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Wal-Mart Stores, Inc.



In 1991, Wal-Mart transferred its trademarks and tradenames to WMR, Inc., a wholly-owned subsidiary with its principal place of business in Delaware.  WMR then granted Wal-Mart a license to use the trademarks at its retail stores within the United States in return for a royalty equal to a percentage of the sales at each store.  WMR, which had no real or personal property and no employees located outside of Delaware, did not register to pay tax in New Mexico.  In 1998, the Department assessed WMR for gross receipts tax and corporate income tax on the royalties WMR received from Wal-Mart’s use of WMR’s trademarks in New Mexico.  WMR protested, arguing (1) that it did not have nexus with New Mexico and (2) that it was not subject to tax under New Mexico’s tax statutes.  In December 2005, the New Mexico Supreme Court issued a decision in Kmart Corporation v. Taxation and Revenue Department, 2006-NMSC-006, which addressed the same issues raised by WMR and effectively determined (1) that WMR had nexus with New Mexico and (2) that WMR was not subject to New Mexico gross receipts tax.  The issue remaining for decision was whether WMR was liable for corporate income tax under the provisions of New Mexico’s Uniform Division of Income for Tax Purposes Act (UDITPA).  Held:  WMR had both business activity and income-producing activity in New Mexico; the apportionment factor resulting from UDITPA’s standard three-factor formula did not fairly represent WMR’s business activity in New Mexico, justifying the use of an alternative formula under NMSA 1978, § 7-4-19; the Department’ use of a one-factor apportionment formula using WMR’s sales factor was reasonable; and the Department was not required to engage in prospective rulemaking before apply its alternative formula.  Protest denied.