Nordstrom loses appeal, must pay $2 million in Maryland taxes

Two Nordstrom subsidiaries must pay more than $2 million in old Maryland income taxes that state regulators say the company dodged more than a decade ago, Maryland's highest court ruled this week.

The state Court of Appeals ruled against the Seattle-based retailer's appeal on behalf of one of the subsidiaries, which had mistakenly reported its income on its 2002 and 2003 tax returns, and argued that the error should absolve it from paying the taxes.

Nordstrom — which operated four department stores, two discount stores and a distribution center in Maryland at the time — created the subsidiaries solely to move its trademark license outside the reach of Maryland taxation, Judge Robert McDonald wrote. He used a basketball analogy, comparing the strategy to the "four corners offense," in which a team plays keep-away with the ball without trying to score.

Nordstrom passed its licensing rights "not to directly enhance corporate profits, but to keep a portion of those profits out of the hands of state tax collectors," McDonald wrote.

Just as basketball implemented a shot clock to discontinue the practice, he wrote, the state's courts have issued several decisions to curb corporate tax avoidance.

The court ruled that the series of mistakes made "as a result of transactions apparently devised to avoid state taxation" by one of the firms, Petitioner NIHC, "does not entitle it to escape its tax liability on that income."

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