Gore Enterprise Holdings, Inc. v. Comptroller of the Treasury: A Missed Opportunity to Remedy Maryland’s Disconnected Taxation Policy and Inimical Corporate Atmosphere

Skylar Ludwick

On March 24, 2014, the Maryland Court of Appeals approved the collection of nearly thirty million dollars in taxes resulting from an audit spanning more than twenty years. This windfall was the result of the State's victory in Gore Enterprise Holdings, Inc. v. Comptroller of the Treasury, a case that had been litigated fiercely for nearly eight years. While the Court of Appeals' decision was correct, this holding represents the latest tensions between big business and the State. Ranked forty-second among the nation's most business-friendly states, Maryland noticeably has lost all but one of the eleven Fortune 500 companies previously located in the State, and in addition, a large number of smaller businesses moved to neighboring states that are viewed as more accommodating to the corporate agenda. Maryland's most recent gubernatorial election embodied the conflict regarding the State's increased taxation of its residents, as the under-funded Republican candidate, Larry Hogan, surprisingly defeated the Democratic candidate, former Lieutenant Governor Anthony Brown, by running on a tax-driven platform. Gore Enterprise Holdings, Inc. v. Comptroller of the Treasury is a compilation of these critically important issues and presents a unique opportunity to study the future of Maryland's economy.

In Gore Enterprise Holdings, Inc. v. Comptroller of the Treasury, the Court of Appeals applied its holding from Comptroller of the Treasury v. SYL, Inc. to determine the constitutionality of the State's taxation of an out-of-state holding company that did not conduct business in Maryland. The Court of Appeals concluded that the subsidiaries' lack of real economic substance under Comptroller of the Treasury v. SYL, Inc. sufficiently aggregated the holding companies with their parent company and thus allayed any constitutional concerns. The Court of Appeals then concluded that the State had the authority to tax the subsidiaries because they lacked real economic substance and were part of a unitary business that profited from activities conducted in the State.

The Court of Appeals' extension of the confounded real economic substance standard perpetuates the perception that Maryland is hostile to big business. Although the Court of Appeals arrived at the correct result, the Gore court should have given more weight to the unitary business principle rather than relying on an incorrect application of the real economic substance test. The Gore court expended a great deal of effort differentiating the unitary business principle and real economic substance standard only to use the same factors in each analysis. Rather than create a meaningful distinction between the two tests, the Court of Appeals further muddled the criteria for state taxation of an out-of-state subsidiary.