## Facts

- ConAgra Foods, Inc. created ConAgra Brands, Inc. in 1997 to centralize management and protection of trademarks and trade names.
- ConAgra Brands received trademarks and trade names from affiliated entities and licensed them back to affiliates in exchange for royalties; it also licensed marks to unrelated third parties for royalties.
- ConAgra Brands had no physical presence in West Virginia (no property, offices, employees, or agents) and did not sell or distribute products or provide services in the state.
- Products bearing the licensed marks were manufactured outside West Virginia by affiliated and unaffiliated licensees.
- ConAgra Brands did not control or direct how licensees distributed products.
- Licensees had no retail stores in West Virginia; they sold products only to wholesalers and retailers in the state.
- After an audit attributing about $1.16 million in royalties to West Virginia sales, the State Tax Commissioner assessed West Virginia corporation net income tax and business franchise tax on an apportioned share of ConAgra Brands’ royalty income.
- The Office of Tax Appeals upheld the assessments; the circuit court set them aside as violating the Due Process and Commerce Clauses.

## Issues

1. Whether the Due Process Clause permitted West Virginia to tax ConAgra Brands’ apportioned royalty income based on trademark licensing where the licensor lacked purposeful direction of activity toward West Virginia.
2. Whether the Commerce Clause’s “substantial nexus” requirement was satisfied by ConAgra Brands’ nationwide licensing and resulting royalty income tied to sales in West Virginia, despite no physical presence or directed in-state activity.

## Decision

- The Supreme Court of Appeals of West Virginia affirmed the circuit court and invalidated the tax assessments.
- The court held the assessments failed Due Process because ConAgra Brands’ conduct did not show purposeful direction toward West Virginia.
- The court held the assessments failed the Commerce Clause because ConAgra Brands lacked a significant economic presence/substantial nexus with West Virginia.
- The court distinguished prior approval of “economic presence” taxation where the taxpayer engaged in extensive, systematic, in-state-directed business activity.

## Legal Principles

- In administrative tax appeals, factual findings are not set aside unless clearly wrong; legal questions are reviewed de novo, and agency tax interpretations receive consideration but are not controlling.
- A state tax on interstate commerce is valid only if it (1) has a substantial nexus with the state, (2) is fairly apportioned, (3) does not discriminate, and (4) is fairly related to services provided by the state.
- Due Process requires minimum contacts shown by purposeful direction of activities toward the taxing state; passive receipt of royalties attributable to in-state sales, without directed activity, is insufficient.
- Commerce Clause nexus is not established where an out-of-state trademark licensor (i) has no physical presence in the state, (ii) does not sell, distribute, or provide services in the state, (iii) has products manufactured outside the state by licensees, (iv) does not control licensees’ distribution, and (v) licensees sell only to in-state wholesalers and retailers.

## Conclusion

West Virginia could not impose corporation net income and business franchise taxes on an out-of-state trademark licensor’s apportioned royalty income when the licensor had neither purposeful direction toward the state for Due Process purposes nor a substantial nexus/significant economic presence for Commerce Clause purposes.


Griffith v. ConAgra Brands, Inc., 728 S.E.2d 74 (W. Va. 2012)