Blogs

Search Blogs
Search by date
Choose From Date
Choose To Date
SearchClear

Pfizer Easily Wins on Appeal in the Wolverine State

All seems right in the world, or at least in Michigan, where the Michigan Court of Appeals recently held that the Department of Treasury (Department) improperly disallowed Pfizer’s deductions of “royalties” for Michigan Single Business Tax (SBT) purpo

April 11, 2012

All seems right in the world, or at least in Michigan, where the Michigan Court of Appeals recently held that the Department of Treasury (Department) improperly disallowed Pfizer’s deductions of “royalties” for Michigan Single Business Tax (SBT) purposes. Pfizer, Inc. v. Dep’t of Treas., Docket No. 301632 (Mich. Ct. App. Feb. 14, 2012). 

To calculate the SBT tax base (now two tax regimes ago), “royalties” were subtracted from federal taxable income.  Pfizer calculated its royalty income based on the “profit split methodology” under  Internal Revenue Code § 482 regulations, which treat 50% of a subsidiary’s profits as “intangible property income” to the parent. Pfizer subtracted these “royalty” amounts to compute its SBT tax base.

The Department disallowed the royalty deduction, claiming that “intangible property income” was not synonymous with the term “royalties” as defined by the Michigan Supreme Court in Mobil Oil Corp. v. Dep’t of Treas., 373 N.W.2d 730, 736 (1985): “payment received by the transferor in patent . . . transactions[.]”  The Department claimed that the definition of “royalties” in Mobil is narrower than the term “intangible property income,” as used in IRC § 936(h)(3)(B), and thus items that may be included in “intangible property income” may not necessarily be considered “royalties” for SBT purposes. 

However, the court dismissed the Department’s theoretical arguments because Pfizer met its burden of proof through uncontroverted affidavits that all of the relevant income related to the subsidiary’s use of Pfizer’s patents. The court placed great weight on the Department’s failure to produce any evidence that Pfizer’s royalty payments were for anything other than the use of its patents.

Our Story

Sutherland Asbill & Brennan LLP is an international law firm helping the Fortune 100, industry leaders, sector innovators and business entrepreneurs solve their biggest challenges and reach their business goals. Dedicated to unfaltering excellence in client service, we are known for our business savvy and industry intelligence, providing creative and custom solutions for each of our clients. Industry and business experience makes the difference for our clients.

click to watch Videocast: DOL Fiduciary Rule Litigation Impacts
Videocast: DOL Fiduciary Rule Litigation Impacts
Atlanta, GA
Washington, DC
© 2016 Sutherland Asbill & Brennan LLP / Sutherland (Europe) LLP
MYBRIEFCASE
Add this page to MYBRIEFCASE
Add Page to MYBRIEFCASE
News/Commentary - Pfizer Easily Wins on Appeal in the Wolverine State
Current MYBRIEFCASE Pages
Save ChangesDownload MYBRIEFCASEClear All