ConAgra Foods RDM, Inc. v. Comptroller of the Treasury, No. 1940, September Term, 

2015. Opinion by Woodward, J.

TAXATION – INCOME TAX – CORPORATION INCOME TAX – TAXATION OF 

NON-DOMICILIARY CORPORATION – CONSTITUTIONAL REQUIREMENTS

For a state to tax a non-domiciliary corporation, such taxation must withstand constitutional 

scrutiny under both the Due Process and Commerce Clauses of the United States 

Constitution. Although these clauses have different purposes and requirements, they have 

significant parallels. The Due Process Clause requires that (1) there be a minimal 

connection between the interstate activities of the non-domiciliary corporation and the 

taxing state, and (2) there be a rational relationship between the income attributed to the 

taxing state and the intrastate values of the enterprise being taxed. The Commerce Clause 

requires that the tax in question (1) apply to an activity with a substantial nexus with the

taxing state, (2) be fairly apportioned, (3) not discriminate against interstate commerce, 

and (4) be fairly related to the services the taxing state provides.

TAXATION – INCOME TAX – CORPORATION INCOME TAX – TAXATION OF 

NON-DOMICILIARY CORPORATION – CONSTITUTIONAL REQUIREMENTS 

– LACK OF ECONOMIC SUBSTANCE AS A SEPARATE ENTITY

In Gore Enter. Holdings, Inc. v. Comptroller, 437 Md. 492 (2014), the Court of Appeals 

held that the constitutional requirements for taxation of out-of-state wholly owned 

subsidiary corporations are satisfied where the subsidiaries “ha[ve] no real economic 

substance as separate business entities” from their parent corporations that do business in 

Maryland. (quoting Comptroller v. SYL, Inc., 375 Md. 78, 106, cert. denied, 540 U.S. 984 

and cert. denied, 540 U.S. 1090 (2003)). After reviewing the Court of Appeals’ opinions 

in Gore and SYL, the Court articulated the four factors that courts should look to in 

determining whether a foreign wholly owned subsidiary lacks economic substance as a

business entity separate and apart from its parent corporation that does business in 

Maryland. First, a court should consider how dependent the subsidiary is on its parent 

company for income. Second, a court should consider whether there is a circular flow of 

money from the parent company to the subsidiary and then back to the parent. Third, a 

court should consider how much the subsidiary relies on the parent for its core functions 

and services. Fourth, a court should consider whether the subsidiary engages in substantive 

activity that is in any meaningful way separate from the parent. 

Applying these factors to the instant case, which involved a foreign wholly owned 

subsidiary, Brands, and Brands’s parent corporation, ConAgra, the Court held that there 

was substantial evidence to support the Tax Court’s findings of (1) Brands’s dependence 

on ConAgra and its other subsidiaries for the “vast majority” of its income, (2) the circular 

flow of money from ConAgra and its subsidiaries to Brands and back to ConAgra, (3)
Brands’s reliance on ConAgra for its core functions, and (4) Brands’s lack of any 

meaningful substantive activity separate from ConAgra.

The Court rejected Brands’s argument that third-party income received by Brands gave it

economic substance as a separate entity, noting that Brands received the vast majority of 

its income from ConAgra and the latter’s subsidiaries. The Court also rejected Brands’s

argument that, because Brands did not pay dividends or make loans to ConAgra, there was 

no circular flow of money between them, emphasizing that the cash management system 

utilized by ConAgra and its subsidiaries achieved the same functional result. The Court

additionally rejected Brands’s argument that the Tax Court, in affirming the Comptroller’s 

assessment against it, should have given more weight to the non-tax business reasons for 

the establishment of Brands. The Court noted that the motivation behind creating Brands 

was not dispositive. 

TAXATION – INCOME TAX – CORPORATION INCOME TAX –

APPORTIONMENT OF MARYLAND MODIFIED INCOME – 3-FACTOR 

FORMULA – MODIFICATION BY COMPTROLLER – USE OF BLENDED 

APPORTIONMENT FORMULA

The Tax General Article provides that, where a corporation does business both within and 

outside of the state, the corporation shall allocate to Maryland the part of the corporation’s 

Maryland modified income that is derived from or reasonably attributable to the part of its 

trade or business carried on in Maryland. TG § 10-402(a)(2) (now §10-402(b)(2)). 

Although the Tax General Article lays out a 3-factor apportionment formula, the Article 

also empowers the Comptroller to modify elements of the formula “[t]o reflect clearly the 

income allocable to Maryland[.]” TG § 10-402(e). The Court held that, because utilizing 

the traditional 3-factor formula would have resulted in an apportionment factor of zero for 

Brands’s payroll, property, and sales in Maryland, the Comptroller had adequately 

demonstrated the need to alter the 3-factor formula. The Court further held that the 

Comptroller did not err or abuse its discretion in utilizing a “blended apportionment factor” 

that was derived from the apportionment factors used by ConAgra and its subsidiaries. 

 

TAXATION – INCOME TAX – INTEREST – WAIVER OF INTEREST AND 

PENALTIES BY THE TAX COURT

The authority to abate interest owed on unpaid taxes vests both in the tax collector and the 

Tax Court. When reviewing the Comptroller’s decision not to abate interest, the Tax Court 

must consider whether the taxpayer has demonstrated with affirmative evidence that 

reasonable cause exists for abatement or that the tax Comptroller’s decision was an obvious 

error. Noting that “reasonable cause” is not defined in the Tax General Article, and that 

courts give great weight to the legal conclusions of administrative agencies regarding the 

statutes that they administer, the Court held that the Tax Court may properly find that 
reasonable cause exists for abatement of interest where there is uncertainty in the state of 

the caselaw when applied to the circumstances of a particular taxpayer. 
Circuit Court for Anne Arundel County 

Case No. C-02-CV-15-000993

REPORTED

IN THE COURT OF SPECIAL APPEALS

OF MARYLAND

No. 1940

September Term, 2015

______________________________________

CONAGRA FOODS RDM, INC.

v.

COMPTROLLER OF THE TREASURY

______________________________________

Arthur,

Leahy,

*Woodward,

JJ.

______________________________________

Opinion by Woodward, J.

______________________________________

 Filed: June 27, 2019

*Woodward, Patrick L., J., now retired, 

participated in the hearing of this case while an 

active member of this Court; after being recalled 

pursuant to the Constitution, Article IV, Section 

3A, he also participated in the decision and the 

preparation of this opinion.

**Fader, C.J. and Kehoe, J., did not participate 

in the Court’s decision to designate this opinion 

for publication pursuant to Md. Rule 8-605.1.
Appellant, ConAgra Foods RDM, Inc., formerly known as ConAgra Brands, Inc. 

(“Brands”),1is an intellectual property holding company and a direct and indirect wholly 

owned subsidiary of ConAgra Foods, Inc., formerly known as ConAgra, Inc. (“ConAgra”).

Brands was incorporated in 1996 in Nebraska and has a principal office in Omaha, 

Nebraska. During the time period of 1996 through 2003, ConAgra conducted business 

operations in Maryland and filed corporation income tax returns in Maryland. For the same 

time period, Brands did not file any Maryland corporation income tax returns. Because 

Brands received royalties from ConAgra,2appellee, the Comptroller of the Treasury

(“Comptroller”), on August 30, 2007, assessed Brands $2,768,588 in back taxes, interest, 

and penalties for the tax years of 1996 through 2003. Brands appealed this assessment, 

and the Comptroller affirmed by issuing a Notice of Final Determination on January 23, 

2009.

On February 23, 2009, Brands appealed to the Tax Court. After a hearing, the Tax 

Court ruled, in a Memorandum of Grounds for Decision dated February 24, 2015, that 

Brands lacked economic substance as a business entity separate from ConAgra and thus 

allowed the Comptroller to impose the tax assessment. The Tax Court, however, abated

the interest accrued from the date of the appeal to that court to the date of its decision, and 

all penalties. Brands and the Comptroller filed petitions for judicial review in the Circuit 

 

1 Throughout this opinion, we will refer to ConAgra Foods RDM, Inc. as Brands. It 

is undisputed that ConAgra Brands, Inc., a Nebraska corporation, and ConAgra Foods 

RDM, Inc., a Delaware corporation, merged in 2007. 

2 Brands also received royalties from other wholly owned subsidiaries of ConAgra 

who filed corporation income tax returns in Maryland. 
2

Court for Anne Arundel County, which resulted in the court affirming the Tax Court’s

decision, except for the latter’s abatement of interest accruing from March 24, 2014 to 

February 24, 2015. Brands then filed this timely appeal. 

 Brands presents eight questions for our review, which we have rephrased and 

condensed into three:

3

 

 

3 Brands’s questions, as set forth in its brief, are as follows:

1. Did the Tax Court commit error when it confirmed the Comptroller’s 

assessment against Brands even though Brands had economic substance 

as a separate business entity?

2. Did the Tax Court commit error when it failed to find that the 

Comptroller’s assessment against Brands violated the Due Process 

Clause of the United States Constitution because Brands did not 

purposefully avail itself of the Maryland marketplace and had no other 

contacts with the state?

3. Did the Tax Court commit error when it failed to confirm that the 

Comptroller’s assessment against Brands violated the Commerce Clause 

of the United States Constitution because Brands lacked a substantial 

nexus with the state?

4. Did the Tax Court commit error when it confirmed the Comptroller’s 

assessment against Brands even though the Comptroller failed to follow 

the Sec. 10-402(c) standard statutory apportionment formula?

5. Did the Tax Court commit error when it confirmed the Comptroller’s 

assessment against Brands even though the Comptroller, in adopting an 

apportionment methodology[,] failed to establish that the statutory 

apportionment formula did not fairly represent the extent of Brands’[s] 

business activities in the state?

6. Did the Tax Court commit error when, in violation of the Due Process 

and Commerce Clauses of the United States Constitution, it confirmed 

the Comptroller’s adoption of an alternative apportionment formula that 

failed to reasonably reflect Brands’[s] business activities in the state?

7. Did the Tax Court commit error by confirming the Comptroller’s 

assessment against Brands in finding that Brands lacked economic 

substance and, as a result, essentially did not, for tax purposes, exist as a 

separate legal entity?

8. Did the Tax Court abuse its discretion when it partially waived interest 

on the tax assessment against Brands?
3

1. Was there substantial evidence to support the Tax Court’s 

ruling that Brands lacked economic substance as a business 

entity separate from ConAgra and thus had the 

constitutionally required nexus and minimum contacts with 

Maryland to subject Brands to income taxation by Maryland 

for the royalties received by Brands from ConAgra and its 

subsidiaries arising out of the latters’ business activities in 

Maryland? 

2. Was there substantial evidence to support the Tax Court’s 

ruling that the Comptroller had the statutory authority to use 

a blended apportionment formula to determine Brands’s 

Maryland income and that the blended apportionment 

formula clearly reflected Brands’s income allocable to 

Maryland?

3. Did the Tax Court properly interpret the tax statute when it 

waived interest on the income tax due from Brands that 

accrued from the date of the filing of its appeal to the Tax 

Court (February 23, 2009) to the date of the issuance of that 

court’s decision (February 24, 2015)? 

For the reasons set forth below, we uphold the decision of the Tax Court in all respects and 

thus affirm in part and reverse in part the judgment of the circuit court.

