R.R. Donnelley & Sons Co. v. Ariz. Dep't of Revenue
In R.R. Donnelley & Sons Co. v. Ariz. Dep't of Revenue, 224 Ariz. 254, 257,11, 229 P.3d 266, 269 (App. 2010), the Court applied the Talley standard to a subsidiary that licensed the parent company's trademarks to the parent, and held unitary treatment was required. 224 Ariz. at 261-65,29-45, 229 P.3d at 273-77.
The Court observed that the trademarks, which were found on the parent company's shipping labels, letterhead, signs and website, "were a core part" of the parent's operations. Id. at 262,33, 229 P.3d at 274.
The Court concluded that because the parent paid the subsidiary royalties of between $25 million and $100 million a year and the subsidiary did not license the trademarks to any third party, the trademarks were part of the parent's "basic operations" and the subsidiary's licensing business was "functionally interdependent" with the parent's. Id. at 263,35-36, 229 P.3d at 275.
In State ex rel. Arizona Department of Revenue v. Talley Industries, Inc., 182 Ariz. 17, 23, 893 P.2d 17, 23 (App. 1994), the Court adopted an "intermediate approach" to determining whether to apply unitary treatment to a company and its affiliate(s).
Under this approach, unitary treatment is appropriate when there is "substantial interdependence of basic operations among the various affiliates or branches of the business." Id. at 24, 893 P.2d at 24 (quoting 1 Jerome R. Hellerstein & Walter Hellerstein, State Taxation ("Hellerstein")8.115, at 8-92).
In Donnelley, the Court held the trademark the parent company licensed from the subsidiary was not an accessory service.
Because the mark appeared on the parent's shipping labels, invoices and stationery, the Court concluded it was "fully and completely operationally integrated with the delivery and distribution of the product itself." 224 Ariz. at 262,33, 229 P.3d at 274.