Judge Finds Pepsi Set Up Shell to Dodge Illinois Income Taxes

An Illinois judge ruled Pepsi had no basis for claiming its snack food subsidiary Frito-Lay operates as a foreign corporation exempt from Illinois income taxes and held the soft-drink giant liable for $10.9 million in back taxes, penalties, and interest.

Sangamon County Circuit Court Judge Robin Schmidt on Thursday affirmed the Illinois Department of Revenue’s view that PepsiCo. Inc. had essentially created a foreign “shell company” beneath its subsidiary Frito-Lay North America Inc. to exclude Frito-Lay’s earnings from its Illinois combined tax return in 2016 and 2017. Schmidt concluded PepsiCo Global Mobility LLC (PGM), operated by Frito-Lay to provide ...