SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO . A

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- 18T2 ELAN PHARMACEUTICALS, INC ., Plaintiff

- Appellant,

v. DIRECTOR, DIVISION OF TAXATION, Defendant

- Respondent.

____________________________

Argue d November 12, 2020

– Decided Before Judges Alvarez and Geiger. On appeal from the Tax Court of New Jersey, Docket No. 10589

- 20 1 0. Alysse McLoughlin, argued the cause for appellant ( McDermott Will & Emery LLP, and Charles J. Moll III , (Mc Dermott Will & Emery LLP) of the California Bar, admitted pro hac vice, attorneys; Charles J. Moll III , of counsel; Alysse McLoughlin, on the brief s ). Michael J. Duffy, Deputy Attorney Ge neral, argued the cause for respondent (Gurbir S. Grewal, Attorney General, attorney; Melissa H. Raksa, Assistant

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court

. " A lthough it is posted on the internet , this opinion is binding only on the parties in the case and its use in other cases is limited

. R

. 1:36

- 3.

January 26 , 202 12 A

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- 18T2 Attorney General, of counsel; Michael J. Duffy, on the brief).
PER CURIA M Plaintiff Elan Pharmaceuticals, I nc . (Elan) , appeals from a May 2, 201 4
Tax Court order and June 6, 201 9 final judgment determining : (1) the Director of the Division of Taxation (Division) properly reclassified the gain from Elan's
sale of its ABELCET and P ERMAX assets from non

- operational income to taxable apportiona ble operational income ; and (2) that Elan owed $966,127.38 in corporate taxes for tax year 2002 , a $96, 612.74 penalty, and $2,291 ,918 .08 in
interest

. 1 Elan contends that the Tax Court erred in determin ing that the business liquidation doctrine did not apply to the gain from the sale of the ABELCET and
P ERMAX assets. In the alternative, Elan argues this matter should be remanded to the Tax Court for further fact

- finding on this issue. We affirm.
Because th is case was decided " on cross - motions for summary judgment, we will rely on the core material facts that informed the Tax Court's decision. "
Mc K esson Water Prods. Co. v. Dir., Div. of Taxation , 408 N.J. Super. 213, 215 (App. Div. 2009).

1 The Tax Court also found that the Division improperly excluded receipts from Elan's 2002 fractional denominator but that finding was not appealed.3 A

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In 2002, Ela n was a Delaware company with its corporate headquarters and principal place of business in California. Elan was wholly owned by Athena Neurosciences, Inc. ( Athena ) . Athena was wholly owned by Elan Holdings. Ltd., which in turn was wholly owned by Elan Corporation, PLC (Elan PLC ) , a multi

- national pharmaceutical company w ith its principal place of business in Ireland. A document titled " Certain Material Transactions Elan PLC and affiliates 1996

- 2005 " lists more than fifty acquis itions, divestments, and other transactions und e rtaken by Elan PLC between 1996 and 2005. Elan PLC executive William Daniel described Elan as " a neuroscience

based technology company . . . divided into three separate business segments: neurology, autoim mune disease and severe pain management. " (Pa46). Daniel explained that " [e]ach segment focused on discovering, developing, manufacturing and marketing advanced therapies in its respective field. "
I n May 2000, Elan PLC acquired The Liposome Company (TL C), a Delaware corporation with its princip a l place of business in New Jersey. At some point after the acquisition, Elan PLC merged TLC into Elan. The acquisition of TLC marked Elan PLC's entry into the field of oncology, with TLC and its subsidiaries pr oducing ABELCET and M YOCET , which Daniel characterized as oncology dru g s . It also develop ed several other oncology4 A

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drugs. A power point presentation prepared for Elan PLC ’s board of directors

state d that ABELCET is used to treat " severe systemic fungal infection. " The presentation’s overview asserted that ABELCET can be used to treat patients with cancer, AIDS, or those who have received organ transplants. 2 As a result of the merger, Elan acquired the TLC subsidiary which
manufactured ABELCET and M YOCET , and renamed it Elan Operations, Inc. Elan Operations was headquartered in Indiana. Elan also acquired the TLC subsidiary which held the license to sell ABELCET in Canada (Canada
ABELCET Business) and renamed it Elan Canada, Inc. Elan conduct ed the sale
of ABELCET in the United States (U.S. ABELCET Business), while the rights to sell ABELCET and M YOCET in the European Union (EU ABELCET Business) and the rights to sell ABELCET in Asia (Asia ABELCET Business) were transferred to Elan Pharma Inte rnational Ltd. (EPIL), a n Elan PLC subsidiary and foreign corporation with no business dealings in the United
States. Daniel certified that following TLC's acquisition, its senior management in New Jersey " departed Elan’s employ and were replaced with Elan [ PLC ] and

2 In contrast, the drugs characterized in the power point presentation as in the pipeline were exclusively for cancer patients.5 A

