SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4962-18T2

ELAN PHARMACEUTICALS, 

INC.,

Plaintiff-Appellant,

v.

DIRECTOR, DIVISION OF

TAXATION,

Defendant-Respondent.

____________________________

Argued November 12, 2020 – Decided

Before Judges Alvarez and Geiger.

On appeal from the Tax Court of New Jersey, Docket 

No. 10589-2010.

Alysse McLoughlin, argued the cause for appellant 

(McDermott Will & Emery LLP, and Charles J. Moll 

III, (McDermott Will & Emery LLP) of the California 

Bar, admitted pro hac vice, attorneys; Charles J. Moll 

III, of counsel; Alysse McLoughlin, on the briefs). 

Michael J. Duffy, Deputy Attorney General, 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NOT FOR PUBLICATION WITHOUT THE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." Although 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, 2021
2

A-4962-18T2

Attorney General, of counsel; Michael J. Duffy, on the 

brief).

PER CURIAM 

Plaintiff Elan Pharmaceuticals, Inc. (Elan), appeals from a May 2, 2014

Tax Court order and June 6, 2019 final judgment determining: (1) the Director 

of the Division of Taxation (Division) properly reclassified the gain from Elan's 

sale of its ABELCET and PERMAX assets from non-operational income to 

taxable apportionable 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 determining that the business 

liquidation doctrine did not apply to the gain from the sale of the ABELCET and 

PERMAX 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 this case was decided "on cross-motions for summary judgment, 

we will rely on the core material facts that informed the Tax Court's decision." 

McKesson 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

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In 2002, Elan 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 with its principal place of business in 

Ireland. A document titled "Certain Material Transactions Elan PLC and 

affiliates 1996-2005" lists more than fifty acquisitions, divestments, and other 

transactions undertaken by Elan PLC between 1996 and 2005. 

Elan PLC executive William Daniel described Elan as "a neurosciencebased technology company . . . divided into three separate business segments: 

neurology, autoimmune 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." 

In May 2000, Elan PLC acquired The Liposome Company (TLC), a 

Delaware corporation with its principal 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 producing ABELCET and MYOCET, which Daniel 

characterized as oncology drugs. It also developed several other oncology 
4

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

stated 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 MYOCET, 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 conducted the sale 

of ABELCET in the United States (U.S. ABELCET Business), while the rights 

to sell ABELCET and MYOCET in the European Union (EU ABELCET 

Business) and the rights to sell ABELCET in Asia (Asia ABELCET Business) 

were transferred to Elan Pharma International Ltd. (EPIL), an 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

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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 provided 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 Division 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 infrastructure, sales 

force, intellectual property and clinical studies." Elan PLC's 2002 annual report 

describes the Enzon transaction as also including "any Japanese rights to 
6

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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 MYOCET 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 property "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 their 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 operating 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 MYOCET in the EU, were sold to Medeus UK Ltd. (the 

Medeus transaction). The Medeus transaction also included shares of subsidiary 
7

A-4962-18T2

businesses licensed to sell ABELCET and MYOCET in individual European 

countries. 

Daniel certified that the proceeds from the Enzon transaction were 

distributed to Athena Neurosciences in three payments: $155 million in 

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. An unidentified ledger reflected 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 on November 26, 2002. A $760,000 "[i]ntercompany payment"

was made to Athlone on 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 February 2003 "[i]ntercompany payment" of 

approximately $96.4 million "from EPIL out of [ABELCET] proceeds." March 

2003 transactions included an "[i]ntercompany payment to ETT" of 

approximately $6 million, an "[i]ntercompany payment to EPIL" of 

approximately $8.5 million, a "[r]etrospective reimbursement of qualifying 
8

A-4962-18T2

spend 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 reinvestments" 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 MYOCET. 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 Enterprises, with Core Elan engaging in commercial 

activities related to neurology, pain management, and infectious 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 

distinct business segment, with minimal interaction between each. 

