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ARTICLE · 08 APRIL 2010

Akerman Presents a Summary of Several Recent State and Local Tax Developments

Akerman Senterfitt
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In Letter of Findings No. 09-0446, the Indiana Department of Revenue wrestled with a complex, but not uncommon franchising structure.

United StatesTax
Michael Bowen
Michael Bowen

Indiana

In Letter of Findings No. 09-0446, the Indiana Department of Revenue wrestled with a complex, but not uncommon franchising structure. Taxpayer was a franchisor of certain intellectual property owned by an affiliate – Company A. Taxpayer had borrowed the funds to purchase its interest in Company A from yet another affiliate – Company B. Neither Company A nor Company B were subject to tax in their states of formation. Taxpayer argued that the intercompany payments of royalties (Company A) and interest (Company B) were arm's length and the structure was formed for valid business purposes. The Department affirmed the denial of Taxpayer's corporate income tax deductions primarily based on the perceived circular flow of funds.

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