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Elan management personnel " from the companies’ respective headquarters in California and Ireland. However, following Elan’s sale of the U.S. ABELCET Business, an interim services agreement provi ded that access to Elan’s facility
in Princeton would be provided " as reasonably requested. " According to Daniel, Elan PLC suffered financial distress in 2002 and adopted a plan " to shed non

- core businesses, and to raise money to reduce debt owed to its outside lenders.” While the U.S. and Canada ABELCET Businesses were profitable, the EU ABELCET Business was not, and Elan PLC was advised to sell the U.S. and Canada ABELCET Businesses separately from the EU
ABELCET Business " [t]o avoid delay. " The Divis ion points out an offering memorandum prepared by Morgan Stanley that states " Elan prefers to sell the U.S. and Canadian rights to [ ABELCET ] . . . [but] plans to retain the rights to [ ABELCET ] outside of the U.S. and Canada. " In November 2002, Elan, Elan Canada, and Elan Operations sold the U.S. and Canada ABELCET Businesses to Enzon Pharmaceuticals (Enzon) for $360
million (the Enzon transaction). The Enzon transaction included the sale of

" business operations, including manufacturing, commercial infrast ructure, sales force, intellectual property and clinical studies. " Elan PLC's 2002 annual report describes the Enzon transaction as also including " any Japanese rights to6 A

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[ ABELCET ]

. " The report states " Elan retains its existing rights to market [ ABELCET ] in territories outside of the United States, Canada and Japan. " The Enzon transaction also included an interim services agreement between Elan, Elan Canada and Enzon, which, among other terms, allowed for the continued sale of M YOCET in Canada, with Elan and Enzon to share in the

revenue. Under a license agreement between Enzon and Elan , Elan retained intellectual property rights to ABELCET but granted Enzon a license to use ABELCET ’s intellectual prop erty " to develop, . . . market, sell, . . . and import " the drug. The parties also exchanged reciprocal licenses to use ABELCET in connection with clinical trial and research and development activities

" undertaken or to be undertaken " by either party in t heir respective territories. Elan maintains it did not retain intellectual property rights to ABELCET , pointing to Daniel’s certification. Enzon thereafter entered into a long

- term agreement with EPIL to supply it with ABELCET while it was still operati ng the EU ABELCET Business. This agreement resulted in more than $16 million in revenue during 2003. Eventually, in February 2004, the EU and Asia ABELCET Businesses , along with the rights to sell M YOCET in the EU , were sold to Medeus UK Ltd. (the
Medeus transaction). The Medeus transaction also included shares of subsidiary7 A

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businesses licensed to sell ABELCET and M YOCET in individual European countries.
Daniel certifie d that the proceeds from the Enzon transaction were distributed to Athena Neuroscien ces in three payments : $155 million i n December 2002; $183 million on June 2003; $22 million on November 2003. Athena Neurosciences then transferred the proceeds to Elan PLC to reduce corporate debt. A n unidentified ledger reflect ed that $338,208,000 of
ABELCET proceeds were received on November 22, 2002, the date of the Enzon transaction. The ledger also shows a $12 , 657,287 " [i]ntercompany payment " was made to EIS o n November 2 6 , 2002. A $760,000 "[i] ntercompany payment " was made to Ath lone o n December 9, 2002 . Other December intercompany payments include approximately $14.8 million paid to ETT , approximately $20.8 million paid to EPIL, and approximately $131.3 million paid to EPIL " (on behalf of ANI). " The ledger further shows a Febr uary 2003 " [ i ] ntercompany payment " of approximately $96. 4 million " from EPIL out of [ ABELCET ] proceeds

. " March 2003 transactions include d a n " [ i ] ntercompany payment to ETT " of approximately $6 million, a n " [ i ] ntercompany payment to EPIL " of approximately $8.5 million, a " [r]etrospective reimbursement of qualifying8 A

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spen d by [Elan] " of approximately $7 million, a " loan repayment to ANI/EPIL " of approximately $22. 2 million, and a " [r]etrospective reimbursement of [Elan] qualifying reinvestme nts " of approximately $27.1 million. The ledger shows more transactions in June and November 2003, with $0 " ABELCET cash left in [Elan] " by December 31. A summary of spending reflects approximately $88.8
million spent by Elan directly and approximately $ 249.4 million " paid to other group companies. " In 2003, Elan PLC and its affiliates earned approximately $16 million
attributable to ABELCET in Europe and Asia

. This was in addition to its earnings attributable to M YOCET

. Despite these earnings, Elan PLC continued with its recovery plan. As part of its plan , the Elan Group was reorganized into Core Elan and Elan Enterp r ises , with Core Elan engaging in commercial activities related to neurology, pain management, and infecti ous diseases, and Elan Enterprises attempting to liquidate the drug delivery ventures and non

- core pharmaceutical products. Elan claimed that each of its "core" operations of neurology, autoimmune diseases, and severe pain management constituted a distinc t business segment, with minimal inter a ction between each. Elan's 2 0 02 annual statement listed ABELCET as one of the products "divested" from its infectious disease operation. Also sold was Athena9 A

