Document: 505 U.S. 71 112 S.Ct. 2365 120 L.Ed.2d 59 KRAFT GENERAL FOODS, INC., Petitionerv.IOWA DEPARTMENT OF REVENUE AND FINANCE. No. 90-1918. Argued April 22, 1992. Decided June 18, Syllabus The Iowa statute that imposes a business tax on corporations uses the federal code's definition of "net income" with certain adjustments. Like scheme, allows to take deduction for dividends received from domestic, but not foreign, subsidiaries. However, unlike does allow credit taxes paid foreign countries. Petitioner Kraft General Foods, Inc., unitary operations in United States and several countries, deducted its subsidiary taxable income 1981 return, notwithstanding contrary provisions law. Respondent Department Revenue Finance (Iowa) assessed deficiency, which challenged administrative proceedings subsequently courts. Supreme Court rejected Kraft's argument disparate treatment domestic violated Commerce Clause Federal Constitution, holding failed demonstrate taxing scheme gave businesses commercial advantage over commerce. Held: facially discriminates against commerce violation Foreign Clause. It is indisputable treats subsidiaries less favorably than those by including former, latter, income. None arguments made amici—that, since corporation's domicile necessarily establish it engaged either or commerce, discrimination based activity's location nature; taxpayer can avoid changing subsidiary's location; treat more located elsewhere; benefit might be offset imposed them other Government; intended promote convenience rather economic protectionism justifies Iowa's differential Pp. 75-82. 465 N.W.2d 664 (Iowa 1991), reversed remanded. STEVENS, J., delivered opinion Court, WHITE, O'CONNOR, SCALIA, KENNEDY, SOUTER, THOMAS, JJ., joined. REHNQUIST, C.J., filed dissenting opinion, BLACKMUN, Jerome B. Libin, Washington, D.C., petitioner. Marcia Mason, Des Moines, Iowa, respondent. Kent L. Jones, as amicus curiae special leave Court. Justice STEVENS 1 In petitioner Inc. (Kraft) operated throughout Because part was conducted subject Business Tax Corporations.1 At issue this case inclusion base six subsidiaries, each incorporated country.2 While corporation receives question presented whether violates Clause.3 2 * adjustments.4 For purposes, are generally allowed subsidiaries.5 As earnings themselves, taxation, avoids second earnings.6 Government deductible. parent corporation, however, receive underlying earnings.7 dividends, mitigate multiple taxation corporate earnings.8 3 following calculation income, directly unless subsidiary, itself, Iowa.9 Thus, if transacts taxed, do neither nor taxed. doing abroad, parent.10 Unlike Government, See 664, 665 1991).11 4 computing law.12 deficiency. After protest denied,13 assessment courts, alleging Equal Protection Clause14 Constitution. claim because "that due scheme." Id., at 668. considering challenge under Clause, court found use formula convenient both State. Concluding rationally related goal efficiency, held did violate equal protection. 669. We granted certiorari. 502 ----, 931, 117 103 (1992). II 5 principal dispute between parties concerns whether, face, includes admitting two kinds treated differently, amici advance support proposition constitute prohibited 6 Amicus notes place incorporation correspond locus operations. A reflect activity. Conversely, States, dividend payments reflecting On basis, contends translate into nature activity thus 7 recognize case, stipulated did, fact, operate and, further, decision abroad through typically supported legitimate reasons.15 By nature, characterized flow value among components. Container Corp. America v. Franchise Board, 463 159, 178, 2933, 2947, 77 545 (1983). clearly constitutes commerce; which, acknowledges, themselves commerce.16 8 Moreover, interplay statutes, applicability depends only also activities. earns States.17 To such earnings.18 adopting pattern, States. Accordingly, while all excluded base, extent they earnings.19 sum, taxed think discriminatory justified ground some (untaxed) earnings. 9 argument, assert could conduct instead or, alternatively, set up company hold stock payments. Kraft, would no paying attributable contend these alternatives further but, most, particular form organization burdened. 