BACKGROUND

ConAgra is a conglomerate known for its agricultural products and products in the 

processed food industry including, but not limited to, Hunts, Orville Redenbacher, 

Butterball Turkey, and ACT II. In the late 1990s, ConAgra had multiple wholly owned 

subsidiaries (also known as independent operating companies), including Swift-Eckrich, 

Inc., Hunt-Wesson, Inc., and Beatrice Cheese, Inc. The multitude of ConAgra’s wholly 

owned subsidiaries began to present management problems for ConAgra, and in 1996,

ConAgra began a program focused on corporate centralization. 

One such centralization initiative occurred in April 1996 when ConAgra decided to 
4

centralize management of the intellectual property owned by it and its subsidiaries. To 

effectuate this goal, ConAgra incorporated Brands in Nebraska. Brands issued 2,207 

shares of common stock, distributing 1,000 shares to ConAgra, 594 shares to SwiftEckrich, Inc, 560 shares to Hunt-Wesson, Inc., and 53 shares to Beatrice Cheese, Inc. In 

exchange, Brands acquired forty-six initial trademark groups and subsequently acquired 

numerous other trademark groups from these entities. Brands then entered into license 

agreements for the trademark groups with ConAgra and the three subsidiaries, under which 

ConAgra and these subsidiaries paid Brands royalties.4 

From 1996 to 2003, Brands did not file Maryland tax returns, but ConAgra and some 

of its subsidiaries did file Maryland tax returns. After an audit, the Comptroller sent Brands 

a “Notice and Demand to File Maryland Corporation Income Tax Returns” in 2007. When

Brands did not respond to the Comptroller’s notice and demand, the Comptroller issued a 

“Notice of Assessment” for the tax years of 1996 to 2003 for a total of $2,768,588 in back 

taxes, interest, and penalties as of August 30, 2007. Upon Brands’s request, an 

administrative appeal was held on December 4, 2007, concerning the Comptroller’s 

assessment. On January 23, 2009, the Comptroller issued a “Notice of Final 

Determination[,]” concluding that Brands then owed $3,053,222 in back taxes, interest, 

and penalties. Brands filed a timely Petition of Appeal to the Tax Court on February 23, 

2009. 

 

4 Although not clear from the record, it appears that during the tax years in question, 

royalties were paid to Brands by ConAgra and either the three subsidiaries or their 

respective successors. 
5

After a two-day hearing concluding on October 7, 2010, the Tax Court issued its 

opinion upholding the Comptroller’s assessment on February 24, 2015. The Tax Court 

stated that the “initial inquiry [was] to determine whether [Brands] had real economic 

substance as a business separate from ConAgra.” Citing to Comptroller v. SYL, Inc., 375 

Md. 78, cert. denied, 540 U.S. 984 and cert. denied, 540 U.S. 1090 (2003) and Gore Enter. 

Holdings, Inc. v. Comptroller, 437 Md. 492 (2014), the Tax Court observed that, under the 

economic substance doctrine set forth in those cases, an out-of-state subsidiary “must have 

economic substance as a separate entity from its parent to avoid nexus and taxation.” After 

a review of the evidence before it, the court concluded that Brands lacked any economic 

substance separate from ConAgra. Because a portion of Brands’s income was produced 

from the business of ConAgra and its subsidiaries in Maryland, the court held that there 

was sufficient nexus to support the income taxation of Brands. 

The Tax Court then considered whether the Comptroller applied an appropriate 

apportionment formula in calculating the income tax that Brands owed to Maryland. The 

Tax Court determined that the Comptroller’s blended apportionment formula was 

permissible, because “the Comptroller effectively utilized ConAgra’s own apportionment 

figures in constructing the blended apportionment factor used in this case.”

5 Finally, the 

Tax Court abated the interest accruing after the date of filing the appeal to the Tax Court

(February 23, 2009) to the date of the Tax Court’s decision (February 24, 2015), and all 

 

5 The record revealed that the apportionment factor was calculated using the 

apportionment factors of ConAgra and its subsidiaries that filed corporation income tax 

returns in Maryland.
6

penalties.

6

On March 17, 2015, Brands filed a petition for judicial review in the circuit court 

challenging the Tax Court’s ruling that it was subject to Maryland tax, as well as the 

Comptroller’s apportionment formula. The Comptroller filed a cross-petition for judicial 

review challenging the Tax Court’s decision to abate all interest accruing from the date of 

filing the appeal with the Tax Court to the issuance of that court’s decision. After a hearing 

on September 21, 2015, the circuit court issued an opinion and order on October 30, 2015, 

affirming the Tax Court in all respects, except for the latter’s abatement of interest accruing 

from March 24, 2014 to February 24, 2015.

7

Brands filed this timely appeal. Additional facts will be set forth below as they 

become necessary to the resolution of the questions presented in this appeal. 

STANDARD OF REVIEW 

The Tax Court is an adjudicatory administrative agency; “our review looks through 

the circuit court’s . . . decision[ ] . . . and evaluates the decision of the agency.” Gore, 437 

 

6 The Tax Court also concluded that the assessment, which was issued in 2007, was 

not barred by the statute of limitations, because the “three-year statute of limitations for 

assessments does not apply when a taxpayer does not file a required return,” and Brands 

did not file a return for any of the tax years at issue. That ruling is not at issue before this 

Court. 

7 The circuit court viewed the instant case “to be substantially similar to the factual 

situation in Gore, and as such, the [c]ourt finds that the interest in the instant case should 

be treated in the same way as it was treated in Gore.” In Gore, the Court of Appeals did 

not disturb the Comptroller’s assessment of interest. Gore, 437 Md. at 503. The circuit 

court held that the Tax Court abused its discretion by abating the interest “collected after 

the date of issuance of the Gore decision on March 24, 2014.” 
7

Md. at 503 (some alterations in original) (internal quotation marks omitted). The Court of 

Appeals has further explained our review of a decision of the Tax Court as follows:

An administrative agency’s findings of fact must meet the 

substantial evidence standard. Frey [v. Comptroller,] 422 Md. [111,] 

[ ] 137, 29 A.3d [475,] [ ] 490 (citations omitted). Thus, we 

determine “‘whether a reasoning mind reasonably could have 

reached the factual conclusion the agency reached.’” Frey, 422 Md. 

at 137, 29 A.3d at 490 (quoting State Ins. Comm’r v. Nat’l Bureau 

of Cas. Underwriters, 248 Md. 292, 309, 236 A.2d 282, 292 (1967)). 

It is not our place to “make an independent original estimate of our 

decision on the evidence.... [or determine for ourselves], as a matter 

of first instance, the weight to be accorded to the evidence before the 

agency.” In Ramsay Scarlett & Co., Inc. v. Comptroller of the 

Treasury, 302 Md. 825, 838, 490 A.2d 1296, 1303 (1985) (citations 

omitted), we cautioned:

[T]hat a reviewing court may not substitute its judgment 

for the expertise of the agency; that we must review the 

agency’s decision in the light most favorable to it; that 

the agency’s decision is prima facie correct and presumed 

valid; and that it is the agency’s province to resolve 

conflicting evidence and where inconsistent inferences 

can be drawn from the same evidence it is for the agency 

to draw the inferences.

Ramsay, 302 Md. at 834–35, 490 A.2d at 1301 (citations omitted).

“[T]he interpretation of the tax law can be a mixed question of 

fact and law, the resolution of which requires agency expertise.” 

Comptroller of the Treasury v. Citicorp Int’l Commc’ns, Inc., 389 

Md. 156, 164, 884 A.2d 112, 116–17 (2005) (citing NCR Corp. v. 

Comptroller, 313 Md. 118, 133–34, 544 A.2d 764, 771 (1988)). In 

reviewing mixed questions of law and fact, “we apply ‘the

substantial evidence test, that is, the same standard of review [we] 

would apply to an agency factual finding.’” Comptroller of the 

Treasury v. Science Applications Intern. Corp., 405 Md. 185, 193, 

950 A.2d 766, 770 (2008) (quoting Longshore v. State, 399 Md. 486, 

522 n. 8, 924 A.2d 1129, 1149 n. 8 (2007)).
8

The legal conclusions of an administrative agency that are 

“premised upon an interpretation of the statutes that the agency 

administers” are afforded “great weight.” Frey, 422 Md. at 138, 29 

A.3d at 490 (citations omitted). Agency decisions premised upon 

case law, however, are not entitled to deference. Frey, 422 Md. at 

138, 29 A.3d at 490 (“When an agency’s decision is necessarily 

premised upon the ‘application and analysis of caselaw,’ that 

decision rests upon ‘a purely legal issue uniquely within the ken of 

a reviewing court.’” (quoting [People’s Counsel for Baltimore Cty. 

v.] Loyola College [in Md.], 406 Md. [54,] [ ] 67–68, 956 A.2d [166,] 

[ ] 174 [2008])).

Id. at 504-05 (some alterations in original). 

DISCUSSION

I. Taxation and the United States Constitution

For a state to tax a non-domiciliary company, like Brands, such taxation must 

withstand constitutional scrutiny under the Due Process and Commerce Clauses of the 

United States Constitution. Gore, 437 Md. at 506-07. The satisfaction of these 

constitutional restrictions on government action have different purposes and requirements, 

but these clauses also have “significant parallels.” South Dakota v. Wayfair, Inc., 138 S. 

Ct. 2080, 2093 (2018).

The Due Process Clause imposes restrictions on the government to act in a fair 

manner and provide “fair warning.” Gore, 437 Md. at 507. Under the Due Process Clause, 

there are “two requirements: [1] a ‘minimal connection’ between the interstate activities 

and the taxing State, and [2] a rational relationship between the income attributed to the 

State and the intrastate values of the enterprise.” Mobil Oil Corp. v. Comm’r of Taxes of 

Vermont, 445 U.S. 425, 436-37 (1980).
9

The Commerce Clause, on the other hand, 

was designed to prevent States from engaging in economic 

discrimination so they would not divide into isolated, separable 

units. See Philadelphia v. New Jersey, 437 U.S. 617, 623, 98 S. Ct. 

2531, 57 L.Ed.2d 475 (1978). But it is “not the purpose of the 

[C]ommerce [C]lause to relieve those engaged in interstate 

commerce from their just share of state tax burden.” Complete Auto

[Transit, Inc. v. Brady, 430 U.S. 274, 288 (1977)] (internal quotation 

marks omitted).

