NO. 4-06-0148 Filed 1/19/07

IN THE APPELLATE COURT

OF ILLINOIS

FOURTH DISTRICT

NATIONAL HOLDINGS, INC.,

 Plaintiff-Appellee,

 v.

KENNETH E. ZEHNDER, Director of the

Department of Revenue of the State of

Illinois; and JUDY BAAR TOPINKA,

Illinois State Treasurer,

 Defendants-Appellants.

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 Appeal from

 Circuit Court of 

 Sangamon County

 No. 98CH443

 

 Honorable

 John W. Belz,

 Judge Presiding.

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JUSTICE TURNER delivered the opinion of the court:

In October 1998, plaintiff, National Holdings, Inc.

(National Holdings), filed a complaint pursuant to the State

Officers and Employees Money Disposition Act (Act) (30 ILCS 230/1

through 6a (West 1998)) against defendants, Kenneth E. Zehnder,

Director of the Department of Revenue of the State of Illinois,

and Judy Baar Topinka, Illinois State Treasurer (collectively

Department), following the Department's notice of income-tax

deficiency under the Illinois Income Tax Act (Income Tax Act) (35

ILCS 5/101 through 1701 (West 1994)). National Holdings made a

protested payment of $527,549 pursuant to the Act. The parties

later filed cross-motions for summary judgment, and in January

2006, the trial court granted summary judgment in favor of

National Holdings.

On appeal, defendants argue the trial court erred in

holding National Holdings' gain was nonbusiness income. We

affirm.
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I. BACKGROUND

At all times relevant to the litigation, all of the

capital stock of National Holdings was owned and controlled by

Loblaw Companies, Ltd. (Loblaw), a Canadian company. National

Holdings, a Delaware corporation, owned 100% of the capital stock

of National Tea Co. (National Tea), an Illinois corporation. 

National Tea owned 100% of the capital stock of National Super

Markets, Inc. (Super Markets), a Michigan corporation. Prior to

June 1995, National Tea and Super Markets were engaged in the

retail grocery business with stores in several states, including

15 in Illinois. National Tea and Super Markets, along with other

affiliated corporations, filed combined Illinois income-tax

returns as a unitary business group. National Holdings paid

Illinois income tax on that part of the group's income apportioned to Illinois.

On June 12, 1995, Super Markets and National Tea

conveyed title and ownership of their assets to Schnuck Markets,

Inc., pursuant to an asset-purchase agreement and received

payment of $398,798,000. Of that amount, $191,368,465 was

retained in a liability reserve for Super Markets and National

Tea to pay certain historical liabilities. The net proceeds of

the sale totaled $207,429,535. Super Markets and National Tea

ceased to operate their retail grocery business and were thereafter involved only in the collection of receivables, the payment

of liabilities, and other administrative activities. 

On September 25, 1995, Super Markets distributed all of
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its assets to National Tea, and its corporate existence under

Michigan law terminated. On September 29, 1995, National Tea's

board of directors declared the net proceeds from the sale of the

stores totaling $207,429,535 as a dividend and paid it all to

National Holdings. 

In November 1995, National Holdings contributed the

net-sale proceeds to Glendel, Inc. (Glendel), a wholly owned

subsidiary of Loblaw. Glendel's only assets consisted of those

proceeds, which were invested by a third-party fiduciary in

interest-bearing debt securities that included United States

treasury bills, bonds, notes, and other low-risk government

securities. None of the proceeds from the sale of assets was

ever used in conducting business in the United States. The sale

represented a complete disposition of Loblaw's retail business in

the United States. 

In October 1996, National Holdings filed a combined

Illinois income-tax return for itself and its subsidiaries that

included National Tea and Super Markets. On its 1995 return,

National Holdings reported nonbusiness income of $100,888,747

from the sale of Super Markets' and National Tea's retail

grocery-store assets. Of that amount, $7,834,664 was allocated

as taxable nonbusiness Illinois income. None of the income from

the sale of assets to Schnuck Markets was reported as business

income in filing any state income-tax return outside Illinois.