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Diagnostics, Inc. , one of Elan's subsidiaries that focused on neurological diagnostics

. In December 2003, Elan PLC, Elan , Epil, and other entities enter e d into

an agreement to sell "the European Specialities Pha r maceutical Business of
E l an" to Medeus UK Ltd. The product s sold included ABELCET and
MYOCET. Also i ncluded were the intellectual property rights with license agreements and contracts acquired by Elan when Elan PLC purchased Liposome; " the October 2002 ABELCET purchase ag r eement; the November
2002 Supply Agreeme nts; and the November 2002 License Agreement

. " T he
trademarks for A BELCET were , however, subject to a license back to Elan Group to continue labeling and packaging ABELCET . Moreover, Elan was identified as the "proprietor" of the intellectual property ri ghts in ABELCET and M YOCET

. On its 20 0 2 corporation business tax ( CBT ) return, Elan re duced its taxable federal net income, including the gain from the Enzon sale , by $340,332,168 , reporting it as nonoperational income. In contrast, Athena reported about 26% of this income as apportionable , operational income on its consolidated California corporate income tax return.10 A

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The Division's audit determined that the gain from the Enzon sale was apportionable , taxable income since Elan did not allocate the entire income to California and the sale did not "meet the criteria allowing for the business liquidation exception." The Director upheld the audit results and noted that if a court de termine d the gain was nonoperational income, Elan would be assessed for "recapture [of] prior expenses on disposed assets." On July 6, 2010, Elan initiated this action c hallenging the $1,560,546.50 tax assessment imposed by the Division following its aud it of Elan's 2002 CBT
return , and an April 8, 2010 final determination that Elan misclassified the gain
from the sale of its ABELCET and P ERMAX drug businesses. The complaint also contested an audit adjustment relating to Elan's sales in " states in which Elan was not taxable." Following the completion of discover y , t he parties cross

- moved for partial summary judgment regarding the Director's reclassification of the gain from the sale of ABELCET (the ABELCET gain) as apportionable operatio nal income

. Although Elan claimed it did not retain any portion of the sale proceeds or use the proceeds for payment of its business operations, the D irector pointed
to a document titled " [ ABELCET] Proceeds received November 22, 2002 , " that Elan provided during discovery, as evidence that Elan distributed a portion of11 A

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the proceeds to the group's affiliates other than Athena. Elan contended the document was irrelevant and, in any case, merely demonstrated that it
distribute d the ABELCE T sale proceeds. The court issued a May 2, 2014 order and twenty

- seven - page letter opinion granting partial summary judgment to the Di rector and denying partial summary judgment to Elan, finding the Di rector correctly reclassified the
ABELCET gain as ope rational income under N.J.S.A. 54:10A

- 6.1(a)

. T he court made the following findings. ABELCET is a proprietary drug "marketed world

- wide for treating severe, systemic fungal infections in cancer, AIDS or transplants patients who were intolerant to conventional therapy." "Enzon paid about $360 million (adjusted) in cash for the purchase of the
ABELCET product line. For purposes of tax reporting [,]

. . . $338 million was allocated to [Elan , ] representing payments for intellectual property and
person nel and $22 million was allocated to Elan Operations, Inc., representing payments for real/personnel property including inventory. No portion of the proceeds was allocated to Elan Canada, Inc." (Footnote omitted). The court determined that the issue wa s "whether the gain of about $360
million from the sale of the U.S. and Canadian markets for

. . . ABELCET , administered primarily to cancer patients, along with the d rug's New Jersey12 A

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manufacturing facility, is operational income subject to apportionment a nd to [ CBT ] in New Jersey." The court found that "[t]he material facts as to the acquisition and disposition of the U.S. and Canadian ABELCET business lines are undisputed. " Therefore, summary judgment was appropriate since only legal issues remained. The court noted that N.J.S.A. 54:10A

- 6.1(a) was amended effective January 1, 2002, to heighten the taxpayer's burden of proof to clear and convincing evidence and to avoid "a significant part of the nonoperational income of New Jersey headquartered compani es [ escaping] taxation." Assembly Budget Comm. Statement to A

. 2501 4

- 5 (June 27, 2002). As amended, N.J.S.A. 54:10A

- 6.1(a) defines "operational i ncome" as follows:

"Operational income" subject to allocation to New Jersey means income from tangible and intangible property if the acquisition, management, or disposition of the property constitutes an integral part of the taxpayer's regular trade or business operations a nd includes investment income serving an operational function.
The statute then defines "nonoperational income" by way of exclusion:

Income that a taxpayer demonstrates with clear and convincing evidence is not operational income is c la ssified as nonop er a tion a l income, and the nonop e r at ional income of taxpayers is no t subject t o allocation but shall be specifically assigned; provided, that 100% of the nonoperational income of a taxpayer13 A

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- 18T2 that has i t s principal place from which the trade or business of th e taxpaye r is directed or managed in this St a te shall be specifically assigned to this State to the extent pe rmitted under the Cons titu tion and statutes of the United St a tes. [ N.J.S.A. 54:10A

- 6.1 (a) .] The court then discusse d the liquidation exception. " W here the sales have

cons t ituted liquidations or partial liquidations of a business, and the sale proceeds have not been reinvested in the business, the courts [other than in in California] uniformly have held .

