Oklahoma Corporate Income Tax: Licensing Agreement Did Not Create Nexus

A Vermont insurance company received payments from an Oklahoma taxpayer for intellectual property consisting of trademarks and operating practices did not create sufficient nexus to subject it to the Oregon corporation excise (income) tax, the Oklahoma Supreme Court has held. The insurance company was established under the laws of Vermont by an international restaurant corporation, to insure various risks of the corporation and its affiliates.


In establishing the insurance company, the corporation transferred the intellectual property to the insurance company to meet the capitalization requirements of Vermont for an insurance business. The insurance company was not in the restaurant business and had no say where a restaurant would be located, including Oklahoma. The insurance company did not provide insurance to any person or entity in Oklahoma. The insurance company derived income from licensing the use of the intellectual property under a licensing agreement with the international restaurant corporation. Individual restaurants in Oklahoma acquired the right to use the intellectual property under a sublicense with the international corporation. Oklahoma could tax the value received by the international corporation in contracting with individual restaurants in Oklahoma to use the intellectual property, but could not tax income received by the insurance company under a licensing contract that was not made in Oklahoma and no part of which was performed in Oklahoma.

This case was distinguished from Geoffrey, Inc. v. Oklahoma Tax Commission, 2006 OK Civ App 27, 132 P.3d 632, because, in this case, the insurance company was not a shell entity and the licensing agreement was not a sham obligation to support a deduction under Oklahoma law. In this case, due process was offended by Oklahoma’s attempt to tax an out-of-state corporation that had no contact with Oklahoma other than receiving payments from an Oklahoma taxpayer who had a bona fide obligation to make payments under a contract not made in Oklahoma. Therefore, the Court of Civil Appeals opinion upholding the Oklahoma Tax Commission’s order allowing Oklahoma to tax the insurance corporation was vacated and the order of the Oklahoma Tax Commission was reversed and remanded with instructions to amend its opinion accordingly.

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