10 This persuasive. Whether suggested methods avoidance practical matter, generate adverse consequences jurisdictions, we State force order Cf. Metropolitan Life Ins. Co. Ward, 470 869, 878-879, 105 1676, 1681-1682, 84 751 (1985). have previously when categories companies "results solely differences their businesses, activities." Amerada Hess Director, N.J. Taxation Division, 490 66, 78, 109 1617, 1624, 104 58 (1989).20 find authority different advanced here discriminate may upheld conducts business. Our cases suggest contrary. Westinghouse Electric Tully, 466 388, 406, 1856, 1867, 80 388 (1984); Halliburton Oil Well Cementing Reily, 373 64, 72, 83 1201, 1205, 202 (1963). 11 Repeating prevailed next insists system favor local interests. an apportioned share entire tax. parent, Summarizing analysis, asserts: "More has producing activities activities, included preapportioned net whole." Brief 19. Far favoring argues, places additional burdens businesses. 12 agree elsewhere. persuaded, favoritism essential element Japan Line, Ltd. County Los Angeles, 441 434, 99 1813, 60 336 (1979), concluded constitutional prohibition state broader protection afforded interstate id., 445-446, S.Ct., 1819-1820, matters concern Nation implicated, 448-451, 1821-1823. Import-Export Clause,21 recognizes create problems, potential international retaliation, whole. 450, 1822. So here, State's preference inconsistent even own economy direct beneficiary discrimination. absence eliminate implications discrimination, cannot exempt prohibitions. 13 stronger abroad. If true, indeed convinced, description adequately characterizes relevant features statute. true were another State, (assuming one great majority impose tax22). burden exceed sum pay collects subsidiary. But whatever fact remains subsidiaries.23 reason doubt assertion "[i]n evaluating alleged facial effected tax, proper ignore operation same statute." 14, n. 19 (emphasis added). authority, principle happen Government. 14 Finally, result, valid protectionism. adoption "taxable income," provides significant advantages taxpayers authorities. Taxpayers compute easily calculations, authorities rely regulations interpretations efforts monitor compliance. N.W.2d, 15 minimize having forms auditing procedures replicate practice. Absent compelling justification, goals means Philadelphia New Jersey, 437 617, 626-628, 98 2531, 2536-2538, 57 475 (1978); Maine Taylor, 477 131, 148, 19, 106 2440, 2453, 91 110 (1986). instance, enjoy substantially benefits utilizing making adjustments dividends. Many adopted approach.24 apparent, then, "cannot served reasonable nondiscriminatory alternatives." Energy Indiana Limbach, 486 269, 278, 108 1803, 1810, 100 302 (1988). Even diminish definitions, marginal loss kind serious health safety sometimes sufficient justify legislation. U.S., 151, 2454; Sporhase Nebraska, 458 941, 956-957, 102 3456, 3464-3465, 73 1254 (1982). III 16 need adopt Nor, chosen follow part, must duplicate respects. whole shield scrutiny. withstand scrutiny, therefore Clause.25 17 judgment remanded opinion. 18 so ordered. Chief whom BLACKMUN joins, dissenting. 20 limits single argument—that unconstitutionally brought scheme. constitutionality heavy; litigant show "no circumstances exists Act valid. [the tax] conceivable insufficient render wholly invalid." Salerno, 481 739, 745, 107 2095, 2100, 95 697 (1987). 21 dealing clause relied upholding petitioner's (1979). important, therefore, note how facts present one. California had levied ad valorem property cargo containers owned Japanese shipping Japan, home ports used exclusively physically fractional year, necessary incident employment similarly situated companies. 22 (1983), where franchise noted least distinctions our earlier Line. First, there entity, corporation. Second, file brief urging struck down. 196, 2956. like Corporation, entity. And Executive Branch merely remained neutral, sustained challenge. 