Gore Enterprise Holdings, Inc. v. Comptroller of the Treasury

ADKINS, J. Benjamin Franklin once wrote that “nothing can be said to be certain, except death and taxes.” 1 But Mr. Franklin did not promise certainty about what could be taxed or by whom. This case allows us to bring such certainty to a particular creature in the modern corporate landscape. To that end, we examine the Comptroller of Maryland’s (“Comptroller”) authority to tax the income of two out-of-state subsidiary corporations based on the subsidiaries’ relationship with their Maryland parent, the subsidiaries’ substance as corporations, and all the entities’ activity in Maryland. FACTS AND LEGAL PROCEEDINGS 2 W.L. Gore & Associates, Inc. (“Gore”) is a specialty manufacturing company headquartered in Newark, Delaware.

In ⁵⁰⁰ corporated in Delaware in 1959, Gore is known for its patented “ePTFE” material, which it uses to manufacture fabrics, medical devices, electronics, and industrial products. Gore operates factories in several states, including Maryland. Gore has actively enforced patents that protect its numerous inventions since 1979. On July 13, 1983, Gore created Gore Enterprise Holdings, Inc. (“GEH”) as a wholly-owned subsidiary to manage a portfolio of Gore patents.

GEH was organized in Delaware as a holding company. Shortly after GEH’s incorporation, Gore assigned GEH its entire patent portfolio, a nominal sum of cash, and 1,000 shares in a domestic international sales corporation (“DISC”), in exchange for all of GEH’s stock. GEH then licensed back its patent portfolio to Gore in exchange for a 7.5% royalty of the sales price of all products that Gore sold in the United States. In 1995, GEH executed a “Legal Services Consulting Agreement” with Gore.

Under this agreement, GEH pays Gore attorneys to perform the following work for GEH: • Prosecution of patent applications, domestic and foreign. • Conduct or manage litigation or defense of patents against infringement. • Provide advice with respect to utilization of outside counsel. • Counsel, conduct or manage applications to foreign patents and applications. • Counsel with respect to patent infringement, domestic and foreign. • Counsel with respect to interferences with pending patents. • Counsel with respect to licensing negotiations and activities. Gore employees generate research and ideas that are sent to GEH for patent application filing. Until GEH hired one employee and began to pay Gore rent for use of its office space in 1995, GEH had almost no substantial annual ex ⁵⁰¹ penses. This employee was hired as a Patent Administrator to manage the patent portfolio, implement decisions of the GEH Board of Directors, and report on GEH activities to its Board of Directors.

These activities include the licensing of GEH patents to Gore and to third parties, the acquisition of patents from third parties, and the enforcement of GEH’s patent portfolio. In January of 1996, Future Value, Inc. (“FVI”) was incorporated in Delaware to manage Gore’s excess capital. A Gore-employed attorney incorporated it, and two members of the Gore Board, along with GEH’s Vice President, comprised the FVI Board. Upon FVI’s formation, GEH transferred all of its investment securities 3 to FVI, in exchange for all of the shares of FVI.

GEH then declared a dividend to its sole shareholder, Gore, in the form of the FVI stock. This made Gore the sole owner of FVI. FVI was founded primarily to perform investment management functions, but has also extended Gore a line of credit when Gore experienced negative cash flow. As of 2008, FVI had three employees that handled, monitored, and recorded the various activities performed by FVI.

The Comptroller audited Gore, GEH and FVI in 2006. On July 3, 2006, the Comptroller issued the following assessments of tax, interest and penalties: $26,436,315 against GEH for tax years 1983 to 2003; $2,608,895 against FVI for tax years 1996 to 2003; and $193,178 against Gore for tax years 2001 to 2003. A hearing officer in the Comptroller’s office upheld the assessments, plus interest for the time between the Comptroller’s assessment and the hearing, in separate decisions entitled “Notice of Final Determination” filed on January 5, 2007. GEH and FVI (together, “Petitioners”), along with Gore, appealed to the Maryland Tax Court (“the Tax Court”).

After hearings in October 2008 and May 2009, the Tax Court affirmed the assessments of tax and interest against GEH and FVI, but abated the penalties. Additionally, the ⁵⁰² Tax Court dismissed the alternative assessment against Gore. Petitioners appealed to the Circuit Court for Cecil County, arguing that Maryland’s taxation of GEH and FVT violated the Due Process and Commerce Clauses of the U.S. Constitution. The Circuit Court agreed, reversing the Tax Court.

