Document: 447 U.S. 207 100 S.Ct. 2109 65 L.Ed.2d 66 EXXON CORPORATION, Appellant,v.WISCONSIN DEPARTMENT OF REVENUE. No. 79-509. Argued March 18, 1980. Decided June 10, Syllabus Appellant, a vertically integrated petroleum company doing business in several States, was organized, during the years question this case, into three levels of management, one which responsible for directing operating activities company's functional departments. Transfers products and supplies among major departments—Exploration Production, Refining, Marketing—were theoretically based on competitive wholesale prices. Appellant had no exploration production or refining operations Wisconsin carried out only marketing that State. During question, appellant filed income tax returns using separate geographical system accounting reflected showed loss each year, thus resulting taxes being due, but appellee Department Revenue, upon auditing returns, assessed taxes, appellant's total income, pursuant to Wisconsin's apportionment statute. Ultimately, after application abatement proceeded through administrative judicial review, Supreme Court held were an integral part unitary therefore its corporate subject statutory formula. The court further situs derived from crude oil produced by outside transferred own refineries stream apportionable under statute despite system, taxation such did not impermissibly burden interstate commerce. Held: 1. Due Process Clause Fourteenth Amendment prevent applying formula income. Pp. 219-225. (a) imposes two requirements state corporation commerce: "minimal connection" "nexus" between corporation's taxing State, "a rational relationship attributed State intrastate values enterprise." Mobil Oil Corp. v. Commissioner Taxes, 445 425, 436-437, 1223, 1231, 63 510. Such nexus is established if "avails itself 'substantial privilege carrying business' within State." Id., at 437, S.Ct., 1231. Here, concededly avails Wisconsin. 219-220. (b) Appellant's use it shows what portion refining—functions occurring Wisconsin—does demonstrate violated Clause. A internal techniques are binding purposes required be accepted as matter constitutional law purposes. 220-223. (c) "linchpin apportionability" enterprise "unitary-business principle." supra, 439, 1232. If business, then may apply taxpayer's order obtain "rough approximation" "reasonably related conducted Moorman Mfg. Co. Bair, 437 267, 273, 98 2340, 2344, 57 197. evidence fully supports conclusion business. And accounting, decision accountability assign market interdepartmental transfers supplies, do defeat clear sufficient 223-225. 2. Similarly, preclude subjecting extraction gas located used Refining allocate There raw materials part. This satisfy Clause, there also necessary "rational relationship" value 225-227. 3. Commerce require all function rather than include statute, applied, unfair multiple taxation. supra. sought property ownership, risk asserted, actual having been shown. any able methods attribute allocated States those centers located. geographic location alter fact fair with activities. 227-230. 90 Wis.2d 700, 281 N.W.2d 94, affirmed. Thomas G. Ragatz, Madison, Wis., appellant. Gerald S. Wilcox, appellee. Mr. Justice MARSHALL delivered opinion Court. 1 case raises important questions regarding States. first issue whether prevents taxpayer when separates distinct categories marketing, production, refining, performs second permits department taxpayer, third requires allocation 2 * A. 3 Exxon Corp.,1 company, organized laws Delaware, general offices Houston, Tex. here, 1965 1968, organization structure consisted parts: Corporate Management, Coordination Services Operations Management. 4 highest management entire corporation, board directors, executive committee, chairman (who chief officer), president, various directors-in-charge who members directors. Management composed staff departments provided specialized services. These services included long-range planning maximization overall operations, development financial policy procedures, financing activities, maintenance legal advice, public relations, labor purchase sale materials, coordination other functions "so optimum short range program." App. 189; id., 187-192.2 5 level company. Exploration Marketing, Marine, Coal Shale Oil, Minerals, Land Each unit independently segments, proper conduct operation. treated investment profit determined department. 6 At relevant times performance. arrangement permitted centralized evaluate operation separately. compete available funds, industry performing same refined products. requirement go sold oil. 7 For Production sales posted prices; Marketing readily existed product, representatives involved would negotiate appropriate transfer value. 8 Wisconsin; activity marketing. district reported administratively central region office Chicago, turn headquarters Houston. 