. . that the sale proceeds were nonbusiness income." Mc K esson Water Prods. Co. v. Dir., Div. of Taxation , 23 N.J. Tax 449, 457 (Tax 2007), aff'd , 408 N.J. Super. 213 (App. Div. 2009). The court distinguished McKesson , noting :

Here, neither party contends that there are factual issues as to whether the Elan Group , including [Elan] , was engaged in a unitary business. N either party [had] argued that the U.S. and Canadian ABELCET business line is not unitary. Thus, the " property " sold, here the tangible and intangible assets associated with the ABELCET product line, is the property or assets employed in a unitary business, part of which was operati ng in New Jersey. The court also stated that "this case does not involve an [Internal R evenue C ode] § 338(h)(l0) sale " and , " in McKesson , the [p]a rent [company] was involved in14 A

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one business line (p harma ceutical) a nd its subsidi a ry was involved in a completely distinct business (selling bottled water) ." The court then engaged in the following analysis of the f acts under the functional test imposed by N.J.S.A. 54: 1 0A

- 6.l(a) :

ABELCET and its intellectual property rights were tangible and intangible property; the same were acquired, managed, employed by, and integral to, [Elan's] and the corporate group's r e gular trade or business of being a world

- wide fully integrated pharmaceutical company; and the same earned significant income in the c ourse of [ Elan's] and Elan group's regular trade or bus iness as a world

- wide fully integrated pharm a ceutical corporation. It would logically follow that the disposition of the tangible properly (inventory of ABELCET and its raw materials; the machinery/equipment in Indiana which made ABELCET ) and intangible property (patents, know

- how, trade

- marks, distribution rights, licenses, all of which were treated as income generating capital assets) should produce operational income. This is especially t ru e where it is undisputed t hat the reason for the sale of ABEL CET was so that the Elan group would reduce its debt, thus, allow it to continue to remain in business which was facing a downturn. ABELCET , as the most profitable drug in the most viable commercial market (the U.S.), with an assured mar ket due to increas ing number of patients with compromised or weakened immune systems (such as AIDS or cancer patients), would raise the maximal and quickest revenue. Thus, the sale of the U.S. and Canadian ABELCET markets was clearly for the benefit of the Elan group , incl uding [Elan] , and for their continuance, in and of, their unitary b us iness.15 A

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In accordance with McKesson , the court held that "income from disposition of a capital asset is not apportionable if it is earned in a liquidation
context." It is only when there is " a complete ' cessation of ' the subsidiary's business due to the sale of all of its stock/assets . . . [tha t] the resultant income is not operational especially where the sale proceeds were not re

- invested in a 'similar business.'" ( q uoting Mc K esson , 23 N.J. Tax at 465). Th e court concluded that the liquidation exception is to be narrowly construed and must b e "carefully scrutinized when being applied to the sale of capital assets which were unquestionably acquired and employed by the taxpayer such that the
asset [s] were 'integral parts of the taxpayer's regular trade or business operations. ' " ( q uoting McKess on , 23 N.J. Tax at 465). Applying those principles, the court found: [N] either [ Elan ] nor the Elan group completely ceased doing it s pharmaceutical business after the November 2002 sale of the U.S./Canadian markets for the ABELCET product line. Neither [Elan] nor any of its or [Elan PLC 's] subsidiaries closed their respective shutters. Indeed, they continued as before, except that as t o the ABELCET product line, their world

- wide pharmaceut ical business continued outside of the geographical areas of U.S. and Canada. Howeve r , even as to these two geographical areas, [Elan] retained the rights to use ABELCET or its improvements in connection with any R&D activities conducted by [Elan] or its affiliates under a license agreement with16 A

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- 18T2 Enzon. Although [Elan] claims that it had nothing to do with EPIL's sales of ABELCET abroad, the undisputed fact is that [Elan] continued to be the legal owner of the drug and the intellectual property rights in t he drug