The Comptroller appealed to the Court of Special Appeals, which reversed the Circuit Court, thereby upholding the Comptroller’s assessments. See Comptroller of the Treasury v. Gore Enterprise Holdings, Inc., 209 Md.App. 524 , 60 A.3d 107 (2013). GEH and FVI then petitioned this Court for a writ of certiorari, which we granted to answer the following questions: 4 ⁵⁰³ 1) Did the Tax Court err in holding that the Comptroller had authority to tax GEH and FVI under this Court’s holding in Comptroller of the Treasury v. SYL, Inc., 375 Md. 78 , 825 A.2d 399 (2003)? 2) Did the Tax Court err in upholding the apportionment formula used by the Comptroller in its assessment of GEH and FYI? For the reasons discussed below, we agree with the Tax Court, and consequently answer both questions in the negative.

We therefore affirm the judgment of the Court of Special Appeals. DISCUSSION The Maryland Tax Court is “ ‘an adjudicatory administrative agency[.]’” Frey v. Comptroller of the Treasury, 422 Md. 111, 136 , 29 A.3d 475, 489 (2011) (quoting Furnitureland S., Inc. v. Comptroller of the Treasury, 364 Md. 126 , 137 n. 8, 771 A.2d 1061, 1068, n. 8 (2001)). Thus, decisions of the Tax Court receive the same judicial review as other administrative agencies. Id.

(Citations omitted). In this context, “our review looks ‘through the circuit court’s and intermediate appellate court’s decisions ... and evaluates the decision of the agency.’” Frey, 422 Md. at 136-37 , 29 A.3d at 489 (quoting People’s Counsel for Baltimore Cnty. v. Surina, 400 Md. 662, 681 , 929 A.2d 899, 910 (2007)). We cannot uphold the Tax Court’s decision “on grounds other than the findings and reasons set forth by [the Tax Court].” Frey, 422 Md. at 137 , 29 A.3d at 489 -90 (citing Evans v. Burruss, 401 Md. 586, 593 , 933 A.2d 872, 876 (2007); Dep’t of Health & Mental Hygiene v. Campbell, 364 Md. 108, 123 , 771 A.2d 1051, 1060 (2001)). Indeed, our review is narrow, and we will not “ ‘substitute ⁵⁰⁴ [our] judgment for the expertise of those persons who constitute the administrative agency.’” Frey, 422 Md. at 137 , 29 A.3d at 490 (quoting People’s Counsel for Baltimore Cnty. v. Loyola College in Md., 406 Md. 54, 66 , 956 A.2d 166, 173 (2008)).

An administrative agency’s findings of fact must meet the substantial evidence standard. Frey, 422 Md. at 137 , 29 A.3d at 490 (citations omitted). Thus, we determine “ ‘whether a reasoning mind reasonably could have reached the factual conclusion the agency reached.’” Frey, 422 Md. at 137 , 29 A.3d at 490 (quoting State Ins. Comm’r v. Nat’l Bureau of Cas.

Underwriters, 248 Md. 292, 309 , 236 A.2d 282, 292 (1967)). It is not our place to “make an independent original estimate of or decision on the evidence.... [or determine for ourselves], as a matter of first instance, the weight to be accorded to the evidence before the agency.” Ramsay, Scarlett & Co., Inc. v. Comptroller of the Treasury, 302 Md. 825, 838 , 490 A.2d 1296, 1303 (1985) (citations omitted). In Ramsay, we cautioned: [T]hat a reviewing court may not substitute its judgment for the expertise of the agency; that we must review the agency’s decision in the light most favorable to it; that the agency’s decision is prima facie correct and presumed valid; and that it is the agency’s province to resolve conflicting evidence and where inconsistent inferences can be drawn from the same evidence it is for the agency to draw the inferences. Ramsay, 302 Md. at 834-35 , 490 A.2d at 1301 (citations omitted). “[T]he interpretation of the tax law can be a mixed question of fact and law, the resolution of which requires agency expertise.” Comptroller of the Treasury v. Citicorp Int’l Commc'ns, Inc., 389 Md. 156, 164 , 884 A.2d 112, 116-17 (2005) (citing NCR Corp. v. Comptroller, 313 Md. 118, 133-34 , 544 A.2d 764, 771 (1988)).

