AI Generated Opinion Summaries

This summary was computer-generated without any editorial revision. It is not official, has not been checked for accuracy, and is NOT citable.

Facts

Kmart Corporation, a Michigan-based retailer, created a subsidiary, KPI, to manage its trademarks and reduce state tax liabilities. KPI, also based in Michigan, licensed Kmart's trademarks back to Kmart in exchange for royalties. All activities related to the licensing agreement occurred in Michigan. The New Mexico Taxation and Revenue Department assessed gross receipts tax (GRT) and corporate income tax on KPI's royalty income, arguing it was derived from Kmart's operations in New Mexico (paras 3-6).

Procedural History

• Administrative Hearing Officer: Affirmed the assessment of GRT and corporate income tax but reversed penalties (para 7).
• Kmart Properties, Inc. v. New Mexico Taxation & Revenue Dep’t, 2006-NMCA-026: The New Mexico Court of Appeals upheld the imposition of both taxes, finding no constitutional violations under the Commerce Clause or Due Process Clause (para 8).

Parties' Submissions

• Petitioner (Kmart Corporation): Argued that the GRT does not apply because the licensing agreement was executed entirely in Michigan, outside New Mexico's jurisdiction. Kmart also contended that the legislative amendments to the GRT statute in 1991 exempted such transactions from taxation (paras 17-19).
• Respondent (New Mexico Taxation and Revenue Department): Asserted that the GRT applies because the licensed trademarks were used in New Mexico, and the royalties constituted income derived from property located in the state (para 16).

Legal Issues

• Whether the New Mexico Gross Receipts Tax applies to royalties from a licensing agreement executed outside the state (para 1).
• Whether the legislative amendments to the GRT statute in 1991 exempted such transactions from taxation (paras 14-15).

Disposition

• The Supreme Court of New Mexico held that the GRT does not apply to the royalties from the licensing agreement because the transaction occurred entirely outside New Mexico (para 21).
• Certiorari on the corporate income tax issue was quashed (para 21).

Reasons

Per Petra Jimenez Maes J. (Minzner, Serna, Chávez JJ., and Bustamante C.J. concurring):

The Court determined that the GRT applies only to transactions where the sale of property occurs within New Mexico. Since the licensing agreement was executed entirely in Michigan, the royalties were not subject to the GRT. The Court emphasized that the 1991 legislative amendments to the GRT statute redefined the granting of a license as a sale rather than a lease, and sales must occur within New Mexico to be taxable under the GRT. The Court also noted that the Legislature's subsequent exclusion of intangible property from the compensating tax further indicated an intent to exempt such out-of-state transactions from taxation (paras 12-20).