Wayfair, 138 S. Ct. at 2093-94 (alterations in original). The Commerce Clause requires 

that a tax “(1) appl[y] to an activity with a substantial nexus with the taxing State, (2) [be] 

fairly apportioned, (3) [ ] not discriminate against interstate commerce, and (4) [be] fairly 

related to the services the State provides.” Id. at 2091. The first prong of the Commerce 

Clause “test simply asks whether the tax applies to an activity with a substantial nexus with 

the taxing State. [S]uch a nexus is established when the taxpayer [or collector] avails itself 

of the substantial privilege of carrying on business in that jurisdiction.” Id. at 2099

(alterations in original) (internal citation and quotation marks omitted). In holding that 

such nexus can be satisfied through “economic and virtual contacts,” the Court overturned 

its previous precedent of requiring that a company have physical presence within the State 

imposing taxation, and in so doing, moved the nexus requirement in the Commerce Clause 

and the Due Process Clause requirement of minimal contacts into closer alignment. See 

id. at 2092-93 (“This nexus requirement is closely related to the due process requirement 

that there be some definite link, some minimum connection, between a state and the person, 

property or transaction it seeks to tax.” (internal citation and quotation marks omitted)).
10

II. Lack of Economic Substance as a Separate Entity

In the instant case, Brands is an out-of-state direct and indirect wholly owned 

subsidiary of ConAgra. During the tax years in question, Brands received royalties under 

the trademark license agreements from ConAgra and its subsidiaries, a portion of which 

was derived from the business activities of ConAgra and its subsidiaries in Maryland. In 

SYL and Gore, the Court of Appeals held that the constitutional requirements for state 

taxation of out-of-state wholly owned subsidiary corporations are satisfied where the 

subsidiaries “‘had no real economic substance as separate business entities.’” Gore, 437 

Md. at 513-14 (quoting SYL, 375 Md. at 106) (bold emphasis in Gore). In other words, the 

Due Process Clause requirement of “minimum contacts” and the Commerce Clause 

requirement of “nexus” are satisfied for such subsidiaries “‘based upon their parent 

corporations’ Maryland business[.]’” Gore, 437 Md. at 514 (alteration in original) (quoting 

SYL, 375 Md. at 109). Therefore, the central issue raised in the instant case is whether 

Brands had real economic substance as a business entity separate from ConAgra. To 

resolve this issue, we must begin with a close examination of SYL and Gore.

A. SYL

In SYL, the Court of Appeals consolidated two cases in which the Comptroller 

assessed Maryland taxes against foreign intellectual property holding companies that were 

wholly owned subsidiaries of parent companies doing business in Maryland. 375 Md. at 

80-81, 92.

The first case involved the clothing company Syms, Inc. (“Syms”). Id. at 81. Syms 

created a wholly owned subsidiary, SYL, Inc. (“SYL”), and incorporated this subsidiary in 
11

Delaware. Id. Syms then transferred all of its intellectual property to SYL, and “SYL 

granted to Syms a license to manufacture, use and sell the products covered by the trade

names and trademarks in [Syms]’s business[.]” Id. SYL received royalties pursuant to its 

license agreement with Syms, and SYL, in turn, would issue dividends to Syms — the 

owner of all of SYL’s stock. Id. at 81, 86. Although Syms filed Maryland corporation

income tax returns, SYL did not, and in 1996, the Comptroller issued an assessment against 

SYL “for the years 1986 through 1993 [in the] amount of $637,362 in corporate income 

taxes, including interest and penalties.” Id. at 81. 

The companion case involved Crown Cork & Seal Company (Delaware) (“Crown 

Delaware”). Id. at 92. Crown Delaware was a wholly owned subsidiary of Crown Cork & 

Seal Company, Inc. (“Crown Parent”), which was “a corporation engaged in the 

manufacturing and sale of metal cans, crowns, and closures for bottles, can-filling 

machines, and plastic bottles and containers, world-wide, including in the State of 

Maryland.” Id. (internal quotation marks omitted). Crown Delaware was a Delaware 

corporation created by Crown Parent to manage its intellectual property, and Crown 

Delaware acquired “thirteen domestic patents and sixteen trademarks” from Crown Parent. 

Id. “Crown Delaware then granted to Crown Parent an exclusive license . . . [and] Crown 

Parent agreed to pay Crown Delaware a royalty based on Crown Parent’s sales.” Id. at 94. 

Then, Crown Delaware would provide Crown Parent with loans, sometimes the same day 

as it received royalties from Crown Parent. Id. at 96. Like SYL and Syms, Crown 

Delaware did not file corporation income tax returns in Maryland, but Crown Parent did. 
12

Id. at 92. The Comptroller issued an assessment against Crown Delaware for $1,421,034 

in back taxes including interest and penalties, for the years 1989 through 1993. Id. 

SYL and Crown Delaware took separate appeals to the Tax Court. Id. at 84, 93. In 

separate decisions, the Tax Court concluded that Maryland did not have the authority to 

tax SYL and Crown Delaware, because both companies were not completely shell 

corporations and neither had a sufficient nexus with Maryland. Id. at 88-90, 98-99. The 

Comptroller appealed both cases, and the circuit court upheld the Tax Court in separate

rulings. Id. at 91, 99. Again, the Comptroller appealed, but before the appeals were heard 

by this Court, the Court of Appeals granted the petitions for a writ of certiorari. Id. 

On appeal, the Court of Appeals examined this Court’s opinion in Comptroller v. 

Armco Exp. Sales Corp., 82 Md. App. 429, cert. denied, 320 Md. 634 (1990), and cert. 

denied, 498 U.S. 1088 (1991). SYL, 375 Md. at 103-05. In that case, this Court considered 

whether Maryland had the authority to tax three subsidiaries created by Armco, Inc., 

General Motors, and Thiokol. Id. at 103. These subsidiaries were known as “Domestic 

International Sales Corporation[s] or DISC[s,]” and their sole purpose was to buy goods 

from their respective parents and then resell the goods to overseas customers, incurring for 

the parent a federal tax benefit. Id. at 103-04. This Court held that Maryland could tax the 

income of the DISCs. Id. at 105. We noted that the parent companies conducted business 

in Maryland. Id. at 104. We also noted that the DISCs relied completely on their respective

parent corporations, because each DISC had “no tangible property or employees and 

c[ould] only conduct its activity and do business through branches of its unitary affiliated 

parent.” Id. (internal quotation marks omitted). 
13

The Court of Appeals adopted our Armco reasoning and applied it to SYL and 

Crown Delaware. Id. at 106. The Court noted that SYL and Crown Delaware resembled 

the DISC corporations in Armco, “except that SYL and Crown Delaware had a touch of 

‘window dressing’ designed to create an illusion of substance.” Id. The Court continued: 

Neither subsidiary had a full time employee, and the ostensible part 

time “employees” of each subsidiary were in reality officers or 

employees of independent “nexus-service” companies. The annual 

wages paid to these “employees” by the subsidiaries were 

minuscule. The so-called offices in Delaware were little more than 

mail drops. The subsidiary corporations did virtually nothing; 

whatever was done was performed by officers, employees, or 

counsel of the parent corporations. The testimony indicated that, 

with respect to the operations of the parents and the protections 

of the trademarks, nothing changed after the creation of the 

subsidiaries. Although officers of the parent corporations may have 

stated that tax avoidance was not the sole reason for the creation of 

the subsidiaries, the record demonstrates that sheltering income from 

state taxation was the predominant reason for the creation of SYL 

and Crown Delaware. 

Id. (Emphasis added). 

Indeed, the undisputed record revealed that SYL was completely dependent on

Syms for income, and all income was returned to Syms in the form of dividends. Id. at 84, 

86. SYL’s Board of Directors were all officers of Syms, except that one Board member, 

Edward Jones, was an accountant employed by the firm Gunnip and Company — a firm 

SYL hired to provide services, such as a mailing address, and to establish a presence in 

Delaware. Id. at 86-87. Daily expenses at SYL were minimal, the record indicating that 

SYL only spent $2,400 a year for services provided by Gunnip and Company, which 

included $1,200 a year for the “salary” of Jones, SYL’s sole employee. Id. at 87. No 

expenses were for the protection of any trademarks, and SYL’s license agreement with 
14

Syms provided Syms with full control over the trademarks and the protection of the marks. 

Id. at 87-88. 

As to Crown Delaware, the undisputed record revealed that Crown Parent held the 

exclusive license to Crown Delaware’s intellectual property. Id. at 94. Crown Delaware 

and Crown Parent’s circular flow of money was evidenced by Crown Parent paying Crown 

Delaware royalties and Crown Delaware loaning money back to Crown Parent, sometimes 

on the same day. Id. at 96. The day to day operations of Crown Delaware were handled 

by Organization Services, Inc. (“OSI”). Id. at 94-95. For $100 a month, OSI provided 

office space, a mailing address, and nine part-time employees who were paid a total of 

$843.66 in wages for 1993. Id. at 95-96. In short, Crown Delaware’s revenues “averaged 

around thirty-seven million dollars annually” but only spent on average just over two 

thousand dollars annually in expenses — none of which were for legal fees. Id. at 97. The 

record was devoid of any indication that Crown Delaware performed any function to 

promote or preserve the intellectual property it had acquired from Crown Parent. Id. at 97-

98. 

The Court of Appeals concluded that “SYL and Crown Delaware had no real

economic substance as separate business entities.” Id. at 106. Accordingly, the Court held 

“that a portion of SYL’s and Crown Delaware’s income, based upon their parent 

corporations’ Maryland business, is subject to Maryland income tax.” Id. at 109. 

B. Gore 

Gore is the most recent case involving the taxation of a foreign intellectual property 

holding company that is a wholly owned subsidiary of a corporation doing business in 
15

Maryland. 437 Md. 492. In Gore, W.L. Gore & Associates, Inc. (“Gore”) was a 

manufacturing company of “fabrics, medical devices, electronics, and industrial products”

that operated factories in several states, including Maryland. Id. at 499-500. In 1983, Gore 

incorporated Gore Enterprise Holdings, Inc. (“GEH”) in Delaware to manage its patents. 

Id. at 500. Gore assigned to GEH all of its patents and certain other assets in exchange for 

GEH’s entire stock. Id. GEH then licensed the patents back to Gore for a royalty fee on 

all products sold by Gore. Id. GEH also entered into a licensing agreement with Gore that 

allowed Gore’s attorneys to control the legal defense to patent infringement, licensing 

activities, and patent applications. Id. In addition, GEH did not have any employees until 

1995, when it hired one employee to manage the patent portfolio. Id. at 500-01.

In 1996, Gore incorporated Future Value, Inc. (“FVI”) 

in Delaware to manage Gore’s excess capital. A Gore-employed 

attorney incorporated it, and two members of the Gore Board, along 

with GEH’s Vice President, comprised the FVI Board. Upon FVI’s 

formation, GEH transferred all of its investment securities to FVI, in 

exchange for all of the shares of FVI. GEH then declared a dividend 

to its sole shareholder, Gore, in the form of the FVI stock. This made 

Gore the sole owner of FVI. FVI was founded primarily to perform 

investment management functions, but has also extended Gore a line 

of credit when Gore experienced negative cash flow. As of 2008, 

FVI had three employees that handled, monitored, and recorded the 

various activities performed by FVI. 

Id. at 501 (footnote omitted). 

In 2006, the Comptroller assessed back income taxes, interest, and penalties in the 

amount of $26,436,315 against GEH for the years 1983 through 2003. Id. Concurrently, 

the Comptroller assessed FVI $2,608,895 in back income taxes, interest, and penalties for 

the years 1996 through 2003. Id. The Tax Court upheld the Comptroller’s tax assessment,
16

ruling that GEH and FVI lacked economic substance separate from Gore, but the circuit 

court reversed. Id. at 501-02. The Comptroller appealed to this Court, and we upheld the 

Tax Court’s ruling that GEH and FVI were subject to Maryland tax. Id. at 502. GEH and 

FVI petitioned the Court of Appeals for a writ of certiorari, which was granted. Id.