In reviewing mixed questions of law and fact, “we apply ‘the substantial evidence test, that is, the same standard of review [we] would apply to an agency ⁵⁰⁵ factual finding.”’ Comptroller of the Treasury v. Science Applications Intern. Corp., 405 Md. 185, 193 , 950 A.2d 766, 770 (2008) (quoting Longshore v. State, 399 Md. 486 , 522 n. 8, 924 A.2d 1129 , 1149 n. 8 (2007)). The legal conclusions of an administrative agency that are “premised upon an interpretation of the statutes that the agency administers” are afforded “great weight.” Frey, 422 Md. at 138 , 29 A.3d at 490 (citations omitted). Agency decisions premised upon case law, however, are not entitled to deference.

Frey, 422 Md. at 138 , 29 A.3d at 490 (“When an agency’s decision is necessarily premised upon the ‘application and analysis of caselaw,’ that decision rests upon ‘a purely legal issue uniquely within the ken of a reviewing court.’ ” (quoting Loyola College, 406 Md. at 67-68 , 956 A.2d at 174 )). I. Maryland’s Authority to Tax GEH and FVI Petitioners argue that Maryland does not have the authority to tax GEH and FVI. Specifically, Petitioners deny that GEH and FVI have sufficient “nexus” with Maryland for the Comptroller’s assessment of taxes to be constitutional under the Due Process and Commerce Clauses. Petitioners first argue that it was legal error for the Tax Court to find nexus between Maryland and GEH and FVI based on the unitary business principle. 5 Additionally, while acknowledging that our holding in Comptroller of the Treasury v. SYL, Inc. 6 allows the Comptroller and the Tax Court to find nexus when a subsidiary lacks economic substance, Petitioners contend that both GEH and FVI have such substance.

Petitioners contend that ⁵⁰⁶ to hold otherwise would wrongfully expand .STL’s ambit from the “phantom entities” and “mail drops” at issue in that case. Petitioners also present three peripheral arguments. The first is that the Tax Court improperly usurped a legislative function because treating Gore and its subsidiaries as a unitary business transformed Maryland from a “separate” to a “combined” reporting state. Second, Petitioners contend that Maryland’s efforts to tax GEH and FVI violated the State’s long-held doctrine of respect for the corporate form.

Finally, Petitioners argue that the Tax Court’s holding that GEH’s patents were used in Maryland by virtue of Gore manufacturing or selling products in the State is contrary to federal patent law, and wrongly blurs a long-held distinction between patents and trademarks. Respondent rejoins that the Tax Court did not rely solely on the unitary business principle to establish GEH’s and FVI’s nexus with Maryland. Rather, Respondent contends that the Tax Court found that nexus was “established by the economic reality that the parent’s business in Maryland produced the subsidiaries’ apportioned income.” Essentially, Respondent alleges that although the Gore subsidiaries were not identical to the companies at issue in SYL, they were sufficiently dependent on their parent (Gore) for the subsidiaries to fit within the SYL framework. Respondent also counters Petitioners’ three peripheral arguments.

First, Respondent fails to see the connection between recognizing the lack of distinction between Gore and its subsidiaries — for purposes of establishing nexus — and Maryland’s separate reporting requirements. Second, Respondent finds inapposite Petitioners’ argument concerning Maryland taxation and the respect for corporate form enshrined in Maryland precedent. Finally, Respondent disclaims the import of the functional distinction between patents and trademark for purposes of establishing nexus in this case. We begin by examining the bedrock constitutional principles that must be satisfied before an entity is subject to Maryland income tax. “Under both the Due Process and the ⁵⁰⁷ Commerce Clauses of the Constitution, a state may not, when imposing an income-based tax, ‘tax value earned outside its borders.’” Container Corp. of America v. Franchise Tax Bd., 463 U.S. 159, 164 , 103 S.Ct. 2933, 2939 , 77 L.Ed.2d 545 (1983) (quoting ASARCO Inc. v. Idaho State Tax Comm’n, 458 U.S. 307, 315 , 102 S.Ct. 3103, 3108 , 73 L.Ed.2d 787 (1982)). “[B]oth the Due Process and Commerce Clauses [require] that there be ‘some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax.’” Allied-Signal, Inc. v. Dir., Div. of Taxation, 504 U.S. 768, 777 , 112 S.Ct. 2251, 2258 , 119 L.Ed.2d 533 (1992) (quoting Miller Bros.

Co. v. Maryland, 347 U.S. 340, 344-45 , 74 S.Ct. 535, 539 , 98 L.Ed. 744 (1954)). Lest the shared elements of the two inquiries spawn confusion, we underscore that the two constitutional provisions are distinct, and “reflect different constitutional concerns.” Quill Corp. v. North Dakota By and Through Heitkamp, 504 U.S. 298, 305 , 112 S.Ct. 1904, 1909 , 119 L.Ed.2d 91 (1992). The Due Process Clause imposes the requirement of fairness on governmental activity. Quill, 504 U.S. at 312 , 112 S.Ct. at 1913 .