. The business reasons (cost/time savings) for providing only distribution rights to EPIL cannot subvert the f act , and thus, the conclusion, that [Elan] continued to operate its phar ma ceutical business, including the ABELCET product line outside th e U.S. and in a restricted manner within the U.S. Further, several agreements were effectuated with Enzon which allowed [Elan] and the Elan group to continue to benefit from , and use, the ABELCET product and assets. This was in contrast to another 2002 d ivested product line, [ P ERMAX ] , which [Elan] sold to an unrelated company as part of its recovery plan, and as to which there were no supply agreements or other business arrangements since the group "divested . . . in terest completely and retained no role or interest in the drug going forward," per [Elan PLC's] employee's deposition. The above reasons also render unpersuasive [Elan's] arguments that it was liqu idating its and [Elan PLC's] (or [Elan PLC's ] group's) "oncology" line of business. While ABELCET was directed to a market comprising of physicians or surgeons, and/or hospitals for ultimate use by mostly cancer patients, it was also targeted to similarly vulnerable patients such as those with AIDS. ABELCET was also viewed as used i n the therapeutic areas of "infectious diseases" such as "f u ngal infections" as described in [Elan PLC's] 2003 annual report. Nonetheless, whether ABELCET was viewed as a canc er or oncology drug or an anti

- fungal medication, the above facts show that the sale of its U.S. and Canadian market was not a final closure or liquidation of [Elan] or [Elan PLC's] "oncology17 A

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- 18T2 business." [Elan] and [Elan PLC's] affiliates continued to rese arch [,] develop, manufacture, market, license, and/or distribute M YOCET , which had as its target audience, patients with metastatic breast cancer. The group also continued to enter into joint ventures with other corporate entities in the cancer treatment area, such as

. . . Chemagenix Therapeutics, I nc. [(footnote omitted).] The court rejected Elan's contention that the sale of ABELCET , its " most profitable revenue source , " to reduce Elan group's debt , " require [ d ] a conclusion that the group ended its oncology business for purposes of applying the liquidation exception of the functional test ." The court was also unpersuaded by Elan's " claim s that because [ Elan PLC ] separated its business activities into two distin ct groups , and further identified three or four distinct therapeutic areas, each area was a distinct business division or segment for purposes of applying the liquidation exception." The court concluded that dividing operations into different divisions or segments "does not alter the fact that [Elan PLC] with its group held itself out to be a fully integrated, worl d

- wide pharmaceutical company in the business of providing various medications, whether through its
own R &D efforts, or by acquisition of other similar companies with established medical drug products and markets."18 A

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The court likewise rejected Elan's contention that McKesson applies because it "sold a geographic segment of a product line." The court distinguished the out

- of

- state cases cited by McKesson on several grounds

. I n particular, the court noted:

Further, the sale involved an anti

- competition undertaking whereby the Elan group (including [Elan ] ) and buyer agreed not to sell, market, or distribute ABELCET outside of their respective permitted geographical regions for a [ten]

- ye ar period. Such clause would appear to acknowledge that Plaintiff, [Elan PLC] and the El a n group continued in the s a me competitive ph a rm a ceutic a l market with ABELCET i s one of the primary products over, and as to which the Elan group still had rights, t hu s, belying a "complete" liquidation of [Elan] , [Elan PLC's,] or the Elan group's trade or business. The court also fo und that Elan's 2002 CBT return does not reflect that " the sale proceeds were fully distributed by [ Elan ] to Athena , its sole stockholder ." Nor does the return reflect that " t he $155 million approved to be paid as
dividends " were distributed to Athena

. On the contrary, Sc h edule C

- 1 of the
return "showed zero distributions." The court also rejected Elan's claim that it made installment distributions
to maintain adequate cash reserves to address any indemnification obligations owed to Enzon , noting its 200 2 CBT did not reflect any "appropriated retained earnings ."19 A

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Finally, the court was not persuaded by "[ Elan's ] claim that it used the sale proceeds to pay monies on behalf of Athena." The court found that " EPIL , one of the recipients of the ABELCET sale proceeds, was neither [Elan's] nor Athena's subsidiary or stockholder. EPIL was not a party t o the October 200 2
Asset Agreement yet p a id [Elan] about $96 million ' out of the ABELCET [] proceeds. ' " In addition, Elan "did not designate the payment of about $15
million to EP I L as being made 'on behalf of' Athena." Elan then moved for reconsideration on three ground s. First, it claim ed that the court erred by assuming that Elan's business and operations were unitary with its Irish parent company, and if it did, an evidentiary hearing was required

. Second, it claimed the court misapplied the holding in Mc K esson that cessation of a line of business is non

- operational income. Third, it claimed that the use of the sale proceeds was irrelevant as a matter of law

. The court issued an October 3, 2014 order and eleven

- page letter opinion denying reconsideration and "affi rming " its prior order. The court explained:

T he CBT taxes operational income [ , ]

. . . includ[ ing ] income " from tangible and intangible property if the acquisition, management, and disposition of the property constitute integral parts of the taxpayer's regular trade or business operations and includes investment income serving an operational function. " N.J.S.A. 54:10A

