Intellectual Property Law

A First for STL: A Trademark Tax Case

By Michael Atkins

This is first for STL: a tax case.

In Blistex Bracken v. City of Seattle, the City imposed a business and occupation (B & O) tax on the licensor of the BLISTEX, BLISTIK and BLIST-FZE trademarks it owns for lip balm and skin care products to Blistex, Inc., an Illinois corporation. Blistex Bracken (BBLP), a Washington limited partnership, objected to the City’s tax on the royalties it received from its licensee. The City assessed $80,406.28 in unpaid B & O taxes plus interest and penalties, for a total of $131,439.84.

BBLP paid the tax and filed an action for a refund in superior court. The court sided in favor of BBLP on summary judgment and ordered the City to pay the refund. The City appealed.

The question on appeal was whether a sufficient nexus existed between BBLP’s activities and the City to justify assessment of the tax under the Due Process Clause of Washington’s Constitution.

On Sept. 21, the Washington Court of Appeals noted that licensee Blistex, not licensor BBLP, develops, manufacturers, markets, licenses, and sells products using the trademarks, and generates the royalty income. The court found the record showed minimal activities that BBLP engaged in relating to owning, managing, and maintaining the trademarks. This led the court to conclude the City lacked the nexus it needed to collect the tax.

“The City argues that maintenance of an office, use of banking services, and hiring accountants and lawyers satisfies the nexus requirement. Whether the BBLP maintains an office and hires accountants to prepare yearly federal income tax returns is not a determining factor in deciding whether the City exceeded its taxing authority. And although the licensing agreement requires the BBLP to register trademarks if requested by Blistex, Inc., there is nothing in the record that indicates that the BBLP actually did so during the assessment period. Nor is there any evidence in the record that the BBLP retained or paid attorneys for activities concerning the trademarks during the assessment period. Moreover, if the BBLP ceased to exist, the trademarks would continue in effect, the Bracken family would continue to receive the same royalty income, retain accountants and attorneys when needed, maintain an office to receive mail and store records, and pay federal income taxes.”

The case cite is Blistex Bracken v. City of Seattle, 2009 WL 2998187, No. 62006-1-I (Wn. App.) (Sept. 21, 2009).

Full post as published by Seattle Trademark Lawyer on September 24, 2009 (boomark / email).