The Court of Appeals began its analysis by agreeing with the Tax Court that the 

threshold issue on appeal was whether GEH and FVI lacked economic substance as 

business entities separate from Gore. The Court observed that the Tax Court 

marshaled numerous factual findings, supported by substantial 

record evidence. These included the following:

• There were no outside Directors of GEH or FVI and prior to 

1996 the W.L. Gore family dominated the Officer list.

• FVI was simply an intentional depository for assets built up 

through royalties paid to the patent company, GEH.

• In effect, GEH does not create, invent or make anything and 

must rely on W.L. Gore employees to invent the new process or 

product. Thus, an idea generated by a technologist with W.L. 

Gore is prepared by GEH through an application for filing with 

the patent office. In most cases, the employees of W.L. Gore 

review the patent application and determine whether it should be 

pursued.

• The testimony in the case suggests that GEH relied on W.L. 

Gore for a continuing stream of inventions and discoveries as set 

forth in the materials that make up the patent application.

• The manufacture or sale of the product by W.L. Gore obligates 

the payment of royalties to GEH under the License Agreement.

• GEH as licensor to W.L. Gore, Inc., licensee, is dependent on 

the licensee’s activities to obtain consideration for grants of the 

license. Although GEH has separate corporate status, the interdependence reflected in the third party License Agreements 
17

suggests that the patent committee of GEH strongly considers the 

interest of W.L. Gore in making its decisions.

• One witness for GEH who described herself as a Patent 

Administrator confirmed that W.L. Gore employees would 

prepare patent applications at no cost to GEH and that payments 

were made for GEH in accordance with the Service Agreement 

with W.L. Gore.

• [An economist for Petitioners] agreed that W.L. Gore and GEH 

had globally integrated goals and that a synergy existed between 

W.L. Gore and GEH due to the relationship between patents and 

products.

• Testimony from [ ] Petitioners’ witnesses consistently suggested 

that nearly all of the third-party licenses came about in order to 

produce benefits for W.L. Gore or for the “W.L. Gore family of 

companies.”

• In 1996, W.L. Gore was experiencing some negative cash flow 

when W.L. Gore asked FVI for a line of credit to meet current 

operating needs which continued through 1999. The intercompany loans reflected the intercompany dependence of FVI.

• The audits reflected through the inter-corporate transactions and 

Service Agreement that the Delaware Holding Companies relied 

on W.L. Gore for revenues and services.

Id. at 516-17 (alterations in original) (footnote omitted). 

The Court then summarized the four primary factual conclusions that led the Tax 

Court to properly rule that GEH and FVI lacked economic substance as business entities 

separate from Gore: 

[1] the subsidiaries’ dependence on Gore for their income, [2] the 

circular flow of money between the subsidiaries and Gore, [3] the 

subsidiaries’ reliance on Gore for core functions and services, and 

[4] the general absence of substantive activity from either subsidiary 

that was in any meaningful way separate from Gore. 

Id. at 517. 
18

According to GEH and FVI, however, SYL was distinguishable, because GEH and 

FVI “engaged in more substantive activities than those in SYL.” Id. at 519. Specifically,

“GEH acquired patents from third parties, licensed patents to third parties, and paid 

substantial fees for outside legal counsel and other services.” Id. The Court characterized 

these activities as “more ‘window dressing’ than the SYL subsidiaries,” but concluded that

“these additional trappings do not imbue GEH and FVI with substance as separate 

entities.” Id. (Emphasis in original). The Court elaborated: “Indeed, Gore permeates the 

substantive activities of both GEH and FVI. Petitioners’ employees and operations are so 

intertwined with Gore as to be almost inseparable, as the ‘Legal Services Consulting 

Agreement,’ and reliance on Gore—for everything from professional services, to things 

like office space—so indicate.” Id. at 519-20. 

C. Synopsis of SYL and Gore

As previously stated, under SYL and Gore a nexus or minimal contacts with the 

State of Maryland that satisfies the constitutional requirements for income taxation by

Maryland can be established when a foreign wholly owned subsidiary lacks economic 

substance as a business entity separate and apart from its parent company that does business 

in Maryland. See Gore, 437 Md. at 517-18; SYL, 375 Md. at 106. Whether a subsidiary

lacks economic substance as a separate business entity is to be determined on a case by 

case basis, by considering four general factors.

8 Gore, 437 Md. at 517. 

 

8 The Court of Appeals did not indicate in Gore that these factors were exhaustive. 

See Gore, 437 Md. at 517. 
19

First, a court should consider how dependent a subsidiary is on its parent company

for income. Id. at 519. Gore and SYL instruct that a court should consider the amount of 

income a subsidiary receives from its parent company or other companies owned by the 

parent company. Id. at 515, 517; SYL, 375 Md. at 84, 86, 94. A court also should consider 

how much income is generated from third parties and how that income may compare with 

other sources of the subsidiary’s income. See Gore, 437 Md. at 517.

Second, a court should consider whether there is a circular flow of money from the 

parent company to the subsidiary and then back to the parent. Id. at 515; SYL, 375 Md. at 

84, 86, 96. SYL and Gore teach us that the flow of money back to the parent can be 

evidenced in several different ways, such as dividends and loans. See Gore, 437 Md. at 

515. At its core, this inquiry is whether the parent is the one who controls the flow of 

money and ultimately receives back the money paid to the subsidiary, subject to any 

expenses incurred by the subsidiary.

Third, a court should consider how much the subsidiary relies on the parent for its 

core functions and services. Included in the core functions utilized by the subsidiary are 

office space and equipment, personnel, and corporate services. Id.; SYL, 375 Md. at 86-

88, 96. The corporate services provided by the parent can include cash management,

marketing, purchasing, accounting, payroll, tax services, research and development, and 

human resources. Gore, 437 Md. at 515; SYL, 375 Md. at 95-96. 

The last factor is a “catch all” to the rest—whether the subsidiary has substantive 

activity that is “in any meaningful way separate from” its parent. Gore, 437 Md. at 517

(emphasis added). Here, a court should consider whether the subsidiary creates, invents, 
20

or makes anything that is independent of the parent company. Id. at 516; SYL, 375 Md. at 

106. Also important is whether there exists functional integration and control by the parent 

through stock ownership, as well as common officers, directors, and employees. See Gore,

437 Md. at 515; SYL, 375 Md. at 98. In sum, a court should consider the subsidiary’s 

overall dependence on the parent in the former’s structure and operations. See Gore, 437 

Md. at 521; SYL, 375 Md. at 106. 

D. Tax Court’s Ruling in the Instant Case

After a two-day hearing that consisted of factual stipulations, testimony, and

thousands of pages of exhibits, the Tax Court issued a Memorandum of Grounds for 

Decision. In considering whether Brands had economic substance as a business entity

separate from ConAgra, the court made the following factual findings: 

In April, 1996, ConAgra incorporated Brands to hold and enforce 

trademarks, conduct central advertising for corporate brands, and 

achieve other corporate efficiencies, including tax savings. Brands 

was capitalized by ConAgra[ ], which also provided its board of 

directors and officers from among the corporate executive corps. In 

late 1996, the parent and three ConAgra subsidiaries – Beatrice 

Foods, Inc., Hunt-Wesson, and Swift-Eckrich contributed 46 

trademark groups to Brands in exchange for 2,207 shares of 

[Brands’s] common stock. Thereafter, Brands held the 46 initial 

trademark groups and subsequently acquired numerous others from 

these entities. 

Brands was physically housed on the ConAgra corporate 

campus in Omaha. It rented space and equipment from the corporate 

parent. Brands had its own officers, who were actually paid by 

Brands, although their payroll was serviced by corporate. Brands 

gradually acquired several employees, and had as many as 23 

employees in the latter part of the period in question. 

Brands licensed the ConAgra trademarks back to the ConAgra 

subsidiaries from which they had been acquired, although in a few 
21

cases, Brands also licensed ConAgra trademarks to third-party 

corporations. Brands[’s] most significant activity was conducting 

national advertising campaigns for the trademark brands. Brands’[s]

employees performed quality control for the licensed brands, and 

monitored trademark infringements over the time periods in 

question. In exchange for the licensed trademarks, the licensees paid 

annual royalties to Brands, which was the primary source of 

Brands’[s] income, all of which was paid back to the ConAgra parent 

in the form of inter-company payments of various types. 

Brands was organized in part to obtain a reduction in taxes. One 

of the advantages of organizing and using [Brands] to own and 

manage trademarks for the ConAgra family of companies was a 

potential royalty deduction from income taxes that would be claimed 

by ConAgra companies in those states that did not require combined 

income tax reporting. 

Brands was entirely owned, directly and indirectly, by ConAgra 

[ ], the parent corporation. ConAgra itself held 1,000 shares of 

Brands (45%), while the remaining 1,207 shares were owned by 

three of ConAgra’s wholly owned subsidiaries, Swift-Eckrich, Inc., 

Hunt-Wesson, Inc., and Beatrice Cheese, Inc. In its fiscal year 

ending May, 1997 through May, 2004, [Brands] received millions of 

dollars of royalty income from ConAgra companies doing business 

and filing tax returns in Maryland. 

The evidence suggests during the entire period at issue, 

ConAgra utilized centralized legal services, tax services, human 

resources (including payroll), treasury functions, cash management, 

marketing, corporate relations, information services, research & 

development, purchasing, accounting, and general corporate 

management. In fact, Brands itself was organized for the purpose of 

centralizing control over trademarks and conducting centralized 

national advertising ConAgra-wide.

ConAgra corporate executives were routinely assigned to 

interlocking directors’ boards of the several subsidiary corporations; 

officers were assigned to various subsidiaries from an existing 

central pool of executives; and many corporate officers were 

assigned as special portfolio officers to numerous subsidiaries. 

ConAgra [ ] had a vice-president for taxes. That officer was 

simply assigned asthe vice president for taxes to Brands and to many 
22

other subsidiaries. Likewise, ConAgra[ ]’s corporate secretary was 

cross-assigned as the corporate secretary for Brands, Hunt-Wesson, 

Swift-Eckrich, and Beatrice Foods. Kenneth DiFonzo testified by 

deposition that he was assigned as an officer and director to so many 

different subsidiaries that he could only recall the names of a few of 

the subsidiaries to which he was assigned. The annual assignment 

of officers to subsidiaries [was] effectively carried out by the 

ConAgra [ ] corporate secretariat, which circulated “consents in lieu 

of” annual meetings and boards of the various entities signed the 

consents. 

From a revenue standpoint, Brands depended for the vast 

majority of its annual revenue on royalty payments from 

ConAgra and its subsidiaries. All profits from its operation were 

transferred back to ConAgra in annual payments called “cost of 

capital” payments and through other internal financial 

arrangements. The payments to and from ConAgra and its subs, 

and to and from Brands in particular, were entirely circular. 

Brands could not have functioned as a corporate entity 

without the support services its received from “corporate.” All 

of Brands’[s] everyday support services – ranging from its 

physical housing to payroll, accounting, cash management, tax 

services, funding of legal services, capital requirements, 

financing, executive staffing, and information services – were 

supplied by its corporate parent. 

The facts indicate functional integration and control 

through stock ownership, as well as common employees, 

directors and officers. The functional source of Brands[’s]

income is derived from the ideas and discoveries generated by 

ConAgra Corporate. The circular flow of money is traced by 

and through the valuable trademarks.

