On May 17, 1994, Florida has joined Hawaii, North Carolina and South Carolina in taxing the licensing of intangibles by out-of-state parties. The addition to Florida's Rule 12C-1.011(1), which lists activities subject to taxation, provides:



Under this rule, out-of-state parties that license intangibles for use in Florida must pay tax on the royalty income generated by use of the intangibles in Florida.

The amendment is Florida's response to a recent South Carolina Supreme Court case, which the United States Supreme Court declined to review, Geoffrey, Inc. v. South Carolina Tax Commission. In that case, Geoffrey, Inc., a subsidiary of Toys 'R' Us, owned trademarks and trade names, including TOYS "R" US. Geoffrey, a Delaware corporation, licensed use of the TOYS "R" Us mark to Toys 'R' Us for use in 46 states. Toys 'R' Us paid a royalty of one percent of its net sales of products or services rendered under the licensed mark. The money was wired annually from a Toys 'R' Us account in Pennsylvania to a Geoffrey account in New York The net effect of this arrangement was that no one paid state income taxes on the money remitted to Geoffrey, which totalled $55 million in 1990.

The South Carolina Supreme Court construed South Carolina's tax statute to cover Geoffrey's licensing activities and rejected Geoffrey's argument that the application of the tax was unconstitutional. The court held that the tax did not violate due process because Geoffrey's licensing to Toys 'R' Us for use in South Carolina was purposeful activity directed toward South Carolina. Additionally, according to the court, applying the tax to Geoffrey did not violate the Commerce Clause because the licensing of intangibles for use in South Carolina created a "substantial nexus" with the state. Dismissing Geoffrey's argument that the Commerce Clause requires a physical presence in the state, the court explained that the recent United States Supreme Court case, Quill Corp. v. North Dakota, did not apply to state income tax. The Court in Quill had specifically held that sales and use taxes imposed on entities without a physical presence in the state violated the Commerce Clause. Thus, the South Carolina Supreme Court found that Geoffrey had to pay income taxes on the royalties remitted by Toys 'R' Us for licensing of intangibles for use in South Carolina.

In the past, many large corporations have formed separate holding companies for their trademarks for the specific purpose of avoiding taxes. Laws, such as Florida's, are now being enacted in reaction to such corporate efforts.