The “touchstone” of due process is “fair warning.” Id. This fairness is preserved by requiring that an outside business have a “ ‘minimal connection’ between the interstate activities and the taxing State, and a rational relationship between the income attributed to the State and the intrastate values of the enterprise.” Mobil Oil Corp. v. Comm’r of Taxes of Vermont, 445 U.S. 425, 436-37 , 100 S.Ct. 1223, 1231 , 63 L.Ed.2d 510 (1980) (quoting Moorman Mfg. Co. v. Bair, 437 U.S. 267, 272-73 , 98 S.Ct. 2340, 2344 , 57 L.Ed.2d 197 (1978)). Physical presence is not required to satisfy due process, so long as the business engages in some purposeful direction to the state.

See Quill, 504 U.S. at 308 , 112 S.Ct. at 1911 . The Commerce Clause, by contrast, is chiefly concerned with “the effects of state regulation on the national economy.” Quill, 504 U.S. at 312 , 112 S.Ct. at 1913 . Taxation satisfies the Commerce Clause by passing a four-part test, ⁵⁰⁸ requiring that “ ‘the tax is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State.’” Trinova Corp. v. Michigan Dep’t of Treasury, 498 U.S. 358, 372 , 111 S.Ct. 818, 828 , 112 L.Ed.2d 884 (1991) (quoting Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 , 97 S.Ct. 1076, 1079 , 51 L.Ed.2d 326 (1977)). Hence, the inquiries under the Due Process and Commerce Clauses “impose distinct but parallel limitations on a State’s power to tax out-of-state activities.” MeadWestvaco Corp. ex rel.

Mead Corp. v. Illinois Dep’t of Revenue, 553 U.S. 16, 24 , 128 S.Ct. 1498, 1505 , 170 L.Ed.2d 404 (2008) (citations omitted). The MeadWestvaco Court identified the lodestar of these parallel inquiries as “‘whether the state has given anything for which it can ask return.’ ” MeadWestvaco, 553 U.S. at 24-25 , 128 S.Ct. at 1505 (quoting ASARCO, 458 U.S. at 315 , 102 S.Ct. at 3108 ). In MeadWestvaco, the Ohio-based corporation challenging its taxation had undoubtedly done business in the taxing state of Illinois, but this multi-state enterprise questioned which portions of its generated value Illinois could tax. 553 U.S. at 25 , 128 S.Ct. at 1505 . For that purpose, the court turned to the unitary business principle.

Id. Under the unitary business principle, the State is authorized to tax the portion of value that a unitary business derived from its operation within the particular state. MeadWestvaco, 553 U.S. at 26 , 128 S.Ct. at 1506 . In essence, the principle “shift[s] the constitutional inquiry from the niceties of geographic accounting to the determination of the taxpayer’s business unit.” Id.

The unitary business principle enables taxation by apportionment when the characteristics of “functional integration, centralized management, and economies of scale” are present. MeadWestvaco, 553 U.S. at 30 , 128 S.Ct. at 1508 . When a “ ‘discrete business enterprise’ ” is responsible for that value, then the State cannot tax that value, even by apportionment. MeadWestvaco, 553 U.S. at 26 , 128 S.Ct. ⁵⁰⁹ at 1506 (quoting Mobil Oil Corp., 445 U.S. at 439 , 100 S.Ct. at 1233 ).

We must be clear about what the unitary business principle allows. The principle can be used to “ ‘tax an apportioned sum of [a] corporation’s multistate business if the business is unitary.’” MeadWestvaco, 553 U.S. at 25 , 128 S.Ct. at 1505 (quoting Allied-Signal, 504 U.S. at 772 , 112 S.Ct. at 2255 ). But the principle does not confer nexus to allow a state to directly tax a subsidiary based on the fact that the parent company is taxable and that the parent and subsidiary are unitary. See id.

(“Where ... there is no dispute that the taxpayer has done some business in the taxing State, the inquiry shifts from whether the State may tax to what it may tax.... To answer that question, we have developed the unitary business principle.”) (citations omitted). Where, as here, the taxpayer disputes its nexus with Maryland, the unitary business principle cannot be used to clear the constitutional hurdles of the Due Process and Commerce Clauses. Indeed, the Petitioners have argued strenuously that the unitary business principle is not a jurisdictional principle, and cannot be used to satisfy nexus inquiries under either the Due Process Clause or Commerce Clause.