In addition, the facts also indicate Brands’[s] reliance on 

ConAgra corporate personnel, office space and corporate 

services. The tax returns and other financial data reflect the 

lack of separate substantial activity of Brands.

(Emphasis added).
23

From the above facts, the Tax Court concluded that Brands was sufficiently similar 

to the subsidiary companies in SYL and Gore, and thus “lacked any economic substance 

separate from its parent(s).” (Emphasis in original). Accordingly, the Tax Court held that 

Brands was subject to income taxation by Maryland. 

E. Challenges to the Tax Court’s Factual Findings

Unlike the subsidiaries in SYL and Gore, Brands begins its attack on the Tax Court’s 

decision by challenging several of the court’s factual findings. First, Brands argues that 

there is not substantial evidence to support the following findings by the Tax Court: 1) 

“[I]n exchange for the licensed trademarks, the licensees paid annual royalties to Brands, 

which was the primary source of Brands’[s] income, all of which were paid back to the 

ConAgra parent in the form of inter-company payments of various types[;]” and 2) “[A]ll 

profits from its operation were transferred back to ConAgra in annual payments called ‘cost 

of capital’ payments and through other internal financial arrangements. The payments to 

and from ConAgra and its subs, and to and from Brands in particular, were entirely 

circular.” (Some alterations in original) (emphasis omitted). Brands contends that “the 

record clearly reflects that Brands neither paid dividends to its shareholders nor made any 

loans to ConAgra or any of its affiliates.” According to Brands, the record “clearly reflects 

that Brands made no payments for ‘cost of capital.’” In short, Brands’s first argument 

appears to challenge the Tax Court’s ultimate factual finding that Brands and ConAgra had 

a circular flow of money. 

At the outset, we observe that the Tax Court did not make any factual findings 

pertaining to dividends or loans from Brands to ConAgra, and therefore, conclude that 
24

there is no merit to Brands’s assertion that the court made any such findings. We agree 

with Brands that the record does not reflect that there were any “cost of capital” payments 

made by Brands. Nevertheless, there is substantial evidence to support the Tax Court’s 

ultimate factual finding that there was a circular flow of money between Brands and 

ConAgra. 

The Tax Court found that the royalties paid to Brands by ConAgra and its 

subsidiaries were paid back to ConAgra “in the form of inter-company payments of various 

types” and “through other internal financial arrangements.” (Emphasis added). These 

“inter-company payments” and “other internal financial arrangements[,]” in our view, refer 

to the cash management system that ConAgra and its subsidiaries, including Brands, 

employed. Eric Johnson, the “Senior Director in the Corporate Tax Department for 

ConAgra[,]” testified at the Tax Court hearing about the cash management system,

explaining in relevant part:

[BRANDS’S COUNSEL]: Could you explain to us what a cash 

management system is and how it works?

[JOHNSON]: In a multi-entity organization like ConAgra, we 

utilize a central cash management system to manage cash. And so, 

in our structure, ConAgra [ ] basically serves as the bank. 

[BRANDS’S COUNSEL]: Is ConAgra [ ] the parent?

[JOHNSON]: I’m sorry. ConAgra [ ], the parent company, serves 

as the bank, if you will. And to the extent a subsidiary either 

earns revenue or cash, that cash is swept up to ConAgra [ ]. To 

the extent a subsidiary needs to use cash, the cash comes down 

from ConAgra [ ]. ConAgra [ ] takes, if we’re lucky, excess cash, 

invests that, or it’s the ultimate entity that goes out and get[s] 

loans to the extent we need loans from third parties to operate.
25

[BRANDS’S COUNSEL]: Is [ ] Brands a cash user or a cash 

generator?

[JOHNSON]: [ ] Brands is a cash generator.

[BRANDS’S COUNSEL]: So their cash would be swept by 

ConAgra [ ] into a central bank?

[JOHNSON]: That’s correct.

[BRANDS’S COUNSEL]: And how is that reflected on [ ] 

Brands’[s] accounting records?

[JOHNSON]: It’s through what we call an inter-company account. 

And so if you look at...[ ] Brands’[s] balance sheet, you will see, I 

believe it’s categorized in the other current assets, an inter-company 

account that basically accumulates all those cash sweeps or cash 

receipts going either way through those accounts.

[BRANDS’S COUNSEL]: So if we were to look at a balance sheet 

for [ ] Brands, we would find an asset there that reflects the cash?

[JOHNSON]: Yes.

(Emphasis added). 

Johnson further explained the relationship of the cash management system and 

Brands’s net royalty income as reflected on Brands’s balance sheet:

[BRANDS’S COUNSEL]: So if I were to look at the balance sheets 

that are attached to these federal returns, would I see a continual 

growth in retained earnings which reflects the net income that 

Brands has earned in each year?

[JOHNSON]: Yes.

[BRANDS’S COUNSEL]: Okay. And then, as far as the cash is 

concerned, that might be reflective of the royalty income that’s 

swept pursuant to the centralized cash management system?
26

***

[JOHNSON]: That’s true.

[BRANDS’S COUNSEL]: Okay.

[JOHNSON]: So retained earnings is basically increased by net 

income and would be decreased by net losses. It could be from our 

returns, it could also be decreased by a distribution.

[BRANDS’S COUNSEL]: But I believe you indicated there were 

no distributions, that everything’s swept.

[JOHNSON]: Yes. For [ ] Brands there are no distributions.

[BRANDS’S COUNSEL]: And then is there an asset on the balance 

sheet that reflects the cash sweep?

[JOHNSON]: There’s an asset on the balance sheet that reflects the 

cash, basically, any cash movements. So cash sweeps, any payment 

of expenses that [ ] Brands had that cash came down from [ConAgra] 

called the inter-company account. 

Kenneth DiFonzo, ConAgra’s Vice President, also testified about the cash 

management system in his deposition, portions of which were admitted into evidence by 

stipulation. DiFonzo explained that ConAgra subsidiaries did not pay dividends, because 

it would have “created additional accounting where none was needed,” and the cash 

management system produced the same result. DiFonzo confirmed the operation of the 

cash management system: “Every single dollar that flowed into the cash coffers of [the 

subsidiaries] and thereby into the company, they were given interest credit for. Every 

single dollar that they expended they were charged for.” (Emphasis added).

Taking the testimonies of Johnson and DiFonzo together, the evidence showed that 

the royalties paid to Brands by ConAgra and its subsidiaries were immediately “swept up 
27

to ConAgra,” and except for the cash needed to pay Brands’s expenses and the “interest 

credit” given to Brands, there was no expectation of a repayment to Brands nor any 

limitations on ConAgra’s use of the cash. As a result, the cash management system allowed 

ConAgra to use all of Brands’s net royalty income from the date of the latter’s 

incorporation, which amounted to over $1.2 billion as of May 2004, according to the 

retained earnings listed on Brands’s balance sheet. 

As stated previously, we review the Tax Court’s factual findings by determining 

whether they are supported by substantial evidence.9 Gore, 437 Md. at 504. We conclude 

that based on this record, “a reasoning mind could have reached the factual conclusion” of 

the Tax Court that there was a circular flow of money, i.e., royalties, from ConAgra and its 

subsidiaries to Brands and back to ConAgra.

Second, Brands contends that there is “nothing in the record supporting” the Tax 

Court’s finding that “Brands could not have functioned as a corporate entity without the 

support services it received from ‘corporate’ and that among other things, physical housing, 

payroll and funding of legal services were ‘supplied by its corporate parent.’” According 

to Brands, the record demonstrates that Brands paid ConAgra for all of the services that 

ConAgra provided. 

 

9 Although both parties agree that Brands’s challenges pertain to the Tax Court’s 

factual findings, we note that, even if Brands’s challenges could be considered challenges 

concerning a mixed question of law and fact, our conclusion would not be altered, because 

we also review mixed questions of law and fact under a substantial evidence standard. See

Gore, 437 Md. at 504-05. 
28

Based on Brands’s citation to the record, Brands is challenging the following factual 

finding of the Tax Court: 

Brands could not have functioned as a corporate entity without the 

support of services it received from “corporate.” All of Brands[’s]

everyday support services – ranging from its physical housing, to 

payroll, accounting, cash management, tax services, funding of legal 

services, capital requirements, financing, executive staffing, and 

information services – were supplied by its corporate parent. 

The above finding of the Tax Court did not address whether Brands paid for the 

services supplied by ConAgra. It simply stated that ConAgra “supplied” certain services. 

In a stipulation filed in the Tax Court, Brands agreed to the following facts: “ConAgra [ ]

was a parent company with corporate functions, including tax services, human resources 

services, treasury functions, cash management, marketing, corporate relations, information 

services, and general management. These services were supplied to the parent company’s

subsidiaries.” Brands further stipulated that ConAgra supplied additional services to 

Brands from 1996 to 2005, including “central purchasing[,]” “centralized advertising[,]” 

“centralized accounting[,]” “reviewed significant contracts[,]” “centralized corporate 

research and development[,]” and “supplied human resources services ... includ[ing]

payroll services.” Accordingly, there was substantial evidence for the Tax Court to find

that ConAgra supplied Brands with the above-referenced services.

Lastly, Brands argues there is not substantial evidence to support the Tax Court’s 

finding that “Brands’[s] tax returns and other financial data reflect the lack of separate 

substantial activity of Brands.” Brands contends that its tax returns and financial records

reflect that it paid employees, paid rent, accrued expenses, and owned assets. 
29

Consistent with Brands’s assertion, the Tax Court did make factual findings that 

Brands had expenses for rent and employees. Such findings, however, do not undermine

the court’s factual conclusion that Brands lacked substantive activity separate from 

ConAgra and its wholly owned subsidiaries. For example, the court found that “[t]he 

functional source of Brands[’s] income is derived from the ideas and discoveries generated

by ConAgra”— not the ideas and discoveries of Brands. Indeed, Brands stipulated that 

ConAgra conducted centralized research and development. Moreover, even though Brands 

had license agreements with third parties, these revenues generated less than one percent 

of Brands[’s] revenue, except for 1997 when third party royalties generated just under four 

percent of Brands’s revenue. As the Court of Appeals has instructed, “[i]t is not our place 

to make an independent original estimate of or decision on the evidence[,]” and we decline 

to do so here, especially when Brands has failed to direct this Court to any specific 

reference to the record, other than the broad statement that Brands incurred expenses, in its 

attempt to undermine the Tax Court’s factual conclusion that Brands lacked substantive 

activity separate from ConAgra. See Gore, 437 Md. at 504 (some alterations in original) 

(internal quotation marks omitted). 

F. Analysis

Brands argues that the Tax Court erred in relying on SYL and Gore to conclude that 

Brands lacked economic substance as a business entity separate from ConAgra. 

Specifically, Brands contends that, unlike the subsidiaries in Gore and SYL, (1) Brands’s

income was not solely from ConAgra but from ConAgra’s subsidiaries and third parties; 

(2) Brands did not issue dividends or loans; (3) Brands promoted, marketed, and defended 
30

its intellectual property; (4) Brands incurred operating expenses relative to its income; (5) 

the motivation behind forming Brands extended beyond taxation; and (6) Brands had 

twenty-three employees.10 Brands further contends that the Tax Court placed too much 

emphasis on the fact that ConAgra provided Brands with many administrative functions, 

because “it is common in today’s corporate world that administrative functions are 

centralized to provide efficiencies for the entire group.” We are not persuaded.

