In a summary order issued May 20, 2026, the Supreme Court of Wisconsin declined to hear a petition for review filed by Skechers USA, Inc. (Skechers) concerning the Wisconsin Department of Revenue’s (Department) disallowance of corporate franchise tax deductions claimed for intercompany royalties. Justice Rebecca Bradley dissented but offered no written opinion explaining her reasoning.
The controversy began when Skechers formed a wholly owned subsidiary to hold its intellectual property (IP) and then paid royalty fees to the subsidiary to license the IP back. Skechers claimed deductions for its intercompany royalty payments in separate-entity states like Wisconsin. The Department disallowed the deductions on the basis that the intercompany transactions between Skechers and its subsidiary were sham transactions. Skechers appealed the Department’s disallowance, which ultimately was affirmed by the Wisconsin Tax Appeals Commission, the Wisconsin Circuit Court, and the Wisconsin Court of Appeals. Skechers’ appeal to the Wisconsin Supreme Court arose from a 2025 Wisconsin Court of Appeals decision that affirmed the Department’s application of the sham transaction doctrine to disregard Skechers’ intercompany royalty structure, holding that the relevant inquiry under Wisconsin law focuses on whether a transaction had a valid, non-tax business purpose or economic substance. The Wisconsin Court of Appeals rejected Skechers’ argument that application of the sham transaction doctrine should instead depend on whether its newly formed subsidiary was an independently viable entity engaged in substantive business activities, without evaluation of the transactions between Skechers and the subsidiary. Rejecting Skechers’ reliance on non-Wisconsin reorganization cases, the court concluded that the taxpayer failed to demonstrate that the IP transfer and related licensing arrangements produced any practical economic effect beyond state tax savings.
While not an endorsement of the Wisconsin Court of Appeals decision, the Wisconsin Supreme Court’s denial of review leaves in place the Department’s position regarding application of the sham transaction doctrine.
Skechers USA, Inc. v. Wisconsin Department of Revenue, No. 2024AP957 (Wis. May 20, 2026).