In September 1998, upon audit of National Holdings'

1995 Illinois income-tax return, the Department's auditor rechar-
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acterized the $100,888,747 gain from the sale of assets as

apportionable business income. The Department determined its

decision resulted in $13,855,455 in additional income being

apportioned to Illinois. Thereafter, the Department issued a

notice of deficiency to National Holdings, asserting a deficiency

of $527,549 that consisted of $446,671 in taxes plus $80,878 in

interest. National Holdings paid the amount under protest (see

30 ILCS 230/2a (West 1998)) and filed its complaint contesting

the Department's characterization of the gain as business income. 

The trial court later enjoined defendants from transferring the

money into the treasury's general fund. 

In June 2005, the parties jointly filed a stipulation

of facts and agreed the sole issue was whether the gain from the

sale of the retail grocery stores constituted business or nonbusiness income as defined by section 1501(a)(1) of the Income

Tax Act (35 ILCS 5/1501(a)(1) (West 1994)). In September 2005,

National Holdings filed a motion for summary judgment. In

October 2005, defendants filed their motion for summary judgment.

In January 2006, the trial court found for plaintiff

and against defendants. The court found National Tea and Super

Markets sold all their assets to Schnuck Markets in June 1995 and

all proceeds of this liquidation sale were distributed to National Holdings. Also, these proceeds were never used to conduct

business in the United States and were distributed to shareholders. Based on case law and the plain language of section

1501(a), the court held the gain from the asset sale was nonbusi-
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ness income because it was a cessation of a business and not used

in National Holdings' ongoing business operations. This appeal

followed. 

II. ANALYSIS

A. Standard of Review

"Summary judgment is proper where, when viewed in the

light most favorable to the nonmoving party, the pleadings,

depositions, admissions, and affidavits on file reveal that there

is no genuine issue as to any material fact and that the moving

party is entitled to a judgment as a matter of law." Northern

Illinois Emergency Physicians v. Landau, Omahana & Kopka, Ltd.,

216 Ill. 2d 294, 305, 837 N.E.2d 99, 106 (2005). When both

parties move for summary judgment, "they agree that (1) no

material issue of fact exists; and (2) only a question of law is

involved." Subway Restaurants of Bloomington-Normal, Inc. v.

Topinka, 322 Ill. App. 3d 376, 381, 751 N.E.2d 203, 208 (2001). 

On appeal, our review of a trial court's order granting summary

judgment is de novo. Harrison v. Hardin County Community Unit

School District No. 1, 197 Ill. 2d 466, 470-71, 758 N.E.2d 848,

851 (2001). 

B. Business or Nonbusiness Income

Defendants argue the trial court erred in finding

National Holdings' gain was nonbusiness income. We disagree. 

The Income Tax Act, derived from the Uniform Division

of Income for Tax Purposes Act (UDITPA), "addresses when income

of a nonresident corporation conducting business within Illinois
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is subject to taxation by the State." American States Insurance

Co. v. Hamer, 352 Ill. App. 3d 521, 525, 816 N.E.2d 659, 663

(2004); see also Blessing/White, Inc. v. Zehnder, 329 Ill. App.

3d 714, 718, 768 N.E.2d 332, 336 (2002). "Under the statute,

foreign corporations are required to pay taxes in proportion to

the amount of their income-producing activities." American

States, 352 Ill. App. 3d at 525-26, 816 N.E.2d at 663.

The Income Tax Act establishes two methods, apportionment and allocation, by which corporate income will be divided

among Illinois and other jurisdictions wherein the taxpayer

conducts business. American States, 352 Ill. App. 3d at 526, 816

N.E.2d at 663; Blessing/White, 329 Ill. App. 3d at 718-19, 768

N.E.2d at 336.

"When income is allocated, it is all assigned

to one particular state for taxing purposes,

generally the commercial domicile of the

company or the situs of the income-producing

property. 35 ILCS 5/303 (West 1996). When a

business' income is apportioned, it is divided up for taxing purposes among the various states in which the business operates. 

35 ILCS 5/304(a) (West 1996). Apportionment

is intended to assign the amount of income to

a state that is proportional to the amount of

income-producing activities in that state. 

Business income is apportioned and nonbusi-
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ness income is allocated." Automatic Data

Processing, Inc. v. Department of Revenue,

313 Ill. App. 3d 433, 438, 729 N.E.2d 897,

902 (2000). 