In its opinion, the Tax Court found that “Brands depended for the vast majority of 

its annual revenue on royalty payments from ConAgra and its subsidiaries.” Royalty 

payments were generated solely because (1) ConAgra and three subsidiaries assigned 

Brands their trademarks in exchange for Brands’s stock, and (2) Brands licensed the same 

trademarks back to ConAgra and those subsidiaries. The fact that the subsidiaries, or their 

successors, paid royalties to Brands does not call into question the Tax Court’s finding, 

because the subsidiaries were wholly owned by ConAgra and the royalty payments flowed 

from the subsidiaries to Brands and then back to ConAgra. The court did consider third 

party revenues, but again found that the “vast majority” of Brands’s revenue came from 

ConAgra and its subsidiaries. In Gore, the Tax Court acknowledged that there were royalty 

payments to GEH from third parties but determined that the payment of royalties from third 

 

10 In its Brief, Brands broadly asserts several other “facts” that it contends are 

supported by the record, and that the Tax Court should have considered in its ruling. 

Brands, however, does not provide any argument as to why the court should have made 

those factual findings. As previously stated, “it is the agency’s province to resolve 

conflicting evidence and where inconsistent inferences can be drawn from the same 

evidence it is for the agency to draw the inferences.” Gore, 437 Md. at 504. We will, 

therefore, review the court’s ruling based on its “findings and reasons set forth” in its 

opinion. Id. at 503.
31

parties did not negate GEH’s “dependence on Gore for [its] income.” Gore, 437 Md. at 

517. Similarly, the Tax Court had substantial evidence to conclude that Brands was 

dependent on ConAgra and its subsidiaries for Brands’s income; Brands’s third party 

revenue never exceeded four percent in any tax year. 

As described in detail above, the Tax Court found that there was a circular flow of 

money from ConAgra and its subsidiaries to Brands and back to ConAgra. We concluded

that there was substantial evidence for the Tax Court to make such a finding. Brands is 

correct that it did not pay dividends or make loans, as was the case with the subsidiaries in 

SYL and Gore. See SYL, 375 Md. at 85-86, 96; Gore, 437 Md. at 515. In the instant case, 

however, paying dividends or making loans was not necessary to create the circular flow 

of money, because the cash management system produced the same result. All of the cash 

received by Brands was “swept up to ConAgra,” and only the cash needed for expenses 

was returned to Brands. Therefore, Brands was similar to the subsidiaries in SYL and Gore

with regard to the circular flow of money between the parent and subsidiary.

The Tax Court acknowledged that “Brands[’s] most significant activity was 

conducting national advertising campaigns for the trademark brands. Brands[’s]

employees performed quality control for the licensed brands, and monitored trademark 

infringements over the time periods in question.” Nevertheless, the court found that there 

was “functional integration and control [by ConAgra] through stock ownership, as well as 

common employees, directors and officers.” The court elaborated: “ConAgra corporate 

executives were routinely assigned to interlocking directors’ boards of the several 

subsidiary corporations; officers were assigned to various subsidiaries from an existing 
32

central pool of executives; and many corporate officers were assigned as special portfolio 

officers to numerous subsidiaries.” Specifically, the vice president of tax for ConAgra was 

also assigned to be the vice president of tax for Brands. The secretary for ConAgra was 

also assigned to be the secretary for Brands, Hunt-Wesson, Swift-Eckrich, and Beatrice 

Foods. Moreover, DiFonzo, the ConAgra vice president and member of the board of 

directors for Brands, testified that “he was assigned as an officer and director to so many 

different subsidiaries that he could only recall the names of a few of the subsidiaries to 

which he was assigned.” The court also found that “[t]he functional source of Brands[’s]

income [was] derived from the ideas and discoveries generated by ConAgra[.]” Like Gore, 

ConAgra “permeates the substantive activities” of Brands. Gore, 437 Md. at 519-20. 

Although Brands was organized to centralize control over the trademarks used by 

ConAgra and its subsidiaries, the Tax Court found that “Brands was [also] organized in 

part to obtain a reduction in taxes.” Brands appears to argue that the Tax Court should 

have given more weight to the “non-tax business reasons for establishing Brands.” The

Court of Appeals, however, explained in Gore that “the motivation behind creating the

entities...is not dispositive.” Id. at 519. In our view, the court properly considered the 

motives behind Brands’s creation.

11

 

 

11 Brands also appears to argue that it is distinguishable from the subsidiaries in 

Gore because Brands paid state income taxes while the subsidiaries in Gore and SYL did 

not pay any state income taxes. Brands does not elaborate further, but to the extent that it 

is arguing that paying taxes lessens tax avoidance as a motive for Brands’s formation, we 

reject that argument because, as stated above, the motivations behind Brands’s formation 

are not dispositive. Gore, 437 Md. 519.
33

The Tax Court further acknowledged that Brands had twenty-three employees in the 

latter part of the tax period in question. Brands argues that its twenty-three employees is 

an important factor in determining economic substance, but Brands fails to direct this Court 

to, and did not adduce before the Tax Court, any evidence demonstrating the nature of these 

employees’ duties or the compensation of each employee. See id. at 520-21 (determining

that the Tax Court did not err in addressing only certain aspects of third party activity 

because of the lack of “specificity and comprehensiveness” of the record). The mere

number of employees, without more, does not convince us that Brands is sufficiently 

distinguishable from the subsidiaries in SYL and Gore. 

Finally, the Tax Court found that Brands relied on ConAgra for most, if not all, of 

its administrative functions. Brands argues that the court placed too much emphasis on 

this factor, but we disagree with this interpretation of the court’s opinion. As outlined 

above, the court took into consideration many factors other than the administrative 

functions that ConAgra provided Brands in arriving at its conclusion that Brands lacked 

economic substance as a separate business entity. 

Therefore, we hold that there was substantial evidence to support the Tax Court’s 

findings of (1) Brands’s dependence on ConAgra and its subsidiaries for the “vast 

majority” of its income, (2) the circular flow of money from ConAgra and its subsidiaries

to Brands and back to ConAgra, (3) Brands’s reliance on ConAgra for its core functions, 

and (4) Brands’slack of any meaningful substantive activity separate from ConAgra. From 

those factual findings, the court properly applied the teachings of SYL and Gore to conclude

that Brands lacked economic substance as a business entity separate from ConAgra. 
34

Because a portion of Brands’s income was produced from the business activity of ConAgra 

and its subsidiaries in Maryland, the court correctly held that there was a sufficient nexus

and minimum contacts to justify Maryland’s taxation of that portion of Brands’s income. 

Nevertheless, Brands makes two additional challenges to the Tax Court’s ruling that 

we must address. The first challenge is that the court applied the unitary business principle 

in determining that Brands lacked economic substance as a separate entity. According to 

Brands, the court focused solely on the relationship between Brands and ConAgra and its 

subsidiaries and not enough on whether Brands had substantial economic activity. We 

disagree. 

The Court of Appeals explained in Gore that “[t]he unitary business principle 

enables taxation by apportionment when the characteristics of functional integration, 

centralized management, and economies of scale are present.” Id. at 508 (emphasis added) 

(internal quotation marks omitted). “[T]he principle does not confer nexus to allow a state 

to directly tax a subsidiary based on the fact that the parent company is taxable and that 

the parent and subsidiary are unitary.” Id. at 509 (emphasis in original). In other words, 

the unitary business principle is not sufficient to satisfy the “minimum contacts” and

“nexus” requirements of the Due Process Clause and the Commerce Clause. Id. The Court 

did, however, hold in Gore that,

[a]though the unitary business principle and economic substance 

inquiry under SYL are distinct inquires with distinct purposes, there 

is no reason—based either in case law or logic—for holding that the 

factors that indicate a unitary business cannot also be relevant in 

determining whether subsidiaries have no real economic substance 

as separate business entities.
35

Id. at 518. 

We do not read the Tax Court’s opinion as using factors that are only applicable to 

the unitary business principle. The court expressly stated that “the unitary business

principle does not confer nexus to allow a state to directly tax a subsidiary[.]” It is this 

Court’s view that the Tax Court properly considered those factors set forth in SYL and Gore

and did not apply the unitary business principle in its analysis of Brands’s economic 

substance as a separate business entity. 

Brands’s last attempt to distinguish Gore and SYL is to attack the nexus of ConAgra 

and its subsidiaries with Maryland. Brands argues that, unlike the companies at issue in 

SYL and Gore, “neither ConAgra, nor any of its affiliates, operated retail stores or 

manufacturing plants in Maryland.” Brands continues: “Because none of Brands[’s]

licensees operated retail stores or manufacturing plants in Maryland, they did not use the 

Intangible Assets in Maryland.” In essence, Brands argues that without ConAgra or its 

subsidiaries having a physical presence in Maryland, Brands does not have a sufficient 

nexus or minimal contacts with the State and Brands did not earn income from the business 

operations of ConAgra and its subsidiaries in Maryland. Brands’s argument is without 

merit.

We acknowledge that in Gore, Gore operated factoriesin Maryland and presumably, 

although not explicitly stated, filed Maryland tax returns. Id. at 500. In SYL, Crown Parent 

had Maryland manufacturing plants, and Syms operated retail stores in Maryland. SYL, 

375 Md. at 81, 92. The Court of Appeals, however, noted in SYL that both parent 

companies filed Maryland taxes for the years in question. Id. The United States Supreme 
36

Court made clear in Wayfair that there is no physical presence requirement for a state to 

tax a corporation under the Due Process Clause or the Commerce Clause. 138 S. Ct. at 

2094 (“Rejecting the physical presence rule is necessary to ensure that artificial 

competitive advantages are not created by this Court’s precedents. This Court should not 

prevent States from collecting lawful taxes through a physical presence rule that can be 

satisfied only if there is an employee or a building in the State.”). In the instant case, the 

parties stipulated that ConAgra “conducted operations in Maryland” and filed corporation

income tax returns in Maryland. The parties also stipulated that certain subsidiaries of 

ConAgra filed Maryland corporation income tax returns. In our view, the “operations” of 

ConAgra in Maryland and the filing of Maryland corporation income tax returns by 

ConAgra and its subsidiaries in Maryland are sufficient to establish that those companies 

conducted income generating activities within the State, and their lack of a physical

presence in Maryland does not sever the nexus between Brands and Maryland. See 

Classics Chicago, Inc. v. Comptroller, 189 Md. App. 695, 715-16 (2010) (“[T]he basis of 

a nexus sufficient to justify taxation . . . was the economic reality of the fact that the parent’s 

business in the taxing state was what produced the income of the subsidiary.”) 

Accordingly, we find no error in the Tax Court’s ruling. 

III. Apportionment Formula

A. A Brief Background on Income Tax Apportionment

To understand the Comptroller’s assessment, we find it useful to summarize in 

general terms the mechanics of how Maryland corporate income tax is calculated when a
37

corporation conducts business both in and outside of the State.

