Document: 445 U.S. 425 100 S.Ct. 1223 63 L.Ed.2d 510 MOBIL OIL CORPORATION, Appellant,v.COMMISSIONER OF TAXES VERMONT. No. 78-1201. Argued Nov. 7, 1979. Decided March 19, 1980. Syllabus Appellant is a corporation organized under the laws of New York, where it has its principal place business and "commercial domicile." It does in many States, including Vermont, engages wholesale retail marketing petroleum products. Vermont imposed corporate income tax, calculated by means an apportionment formula, upon "foreign source" dividend received appellant from subsidiaries affiliates doing abroad. challenged tax on grounds, inter alia, that violated Due Process Clause Fourteenth Amendment Commerce Clause, but ultimately was upheld Supreme Court. Held : 1. The not violate Clause. There sufficient "nexus" between to justify neither question nor fact form dividends precludes taxability. failed establish engage activities unrelated sale products accordingly sustain burden proving are exempt, as matter due process, fairly apportioned taxation Vermont. Pp. 436-442. 2. Nor 442-449. (a) impose interstate commerce virtue effect relative appellant's liability other States. Assuming State domicile," authority some income, there no reason why power should be exclusive when reflect unitary business, part which conducted bears relation benefits privileges conferred several these circumstances apportionment, rather than allocation, ordinarily accepted method taxation. Vermont's interest taxing proportionate share thus overridden any 443-446. (b) foreign commerce. Appellant's argument risk multiple abroad requires allocation single situs at home, without merit present context. That attempts focus attention domestic only real issue; logic limited would apply arguably earned commerce, so acceptance make difficult for state authorities determine whether or have source; underestimates this Court's correct discriminatory results taxation; guarantee lesser sources. Japan Line, Ltd. v. County Los Angeles, 441 434, 99 1813, 60 336, concerned property instrumentalities provide analogy case. 446-449. 136 Vt. 545, 394 A.2d 1147, affirmed. Jerome R. Hellerstein, York City, appellant. Richard Johnson King, Waitsfield, Vt., appellee. William D. Dexter, Olympia, Wash., Multistate Tax Commission et al., amici curiae, special leave Mr. Justice BLACKMUN delivered opinion 1 In case we called consider constitutional limits nondomiciliary State's so-called taxable years 1970, 1971, 1972. Court sustained tax. 2 * A. 3 Mobil Oil Corporation York. domicile" City. authorized do 4 integrated ranging exploration reserves production, refining, transportation, distribution also related chemical mining enterprises. over 40 our States District Columbia well number countries. 5 Much through wholly partly owned affiliates. Many corporations nations; number, however, domestically incorporated Vermont.1 None conducts shareholdings those controlled managed elsewhere, presumably headquarters 6 confined oil gas production refineries within State. Although activity insignificant, forms small corporation's worldwide enterprise. According returns filed three issue sales were $8,554,200, $9,175,931, $9,589,447 respectively; payroll $236,553, $244,577, $254,938, value $3,930,100, $6,707,534, $8,236,792, respectively. App. 35-36, 49-50, 63-64. Substantial figures are, they too, represent tiny portions total sales, payroll, property.2 7 imposes annual net every Under scheme, defined taxpayer "under United States." Vt.Stat.Ann., Tit. 32, § 5811(18) (1970 Supp.1978).3 If both taxes portion attributable three-factor formula. order portion, multiplied fraction representing arithmetic average ratios values whole. 5833(a).4 8 1972, Federal Internal Revenue Code, included substantial amounts operating Mobil's federal showed approximately $220 million, $308 $233 respectively, $174 $283 $280 million income.5 On years, subtracted items regarded "nonapportionable," dividends. As result subtractions, $23 1970 losses two succeeding years. After application aggregate $1,871.90 remained 3-year period; except minimum $25 each 1971 all 1970.6 9 Department Taxes recalculated restoring asserted nonapportionable preapportionment base. determined $76,418.77, deficiencies plus assessed accordingly.7 deficiency assessments before Commissioner Taxes. argued, among things, receipts Amendment, Interstate Foreign U.S.Const., Art. I, 8, cl. 3. argued inclusion base inconsistent with terms statute, because "fair" "equitable" petitioned modification apportionment. See 5833(b) Supp.1978).8 evident transcript hearing object achieve subtraction base; alternative request formula went largely undeveloped. 18-31. 10 held required he rejected arguments.9 11 sought review Superior Washington County. court reversed Commissioner's ruling. unconstitutionally subjected prohibitive commercial domicile, had their entirety. Since could concluded, use adequate safeguard against agreed acceptable approach. Juris. Statement 14a. 12 Commissioner, his turn, appealed judgment 1147 (1978). noted quarrel calculation accuracy statutory Id., 547, A.2d, 1148. found investment income.10 "multiple taxation" theory prevailed view, prove actually ensue. did during question, "[i]n conflict attempt York's same might very yield." 552, 1151. Accordingly, defect been established. remanded reinstatement assessments. 13 involved prompted us note probable jurisdiction. 941, 2157, 1043 (1979). B 14 keeping litigation strategy, disclaimed dispute fairness 10; Brief 11. Instead, claims nature apportionable income.11 This election attack substantially narrows issues us. deciding appeal, produced fair attribution Our inquiry something about character investments precludes, matter, method. 