This Court has fully embraced that position, as demonstrated by our explanation in NCR Corp. v. Comptroller of the Treasury: Apportionment under the unitary business formula, however, is not without its restrictions. The due process and commerce clauses do not allow states to tax a corporation’s interstate activities unless there exists a “ ‘minimal connection’ or ‘nexus’ between the interstate activities and the taxing State, and ‘a rational relationship between the income attributed to the State and the intrastate values of the enterprise.’ ” 313 Md. 118, 131-32 , 544 A.2d 764, 770 (1988) (quoting Exxon Corp. v. Wisconsin Dep’t of Revenue, 447 U.S. 207, 219-20 , 100 S.Ct. 2109, 2118 , 65 L.Ed.2d 66 (1980)). Thus, NCR made clear that the unitary business principle cannot satisfy the constitutional requirements of the Due Process and Commerce ⁵¹⁰ Clauses; rather, it is a principle that allows apportionment of entities already deemed taxable. In other words, before apportionment is employed, a state must first satisfy the constitutional requirements to levy a tax. 7 This Court has been asked to evaluate Maryland’s authority to tax against the foregoing constitutional precepts in many cases.

See, e.g., Hercules Inc. v. Comptroller of the Treasury, 351 Md. 101 , 716 A.2d 276 (1998); NCR, 313 Md. 118 , 544 A.2d 764 (1988); Comptroller of the Treasury v. Atlantic Supply Co., 294 Md. 213 , 448 A.2d 955 (1982); Xerox Corp. v. Comptroller of the Treasury, 290 Md. 126 , 428 A.2d 1208 (1981). One of our more recent cases, Comptroller of the Treasury v. SYL, Inc., shares many factual similarities to the present case. 375 Md. 78 , 825 A.2d 399 (2003). Thus, we will now examine SYL and its applicability to this case. 8 ⁵¹¹ SYL concerned Maryland’s ability to tax two distinct companies 9 that had little obvious connection to Maryland, but were subsidiaries of parent companies that had significant business ties with the State. SYL, 375 Md. at 80 , 825 A.2d at 400 .

The first subsidiary, SYL, Inc. was a Delaware corporation, and wholly owned subsidiary of Syms, Inc. SYL, 375 Md. at 81 , 825 A.2d at 400 . Syms, Inc. was a New Jersey corporation that sold clothing in many states, including Maryland. Id. By contrast, SYL’s primary function was to manage the trademarks, trade names and advertising slogans used by Syms.

Id. Syms incorporated SYL in 1986, assigning it trademarks in return for a license to manufacture, use, and sell the covered products. Id. Syms also agreed to pay SYL a royalty based on these sales.

SYL, 375 Md. at 81 , 825 A.2d at 400-01 . From 1986 to 1993, SYL did not have property, employees, or accounts in Maryland, and did not file corporate income taxes in Maryland. SYL, 375 Md. at 81 , 825 A.2d at 401 . SYL was established in Delaware with the help of Gunnip & Company.

SYL, 375 Md. at 86 , 825 A.2d at 404 . Gunnip provided SYL with a Delaware address and mail forwarding; however, SYL’s office “lacked a phone listing, had no office sign, and no business cards.” SYL, 375 Md. at 87 , 825 A.2d at 404 . SYL’s Board of Directors was dominated by officers of the parent, and was comprised of Syms’ CEO, COO, CFO, and an accountant from Gunnip. Id.

This Gunnip accountant also held the distinction of being SYL’s sole employee, with a $1200 annual salary. Id. Despite SYL’s purpose of maintaining Syms’ trademarks, SYL incurred no legal expenses for outside trademark coun ⁵¹² sel. Id.

Syms’ CFO stated that any such expenses “ ‘were probably paid for by Syms Corp.’ ” Id. Indeed, the license agreement between Syms and SYL authorized Syms to take charge of the trademark management — a task that was supposed to be SYL’s only responsibility. SYL, 375 Md. at 87-88 , 825 A.2d at 404 . 10 Finally, SYL’s financial records lacked any evidence to establish SYL’s economic substance. SYL, 375 Md. at 88 , 825 A.2d at 405 .

The second subsidiary in this consolidated case, Crown Cork & Seal (“Crown Delaware”), was a Delaware Corporation wholly owned by parent Crown Cork & Seal Company (“Crown Parent”). SYL, 375 Md. at 92 , 825 A.2d at 407 . Crown Delaware’s main function was to manage and control 13 domestic patents and 16 trademarks. Id.

