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include federal interest income, state net operatingisted when Illinois taxpayers could deduct royalties andloss deductions, state dividends-received deductions,interest paid to an 80/20 company ( see Zebra Technolo-Subpart F income, and Code Sec. 78 gross-up income.gies Corp. v. Dept. of Revenue , 344 Ill.App.3d 474 [2003]).18Md. Code. Ann., Tax-Gen. § 10-306.1.36Ga. Code Ann. § 48-7-28.3.19Ind. Code § 6 -3-1-3.5.3735 Ill. Comp. Stat. § 5/203.20Ind. Code § 6 -3-2-20.38Ind. Code § 6 -3-2-20.21N.Y. Tax Law § 208.9.39Mass. Gen. Laws ch. 63, § 31J .22Va. Code Ann. § 58.1-302 .40N.Y. Tax Law § 208.9 .23N.C. Gen. Stat. § 105-130.7A. The addback require-41Va. Code Ann. § 58.1-402 .ment also applies to any "time price differential42N.Y. Tax Law § 208.9 .charged for the late payment" of a royalty.43For example, in Beneficial New Jersey, Inc. v. Director,24Ky. Rev. Stat. Ann. § 141.205 . Management feesDivision of Taxation [No. 009886-2007 (N.J. Tax Ct.,includes expenses paid for "services pertaining toAug. 31, 2010)], the New Jersey Tax Court ruled thataccounts receivable and payable, employee ben-a finance company could deduct interest it paid on aefit plans, insurance, legal, payroll, data processing,loan from its parent corporation because the addbackpurchasing, tax, financial and securities, accounting,adjustment was unreasonable. See Technical Advisoryreporting and compliance services or similar services."Memorandum TAM-13 (N.J. Div. of Taxn., Feb. 24, 2011)25Wis. Stat. § 71.26 . See Wis. Stat. § 71.11 for a defini-for guidance regarding the types of situations in whichtion of "management fees" and "rental expenses."the New Jersey Division of Taxation will recognize the26Generally, a foreign corporation must be engaged indisallowance of a deduction to be unreasonable. Ona U.S. trade or business to qualify as a componentthe other hand, in Kimberly-Clark Corporation v. Com-member of a controlled group of corporations undermissioner of Revenue [981 N.E.2d 208 (2013)], the Mas-Code Sec. 1563 . Reg. §1.1563-1(b)(2) .sachusetts Appeals Court ruled that the unreasonable27Or. Rev. Stat. § 314.296 .adjustment exception was not satisfied. Likewise, in28N.Y. Tax Law § 208.9 .Surtees v. VFJ Ventures, Inc . [8 So.3d 983 (2008); cert.29Ark. Code Ann. § 26-51-423.denied , U.S. No. 08-916, Apr. 27, 2009], the Alabama30Wis. Stat. § 71.22 . Special rules apply to a real estateSupreme Court affirmed a lower court's decision thatinvestment trust.the addback adjustment was reasonable because the31See Reg. §1.267(a)-3(b)(1) for the definition of a "re-resulting tax was not "out of proportion" to the corpo-lated foreign person."ration's activities in Alabama.32Tenn. Code Ann. § 67-4-2004.44In addition to the exceptions summarized in Table 3,33Ala. Admin Code r. 810-3-35-.02, and Code Sec. 1504 .a few states ( e.g. , West Virginia) permit the related34Mich. Comp. Laws § 206.623 .payer to claim a credit for the taxes paid by the re-3535 Ill. Comp. Stat. §§ 5/203 and 5/1501. Illinois enactedlated payee on the corresponding income ( e.g. , W.this provision to close the perceived loophole which ex-Va. Code § 11-24-4b).49