The taxpayer bears the burden of establishing that income is

nonbusiness income. Texaco-Cities Service Pipeline Co. v. McGaw,

182 Ill. 2d 262, 268, 695 N.E.2d 481, 484 (1998).

Prior to July 30, 2004, the Income Tax Act defined

"business income" as:

"income arising from transactions and activity in the regular course of the taxpayer's

trade or business ***, and includes 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." 35 ILCS 5/1501(a)(1) (West 1994).

Income falling within this definition is subject to apportionment

through the use of a three-factor formula that takes into account

the corporation's property, payroll, and sales. American States,

352 Ill. App. 3d at 526, 816 N.E.2d at 663; Blessing/White, 329

Ill. App. 3d at 719, 768 N.E.2d at 336. We note that, effective

July 30, 2004, the General Assembly amended section 1501(a)(1)

and now defines "business income" as "all income that may be

treated as apportionable business income under the Constitution

of the United States." 35 ILCS 5/1501(a)(1) (West 2004).
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"Nonbusiness income" has been defined as "all income

other than business income or compensation." 35 ILCS

5/1501(a)(13) (West 1994). "For taxing purposes, nonbusiness

income is allocated to a particular state, generally the state in

which the corporation is domiciled or in which the income-producing property is situated." American States, 352 Ill. App. 3d at

526, 816 N.E.2d at 663.

Both parties acknowledge, as did the trial court, that

the seminal case interpreting the terms "business income" and

"nonbusiness income" as defined in section 1501(a) is our supreme

court's decision in Texaco-Cities. In that case, the court

followed the approach of other jurisdictions that have adopted

UDITPA and found the earlier version of section 1501(a)(1)

encompassed two alternative and distinct approaches for determining whether gain realized from the sale of a capital asset may be

apportioned. Texaco-Cities, 182 Ill. 2d at 268, 695 N.E.2d at

484. The first approach, the "transactional" test, is reflected

in the first clause of the definition stating business income is

"income arising from transactions and activity in the regular

course of the taxpayer's trade or business." 35 ILCS

5/1501(a)(1) (West 1994); Texaco-Cities, 182 Ill. 2d at 268, 695

N.E.2d at 484. In the case sub judice, the Department does not

contend the gain at issue constitutes business income under the

transactional test. Instead, the Department argues National

Holdings' gain from the sale of National Tea's and Super Markets'

assets constitute business income under the functional test. 
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Under that second approach, the "functional" test,

found in the second clause of section 1501(a)(1), business income

is defined as including "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." 35 ILCS 5/1501(a)(1) (West 1994);

Texaco-Cities, 182 Ill. 2d at 270, 695 N.E.2d at 485. The

supreme court noted "the words 'acquisition, management, and

disposition' suggest elements typically associated with the

'keeping' of corporate property, or *** the 'conditions of

ownership' of corporate property." Texaco-Cities, 182 Ill. 2d at

271, 695 N.E.2d at 485. 

"The functional test classifies as business

income all gain from the disposition of a

capital asset if the asset was 'used by the

taxpayer in its regular trade or business

operations.' *** [T]he second clause of

section 1501(a)(1) focuses upon the role or

function of the property [disposed of] as

being integral to regular business operations. The use of a capital asset in the

taxpayer's regular trade or business indisputably renders that asset an integral part

of the taxpayer's regular business operations." Texaco-Cities, 182 Ill. 2d at 272,

695 N.E.2d at 486.
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In Texaco-Cities, 182 Ill. 2d at 265, 695 N.E.2d at

483, the taxpayer, a Delaware corporation with its principal

offices in Texas, was in the business of transporting crude oil

and other petroleum products by pipelines, some of which ran

through Illinois. During the 1983 tax year, the taxpayer sold

major segments of its pipeline assets, including its entire

contingent of pipeline assets in Illinois. Texaco-Cities, 182

Ill. 2d at 265, 695 N.E.2d at 483. The taxpayer realized a gain

of $9,987,176 and reported the income from its sale as nonbusiness income on its tax return for 1983. Texaco-Cities, 182 Ill.

2d at 265, 695 N.E.2d at 483. The Department conducted an audit

and reclassified the gain as business income subject to apportionment, finding the sale constituted an integral part of the

taxpayer's business operations. Texaco-Cities, 182 Ill. 2d at

265-66, 695 N.E.2d at 483. The taxpayer filed a protest, but

ultimately, the Department's characterization of the gain as

business income was upheld by the trial and appellate courts. 