- 6.1(a). A taxpayer is requir ed to demonstrate by " clear and convincing "20 A

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- 18T2 evidence that income is " nonoperational." Ibid. However, if a taxpayer's principal place [ of busines ] s from which it directs or manages its trade or business is New Jersey, then 100% of such nonoperational inco me is allocable to , and thus taxed by, New Jersey (subject to the Constitution or federal laws). The court rejected Elan's contention that it had improperly distinguished
McKesson , noting that the sale of the ABELCET line of business was not the

same as [the] complete liquidation of the subsidiary in McKesson

. Further, "[ w ] hen [Elan] (along with its parent and subsidiaries ) sold the proprietary rights in and to ABELCET (for the U.S. and Canadian markets), " the stock d id not cease to exist. "[ T ] he transaction in McKesson ended the subsidiar y' s existence whereas here, no corporate extinction took place." The court also rejected the premise that a partial liquidation mandates application of the liquidation exception. It also found that the cases relied upon by Elan , which "did not involve or contemplate the sale of intangible intellectual property or a seller's post

- sale retention of those rights," were inapplicable to the facts in this case. The court noted that the " material facts as to the acquisition and disposition of the U.S. and Canadian ABELCET business lines were undisputed. " The court thus found "the legal standards for analysis of a unitary business were not relevant and [,] therefore, not discussed or app lied ." The court21 A

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recognized that it erred when it stated that ABELCET was manufactured in New Jersey but concluded the error was harmless since " the correct location of the manufacturing facility was recited in the factual and analytical portions of the opinion

. " The court rejected Elan's claim that it misinterpreted the facts. The opinion " recited that EPIL was licensed [ by Elan ] to sell ABELCET abroad " ;

" the European subsidiaries were created by [Elan PLC] to market / sell
ABELCET abroad but were reflected as [ E lan's ] subsidiaries in a corporate chart provided by [ Elan ]; and EPIL distributed/sold ABELCET to those subsidiaries. " "Further, the court noted that [Elan] always remained the owner and proprietor of ABELCET , even when sold in the European markets, a fact borne by the documents submitted by [Elan] in support of its summary judgment motion." Elan also argued that the court erred by stating that its subsidiary, Elan Canada, Inc., "did not exit the [ ABELCET ] market." Elan argued that the interim sales agreement did not evidence Elan's continued operatio n s ; rather it showed only a continuation of "administrative activities " by a liquidating taxpayer. The court disagreed , noting that its recitation of the facts relating to the sale to Enzon correctly pointed out " that Elan C a nada, Inc. was a party to22 A

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the transaction and that Enzon purchased the ABELCET assets (drug manufacturing pl us intangible rights) in the Canadian market. " Last, Elan argued the court should have denied summary judgment because its findings regarding distribution of the ABELCET sale proceeds were based upon "an undated worksheet, prepared by an unknown author." The worksheet was produced by Elan in response to the Division's discovery requests. Moreover, Elan's positio n was belied by its 2002 CBT returns. In any event, the court decided "that the sale of the U.S. and Canadian markets for
ABELCET did not merit a liquidation exception based on the facts." Therefore, "an analysis of the distribution of the sale proceeds [was] unnecessary." At some point not disclosed by the record, the parties cross

- moved for partial summary judgment regarding the sales fraction denominator exclusion issue, and the court granted partial summary judgment in favor of Elan. The Division h as not appealed that decision. On June 6, 201 9, the court issued a final judgment declaring that the gain recognized by Elan in 2002 from the sale of its P ERMAX drug assets (the
P ERMAX gain) also constitute d operational income under N.J.S.A. 54:10A

6.1(a). The judgment noted that the parties stipulated to the following facts:

a) [ P ERMAX ] was a drug in [p]laintiff's therapeutic area of neurology;23 A

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- 18T2 b) Plaintiff sold its [ P ERMAX ] product line as part of the 2002 recovery plan; c) Plaintiff continued in the pharmaceutical business following the [ P ERMAX ] sale, and continued in the therapeutic area of neurology; and d) With respect to determining whether the [ P ERMAX ] Gain is operation al or nonoperational income, all other relevant facts concerning the [ P ERMAX ] Issue are the same as the relevant facts concerning the ABELCET Issue [

. ] Accordingly, the Tax Court found the gain from the sale of the ABELCET and
P ERMAX assets presented an identical legal issue

. The judgment fixed Elan's 2002 outstanding corporate tax liability at $3,354,658.20, including interest and penalty. The Tax Court stayed its order pending appeal but noted that interest continued to accrue at the rate specified
i n N.J.S.A. 54:49

- 3. This appeal followed. Elan focuses its arguments on its sale of the ABELCET assets and raises the following points for our consideration:

POINT I
THE TAX COURT'S DETERMINATION THAT THE ELAN [ ABELCET ] DISPOSITION RESULTED IN OPERATIONAL INCOME IS REVERSIBLE ERROR.24 A

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- 18T2 A. The Elan [ ABELCET ] Disposition Satisfies the Business Liquidation Doctrine and i s, a ccordingly, Nonoperational Income

. 1. The Elan [ ABELCET ] Disposition is the Liquidation of a Separate and Distinct Business Segment

