City Business & Occupation Tax on Limited Partnership's Trademark Royalty Income Violates Due Process

The business activities of a limited partnership in Seattle found inadequate to justify the business and occupation tax on the royalty income which the Seattle family received. Washington Court of Appeals told that the business and occupation tax violates due process. The story is below.

A family in Seattle has licensed some trademarks it owned for lip and skin care products to an Illinois corporation since late 1940's. The family established a limited partnership to hold the trademarks for collecting the royalty payments, to avoid the probate process and to prevent difficulties each time a family member is died. That was a decision taken just to ease the process.

The family then rented a bureau for keeping the tax records of that limited partnership, and for picking up the posts. An accounting firm also helped preparing the federal tax return for the Seattle family's limited partnership.

However, the city decided that the limited partnership is involved in business activities by owning, managing, and maintaining the trademarks.

The court stated, however, the limited partnership collected these royalty payments but that is not sufficient for making that income subject to tax. According to the court's decision, it is not the limited partnership of the Seattle family who manufactured and sold the products, but it was the Illinois corporation. The limited partnership's keeping a bureau or using a tax accountant status is not a decisive thing for deciding the tax issue of the family.

Read more about U.S. Tax.