Crown Parent manufactured and sold metal cans and bottles worldwide, including in Maryland. Id. From 1989 to 1993, Crown Delaware did not file corporate income taxes in Maryland. Id.

Crown Delaware was incorporated in 1989 when Crown Parent assigned it intellectual property 11 in exchange for all of Crown Delaware’s issued stock. SYL, 375 Md. at 94 , 825 A.2d at 408 . Crown Delaware granted Crown Parent an exclusive license to manufacture items covered by Crown Delaware’s intellectual property in exchange for a royalty based on sales. Id.

Like SYL, Crown Delaware had no property, employees, or accounts in Maryland. SYL, 375 Md. at 92 , 825 A.2d at 407 . Crown Delaware also employed a third party to establish its operations in Delaware. SYL, 375 Md. at 94 , 825 A.2d at 408 .

Organization Services, Inc. (“OSI”), a nexus-service company, 12 subleased Crown Delaware desk space, conference ⁵¹³ rooms, and a telephone number for up to $100 per month. SYL, 375 Md. at 95 , 825 A.2d at 409 . Crown Delaware also hired nine OSI employees to manage its daily operations. SYL, 375 Md. at 96 , 825 A.2d at 409 .

These part-time clerical employees received relatively paltry wages for working in a corporation earning thirty million dollars per year. Id. Their responsibilities did not require intellectual property expertise. Id.

Those duties were performed by the same patent law firms that handled Crown Parent’s intellectual property issues before Crown Delaware’s creation. SYL, 375 Md. at 97 , 825 A.2d at 410 . In reality, it was Crown Parent — the only party to whom Crown Delaware could license intellectual property— that had responsibility for maintaining and defending the validity and ownership of the intellectual property. SYL, 375 Md. at 97-98 , 825 A.2d at 410 .

Although Crown Parent did make royalty payments to Crown Delaware, those payments were immediately loaned back to Crown Parent. SYL, 375 Md. at 96 , 825 A.2d at 409-10 . This circular flow corresponded with the absence of the usual corporate formalities that “normally serve to separate a parent corporation from its subsidiary[.]” SYL, 375 Md. at 98 , 825 A.2d at 410 . These included Crown Parent officers and directors “signing documents as Crown Delaware’s officers when in fact they [were] not officers[.]” Id.

In fact, officers of the nexus service company, OSI, served as officers and directors of Crown Delaware. SYL, 375 Md. at 96 , 825 A.2d at 409 . Finally, Crown Delaware’s balance sheets were devoid of the regular costs of running business that corporations normally incur. SYL, 375 Md. at 97 , 825 AJM at 410.

After examining the structure and operation of the two subsidiaries, we then analyzed Maryland’s authority to tax under constitutional precepts. We held that the constitutional requirements for state taxation were satisfied by virtue of the fact that SYL and Crown Delaware “had no real economic ⁵¹⁴ substance as separate business entities.” SYL, 375 Md. at 106 , 825 A.2d at 415 . (Emphasis added). We described the SYL and Crown Delaware subsidiaries as follows: Neither subsidiary had a full time employee, and the ostensible part time “employees” of each subsidiary were in reality officers or employees of independent “nexus-service” companies.

The annual wages paid to these “employees” by the subsidiaries were minuscule. The so-called offices in Delaware were little more than mail drops. The subsidiary corporations did virtually nothing; whatever was done was performed by officers, employees, or counsel of the parent corporations. The testimony indicated that, with respect to the operations of the parents and the protections of the trademarks, nothing changed after the creation of the subsidiaries.

Although officers of the parent corporations may have stated that tax avoidance was not the sole reason for the creation of the subsidiaries, the record demonstrates that sheltering income from state taxation was the predominant reason for the creation of SYL and Crown Delaware. Id. Given these characteristics, we felt confident in holding that a portion of the subsidiaries’ income could be taxed, “based upon their parent corporations’ Maryland business[.]” SYL, 375 Md. at 109 , 825 A.2d at 417 . With this exposition in mind, we must now determine whether the Tax Court was correct in holding that Maryland could tax GEH and FVI consistent with our opinion in SYL.