12 And more specifically, 

what an apportionment formula is under Maryland law. In doing so, we will review the 

statutory and regulatory landscape applicable to the taxing years of 1996 to 2003.13 

Generally, in calculating the taxable income of a corporation, one begins with the 

corporation’s federal taxable income. Md. Code (1988, 1996 Supp.), § 10-304(1) of the 

Tax General Article (“TG”). From the federal taxable income, adjustments, if applicable,

are made to either increase or decrease the Maryland taxable income. TG §§ 10-304-310. 

The result of these adjustments is called the corporation’s “Maryland modified income.” 

TG § 10-301, 304. 

In the relevant tax years, the Tax General Article provided that, when a corporation 

conducts “business in and out of the State, the corporation shall allocate to the State the 

part of the corporation’s Maryland modified income that is derived from or reasonably 

attributable to the part of its trade or business carried on in the State[.]” TG § 10-402(a)(2), 

 

12 As one might imagine, the calculation of the ultimate tax levied against a 

corporation can be very complicated, from the adjustments to the tax credits to the 

exemptions. And of course, depending on what type of business the corporation engages 

in, there could be different methods of calculating Maryland income tax. 

13 From 1996 to 2000, the relevant, applicable statutes in this case were not changed. 

In 2001, however, the General Assembly adopted 2001 Md. Laws Ch. 633, which amended 

Maryland Code (1988, 1994 Repl. Vol., Supp. 2000), § 10-402 of the Tax General Article 

(“TG”). Most notable was the addition of “or the single sales factor formula method” to 

Section 10-402(d)(2). See 2001 Md. Laws Ch. 633. These amendments and their 

applicability to the apportionment of income were not argued in this appeal and thus such 

amendments do not alter our conclusion. 

 
38

amended by 2018 Md. Laws Ch. 341-42.

14

 There are three methods of apportionment. The 

first is called “separate accounting[,]” which is applied if “[i]t is practical[] and [t]he 

activity of the corporation within this State is nonunitary.” TG § 10-402(b), amended by

2018 Md. Laws Ch. 341-42;

15 COMAR 03.04.03.08(F)(3). Given the unitary business of 

Brands, ConAgra, and the latter’s subsidiaries in Maryland, separate accounting is not 

used. 

The second formula is called the “three-factor apportionment formula.” TG § 10-

402(c), amended by 2018 Md. Laws Ch. 341-42.

16

 As explained by the Court of Appeals 

in NCR Corp. v. Comptroller, the three-factor apportionment formula is determined

by using [ ] three-factor[s] (sales, property and payroll) . 

. . each “factor” being a fraction. The numerator of the 

sales factor, for example, is the amount of a corporation’s 

in-state sales; the denominator of the sales factor is the 

total amount of a corporation’s in-state and out-of-state 

sales. The property and payroll factors are computed in 

the same manner. 

 

14 In 2018, the General Assembly made amendments to TG § 10-402. The 

amendments made only stylistic changes to TG § 10-402(a)(2) and recodified it as TG § 

10-402(b)(2). See 2018 Md. Laws Ch. 341 at 1604. In this opinion, we will refer to the 

statutory provisions as they were codified during the relevant tax years.

15 This provision was unchanged by the 2018 amendments and is now codified as 

TG § 10-402(c)(1). See 2018 Md. Laws Ch. 341 at 1604.

16 Although the 2018 amendments did not change the basic structure of the 3-factor 

formula, they did change the amount by which the sales factor is multiplied, as well as the 

total denominator. Because the Comptroller, in its discretion, chose not to use the 3-factor 

formula in the instant case, and we uphold that choice, see Section III.C, infra, these 

changes do not affect our analysis herein. See 2018 Md. Laws Ch. 342 at 1615-16.
39

313 Md. 118, 141 (1988); see also TG § 10-402(c), amended by 2018 Md. Laws Ch. 341-

42; COMAR 03.04.03.08(C). To calculate the apportionment factor, one must average the 

property factor, payroll factor and “twice the sales factor.” TG § 10-402(c), amended by 

2018 Md. Laws Ch. 341-42. In other words, the apportionment factor is calculated as 

follows:

((

Maryland Sales

All Sales

X 2) +

Maryland Property

All Property

+

Maryland Payroll

All Payroll

) ÷ 4

See NCR, 313 Md. at 141 (expressing the three-factor formula in place at the time prior to 

the 1992 amendments in a similar manner). This apportionment factor is then multiplied 

by the Maryland modified income. Id. at 142; TG § 10-301.

The third apportionment formula is an altered formula that is created by the 

Comptroller in his or her discretion, as provided for in TG § 10-402(d):

17

(d) Determination — by Comptroller. — To reflect clearly the 

income allocable to Maryland, the Comptroller may alter, if 

circumstances warrant, the methods under subsections (b) and (c) of 

this section, including:

(1) the use of the separate accounting method;

(2) the use of the 3-factor double weighted sales factor formula 

method or the single sales factor formula method;

(3) the weight of any factor in the 3-factor formula;

(4) the valuation of rented property included in the property 

factor; and

(5) the determination of the extent to which tangible personal 

property is located in the State.

 

17 The 2018 amendments made no changes to this provision, but recodified it as TG 

§ 10-402(e). See 2018 Md. Laws Ch. 341 at 1611. 
40

Once one of these formulas is applied, the result is the corporation’s Maryland 

taxable income. TG § 10-301. The applicable corporate tax rate (seven percent from 1996 

to 2003) is then applied to a corporation’s Maryland taxable income resulting in the tax 

owed to the State. TG § 10-105(b), amended by 2007 (Special Session) Md. Laws Ch. 3.

18

 

B. The Assessment and the Tax Court’s Ruling in Brands

Before the Tax Court, it was stipulated that, on August 30, 2007, the Comptroller

assessed Brands the following taxes, interest, and penalties: 

It was further stipulated that after the above assessment was affirmed by the 

Comptroller in 2009, the following was the assessment:

 

18 In 2007, the General Assembly amended the Tax General article to increase the 

corporate tax rate to 8.25%. 2007 (Special Session) Md. Laws Ch. 3 at 82. Because this 

change only applies to tax years beginning after December 31, 2007, it does not affect the 

amount of tax due in the instant case. 
41

In considering the Comptroller’s assessment, the Tax Court made the following 

ruling: 

Where nexus is satisfied as in the present case, the Maryland tax 

on a multi-state corporation engaged in interstate business is 

governed by Md. Code Ann., Tax-Gen. [(“TG”)] § 10-402 ([1988,]

2010 Repl. Vol.). In TG § 10-402, Maryland provides for both 

separate accounting and formulaic apportionment as methods for 

allocating the income of a foreign corporation doing business in the 

State. See TG § 10-402(b) & (c). Formulaic apportionment, unlike 

separate accounting, does not purport to identify the precise 

geographical source of a corporation’s profits; rather, it is employed 

to approximate a corporation’s income that is reasonably related to 

the activities conducted within the taxing State. TG § 10-402(d) 

requires that net income be apportioned to this state on the basis of 

a formula that clearly reflects the income allocable to Maryland. The 

Comptroller may alter, if circumstances warrant, the methods of 

allocating income to Maryland. TG § 10-402(d); COMAR § 

03.04.03.08F. 

The Comptroller’s auditors found that with respect to Brands, 

there were no recorded Maryland sales, no recorded Maryland 

payroll, and no recorded Maryland property. As a result,

application of the statutory “3-factor apportionment formula” 

provided by TG § 10-402(c) would have yielded an 

apportionment factor of zero. Since a zero apportionment factor 
42

would not have “reflect[ed] clearly the income allocable to 

Maryland,” the Comptroller’s agents formulated a blended 

apportionment factor. The blended apportionment factor 

utilized by the Comptroller in allocating Brands’[s] income was 

derived directly from the income tax returns of the five ConAgra 

entities that filed in Maryland. The Court finds that the 

Comptroller effectively utilized ConAgra’s own apportionment 

figures in constructing the blended apportionment factor used 

in this case. There is no clear and convincing evidence that the 

Comptroller’s blended apportionment factor is unfair. 

(Some alterations in original) (Emphasis added).

C. Brands’s Challenges to the Apportionment Formula

Brands first contends that the Comptroller’s apportionment formula was not 

permitted under TG § 10-402(d). Brands acknowledges that TG § 10-402(d) permits the 

Comptroller to deviate from the three-factor formula set forth in § 10-402(c), but argues 

that the Comptroller failed to demonstrate that the use of the three-factor formula did not 

clearly reflect Brands’s Maryland income. 

The Comptroller responds that “TG § 10-402(d) requires that net income be 

apportioned to this State on the basis of a formula that clearly reflects the income allocable 

to Maryland. The Comptroller may alter, if circumstances warrant, the methods of 

allocating income to Maryland.” The Comptroller explains that the use of the three-factor 

apportionment formula for Brands would have yielded zeros for payroll, property, and sales 

in Maryland, “thus yielding an apportionment factor of zero.” According to the 

Comptroller, an apportionment factor of zero would not have reflected clearly Brands’s 

income allocable to Maryland. The Comptroller concludes that a blended apportionment 
43

factor derived from the Maryland income tax returns of ConAgra and its subsidiaries was 

appropriate. We agree with the Comptroller. 

In Gore, GEH and FVI argued that the Comptroller improperly borrowed an

apportionment formula from Gore to create GEH and FVI’s apportionment formula. 437 

Md. at 528-29. Like Brands, GEH and FVI advocated an apportionment based upon their 

property and payroll in Maryland, which would have produced an apportionment factor of 

zero. Id. GEH and FVI claimed that the Comptroller’s apportionment formula ignored the 

binding regulation of COMAR 03.04.03.08(C)(3)(d). Id.

The Court of Appeals rejected the argument of GEH and FVI: 

Both TG § 10–402 and COMAR 03.04.03.08 are provisions with 

exceptions. TG § 10–402(d) allows the Comptroller to “alter, if 

circumstances warrant, the methods under subsections (b) and (c) of 

this section[.]” COMAR 03.04.03.08(F)(1) allows the Comptroller 

to alter both a formula or its components where an apportionment 

formula “does not fairly represent the extent of a corporation's 

activity in [the] State[.]” As Respondent correctly points out, the 

three-factor formula . . . would have yielded an apportionment 

factor of zero, which did not fairly represent the subsidiaries’

activity in Maryland. Thus, a plain reading of either the statute 

or regulation empowers the Comptroller to do precisely that to 

which Petitioners object.

Id. at 529 (some alterations in original) (emphasis added). Here, too, the Comptroller had 

the discretion to deviate from the three-factor apportionment formula, because an 

apportionment factor of zero did not accurately represent Brands’s activity in Maryland. 

Brands counters that, even if the Comptroller demonstrated the need to deviate from 

the three-factor formula, the Comptroller did not use a method permitted under TG § 10-

402(d). The Comptroller responds that the Court of Appeals ruled in Gore that it was 
44

permissible to use a parent company’s apportionment factor in calculating a subsidiary’s

income tax when the three-factor formula produced a zero apportionment factor for the 

subsidiary. 