Elan's 2002 annual statement listed ABELCET as one of the products

"divested" from its infectious disease operation. Also sold was Athena 
9

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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 entered into 

an agreement to sell "the European Specialities Pharmaceutical Business of 

Elan" to Medeus UK Ltd. The products sold included ABELCET and 

MYOCET. Also included were the intellectual property rights with license 

agreements and contracts acquired by Elan when Elan PLC purchased 

Liposome; "the October 2002 ABELCET purchase agreement; the November 

2002 Supply Agreements; and the November 2002 License Agreement." The 

trademarks for ABELCET 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 rights in ABELCET 

and MYOCET. 

On its 2002 corporation business tax (CBT) return, Elan reduced 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-4962-18T2

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 determined 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 challenging the $1,560,546.50 

tax assessment imposed by the Division following its audit 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 PERMAX 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 discovery, the 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 operational 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 Director pointed 

to a document titled "[ABELCET] Proceeds received November 22, 2002," that 

Elan provided during discovery, as evidence that Elan distributed a portion of 
11 A-4962-18T2

the proceeds to the group's affiliates other than Athena. Elan contended the 

document was irrelevant and, in any case, merely demonstrated that it 

distributed the ABELCET sale proceeds. 

The court issued a May 2, 2014 order and twenty-seven-page letter 

opinion granting partial summary judgment to the Director and denying partial 

summary judgment to Elan, finding the Director correctly reclassified the 

ABELCET gain as operational income under N.J.S.A. 54:10A-6.1(a). 

The 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 

personnel 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 was "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 drug's New Jersey 
12 A-4962-18T2

manufacturing facility, is operational income subject to apportionment and 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 companies [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 income" 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 and 

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 

classified as nonoperational income, and the 

nonoperational income of taxpayers is not subject to

allocation but shall be specifically assigned; provided, 

that 100% of the nonoperational income of a taxpayer 
13 A-4962-18T2

that has its principal place from which the trade or 

business of the taxpayer is directed or managed in this

State shall be specifically assigned to this State to the 

extent permitted under the Constitution and statutes of 

the United States. 

[N.J.S.A. 54:10A-6.1(a).]

The court then discussed the liquidation exception. "Where the sales have 

constituted 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." McKesson 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. Neither 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 

operating in New Jersey.

The court also stated that "this case does not involve an [Internal Revenue Code]

§ 338(h)(l0) sale" and, "in McKesson, the [p]arent [company] was involved in 
14 A-4962-18T2

one business line (pharmaceutical) and its subsidiary was involved in a

completely distinct business (selling bottled water)." 

The court then engaged in the following analysis of the facts under the 

functional test imposed by N.J.S.A. 54:10A-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 regular trade or 

business of being a world-wide fully integrated 

pharmaceutical company; and the same earned 

significant income in the course of [Elan's] and Elan 

group's regular trade or business as a world-wide fully 

integrated pharmaceutical 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 true where it is undisputed that the 

reason for the sale of ABELCET 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 

market due to increasing 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, including [Elan], and for their 

continuance, in and of, their unitary business. 
15 A-4962-18T2

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 . . . [that] the resultant income 

is not operational especially where the sale proceeds were not re-invested in a 

'similar business.'" (quoting McKesson, 23 N.J. Tax at 465). The court 

concluded that the liquidation exception is to be narrowly construed and must 

be "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.'" (quoting McKesson, 23 N.J. Tax at 465). 

Applying those principles, the court found: 

[N]either [Elan] nor the Elan group completely ceased 

doing its 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 to the ABELCET product line, their world-wide 

pharmaceutical business continued outside of the 

geographical areas of U.S. and Canada. However, 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 with 
16 A-4962-18T2

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 

the drug. The business reasons (cost/time savings) for 

providing only distribution rights to EPIL cannot 

subvert the fact, and thus, the conclusion, that [Elan]

continued to operate its pharmaceutical business,

including the ABELCET product line outside the 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 divested product line, [PERMAX], 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 . . . interest 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 liquidating 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 in the 

therapeutic areas of "infectious diseases" such as 

"fungal infections" as described in [Elan PLC's] 2003 

annual report. Nonetheless, whether ABELCET was 

viewed as a cancer 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] "oncology 
17 A-4962-18T2

business." [Elan] and [Elan PLC's] affiliates continued 

to research[,] develop, manufacture, market, license, 

and/or distribute MYOCET, 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, Inc.