23 agrees involved points out obviously selfish motive accomplish strong indication none often decisions sought here. See, e.g., Bacchus Imports, Dias, 468 263, 268, 3049, 3053, 82 200 (1984). Indeed, carries "State's political processes [can] serve check unduly burdensome regulations." Kassel Consolidated Freightways Delaware, 450 662, 675, 101 1309, 1319, 67 580 (1981). 24 assuming simply non-Iowa "commerce" enjoys enjoyed "commerce," surely errs concluding showing been case. make statute, record largely devoid any evidence systematically works discourage counterpart. 25 Petitioner's failures respect severalfold. unclear what amount affected difficulty flows inability useful generalizations about country incorporation. that, era substantial trade, simpleminded assume reflects principally, substantially, Ante, 76. contrary, domiciled engage little zero cases, suggestion real effect absurd; certainly demonstrated "by 'clear cogent evidence' results extraterritorial values being taxed" cases. 175, 2945. turn, hardly always Given constitutionally applied, existence possibility should fatal chances success 26 suggests "foreign commerce." Ibid. Again, circumstances, payment represent capital across boundaries. situations "foreign" aspects transaction extraordinarily attenuated, burdening transactions concomitantly raise concerns. Consider, example, subsidiary—i.e., country—but assets country, operations, nothing whatsoever. declares payable parent. circumstance well accomplished debiting York bank account crediting another. characterize commerce" seems me stretch term beyond recognition. again, undermine 27 appears problems surmounted parties' stipulation established reasons. Of course, bind establishes sparse. tells us ratio modern "real" domestically oriented cousins. impossible scope Compare App. Pet. Cert. 52a-53a (reporting subsidiaries) 76a-79a (listing 86 nonwholly subsidiaries). Without greater detail, I conclude effects never survive muster. 28 impermissibly sure, corporations, will total unconstitutional because, far demonstrates, result higher 45 50 ante, 80, deciding payments, assures faced extends helps otherwise near-certainty doubly taxed—once earned time 29 attempt near certainty turn require similar assumption sources. correctly out, "[t]he fails indicate existence, much local-level taxes. . Nor credits reductions governments apply allow." Curiae 15, 21. 30 reject claim, go consider Claim fares better. not. defending classification this, purposes. Exxon Eagerton, 462 176, 195, 2296, 2308, 76 497 reasonably purpose." 2308. Administrative efficiency interest reliance furthers achievement. fail. 31 uphold Code § 422.32 et seq. 29a. representing 80% voting power "The Congress shall Power regulate Nations. ." Const., Art. I, 8. 422.35 U.S.C. 243. 1991); Bittker & J. Eustice, Income Corporations Shareholders ¶ 5.05 (5th ed. 1987). §§ 901, 902. Instead taking credit, elect deduct withheld 164. deduction. 275(a)(4). almost valuable taxpayer. Lokken, Income, Estates Gifts 69.14 (2d 1991). Goodyear Tire Rubber Co., 493 132, 139, 462, 467, (1989); American Chicle 316 452, 62 1144, 1145, L.Ed. 1591 (1942); see Eustice 17.11. business, without regard formal lines. Tr. Oral Arg. 37; cf. 164-169, 2939-2942, oral counsel offered illustration: "If Kentucky [that] Kentucky, Germany, German dividends." 47-48. calculating liability, elects Electing deduction, reduce, eliminate, elected 666, 7, supra. 666. 26a. "No deny person within jurisdiction laws." Amdt. 1. follows: "Domestic countries organized variety Reasons include, limited to, requirements better ability limit liability marketing perceived customers company, ease repatriating funds, borrowing funds locally, manufacture country." 30a-31a. 24, 35. 882. 245. dissent presents example doubts properly Post, 85. discussed above, Iowa. 84. Hess, contention Jersey "discriminate[d] oil producers who market independent retailers produce oil." 1624. shall, Consent Congress, lay Imposts Duties Imports Exports, except absolutely executing inspection Laws. 10, cl. 2. Corporate District Columbia. Hellerstein, Taxation: Taxes 1.6 compare aggregate (including Iowa) difficult say earnings, claims "most situated." 71, former provide basis appropriate comparison whose 74a-75a. Having reach

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