Staples Asks Supreme Court to Weigh In on Maryland Tax Dispute

Office-supply retailer Staples Inc. last week asked the U.S. Supreme Court to review its long-standing legal battle with Maryland over the state’s claim that the retail giant owes it $14 million in back taxes.

Us Supreme Court

Staples Inc., based in Massachusetts, argues that Maryland’s taxation of franchise fees paid by the retailer’s Maryland stores violates the Constitution’s Due Process and Interstate Commerce clauses.

The dispute centers around whether or not franchise fee payments received from Staples’ Maryland franchisees qualifies as income earned within the state. The Comptroller in 2009 determined that the company owed $6,340,835 in taxes, $1,585,210 in penalties, and $5,968,207 in interest for tax years 1999-2004.

The office-supply giant unsuccessfully appealed to the Maryland Tax Court to contest the tax bill, arguing the Comptroller’s apportionment method distorted the amount of their income attributable to Maryland, and that there was not sufficient nexus for Maryland to tax them.

On further appeal, the Maryland Court of Special Appeals ruled that while Staples Inc. had no employees or property in Maryland, Staples’ “substantial mutual interdependence” with the Maryland franchisees provided the necessary connection for the state to establish nexus.

Stay tuned to Conduit Street for more information.