ABC Technologies, Inc. ("ABC"), a State X corporation, owns the patent for a three-dimensional imaging device. ABC neither owns nor leases property in State Y, has no employees in State Y, and does not conduct business in State Y. ABC has a wholly-owned subsidiary (3-D Corp.) that is registered to do business in State Y. Pursuant to a licensing agreement, 3-D Corp. leases the imaging device to customers in State Y. A designated portion of the payments received by 3-D Corp. are assigned to ABC as a licensing fee. State Y does not permit or require the filing of combined returns. ABC has recently been assessed State Y corporation income tax on the ground that it is engaged in business in State Y. Discuss the merits of the assessment as well as the arguments to sustain a challenge to the assessment. Also discuss the implications of not filing corporation income tax returns for a number of years in State Y.

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The assessment of State Y corporation income tax on ABC Technologies Inc ABC raises complex issues related to the concept of nexus the connection betw... View the full answer