Texaco-Cities, 182 Ill. 2d at 266-67, 695 N.E.2d at 483-84.

The supreme court found the functional test contained

in "section 1501(a)(1) focuses upon the role or function of the

property as being integral to regular business operations." 

Texaco-Cities, 182 Ill. 2d at 272, 695 N.E.2d at 486. Thus, the

taxpayer's use of a capital asset in its regular trade or business "indisputably renders that asset an integral part of the

taxpayer's regular business operations." Texaco-Cities, 182 Ill.

2d at 272, 695 N.E.2d at 486.
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The supreme court noted Texaco-Cities was in the

business of pipeline transportation, the pipelines sold were used

to transport petroleum in the regular course of business, and

thus the pipelines were used for the production of income. 

Texaco-Cities, 182 Ill. 2d at 273, 695 N.E.2d at 486. Applying a

functional test, the court held the gain represented apportionable business income under the Income Tax Act. Texaco-Cities,

182 Ill. 2d at 274, 695 N.E.2d at 487. 

The supreme court then examined and distinguished the

Pennsylvania Supreme Court's decision in Laurel Pipe Line Co. v.

Commonwealth of Pennsylvania Board of Finance & Revenue, 537 Pa.

205, 642 A.2d 472 (1994). There, the proceeds from the sale of

an independent pipeline by a company in the business of transporting petroleum were determined to be nonbusiness income. The

court in Laurel Pipe Line found the sale a liquidation of a

separate and distinct aspect of the taxpayer's business, that

being all of its pipeline operations in a specific region, and

thus it could be "characterized as a partial liquidation which

has changed the structure of the taxpayer's business." Laurel

Pipe Line, 537 Pa. at 214, 642 A.2d at 477, citing McVean &

Barlow, Inc. v. New Mexico Bureau of Revenue, 88 N.M. 521, 543

P.2d 489 (1975).

In distinguishing Texaco-Cities from Laurel Pipe Line,

the Illinois Supreme Court found the sale by Texaco-Cities did

not represent a liquidation and cessation of its business operations or a separate and distinct portion thereof. Texaco-Cities,
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182 Ill. 2d at 273, 695 N.E.2d at 486-87. Further, the court

found "the sales proceeds were invested right back into that

business rather than being disseminated to its shareholders." 

Texaco-Cities, 182 Ill. 2d at 273, 695 N.E.2d at 486-87. The

court concluded the gain from the sale was properly classified as

business income. Texaco-Cities, 182 Ill. 2d at 274, 695 N.E.2d

at 487.

Following the decisions in Texaco-Cities and Laurel

Pipe Line, courts have recognized a business-liquidation exception to the functional test. See Blessing/White, 329 Ill. App.

3d at 726, 768 N.E.2d at 341 (Texaco-Cities "tacitly recognizes

the distinctive nature of corporate liquidations resulting in a

discontinuation of business activity"); American States, 352 Ill.

App. 3d at 530, 816 N.E.2d at 666 (reaffirming Blessing/White);

Shakkour v. Hamer, No. 1-04-1646, slip op. at 9 (November 9,

2006), Ill. App. 3d , , N.E.2d , (wherein

the Department acknowledged the business-liquidation exception

set forth in Blessing/White).

In Blessing/White, 329 Ill. App. 3d at 717, 768 N.E.2d

at 335, Blessing/White, Inc., a New Jersey corporation, was

engaged in human-resource consultation with a sales office in

Chicago. In 1989, Blessing/White sold substantially all of its

assets that had been used in the regular course of business and

as part of its income-producing activities in Illinois. Thereafter, Blessing/White ceased its business activities and distributed nearly all of the sale proceeds to Blessing and White. 
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Blessing/White, 329 Ill. App. 3d at 717, 768 N.E.2d at 335. 

After an audit, the Department reclassified the gain as business

income apportionable to Illinois and assessed a tax deficiency. 

Blessing/White, 329 Ill. App. 3d at 717, 768 N.E.2d at 335.

In examining the Texaco-Cities case, the First District

noted the supreme court determined "the functional test for

business income is satisfied where the asset disposed of was used

by the taxpayer as an integral part of its regular trade or

business operations." Blessing/White, 329 Ill. App. 3d at 723,

768 N.E.2d at 339. However, the First District found the supreme

court's opinion allowed the use of a modified form of the functional test "when the disposition of assets was made pursuant to

a corporate liquidation in cessation of business." 