217. motor oils, greases, packaged period manufactured shipped warehouse facilities Chicago. Tires, batteries, accessories centrally purchased Houston resale. gasoline obtained Pure Illinois exchange agreement, permitting reduce cost transporting source retail outlets. agreement negotiated Supply Departments. Additives put make final product conform uniform standards. 9 nationwide credit card administered national Uniform packaging brand names used, plan distribution developed Promotional display equipment designed engineering headquarters. B 10 Because marketed calendar file franchise years. prepared methods, reflecting losses amounts $821,320 1965, $1,159,830 1966, $1,026,224 1967, $919,575 1968. Accordingly, shown due 11 Appellee Revenue audited 25, 1971, sent notice assessment additional tax. concluded Wis.Stat. § 71.07(2) (1967)3 "an business," Exxon's taxable must State's Department's calculation revealed $4,532,155 Additional amount $316,470.85 against appellant.4 12 July denied November 30, 1971. petition review Tax Appeals Commission. Commission agreed accurately reflect CCH Wis. Rep. ¶ 201-223, p. 10,410 (1976). However, main businesses. 10,409. According Commission, function, nor function. 10,411. found applied "had effect imposing [appellant's] net solely Wisconsin." 10,410. "to multiple-state income." Ibid. erred since "extraterritorial income," "apportioning earned [appellant] without Wisconsin, proper. . ." 13 Circuit Dane County set aside some factual findings conclusions 201-373, pp. 10,501-10,504 (1977). In particular, Commission's finding businesses erroneous law. 10,502. economic dependence Instead "[t]he contributed [Exxon's] producing, contribution alone one." "considered whole both constituted business" meaning 14 concluded, however, another 71.07(1) (1967),5 excluded wells. Wis.Tax 10,502-10,504. so-called "barrel formula" sets figures: parties, refineries. former latter similar division made production. wells should noted "there department's inclusion parties resulted double income."6 10,503. 15 affirmed reversed 94 (1979). That test " 'whether dependent contributory state. unitary.' 711, N.W.2d, 100, quoting Altman & F. Keesling, Allocation Income Taxation 101 (2d ed. 1950). Reviewing organizational Exxon, reasoned provide outlet products, system. high capital industry, found, existence stable full utilization capacity. Wis.2d, 718, 104. 721-722, 105-106. 16 disagreed While "mining" (1967), 723, 106, nonetheless while does enter nonapportionable 723-724, 106-107. rejected contention proved totally noting "the idea seems incompatible 'very essence formulary apportionment, namely, where integrated, interdependent steps process enterprise, logical viable method separating attributable step steps.' 726, 109, J. Hellerstein, Local 400 (3d 1969). acting limitations accounting. 17 argument sources could taxed burdening court, "fair share" substantial claimed discriminate commerce, fairly 729-731, 110-111. 18 importance issues raised, we probable jurisdiction, 444 961, 446, 62 373 We now affirm. II 19 recently forth length basic principles see 436-442, 1231-1234, 510 (1980), need repeat them here great detail. It has long settled generated well apportioned formulas utilizing in-state aspects affairs." Northwestern Portland Cement Minnesota, 358 450, 460, 79 357, 363, 421 (1959); 436, See generally Underwood Typewriter Chamberlain, 254 113, 41 45, L.Ed. 165 (1920); Hans Rees' Sons North Carolina ex rel. Maxwell, 283 123, 51 385, 75 879 (1931); Butler Bros. McColgan, 315 501, 701, 86 991 (1942); 197 (1978). Bass, Ratcliff Gretton, Ltd. Comm'n, 266 271, 45 82, 69 282 (1924). taxation: U.S., 272-273, 2344; National Bellas Hess, Inc. 386 753, 756, 87 1389, 1391, 505 (1967); Norfolk Western R. 390 317, 325, 88 995, 1000, 1201 (1968). cannot "out proportion transacted 135, 389. 20 C. Penney Co., 311 435, 444-445, 61 246, 249-50, 85 267 (1940). present dispute contends, insufficient permit appears concede properly Brief 29, 33; Reply 2-3, argues demonstrated occur 21 relies heavily principal single-factor Iowa apportion prohibited either course "[a]ppellant suggest significant operations; record contain analysis showing profits sales, manufacturing, phase operations." 272, 2344. 275, n. 9, contends sanctions prove extraterritorial reach demonstrates Court's violates 22 agree. As occasions recognized, example, challenged California engaged dry goods merchandise middleman, distributing houses seven including California. house maintained stocks goods, cognizable territory, force, solicitation collection arrangements, kept books. was, buying resale lower price. "recognized principles," 505, 703, costs charges house, certain expenses houses. Based "separate system," 507, 704, asserted 23 constitutionally establish limited "distinct 'clear cogent evidence' results taxed," ibid., 297 682, 688, 80 977 (1936), meet burden. 