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Geoffrey, Inc. v. South Carolina Tax Commission
South Carolina Supreme Court
437 S.E.2d 13, 313 S.C. 15, (1993)
Geoffrey, Inc. (plaintiff) was a subsidiary of Toys R Us, Inc., and was incorporated and headquartered in Delaware. Geoffrey owned trademarks and trade names used by Toys R Us. Toys R Us agreed to pay Geoffrey a 1 percent royalty from Toys R Us’s net sales for the use of Geoffrey’s trademarks. In 1985 Toys R Us opened stores in South Carolina. In 1986 and 1987, Toys R Us deducted the royalty payments it paid to Geoffrey from its South Carolina taxable income. The South Carolina Tax Commission (the commission) (defendant) allowed Toys R Us to take the deduction but determined that Geoffrey was required to pay state income tax on the royalty income from Toys R Us. According to South Carolina law, all foreign corporations that did business in the state were required to pay an annual state income tax. South Carolina defined doing business in the state as engaging in any activity for the purpose of financial gain. Geoffrey paid the taxes and filed a lawsuit in state court requesting a refund. To support its claim, Geoffrey argued that the Due Process Clause of the Fourteenth Amendment and the Commerce Clause of the United States Constitution prevented South Carolina from taxing Geoffrey, because Geoffrey did not have a sufficient connection to the state. The state trial court held that Geoffrey was liable for the taxes, and Geoffrey appealed.
Rule of Law
Holding and Reasoning (Harwell, C.J.)
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