[(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 "claims that because [Elan PLC] separated its business activities into 

two distinct 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, world-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-4962-18T2

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. In 

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]-year period. Such 

clause would appear to acknowledge that Plaintiff, 

[Elan PLC] and the Elan group continued in the same 

competitive pharmaceutical market with ABELCET is 

one of the primary products over, and as to which the 

Elan group still had rights, thus, belying a "complete" 

liquidation of [Elan], [Elan PLC's,] or the Elan group's 

trade or business. 

The court also found 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 "the $155 million approved to be paid as 

dividends" were distributed to Athena. On the contrary, Schedule 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 2002 CBT did not reflect any "appropriated retained 

earnings." 
19 A-4962-18T2

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 to the October 2002 

Asset Agreement yet paid [Elan] about $96 million 'out of the ABELCET[] 

proceeds.'" In addition, Elan "did not designate the payment of about $15 

million to EPIL as being made 'on behalf of' Athena." 

Elan then moved for reconsideration on three grounds. First, it claimed

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 McKesson 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 "affirming" its prior order. The court explained: 

The 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 

required to demonstrate by "clear and convincing"
20 A-4962-18T2

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 

income 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 did not 

cease to exist. "[T]he transaction in McKesson ended the subsidiary'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 applied." The court 
21 A-4962-18T2

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 [Elan'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 operations; 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 Canada, Inc. was a party to 
22 A-4962-18T2

the transaction and that Enzon purchased the ABELCET assets (drug 

manufacturing plus 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 position 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 has not appealed that decision. 

On June 6, 2019, the court issued a final judgment declaring that the gain 

recognized by Elan in 2002 from the sale of its PERMAX drug assets (the 

PERMAX gain) also constituted operational income under N.J.S.A. 54:10A6.1(a). The judgment noted that the parties stipulated to the following facts: 

a) [PERMAX] was a drug in [p]laintiff's therapeutic 

area of neurology;
23 A-4962-18T2

b) Plaintiff sold its [PERMAX] product line as part 

of the 2002 recovery plan; 

c) Plaintiff continued in the pharmaceutical 

business following the [PERMAX] sale, and 

continued in the therapeutic area of neurology; 

and 

d) With respect to determining whether the 

[PERMAX] Gain is operational or 

nonoperational income, all other relevant facts 

concerning the [PERMAX] 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 

PERMAX 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 

in 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-4962-18T2

A. The Elan [ABELCET] Disposition Satisfies the

Business Liquidation Doctrine and is, accordingly, 

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 its 
25 A-4962-18T2

Operation of the [U.S.] [ABELCET] 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-4962-18T2

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., Div. 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 strictly legal, we afford no deference to the 
27 A-4962-18T2

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, our scope of review of a decision by the Tax Court is limited and 

deferential. 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). We 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 Director'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, 231-32 (2013). 
28 A-4962-18T2

Applying these principles, we affirm substantially for the reasons 

expressed by Tax Court Judge Mala Sundar in her comprehensive and wellreasoned May 2 and October 3, 2014 letter opinions. 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 

"nonbusiness" 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 assets is 

nonoperational income where: (1) the sale constitutes a liquidation or partial 

liquidation of a business ; and (2) the sale proceeds are distributed to shareholders 

and not reinvested in in the business. See id. at 457. 

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 liquidation 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. 
29 A-4962-18T2

In addition, following the 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. The 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 agreement whereby Enzon will continue to 

manufacture Elan's requirements for" ABELCET and MYOCET. (PA317-18). 

As accurately observed by the court, Elan and Elan PLC's affiliates "continued 

to research, develop, manufacture, market, license, and/or distribute MYOCET, 

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 . . . ." Elan did not sell its remaining rights to 

ABELCET until 2004. 
30 A-4962-18T2

We concur with Judge Sundar's conclusion that the revision 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 demonstrating that the 

gain derived from the sale of the U.S. and Canadian markets for ABELCET was 

nonoperational 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 liquidation 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 sale 
31 A-4962-18T2

constitute operational income if reinvested in the business or used to repay 

outstanding debt. See Texaco Cities Serv. Pipeline Co. v. McGraw, 695 N.E.2d 

481, 486-87 (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 were 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.