In an order released in July 2021, the Illinois Tax Tribunal denied a taxpayer’s motion for summary judgment in a “unitary business” case, finding that there were disputed issues of fact as to whether the taxpayer was engaged in a unitary business with a company that the taxpayer sold. See Christopher v. Illinois Dep’t of Rev., 19 TT 131 (Ill. Tax Trib. Nov. 24, 2020, released July 2021). The taxpayer, T. Christopher Holding Company (“Holding Company”), claimed that it was not unitary with Vogue International, LLC (“Operating Company”), and thus its gain from the sale of Operating Company could not be included in Holding Company’s Illinois business income under U.S. constitutional principles and Illinois law. However, the Tribunal found that the Illinois Department of Revenue (“Department”) had presented sufficient evidence to establish a disputed issue of material fact that rendered summary judgment on this issue inappropriate.
ExxonMobil Oil Corporation, Hess Corporation, and Shell Oil Company (collectively, the “Oil Companies”) were recently dealt another blow in their ongoing transfer pricing dispute with the District of Columbia Office of Tax and Revenue (“OTR”). The Oil Companies are among several taxpayers that have been fighting the validity of the transfer pricing methodology employed by Chainbridge Software LLC (“Chainbridge”), the OTR’s third-party transfer pricing consultant. Just last year, the Oil Companies unsuccessfully sought to estop the OTR from relitigating the validity of the controversial Chainbridge methodology in light of the OAH’s holding in Microsoft Corp. v. Office of Tax and Revenue (2012) that the Chainbridge methodology was arbitrary, capricious and unreasonable (for prior coverage, see DC Office of Tax and Revenue Set to Relitigate Chainbridge Methodology in Oil Company Cases). In a January 26, 2018 Order, Office of Administrative Hearings (“OAH”) Administrative Law Judge Bernard H. Weberman denied the Oil Companies’ motion for summary judgment, holding that they failed to establish that the transfer pricing method employed by Chainbridge was arbitrary, capricious and unreasonable as a matter of law. Hess Corp., et. al. v. D.C. Office of Tax & Revenue, Case Nos. 2012-OTR-00027, 2011-OTR-00047, 2011-OTR-00049 (Jan. 26, 2018).
Baker McKenzie’s SALT practice secured a win for Leadville Insurance Company (“Leadville”) in Maryland Tax Court. The Court ruled in favor of Leadville on its Motion for Summary Judgment and held that the Comptroller’s assessment of Maryland corporate income tax on Leadville was in error. Leadville Insurance Co. v. Comptroller of the Treasury, Case No. 13-IN-OO-0035 (Md. Tax Ct. Mar. 30, 2017). The Court found that Leadville, a Vermont insurance company with interest income from an affiliate with Maryland operations, was not subject to Maryland corporate income tax.
Transfer pricing has occupied the state tax spotlight in recent years, as taxing authorities continue to challenge intercompany transactions (see “Keeping the State at Arm’s Length: State Transfer Pricing Recent Developments” for prior coverage of state transfer pricing developments). Because state revenue departments often lack the resources and expertise necessary to perform a thorough transfer pricing audit, some states have engaged third-party service providers—often on a contingent-fee basis—to conduct transfer pricing examinations or to prepare transfer pricing reports and analyses on their behalf. The District of Columbia Office of Tax and Revenue (“OTR”) is one example of a local taxing agency that has for years relied on a third-party “expert,” Chainbridge Software LLC (“Chainbridge”), to perform transfer pricing analyses.