot dictate the price at which the products are sold or the type of
retailers that can carry the products. The manufacturing company sells some of the products bearing
the trademark through retail stores in several states, including Louisiana. The retail stores are
unrelated to the trademark holding company. The products are advertised by the manufacturer or by
the retailers. Other than the presence of their trademark on these products in retail stores, there is no
activity in Louisiana by the trademark holding company, its affiliates, agents, or representatives.
The trademark holding company does not have nexus with Louisiana.
2.
A trademark holding company owns a trademark that it licenses to a related manufacturing
company. The manufacturing company manufactures products that display the trademark. The
manufacturing facility is located in Louisiana. The trademark holding company has nexus with
Louisiana.
Cynthia Bridges
Secretary
By:

Leonore F. Heavey
Attorney
Policy Services Division

A Revenue Ruling is written to provide guidance to the public and to Department of Revenue employees. It is issued
under Section 61:III.101(C) of the Louisiana Administrative Code to apply principles of law to a specific set of facts. A
Revenue Ruling does not have the force and effect of law and is not binding on the public. It is a statement of the
department’s position and is binding on the department until superseded or modified by a subsequent change in statute,
regulation, declaratory ruling, or court decision.