458 U.S. 307 (1982), 80-2015, Asarco Inc. v. Idaho State Tax Commission
|Docket Nº:||No. 80-2015|
|Citation:||458 U.S. 307, 102 S.Ct. 3103, 73 L.Ed.2d 787|
|Party Name:||Asarco Inc. v. Idaho State Tax Commission|
|Case Date:||June 29, 1982|
|Court:||United States Supreme Court|
Argued April 19, 1982
APPEAL FROM THE SUPREME COURT OF IDAHO
Held: The State of Idaho may not constitutionally include within the taxable income of appellant nondomiciliary parent corporation doing some business (primarily silver mining) in the State a portion of intangible income (dividends, interest payments, and capital gains from the sale of stock) that appellant received from subsidiary corporations having no other connection with the State. Pp. 315-330.
(a) As a general principle, a State may not tax value earned outside its borders. "[T]he linchpin of apportionability in the field of state income taxation is the unitary business principle." Mobil Oil Corp. v. Commissioner of Taxes of Vermont, 445 U.S. 425, 439; Exxon Corp. v. Wisconsin Dept. of Revenue, 447 U.S. 207, 223. Pp. 315-320.
(b) Here, based on the findings in the state trial court and the undisputed facts, appellant succeeded in proving that no unitary business relationship existed between appellant and its subsidiaries. Pp. 320-324.
(c) To have, as Idaho proposes, corporate purpose define unitary business -- i.e., to consider intangible income as part of a unitary business if the intangible property (shares of stock) is "acquired, managed or disposed of for purposes relating or contributing to the taxpayer's business" -- would destroy the concept of unitary business. Such a definition, which would permit nondomiciliary States to apportion and tax dividends "[w]here the business activities of the dividend payor have nothing to do with the activities of the recipient in the taxing State," Mobil Oil Corp., supra, at 442, cannot be accepted consistently with recognized due process standards. While the dividend-paying subsidiaries in this case "ad[d] to the riches" of appellant, Wallace v. Hines, 253 U.S. 66, 70 (1920), they are "discrete business enterprise[s]" that, in "any business or economic sense," have "nothing to do with the activities" of appellant in Idaho. Mobil Oil Corp., supra, at 439-442. Therefore, there is no "rational relationship between [appellant's dividend] income attributed to the State and the intrastate values of the enterprise." Mobil Oil Corp., supra, at 437. The Due Process Clause bars Idaho's effort to levy upon income that is not properly within the reach of its taxing power. Pp. 325-329.
(d) Under the same unitary business standard applied to the dividend income in question, Idaho's attempt to tax the interest and capital gains
income derived from its subsidiaries also violates the Due Process Clause. Pp. 329-330.
POWELL, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, WHITE, MARSHALL, and STEVENS, JJ., joined. BURGER, C.J., filed a concurring opinion, post, p. 331. O'CONNOR, J., filed a dissenting opinion, in which BLACKMUN and REHNQUIST, JJ., joined, post, p. 331.
POWELL, J., lead opinion
JUSTICE POWELL delivered the opinion of the Court.
The question is whether the State of Idaho constitutionally may include within the taxable income of a nondomiciliary
parent corporation doing some business in Idaho a portion of intangible income -- such as dividend and interest payments, as well as capital gains from the sale of stock -- that the parent receives from subsidiary corporations having no other connection with the State.
This case involves corporate income taxes that appellee Idaho State Tax Commission sought to levy on appellant ASARCO Inc. for the years 1968, 1969, and 1970. ASARCO is a corporation that mines, smelts, and refines in various States nonferrous metals such as copper, gold, silver, lead, and zinc. It is incorporated in New Jersey, and maintains its headquarters and commercial domicile in New York. ASARCO's primary Idaho business is the operation of a silver mine. It also mines and sells other metals and operates the administrative office of its northwest mining division in Idaho. According to the appellee's tax calculations, approximately 2.5% of ASARCO's total business activities take place in Idaho. App. 59a, 67a, and 75a.
During the years in question, ASARCO received three types of intangible income of relevance to this suit.1 First, it collected dividends from five corporations in which it owned major interests: M. I. M. Holdings, Ltd.; General Cable Corp.; Revere Copper and Brass, Inc.; ASARCO Mexicana, S. A.; and Southern Peru Copper Corp.2 Second,
ASARCO received interest income from three sources: from Revere's convertible debentures; from a note received in connection with a prior sale of Mexicana stock; and from a note received in connection with a sale of General Cable Stock. Third, ASARCO [102 S.Ct. 3106] realized capital gains from the sale of General Cable and M. I. M. stock.