24 "[W]e impeach integrity say assertion taxed. Accounting practices statements vary considerably according problem hand. particular though useful aid, fit different seeks created borders. fact, stated Brandeis 121, 47, 165, attempting place extending 'its share taxation' 'faced impossibility allocating specifically processes borders.' Furthermore, reveal facts determination. 283, 84. aspect matter, employed validity propriety here." 507-508, 704. 25 purports isolate portions received fail account contributions integration, centralization economies scale." 438, Since factors arise "from whole, becomes misleading characterize single identifiable 'source.' Although auditing, required." Ibid.7 26 dicta these principles. simply Iowa. hardly leads conclusion, urged helpful, sense renders conclusive.8 27 2341. 120, 46. exclude formula, unrelated looks "underlying realities derive "unrelated activity" constitutes "discrete enterprise," 455 441, 442, 1233, 1234, 28 agree enterprises" whose beyond treat operational independent centers, true involves highly benefits umbrella controlled interaction. 29 already noted, many essential 189. Many items purchasing obvious purpose increase bulk purchases efficient retailers. Cf.Butler 508, 705 ("the functionally branches closely integrated"). Even because arranged Department, Department. facilitated packaging, names, promotional displays, run 30 link most clearly testimony senior vice president. official testified that: 31 "[I]n intensive, fixed relative costs, reason profitability very sensitive directly capacity facilities. 32 "So, is—where you have investments refineries, assured supply important, are—when segments entity, provides assurance disruptions minimized demand imbalances time time. 33 34 "[T]he placing individual entity greater stability nonparallel nonmutual affect offset existing department." 224-225. 35 below 36 disposes prong attack least statute.9 wellhead parties. characterized intracorporate "unitary stream" apportionable. 37 previously change nature An effective assure nearly capacities. Obviously quality affects success helps keep cost-efficient. indeed part.10 38 $60,073,293, 799. four represented 0.22 percent adjusted basis, 0.41 sales. 729, 110. State," 389, "led grossly distorted result," 326, 1002. 274, 2345. operation, failed show relationship. 284, 85. Cf. (2) (1967) violate Amendment. III 39 formula.11 examine "practical effect" determine 'is apportioned, State.' 443, Complete Auto Transit, Brady, 430 279, 97 1076, 1079, 326 Japan Line, Los Angeles, 441 434, 99 1813, 1819-20, 60 336 (1979); Washington Dept. Association Wash. Stevedoring Cos., 435 734, 750, 1388, 1399, 55 682 40 apportioned. contest rendered police fire protection, benefit trained work advantages civilized society." 445, 1820. asserts, subjects faced reject reasons case. prior ownership. asserted; shown.12 constitutionality [Wisconsins depend vagaries [another State's] policy," absence duplicative claim." 444, 1235. essence, regardless policy. ibid. (dividend income). 42 intangibles, nothing "talismanic" about concept gas. Presumably, manner theory why power exclusive [exploration distinguished accounting] reflect[s] situation, bears relation privileges conferred circumstances ordinarily method." 445-446, 1236. 43 short, account- Page 230 original Humble wholly owned subsidiary Standard New Jersey. 1956, Jersey Pate Delaware corporation. acquired assets liabilities Saxon Corp., accessory continued operations. 1960, merged name "Enco." early 1973, Jersey, changed successor will referred throughout name, Exxon. considered appellant, included: Planning Secretary's Treasury Comptroller's Law Public Relations Government Employee General Medical Aviation 189-192. Stat. part: "Persons shall thereof, person provided, satisfied cases permissible, determination following manner: deducted thereof (less expenses, any) follows remaining basis ratio taking arithmetical average ratios: "(a) tangible property, real, personal mixed, connection his trade year him everywhere. "(b) collecting, assembling processing "(c) offices, agencies everywhere said year." be: ................. $759,371 1966 ............... $1,043,395 1967 $1,264,946 1968 $1,464,443 owed $52,960.97 $72,842.65 $88,351.22 .............. $102,316.01 "For requiring sub. (2), follow derived. mine derived." remand weighted uses factors: manufacturing costs. 3, Exxon; divided 2.6 remand. 731-735, 111-113 before initially preparing expressed less applicable. reaching challenge (1942). apportionment. 31-32, 40-41. That, course, construction Court, arbiter law, decided must, address appellee's involved, presses 46-48; 15-18; Supplemental 8. witness imposed "severance taxes" 432. brief testimony, exploration, subjected taxation, (1976), reached result 10,503 Severance directed gross mineral extracted quantity Sullivan, Handbook Gas 238, 490 (1955); W. Summers, 801 (1938). See, e. g., La.Rev.Stat.Ann. 47:633(7) (9) (West Supp.1980). producing states impose severance occupation render unconstitutional efforts proportionate 731, 110-111 (footnotes omitted).

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