. i. The Elan [ ABELCET ] Disposition is the Liquidation of Elan's Entire Oncology Business Segment

. ii. Alternatively, the Elan [ ABELCET ] Disposition is the Partial Liquidation of a Geographic Segment of a Worldwide Oncology Business

. 2. The Tax Court's Errors in Determining that the Elan [ ABELCET ] Disposition Did Not Constitute a Liquidation for Purposes of the Business Liquidation Doctrine

. i. That the Elan [ ABELCET ] Disposition Included the Sale of Intangible Intellectual Property is Irrelevant

. ii. The Post

- Sale Retention of the EU [ ABELCET ] Distribution Rights by Elan's Affiliates is Also Irrelevant Here.
3. The Proceeds from the Elan [ ABELCET ] Disposition Were Distributed to Elan's Parent and Not Invested in the Same Type of Business as Had Been Sold

. B. Any Implication That Plaintiff Was Involved in the Conduct of a Unitary Business with Respect to its25 A

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- 18T2 Operation of the [ U

. S .] [ ABELC ET ] Business Is Irrelevant

. C. The Court Erroneously Concluded That Plaintiff's Sale of [ ABELCET ] Did Not Satisfy the Business Liquidation Doctrine Based on the Fact that the Assets Sold Were Used in the Business

. D. It is Irrelevant Whether Elan was Engaged in a Different Line of Business Than its Affiliates

. POINT II ALTERNATIVELY, MATERIAL ISSUES OF FACT PRECLUDE THE ISSUANCE OF PARTIAL SUMMARY JUDGMENT FOR DEFENDANT AND REQUIRE THAT THIS COURT REMAND THIS CASE FOR ADDITIONAL FACT FINDING.
A. The Errors to be Corrected

. 1. Elan's [ U

. S .] [ ABELCET ] Business Operations Were Not Part of a Unitary Business with Other Operations Conducted by Elan or Any of Its Affiliates

. 2. [ ABELCET ] Did Not Operate as a Separate and Independent Oncology Business Segment

. 3. Elan Liquidated Its [ ABELCET ] Oncology Business Segment in the 2002 Sale to Enzon Pharmaceuticals

. 4. The [ ABELCET ] Business Was Not Integrated with Elan's Severe Pain Management Business

.26 A

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- 18T2 5. Elan's Proceeds from the 2002 Liquidation of the [ U

. S .] [ ABELCET ] Business Was Distributed by Elan to [Elan PLC]

. 6. The EU [ ABELCET ] Business Was Unrelated to Plaintiff, and Was Operated by EPIL

. 7. The [ U

. S .] [ ABELCET ] Business Was Managed Outside of New Jersey

. 8. Both the United States and Canada [ ABELCET ] Businesses Were Terminated in 2002

. B. The Contested Factors Listed Above Preclude Granting of Summary Judgment for Defendant

. We begin by recognizing several well

- established principles. "A taxpayer challenging the Director's determination bears the burden of proof." UPSCO v. Dir., Div. of Taxation , 430 N.J. Super. 1, 8 (App. Div. 2013) (citing Atl. City Transp. Co. v. Dir., Di v. of Taxation , 12 N.J. 130, 146 (1953)). We apply " a presumption of correctness" to the Director's decision "in light of the Director's expertise. " Est

. of Taylor v. Dir., Div. of Taxation , 422 N.J. Super. 336, 341 (App. Div. 2011) (citation omitted). "That is particularly true when the Director's expertise is exercised in the 'specialized and complex area ' of the tax statutes." Ibid. (quoting Metromedia v. Dir., Div. of Taxation , 97 N.J. 313, 327 (1984)). Where the issue is stric tly legal, we afford no deference to the27 A

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Director's statutory interpretations and review de novo. Amer. Fire & Cas

. Co. v. Dir., Div. of Taxation , 189 N.J. 65, 79 (2006). In turn, o ur scope of review of a decision by the Tax Court is limited and deferen tial

. Est

. of Taylor , 422 N.J. Super. at 341. Because the Tax Court has

" special expertise, " its findings will not be disturbed unless they are arbitrary or lack substantial evidential support in the record. Yilmaz, Inc. v. Dir., Div. of Taxation , 390 N .J. Super. 435, 443 (App. Div. 2007). W e review the Tax Court's legal determinations de novo. Alcatel

- Lucent USA Inc. v. Twp. of Berkeley Heights , 460 N.J. Super. 243, 249 (App. Div. 2019). We review the Di rector's motion for partial summary judgment using the same standard applied by the Tax Court

— "whether, after reviewing 'the competent evidential materials submitted by the parties' in the light most favorable to [plaintiff], 'there are genuine issues of material fact and, if not, whether the moving party is entitled to summary judgment as a matter of law. ' " Grande v. Saint Clare's Health Sys. , 230 N.J. 1, 23

- 24 (2017) (quoting Bhagat v. Bhagat , 217 N.J. 22, 38 (2014)). Because we review the Tax Court's grant of partial summary judgment to the Division, our review is de novo