In its “MEMORANDUM OF GROUNDS FOR DECISION,” the Tax Court concluded its reasoning as follows: Maryland courts have consistently concluded that the basis of a nexus sufficient to justify taxation is the economic reality of the fact that the parent’s business in Maryland was what produced the income of the subsidiary. The Classics Chicago, Inc., et al. [v.] Comptroller of the Treasury, 189 Md.App. 593 [695, 985 A.2d 593 ] (2010); Comptroller of the Treasury v. SYL, Inc., 375 Md. 78 [ 825 A.2d 399 ], cert. denied 540 U.S. 982 [984, 124 S.Ct. 478 , 157 L.Ed.2d 375 ] and 540 U.S. 1090 [ 124 S.Ct. 961 , 157 L.Ed.2d 795 ] (2003). Thus, the resolution of this case depends on ⁵¹⁵ whether GEH and FVI as out-of-state affiliates had real economic substance as business entities separate from W.L. Gore. This Court’s previous interpretation of the facts support the Comptroller’s position that GEH and FVI were engaged in a unitary business with W.L. Gore and are not separate business entities.

GEH and FVI depend on W.L. Gore for their existence. The facts indicate functional integration and control through stock ownership, as well as common employees, directors and officers of W.L. Gore and the Gore [flamily. The functional source of GEH’s income is derived from the ideas and discoveries generated by W.L. Gore employees. The circular flow of money is traced by and through W.L. Gore when GEH acquires a patent from the ideas and discoveries of W.L. Gore.

The income of GEH is derived from a royalty paid by W.L. Gore under a license agreement on the patent. In addition, the facts also indicate GEH’s reliance on W.L. Gore personnel, office space and corporate services. The tax returns and other financial data reflect the lack of separate substantial activity of GEH or FVI. Moreover, the evidence also demonstrates that FVI is taxable by Maryland on its intercompany loan income.

FVI is inextricably connected to the royalty income generated by W.L. Gore and paid to GEH. There is a circular flow of money through royalties, dividends and loans which support the unitary business of W.L. Gore and its wholly owned subsidiaries, GEH and FVI. The Court finds that substantial nexus exists between GEH and FVI with the State of Maryland, and that the Comptroller has fairly apportioned the tax on income through its apportionment formula. Under the circumstances of this case, the Court will abate the penalty but affirm the assessments of tax and interest against GEH and FVI.

The alternative assessment against W.L. Gore is dismissed. (Emphasis in original). Thus, the Tax Court identified the correct legal standard, inquiring whether GEH and FVI were subsidiaries with “no ⁵¹⁶ real economic substance as separate business entities” under SYL. SYL, 375 Md. at 106 , 825 A.2d at 415 (emphasis added).

In applying this legal standard to GEH and FVI, the Tax Court marshaled numerous factual findings, supported by substantial record evidence. 13 These included the following: • There were no outside Directors of GEH or FVI and prior to 1996 the W.L. Gore family dominated the Officer list. • FVI was simply an intentional depository for assets built up through royalties paid to the patent company, GEH. • In effect, GEH does not create, invent or make anything and must rely on W.L. Gore employees to invent the new process or product. Thus, an idea generated by a technologist with W.L. Gore is prepared by GEH through an application for filing with the patent office. In most cases, the employees of W.L. Gore review the patent application and determine whether it should be pursued. • The testimony in the case suggests that GEH relied on W.L. Gore for a continuing stream of inventions and discoveries as set forth in the materials that make up the patent application. • The manufacture or sale of the product by W.L. Gore obligates the payment of royalties to GEH under the License Agreement. ⁵¹⁷ • GEH as licensor to W.L. Gore, Inc., licensee, is dependent on the licensee’s activities to obtain consideration for grants of the license. Although GEH has separate corporate status, the inter-dependence reflected in the third party License Agreements suggests that the patent committee of GEH strongly considers the interest of W.L. Gore in making its decisions. • One witness for GEH who described herself as a Patent Administrator confirmed that W.L. Gore employees would prepare patent applications at no cost to GEH and that payments were made for GEH in accordance with the Service Agreement with W.L. Gore. • [An economist for Petitioners] agreed that W.L. Gore and GEH had globally integrated goals and that a synergy existed between W.L. Gore and GEH due to the relationship between patents and products. • Testimony from [] Petitioners’ witnesses consistently suggested that nearly all of the third-party licenses came about in order to produce benefits for W.L. Gore or for the “W.L. Gore family of companies.” • In 1996, W.L. Gore was experiencing some negative cash flow when W.L. Gore asked FVI for a line of credit to meet current operating needs which continued through 1999.

