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Keywords

trademarkcorporation

Related Cases

American Dairy Queen Corp. v. Taxation and Revenue Dept., 93 N.M. 743, 605 P.2d 251, 210 U.S.P.Q. 683, 1979 -NMCA- 160

Facts

International Dairy Queen, Inc. (IDQ) and Taxpayer are Delaware Corporations, with Taxpayer being a wholly owned subsidiary of IDQ. They are involved in developing and franchising 'Dairy Queen' stores, which are owned by independent third parties. The stores operate under territorial franchise agreements, and Taxpayer received $67,516 from Territory Operators in New Mexico from 1972 to 1975, which formed the basis for the gross receipts tax assessment.

During the years 1972-1975, Taxpayer received $67,516.00 from Territory Operators. The receipts of those fees formed the basis for the assessment of the New Mexico Gross receipts tax against Taxpayer, the subject of this action.

Issue

Whether the franchise fees paid by New Mexico territorial franchisees to Taxpayer are subject to the New Mexico Gross Receipts Tax Act.

The issue is whether the franchise fees paid by New Mexico territorial franchisees to Taxpayer are subject to the New Mexico Gross Receipts Tax Act.

Rule

A franchisor, a foreign corporation, which enters into agreements with licensees in New Mexico for the use of its trade name and trademark is considered to be engaged in business in New Mexico under the Gross Receipts Tax Act.

In Aamco Transmissions v. Tax. & Rev. Dept., 93 N.M. 389, 600 P.2d 841 (Ct.App.1979) and Baskin-Robbins Ice Cream Co. v. Revenue Div., 93 N.M. 301, 599 P.2d 1098 (Ct.App.1979), this Court held that a franchisor, a foreign corporation, which entered into agreements with licensees in New Mexico for use of franchisor's trade name and trademark are engaged in business in New Mexico.

Analysis

The court determined that Taxpayer was engaged in business in New Mexico by allowing Territory Operators to use its trademarks and trade names, which constituted leasing property under the Gross Receipts Tax Act. The court rejected Taxpayer's arguments that it was not engaged in business due to the lack of direct ownership of stores or territorial rights, emphasizing that the use of its trade name and trademarks by TOs established its business presence in the state.

This is a distinction without a difference because TOs stand in the shoes of Aamco retail establishments for purposes of taxation. Taxpayer's trade name, trademark and related intangibles are used in New Mexico by TOs. This fact establishes that Taxpayer is 'engaged in business' in New Mexico and the consideration received by taxpayer from TOs is taxable as gross receipts.

Conclusion

The court affirmed the decision requiring Taxpayer to pay gross receipts taxes on the franchise fees, concluding that the imposition of the tax did not violate constitutional protections.

We hold that Aamco and Baskin-Robbins are controlling.

Who won?

The Director, Revenue Division prevailed in the case, as the court upheld the imposition of the gross receipts tax on Taxpayer, finding that Taxpayer was engaged in business in New Mexico.

Taxpayer could be denied equal protection of the law if it paid the tax as a licensor of trademarks and other such licensors did not pay.

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