Blessing/White, 329 Ill. App. 3d at 724, 768 N.E.2d at 340.

In the case before it, the First District found the

disposition of assets amounted to a liquidation of

Blessing/White's business property, "reflecting an extraordinary,

one-time corporate event and marking the cessation of the company's business activities, including those conducted in Illinois." Blessing/White, 329 Ill. App. 3d at 728, 768 N.E.2d at

343. Further, the proceeds were not used to support an ongoing

business concern but were disbursed in their entirety to the

shareholders. Blessing/White, 329 Ill. App. 3d at 728, 768

N.E.2d at 343. Thus, as the liquidation of assets was not

integral to the company's regular business operations, the gain

did not constitute business income under the functional approach. 
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Blessing/White, 329 Ill. App. 3d at 728, 768 N.E.2d at 343.

In American States, 352 Ill. App. 3d at 531, 816 N.E.2d

at 667, the First District interpreted Texaco-Cities to stand for

the proposition that without "evidence that the sale was a

cessation of a separate and distinct portion of Texaco-Cities'

business," a gain would be properly classified as business

income. The First District found the transaction at issue

"involved the cessation of a separate and distinct portion of the

business of the former shareholders of American States" and

concluded the gain constituted nonbusiness income. American

States, 352 Ill. App. 3d at 532, 816 N.E.2d at 668.

In the First District's recent opinion in Shakkour,

slip op. at 2, Ill. App. 3d at , N.E.2d at , the

taxpayer, a nonresident of Illinois, was a general partner of

O'Connor Partners, an Illinois partnership. O'Connor Partners

was owned in part by O'Connor & Associates, also an Illinois

partnership, which developed intellectual property known as the

"Trading Technology." Shakkour, slip op. at 2, Ill. App. 3d

at , N.E.2d at . O'Connor Partners and Swiss Bank

organized a limited partnership known as SBC/OC Services, L.P. 

Later, O'Connor & Associates contributed the Trading Technology

to O'Connor Partners as a capital contribution. Shakkour, slip

op. at 3, Ill. App. 3d at , N.E.2d at . In 1992,

O'Connor Partners sold its general partnership interest in SBC/OC

Services and the Trading Technology to Swiss Bank. The Trading

Technology was sold for fixed and contingent payments, and Swiss
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Bank took over use of it from O'Connor Partners. 

The taxpayer did not report her distributive share of

O'Connor Partners' income received from the sale of the Trading

Technology as business income on her Illinois income-tax return

but did report it on her New York and Connecticut returns. 

Shakkour, slip op. at 4, Ill. App. 3d at , N.E.2d at 

 . The Department issued a notice of deficiency, and Shakkour

paid under protest. The trial court found the sale of the

Trading Technology was an extraordinary event marking the cessation of O'Connor Partners' business activities and the sale

proceeds were distributed to the partners. Shakkour, slip op. at

5, Ill. App. 3d at , N.E.2d at . The court found

the sale fell within the business-liquidation exception to the

functional test and Shakkour's share was not allocable to Illinois.

On appeal, the First District examined the holdings in

the like cases of Blessing/White and American States. Shakkour,

slip op. at 7-8, Ill. App. 3d at , N.E.2d at . In

noting Blessing/White's focus on the modified form of the functional test, the court found O'Connor Partners disposed of the

Trading Technology asset, the disposition marked the cessation of

business operations, and the proceeds were not reinvested in

operations but were distributed to shareholders. Shakkour, slip 

op. at 11, Ill. App. 3d at , N.E.2d at . The court

concluded "the sale was an extraordinary event that was a marked

departure from its previous business of licensing the Trading
- 16 -

Technology," and the income should be classified as nonbusiness

income. Shakkour, slip op. at 14, Ill. App. 3d at , 

N.E.2d at .

In this case, defendants contend the First District's

decisions in Blessing/White and American States should not be

followed because Texaco-Cities did not recognize the businessliquidation exception. We disagree. 

In Texaco-Cities, the supreme court found the functional test for business income is focused on whether the asset

disposed of was used by the taxpayer as an integral part of its

regular business operations. Texaco-Cities, 182 Ill. 2d at 272,

695 N.E.2d at 486. However, a complete reading of the opinion

indicates a modified form of the functional test is appropriate

if the disposition of assets was made pursuant to a corporate

liquidation in cessation of the business.

