Tax Court: Lorillard Tobacco Co. v. Dir., Div. of Taxation, Docket No. 008305-2007, opinion by Sundar, J.T.C., decided February 27, 2019. For plaintiff – Craig B. Fields and Mitchell A. Newmark (Morrison & Foerster, L.L.P., attorneys); for defendant – Marlene G. Brown and Joseph Palumbo (Gurbir S. Grewal, Attorney General of New Jersey, attorney).
Held: Defendant did not reasonably and fairly exercise its discretion in deeming only a portion of the royalty expenses paid by plaintiff to its subsidiary as excepted from the addback requirements simply because subsidiary paid a smaller amount of corporation business tax (“CBT”) based on its New Jersey allocation factor which was lower than plaintiff’s New Jersey allocation factor. Where the subsidiary included the entire amount of the royalties as its income, and paid CBT on its allocated portion, and defendant did not dispute the validity of either plaintiff’s or the subsidiary’s allocation factor, the difference in their respective allocation factors, does not, without more, mean that plaintiff established that only a partial addback of the royalty payments was unreasonable. Plaintiff’s motion for summary judgment is granted.