In 1965, Idaho adopted its version of the Uniform Division of Income for Tax Purposes Act (UDITPA).3 See Idaho Code § 63-3027 (1976 and Supp.1981); 7A U.L.A. 91 (1978). Under this statute, Idaho classifies corporate income from intangible property as either "business" or "nonbusiness" income. "Business" income is defined to include income from intangible property when
acquisition, management, or disposition [of the property] constitute[s] integral or necessary parts of the taxpayers' trade or business operations.4 Idaho apportions such "business" income according
to a three-factor formula and includes this apportioned share of "business" income in the taxpayer's taxable Idaho income.5 "Nonbusiness" income, on the other hand, is defined as "all income other than business income." Idaho Code § 63-3027(a)(4) (Supp.1981). Idaho allocates intangible "nonbusiness" income entirely to the State of the corporation's commercial domicile instead of apportioning it among the States in which a corporate taxpayer owns property or carries on business.6
Idaho is a member of the Multistate Tax Compact, an interstate taxation agreement concerning state taxation of multistate businesses. The Compact established the Multistate Tax Commission, which is composed of the tax administrators
from the member States.7 Article VIII of the Compact provides that any member State may [102 S.Ct. 3107] request that the Commission perform an audit on its behalf. See United States Steel Corp. v. Multistate Tax Comm'n, 434 U.S. 452, 457 (1978) (upholding the Compact against a facial attack on Compact and Commerce Clauses and Fourteenth Amendment grounds).
In 1971, the Multistate Tax Commission audited ASARCO's tax returns for the years in question on behalf of six States, including Idaho. The auditor recommended adjusting ASARCO's tax computations in several respects. As accepted by the Idaho State Tax Commission and as relevant to the present dispute, the auditor first "unitized" -- or treated as one single corporation -- ASARCO and six of its wholly owned subsidiaries.8 As a consequence of unitization, the auditor combined ASARCO's income with that of these six subsidiaries and disregarded (as intracompany accounting transfers) the subsidiaries' dividend payments to ASARCO. Cf. United States Steel Corp. v. Multistate Tax Comm'n, supra, at 473, n. 25. The auditor listed five factors thought to justify unitizing treatment. First, ASARCO
owned a majority (in fact, all) of the stock of each subsidiary. Second,
ASARCO, with its subsidiaries, conducts a vertically integrated nonferrous metals operation. This is evidenced by the flow from the mines to the smelters to the refineries, and ultimately to the sales made by the New York office.
App. 88a. Third,
ASARCO and its subsidiaries have interlocking officers and directors, which enables ASARCO to control the major management decisions of each subsidiary.
Ibid. Fourth, sales between the companies were numerous, making it "apparent . . . that the companies supplied markets to each other. . . ." Id. at 89a. And finally, various services were provided to the ASARCO group either by ASARCO or by subsidiaries specifically set up for such a purpose.9 The propriety of this treatment of the six wholly owned subsidiaries is not an issue before us.
The auditor found the situation to differ with respect to ASARCO's interest in M. I. M., General Cable, Revere, Mexicana, and Southern Peru. This judgment planted the seed of the current dispute. As to these five companies, the auditor determined that the links with ASARCO were not sufficient to justify unitary treatment. Nonetheless, he found that ASARCO's receipt of dividends from each of these did constitute "business" income to ASARCO. See n. 4, supra. The auditor similarly classified the interest and capital gains income at issue in this case. These categories of income also were added in ASARCO's total income to be apportioned among the various States in which ASARCO was subjected to an income tax.
The Idaho State Tax Commission adopted the auditor's adjustments
in an unreported decision. App. to Juris.Statement 46a. In rejecting ASARCO's challenge to the auditor's [102 S.Ct. 3108] unitized treatment of the six wholly owned corporations, see n. 8, supra, the Commission stated that it was
quite clear from the evidence produced at the hearing that [ASARCO's] business activities are so interrelated as to defy measurement by separate accounting. . . .
App. to Juris.Statement 49a-50a. The Commission likewise upheld the auditor's conclusion that the dividends presently at issue were properly treated as apportionable "business" income. It consequently assessed tax deficiencies against ASARCO of $92,471.88 for 1968, $111,292.44 for 1969, and $121,750.76 for 1970, plus interest.
On ASARCO's petition for review, the State District Court upheld the Commission's unitized treatment of the six...
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