The inter-company loans reflected the intercom-pany dependence of FVI. • The audits reflected through the inter-corporate transactions and Service Agreement that the Delaware Holding Companies relied on W.L. Gore for revenues and services. From these findings, the Tax Court highlighted the subsidiaries’ dependence on Gore for their income, the circular flow of money between the subsidiaries and Gore, the subsidiaries’ reliance on Gore for core functions and services, and the general absence of substantive activity from either subsidiary that was in any meaningful way separate from Gore. The court then properly applied SYL, relying on these indisputable parallels between GEH, FVI and the SYL subsidiaries to hold that GEH and FVI lacked substance apart from ⁵¹⁸ Gore, and consequently satisfied the constitutional requirements for taxation in Maryland. 14 Within this analysis, the Tax Court also stated that the subsidiaries were each engaged in a unitary business with Gore. We do not find this observation to be inapposite, much less fatal to the Tax Court’s application of SYL.

Although the unitary business principle and economic substance inquiry under SYL are distinct inquiries with distinct purposes, there is no reason — based either in case law or logic — for holding that the factors that indicate a unitary business cannot also be relevant in determining whether subsidiaries have no real economic substance as separate business entities. See Walter Hellerstein, A Unitary Business is the ‘Linchpin Of Appor-tionability,’ Not Nexus, State Tax Notes, March 18, 2018, at 866, n. 8 (“This is not to suggest, however, that some of the factors that determine whether two corporations are engaged in a unitary business might not also be relevant in determining whether there is a nexus with one or both of those corporations.”); see also John A. Swain, Cybertaxation and the Commerce Clause: Entity Isolation or Affiliate Nexus, 75 S. Cal. L.Rev. 419, 424 (2002) ([T]he [Supreme] Court has addressed “attributional nexus,” “divisional nexus,” and “unitary business” principles, all of which serve as building blocks for a “theory of affiliate nexus.”). 15 Aside from the facial differences between GEH, FVI, and the subsidiaries in SYL, the Petitioners have attempted to ⁵¹⁹ distinguish this case on several other grounds. First, Petitioners claim that GEH and FVI were created for legitimate business reasons.

Second, Petitioners argue that unlike the subsidiaries in SYL, GEH and FVI engage in substantial activities that highlight their substance as separate entities from their parent, Gore. Finally, Petitioners contend that all the transactions between Gore and its subsidiaries were at arm’s length or at market rates. Here, we first observe that Petitioners’ brief made reference to “the SYL economic substance standard.” This formulation is a misnomer, for as we explained, our inquiry under SYL requires us to determine whether the subsidiaries have economic substance as separate entities. Under this lens, the motivation behind creating the entities, although invoked in SYL, is not dispositive.

See, e.g., Classics Chicago, Inc. v. Comptroller of the Treasury, 189 Md.App. 695, 714 , 985 A.2d 593, 604 (2010) (“The Court of Appeals [in SYL ] did not adopt a ‘two prong sham transaction’ test but consistent with the trend in caselaw, looked to the economic substance, in terms of the practical effect of the transactions in question. While relevant, the motivation behind the transactions is not necessarily dispositive.”). Thus, Petitioners’ first attempt at distinguishing SYL is unavailing. Secondly, we do not disclaim that the subsidiaries here engaged in more substantive activities than those in SYL.

In particular, the record indicates that GEH acquired patents from third parties, licensed patents to third parties, and paid substantial fees for outside legal counsel and other services. But although GEH and FVI have more “window dressing” than the SYL subsidiaries, these additional trappings do not imbue GEH and FVI with substance as separate entities. See SYL, 375 Md. at 106 , 825 A.2d at 415 (“SYL and Crown Delaware had a touch of “window dressing” designed to create an illusion of substance.”). Indeed, Gore permeates the substantive activities of both GEH and FVI.

Petitioners’ employees and operations are so intertwined with Gore as to be almost inseparable, as the “Legal Services Consulting Agree ⁵²⁰ ment,” and reliance on Gore — for everything from professional services, to things like office space — so indicate. For instance, the much ballyhooed third-party licensing agreements were found by the Tax Court to suggest “that the patent committee of GEH strongly considers the interest of W.L. Gore in making its decisions.” 16 GEH’s patent acquisition, although not specifically addressed on by the Tax Court, is subject to the same charge. 17 Although GEH produced some evidence of outside counsel fees and other expenses, the ⁵²¹ record lacks specificity and comprehensiveness concerning the nature and scope of these charges. 18 The Tax Court’s failure to address certain aspects of this third-party activity, or to address it with pain-staking particularity, does not trouble us, as the record materials that Petitioners have brought to our attention are not enough to undermine the other evidence that the Tax Court properly relied on. Finally, the fact that various