TG § 10-402(d) provides that the Comptroller may alter an apportionment formula 

to “reflect clearly the income allocable to Maryland.” In Gore, the Court of Appeals 

permitted the Comptroller to apply Gore’s apportionment factor to calculate the Maryland 

taxable income for both GEH and FVI. 437 Md. at 533. In that case, the Court, quoting 

the Tax Court, explained the Comptroller’s assessment as follows:

The tax calculation utilized by the Comptroller was intended to 

apportion to Maryland only the Delaware Holding Company income 

connected to the operating transactions of W.L. Gore. Expenses 

were deducted from the income if the Delaware Holding Company 

made an affirmative demonstration that the expenses were directly 

related to the income. GEH made no attempt to allocate Delaware 

Holding Company expenses to the W.L. Gore connected income. 

Consequently, GEH’s tax liability was calculated by multiplying 

royalties paid by W.L. Gore times the W.L. Gore apportionment 

formula. For FVI, the tax is calculated by multiplying interest 

paid by W.L. Gore times the W.L. Gore apportionment formula.

Id. at 529-30 (emphasis added). 

Like in Gore, the Comptroller used the apportionment factor of Brands’s parent 

company, ConAgra. See id. In the instant case, however, the Comptroller used what it 

terms a “blended apportionment factor,” which was derived from the apportionment factors 

of ConAgra and its subsidiaries doing business in Maryland and paying Brands royalties. 

In her testimony before the Tax Court, Mary Wood, the Manager of Corporation Income 

Tax for the Comptroller, explained the origin and effect of the blended apportionment 

factor:
45

[WOOD]: This is the blended factor apportionment worksheet that 

I was talking about earlier where it lists on the left side where it 

shows all the parent affiliate companies, those are all of the 

Maryland filers that made payments to [ ] Brands [ ]. And, as I said, 

they’re all blended together to come up with a factor that, again, it 

basically accounts for the same, it’s the same tax due as if you took 

each company separately, but it’s just combining them so it comes 

out to the same tax effect.

***

[COMPTROLLER’S COUNSEL]: Okay. And where did the 

factors come from that were blended?

[WOOD]: It’s, as I said, basically, it’s the same as taking each 

company by itself using that company’s Maryland 

apportionment factor, just as we did in SYL, Crown Delaware, 

Talbotts, Nordstrom, all of the cases that we’ve settled on. So

it’s taking their Maryland factor and, again, it’s just a blending of 

each company.

[COMPTROLLER’S COUNSEL]: Okay. And what was the 

objective of the Auditors in making this blended factor? What 

were they trying to do?

[WOOD]: They were trying to get back the tax that we lost by 

the Maryland filer taking a deduction for the royalty expenses, 

just as we had in all those other cases.

[COMPTROLLER’S COUNSEL]: Okay. Did this blended factor 

achieve that end?

[WOOD]: Absolutely.

(Emphasis added).

In our view, TG § 10-402(d) and the teachings of Gore permit the Comptroller to 

use the Maryland apportionment factor of ConAgra and its subsidiaries to determine a 

blended apportionment factor. Accordingly, the Comptroller did not err or abuse its

discretion in utilizing a blended apportionment factor to calculate the income tax owed by 
46

Brands to Maryland on royalty payments received from ConAgra and its subsidiaries 

arising out of their business in Maryland.

Lastly, Brands argues that the Comptroller’s assessment is unfair and violative of 

the U.S. Constitution because it does not reflect how income was generated for Brands,

and the Comptroller “imposes tax on Brands based [solely] on its affiliates’ activities in 

Maryland.” Brands also contends that, even if Maryland allowed a blended apportionment 

factor to be used, as in this case, “the requirement of the United States Constitution that the 

apportionment factors used ‘actually reflect a reasonable sense of how income is generated’ 

would not allow such result.” The Comptroller responds that it is Brands’s burden to 

demonstrate that the apportionment formula is unfair, and Brands has failed to cite anything 

in the record demonstrating that the apportionment formula used by the Comptroller is 

unfair. We agree with the Comptroller. 

When a company is engaging in a unitary business, as in the case sub judice, the 

company “bears the burden of demonstrating that the income it seeks to exclude from 

taxation was derived from unrelated business activity that constituted a discre[te] business 

enterprise.” NCR, 313 Md. at 132; see also Gore, 437 Md. at 531. Brands has failed to 

direct this Court to any evidence demonstrating that the Comptroller’s assessment is unfair. 

Thus there was substantial evidence to support the Tax Court’s decision upholding the 

Comptroller’s income tax assessment against Brands. 
47

IV. Waiver of Interest19

A. Background

Under TG § 13-606, “[f]or reasonable cause, a tax collector may waive interest on 

unpaid tax.” In Frey v. Comptroller, 422 Md. 111, 184-85 (2011), cert. denied, 566 U.S. 

905 (2012), the Court of Appeals stated that the authority to abate interest vests not just in 

the Comptroller, but in the Tax Court, too. The Court explained that, when the Tax Court 

reviews the Comptroller’s decision declining to abate interest in an assessment, the court’s 

review “is deferential to the tax collector’s discretion[,]” and the court must consider 

whether “the [complaining] party has demonstrated with affirmative evidence that 

reasonable cause exists or that the tax collector’s decision was an obvious error.” Id. at 

187. Because the Tax Court in Frey did not consider whether Frey demonstrated

reasonable cause to abate interest, the Court left open the question of what evidence was 

sufficient to demonstrate reasonable cause to waive interest. Id.

B. Tax Court’s Ruling

Before the Tax Court, Brands requested that the court abate interest on the tax 

assessments. In its opinion, the court ruled:

The final question for the [c]ourt’s determination is whether 

interest and penalties should be waived under Tax-General Article 

Sections 13-606 (waiver of interest) and 13-714 (waiver of 

penalties). In Frey v. Comptroller of the Treasury, 184 Md. App. 

315, 421 (2009), the Court of Special Appeals referred to the 

reasonable cause exception set forth in the applicable statutes. The 

 

19 When the Comptroller filed its cross-petition for judicial review in the circuit 

court, the Comptroller did not challenge the Tax Court’s ruling abating penalties assessed 

against Brands. Accordingly, the Tax Court’s abatement of penalties is not before us in 

this appeal.
48

[c]ourt finds that [Brands] has a reasonable basis for challenging 

the law and acted in good faith. There was no intention on the part 

of [Brands] to cause delay in the collecting of taxes and this [c]ourt 

notes that numerous taxpayers have challenged the Comptroller’s 

arguments. The [c]ourt disagrees with the Comptroller that the 

state of the law was clear to the taxpayer at the time of the 

assessments. To the contrary, the state of the law has evolved 

through various court decisions in SYL, Crown Cork & Seal[,] The 

Classic Chicago, Inc. v. Comptroller of the Treasury, 189 Md. App. 

695 (2010), Nordstrom, Inc. v. Comptroller of the Treasury, (Md. 

Tax Ct. Oct. 24, 2008) and Gore Enterprise Holdings. 

(Emphasis added). The court then ordered the abatement of all “interest after the date of 

filing this appeal in the Maryland Tax Court (February 23, 2009) until the date of this Order

[February 24, 2015.]” 

The Comptroller filed a cross-petition for judicial review in the circuit court. The 

Comptroller argued that the Tax Court did not use the proper standard for abating interest 

and that at the very least, the court should not have abated interest accruing after the 

issuance of the Gore opinion, which was on March 24, 2014. Brands contended that the 

Tax Court properly abated all interest until the date of that court’s decision. The circuit 

court reversed the Tax Court’s abatement of interest from the date of the issuance of the 

Gore opinion, March 24, 2014, until the date of the Tax Court’s opinion in the instant case, 

February 24, 2015, a period of eleven months.20 

 

20 In considering the abatement of interest, the circuit court wrote in its 

Memorandum Opinion: “Brands shall be responsible for any and all interest collected after 

the date of the issuance of the Gore decision on March 24, 2014.” The court’s Order, 

however, stated that “[f]or the reasons stated in the foregoing opinion, . . . ORDERED,

that the decision of the Maryland Tax Court, regarding the abatement of interest, is hereby 

REVERSED.” (Emphasis in original). The Memorandum Opinion and the Order, 

therefore, appear to be inconsistent, but because we review the holding of the Tax Court, 

we need not resolve this uncertainty. See Gore, 437 Md. at 503. 
49

C. Challenges to the Waiver of Interest

Brands argues that the Tax Court properly ruled that Brands had demonstrated 

reasonable cause to waive interest because “Brands had a reasonable basis to challenge the 

law and acted in good faith.” Brands points out that “[t]here is no question that the 

assessments turned on the application and analysis of case law,” and that the state of the 

case law was unclear during the tax years at issue “and even at the time of the assessment.” 

Brands also contends that it “presented ample evidence, including two days of testimony 

and thousands of pages of exhibits, supporting that it had [a] reasonable basis to challenge 

the law, and the assessment of interest.” Brands concludes that, given the broad discretion 

accorded to the Tax Court in determining “reasonable cause”, as well as a lack of clarity in 

the case law, “the Tax Court properly exercised its discretion in waiving interest.”

The Comptroller counters that “[b]oth the language of TG § 13-606 and the 

exposition of that language in Frey require that abatement of interest be based on 

‘reasonable cause’ supported by ‘affirmative evidence.’” The Comptroller argues that

Brands failed to produce any affirmative evidence of reasonable cause, and that the Tax 

Court did not make any factual findings based on such evidence. The Comptroller further 

characterizes the Tax Court’s standard for “reasonable cause” as “an absence of bad faith 

in filing the petition of appeal.” According to the Comptroller, if abatement of interest can 

be satisfied by merely demonstrating good faith in the pursuit of litigation, then the 

“survival of statutory interest assessments will become the exception rather than the rule.” 

We disagree with the Comptroller. 
50

In its opinion, the Tax Court expressly found that Brands had “a reasonable basis 

for challenging the law and acted in good faith.” Such finding clearly came from the 

extensive evidence adduced by Brands during the two-day trial before the Tax Court, 

coupled with the court’s accurate description of the state of the case law as an evolution 

“though various court decisions” over the period of 2003 to 2014. We disagree with the 

Comptroller’s characterization of the Tax Court’s “reasonable cause” standard as merely 

the absence of bad faith in pursuing the appeal to the Tax Court. Given that the legality of 

the tax assessments at issue turned on the application of case law, the Tax Court properly 

focused its “reasonable cause” analysis on the state of that case law and its applicability to 

Brands.

The Tax General Article does not define reasonable cause, and as explained supra, 

we give “great weight” to “[t]he legal conclusions of an administrative agency that are 

premised upon an interpretation of the statutes that the agency administers.” Gore, 437 

Md. at 505 (internal quotation marks omitted). In our view, there is nothing in the statute 

or case law that precludes the Tax Court from finding reasonable cause for abatement of 

interest from the uncertainty in the state of the case law when applied to the circumstances 

of a particular taxpayer. Accordingly, we shall uphold the Tax Court’s ruling to abate the

interest accrued from the date of the filing of the appeal to the Tax Court, February 23, 

2009, to the date of the court’s Memorandum of Grounds for Decision, February 24, 2015.
51

JUDGMENT OF THE CIRCUIT COURT FOR 

ANNE ARUNDEL COUNTY AFFIRMED IN 

PART AND REVERSED IN PART; CASE 

REMANDED TO THAT COURT FOR ENTRY 

OF A JUDGMENT AFFIRMING THE TAX 

COURT; APPELLANT TO PAY THREEFOURTHS OF COSTS AND APPELLEE TO 

PAY ONE-FOURTH OF COSTS.