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Keywords

hearingpatenttrademarkcorporationjudicial reviewappellant
patenttrademarkcorporationappellant

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Acme Royalty Co. v. Director of Revenue, 96 S.W.3d 72

Facts

Acme Royalty Company and Brick Investment Company were assessed for income derived from licensing trademarks and trade names to a related corporation, Acme Brick Company, which conducted business in Missouri. The Director of Revenue determined that these companies were subject to Missouri income tax based on the royalties received from Acme Brick. The Administrative Hearing Commission upheld the assessments, leading to the taxpayers seeking judicial review.

The Director of Revenue assessed Acme Royalty Company ('ARC' or 'Acme') and Brick Investment Company ('BIC'), collectively ('Appellants'), for income derived from the licensing of trademarks and trade names to a related corporation for the annual tax periods from 1992–96.

Issue

Did the payments resulting from the exclusive licensing agreements and patents between the corporate taxpayers and their related companies constitute sales in Missouri attributable to the taxpayers?

Did the payments resulting from exclusive licensing agreement and patents between corporate taxpayers and their related companies constitute sales in state attributable to taxpayers?

Rule

The taxable income of a corporation shall include all income derived from sources within Missouri, and for there to be Missouri source income, there must be some activity by the taxpayer in Missouri that justifies imposing the tax.

Section 143.431.1 states 'The taxable income of a corporation … shall be so much of its federal taxable income … as is derived from sources within Missouri as provided in section 143.451.'

Analysis

The court found that the Appellants had no Missouri source income because they had no sales in Missouri. The licensing agreements were negotiated and executed outside of Missouri, and the Appellants did not conduct any business, own property, or maintain employees in Missouri. Therefore, the income derived from the licensing agreements was not subject to Missouri taxation.

This Court finds that Appellants had no Missouri source income because they had no sales in Missouri.

Conclusion

The Supreme Court reversed the decision of the Administrative Hearing Commission and remanded the case, concluding that the Appellants did not have taxable income in Missouri.

The decisions of the AHC are reversed, and the cases are remanded.

Who won?

Acme Royalty Company and Brick Investment Company prevailed because the court determined that their income from licensing agreements did not constitute taxable sales in Missouri.

Acme Royalty Company and Brick Investment Company prevailed in the case because the court held that payments resulting from exclusive licensing agreements did not constitute sales in Missouri attributable to the taxpayers.

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