The supreme court's discussion and ultimate distinguishment of Laurel Pipe Line to the facts before it is quite

telling. In Laurel Pipe Line, the Pennsylvania Supreme Court

considered the totality of circumstances surrounding the sale and

noted the sales proceeds had been distributed to shareholders

rather than being used to acquire assets or income for use in

future business operations. See Texaco-Cities, 182 Ill. 2d at

273, 695 N.E.2d at 486, citing Laurel Pipe Line, 537 Pa. at 213-

14, 642 A.2d at 476-77. In contrast, the Illinois Supreme Court

found Texaco-Cities remained in the pipeline-transportation

business and the sales proceeds were invested back into the
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business rather than being disbursed to shareholders. TexacoCities, 182 Ill. 2d at 273, 695 N.E.2d at 486-87. Further, and

contrary to cases relied on by Texaco-Cities, the court found the

evidence before it did not indicate the sale amounted to a

cessation of a separate and distinct portion of Texaco-Cities'

business. Texaco-Cities, 182 Ill. 2d at 274, 695 N.E.2d at 487. 

Thus, the court implied that, had there been evidence that the

sale was a cessation of business operations, the result of the

case would have been different and quite likely in line with

Laurel Pipe Line. See American States, 352 Ill. App. 3d at 530,

816 N.E.2d at 666 (the Department was unable to answer why the

supreme court distinguished Laurel Pipe Line rather than simply

rejecting it as unpersuasive); Blessing/White, 329 Ill. App. 3d

at 725, 768 N.E.2d at 341 (supreme court's treatment of the

decision in Laurel Pipe Line "suggests the functional test

assumes a different application in cases where the taxpayer's

disposition of assets amounts to a corporate liquidation in

cessation of business"). 

The interpretation of the supreme court's plain language is unmistakable, and any arguments by defendants as to the

continued validity of the business-liquidation exception, considering the change in the statute and the case law of foreign

jurisdictions, are better directed to the supreme court. See

Robbins v. Allstate Insurance Co., 362 Ill. App. 3d 540, 545, 841

N.E.2d 22, 27 (2005). As we find the First District's authority

on this matter persuasive, we agree a gain from the liquidation
- 18 -

and cessation of business operations--or a distinct and separate

portion thereof--constitutes nonbusiness income under the business-liquidation exception to the functional test. 

C. Business-Liquidation Income

Defendants argue that even if the business-liquidation

exception to the functional test for business income was valid,

it would not apply here because the proceeds were reinvested in

Loblaw's ongoing business. National Holdings argues the sale of

National Tea's and Super Market's assets were in liquidation of

their retail grocery business.

In deciding whether the gain from the sale of property

was business or nonbusiness income, the First District looks at

whether (1) the sale was in liquidation of the taxpayer's business and (2) the proceeds were disbursed to the shareholders.

Shakkour, slip op. at 10, Ill. App. 3d at , N.E.2d at

 ; American States, 352 Ill. App. 3d at 531-32, 816 N.E.2d at

667-68; Blessing/White, 329 Ill. App. 3d at 728, 768 N.E.2d at

343. We adopt and apply the First District's approach to our

facts here.

In June 1995, National Tea and Super Markets entered

into an asset-purchase agreement with Schnuck Markets and thereafter ceased to operate their retail grocery business. Super

Markets distributed all of its assets to National Tea. National

Tea's board of directors passed a resolution in which the liquidating sale proceeds were declared as a dividend and paid to

National Holdings. National Holdings owned 100% of the capital
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stock of Super Markets and National Tea. In November 1995,

National Holdings contributed the proceeds to Glendel as its only

asset. The proceeds were invested in interest-bearing debt

securities and were never used in conducting a business in the

United States. In June 2000, Glendel and National Holdings were

liquidated, and the proceeds were contributed to Glen Huron Bank,

organized and domiciled in Barbados. Accordingly, we find the

proceeds of the liquidation were not reinvested in the ongoing

retail grocery business of the taxpayer, and the trial court

correctly applied the liquidation exception to the functional

test.

III. CONCLUSION

For the reasons stated, we affirm the trial court's

judgment.

Affirmed.

KNECHT and COOK, JJ., concur.