. Waksal v. Dir., Div. of Taxation , 215 N.J. 224, 2 31

- 32 (2013)

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Applying th e se principles, we affirm substantially for the reasons expressed by Tax Court Judge Mala Sundar in her comprehens ive and well

reasoned May 2 and October 3 , 2014 letter opinion s . We add the following
comments. "The definitions of operational and nonoperational income in N.J.S.A.
54:10A

- 6.1 appear to have been derived from" the definition of "business" and "nonbusin ess" income found in the Uniform Division of Income for Tax Purposes Act, 7 U.L.A. 331 (1985 and 1997 Supp.), commonly referred to as "the functional test." McKesson , 23 N.J. Tax at 454.
McKesson adopted a liquidation exception to the functional test. Id. at 464

- 65. Under that exception , the gain realized from the sale of ass e ts is nonoperational income where: (1) the sale constitutes a liquidation or partial liquidation of a busines s ; and (2) the sale proceeds are distributed to shareholders and not reinvested in in the business. See i d. at 4 57. We agree with the Director's position that Elan's sale of certain ABELCET rights to Enzon in 2002 did not constitute a complete or partial liquidati on of Elan's oncology business. Elan continued to own other oncology patents and trademarks following the consummation of the Enzon transaction, including foreign ABELCET patents and trademarks until the 2004 Medeus transaction

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In addition, following t he Liposome merger, Elan acquired patents and trademarks to numerous other oncology drugs, including MYOCET. Elan's oncology medication business was clearly comprised of more than just
ABELCET. T he Enzon transaction did not liquidate Elan's oncology drug business. Instead, the transaction was limited to the sale of its rights to
ABELCET in three markets and certain related assets to Enzon. However, "Elan retain[ed] its existing rights to market [ ABELCET ] in territories outside of the United States, Canada and Japan." Elan PLC continued to earn income from ABELCET after the transaction , earning more than $16 million from ABELCET sales in Europe and Asia in 2003. Moreover, " Elan and Enzon entered into a long

- term manufacturing and supply agre ement whereby Enzon will continue to manufacture Elan's requirements for " ABELCET and MYOCET. (PA317

- 18).
A s accurately observed by the court , Elan and Elan PLC's affiliates " continued to research, develop, manufact ure, market, license, and/or distribute MYOCET, which had as its target audience, patients with metast at ic breast cancer. T he group also continued to enter into joint ventures with other corporate entiti es in the cancer treatment area

. . . . " Elan did not sell its remaining rights to
ABELCET until 2004

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We concur with Judge Sundar's conclusion that the re vision of Elan group's business strategy to effectuate an increase in revenue by taking steps that included reducing its debt load " by selling a portion of the ABELCET business line, which had been integral to , and regularly employed in[, Elan's] and the Elan group's trade or business , but with retention of some economically valuable intangible rights , thus ensuring continued income to, and corporate presence of, the Elan group, " does not mandate an expansive interpretation of the liquidation exception adopted in McKesson

. We are satisfied that Elan did not meet its burden of demonstrat ing that the gain derived from the sale of the U.S. and Canadian markets for ABELCET was nonoperatio nal income as defined in N.J.S.A. 54:10A

- 6.1(a). On the contrary, the record amply supports Judge Sundar's analysis and determination that the gain from those sales was taxable operational income. Lastly, Elan 's activities did not fall within the liquid ation exception since the 2002 sale proceeds were reinvested in the business rather than being
distributed to shareholders

. The record demonstrates that the majority of the Enzon transaction proceeds were used to reimburse reinvestment expenditures and to repay a loan owed to Athena and an affiliate. The remainder of the proceeds were paid to other Elan group companies. Gains realized from a sale31 A

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constitute operational income if reinvested in the business or used to repay outstanding debt. See Texaco Ci ties Serv. Pipeline Co. v. McGraw , 695 N.E.2d 481, 48 6

- 8 7 (Ill. 1998) ( sale of unused pipeline was business income because company remained primarily a pipeline transportation business and the sale proceeds were reinvested in the business); Welded Tube Co. of Am. v. Commonwealth , 515 A.2d 988, 994 (Pa. Cmmw. Ct. 1986) (proceeds from sale of manufacturing facility for use in debt repayment and expansion as part of reorganization w ere apportionable business income). In sum, our careful review of the record reveals that , when viewed in the light most favorable to Elan, the undisputed material facts demonstrate that the Director was entitled to partial summary judgment as a matter of law. See R. 4:46

- 2(c). Judge Sundar's findings are fully supported by substantial credible evidence in the record. Her legal conclusions are sound and consistent with applicable law. Accordingly, we discern no basis to disturb the partial summary judgment granted to the Director. To the extent we have not specifically addressed any of defendant's remaining arguments, we conclude they lack sufficient merit to warrant further discussion in a written opinion. R. 2:11

- 3(e)(1)(E). Affirmed.