News and Insights

Maryland Tax Court Affirms Taxation of Nonresident Parent Company

Tax Development Dec 18, 2018

After an audit of Manpower Inc.’s Maryland operating entities, the Maryland Comptroller’s office issued a Notice of Assessment to the parent company, which had not filed corporate tax returns in Maryland. With corporate headquarters in Wisconsin, the parent company initially contested Maryland’s jurisdiction to tax the nonresident parent but subsequently filed corporate tax returns for the years under audit. Manpower, Inc. calculated its Maryland taxable income using an alternative apportionment method allowed by statute in lieu of the standard three-factor apportionment method. The amount derived by this formula was less than the royalties that the Maryland entities paid to the parent. The Comptroller’s office also used an alternative apportionment methodology that has been approved by the Maryland courts. That formula starts with the royalties received by the parent from the Maryland operations. Manpower, Inc. challenged the usage of the nontraditional apportionment method for determining the proper Maryland-related income-producing activities.  

The Comptroller’s office focused on the fact that Manpower, Inc. was the owner of the intellectual property and received royalty payments from its Maryland operating companies for the usage of the Manpower System. Manpower, Inc. owned sufficient voting stock in the operational entities to control the companies’ policies and management. Corporate oversight was provided to all entities through the implementation of strategies and licensing agreements for the Manpower System. In return, the Maryland operating entities paid Manpower, Inc. a royalty fee based on the percentage of sales.

The Comptroller’s office calculated the Manpower, Inc. assessment using the same apportionment formula approved in Gore Enter. Holdings, Inc. v. Comptroller of the Treasury, 437 Md. 492 (Md. March 24, 2014), and by the Tax Court in Conagra Brands, Inc., et al. v. Comptroller, 2015 WL 854140 (Md. Tax Ct. 2015) and Staples, Inc., et al. v. Comptroller, 2015 WL 3799558 (Md. Tax Ct. 2015). 

Manpower, Inc. contended that the Comptroller was required to follow the statute and regulations, which dictated the appropriate apportionment methods to use on assessments.  However, as held by the cases cited above, the Tax Court agreed with the Comptroller in stating that the Court could look to the realities of the relationship between companies to fairly determine the amount of income that is traceable to Maryland. The Comptroller was not limited to statutorily or regulatory apportionment formulas when this would yield an apportionment factor that does not fairly represent the taxpayer’s activities in Maryland.   

Once again, the Tax Court affirmed the state’s ability to tax the income of a nonresident parent company by applying alternative apportionment. 


Mark Nachbar

Mary Bernard