15 addressing moreover, necessary bear mind distinct types. first consists corporations, conduct operations, hence earn outside States.12 second type record fails supply much detail concerning whose allegedly fall into categories, apparent, perusal such documents reports affiliates, contributors Indeed, although unwilling concede legal conclusion "unitary business," see Reply 2, n. 1, offered evidence undermine most, if all, contribute 16 To exclusion subject offers arguments. First, argues may taxed either management payor corporations. Second, create unconstitutional full domicile. context, relies traditional rule "business situs," suggests dimension. Third, country, least international level. argument, contends local sort undertaken prevents Nation speaking voice affairs. We arguments turn. II 17 long established immune Northwestern Portland Cement Co. Minnesota, 358 450, 458-462, 79 357, 362-364, 421 (1959); Underwood Typewriter Chamberlain, 254 113, 120, 41 45, 46, 65 L.Ed. 165 (1920); Glue Oak Creek, 247 321, 328-329, 38 499, 501, 62 1135 (1918). "[T]he entire corporation, generated intrastate activities, purposes formulas utilizing in-state aspects affairs." U.S., 460, S.Ct., 363. For requirements: "minimal connection" State, rational relationship attributed Moorman Mfg. Bair, 437 267, 272-273, 98 2340, 2344, 57 197 (1978); National Bellas Hess, Inc. Revenue, 386 753, 756, 87 1389, 1391, 18 505 (1967); Norfolk & Western Missouri Comm'n, 390 317, 325, 88 995, 1000, 19 1201 (1968). requisite supplied avails itself "substantial privilege carrying business" State; "[t]he contingent events brought pass destroy nexus transactions exaction." Wisconsin J. C. Penney Co., 311 435, 444-445, 61 246, 250, 85 1143 (1940). understand contest general principles. regard locality earned. amount "out appropriate proportion transacted State." Hans Rees' Sons North Carolina ex rel. Maxwell, 283 123, 135, 51 385, 389, 75 879 (1931).13 What seek establish, process phase must excepted principle apportionability lacks satisfactory carve out exception, demonstrate distinguishes proper concededly From discern potential differentiating factors: source taxability runs contrary precedent. past, often contention one another ascertained separate geographical accounting. extrastate formed business. Butler Bros. McColgan, 315 506-508, 701, 703-704, 86 991 (1942); Ford Motor Beauchamp, 308 331, 273, 276, 84 304 (1939); cf. 272, 2344. circumstances, accounting, while purports isolate various fail account contributions resulting functional integration, centralization management, economies scale. 508-509, 704-705. Because factors profitability arise operation whole, becomes misleading characterize having identifiable "source." accounting useful internal auditing, constitutionally required. 20 applied rationale businesses here Bass, Ratcliff Gretton, 266 271, 45 82, 69 282 (1924), leading example. A British manufactured ale Great Britain sold objected grounds imposition franchise income. strength earlier decision supra, similar ruled brewer carried involving "a series beginning manufacture England ending places," "the justified attributing just profits Company business." 282, 84. 21 cases indicate, linchpin field unitary-business principle.14 accord principle, what show, course Gretton forecloses alone suffices purpose. Moreover, made effort operations economic sense indications contrary, since appears absence proof discrete enterprise, entitled conclude income's activities. 22 remains considered serves drive wedge enterprise support ought excluded attempted ownership country. Various suggested division parent subsidiary treated break scope receipt "taxable event" bearing 23 At outset, reject suggestion anything gained characterizing event." observed "tags" kind "are instruments adjudication statements result," add little analysis. 444, 250. entails numerous events" occur prevent 24 find particularly persuasive identify holding company function. So derived functionally One look principally underlying activity, investment, propriety apportionability. 25 Superficially, intercorporate appear more attractive basis limiting But organization nothing unity diversity Had chosen operate divisions legally doubt meet requirements Cf. General Motors Corp. Washington, 377 436, 441, 1564, 1568, 430 (1964). Transforming entities works change realities affect receives.15 26 mean suggest necessarily Where recipient considerations preclude apportionability, need decide, statute reach extraterritorial instance kind. 121, 47. raise nonapportionability. Norton 340 534, 537, 71 377, 380, 95 517 (1951); 507, 704.16 therefore hold foreign-source shown III 27 addition challenge, subjecting approach steps. Next, protections pose additional alter result. 28 frequently litigated undergoing revival sorts.17 recent cases, addressed clarify apparently conflicting precedents spawned. See, e. g., 276-281, 2346-2348; Dept. Association Wash. Stevedoring Cos., 435 734, 743-751, 1388, 1395-1400, 55 682 Complete Auto Transit, Brady, 274, 97 1076, 326 (1977). endeavor consistent inquiry, examined practical "is apportioned, discriminate services provided 279, 1079. 29 asserts subjects duplicative bear. claim comparison used pays taxes. supra; Live Stock Bureau 303 255-256, 58 546, 548-549, 82 823 (1938). Rather, will undue specific latter proposition, cites intangible domicile situs." First Bank 301 234, 237, 677, 678, 81 1061 (1937); Wheeling Steel Fox, 298 193, 208-210, 56 773, 776-777, 80 (1936); Louisville Jeffersonville Ferry Kentucky, 188 396, 463, 467, 43 513 (1903); Whitney Graves, 299 366, 372-373, 238-239, 285 (1937). 30 Inasmuch presently actual demonstrated record. courts placed reliance fact, see, 548, 1149, debate aired shown. Compare Standard Pressed 419 560, 563-564, 706, 709, 42 719 (1975), Freeman Hewit, 329 249, 256, 67 278, 91 265 (1946), 462-463, 364, Northwest Airlines, 322 292, 64 950, 1283 (1944). 452, 17, 1823, 336 agree constitutionality depend vagaries policy. existing claim. Instead seeking relief burden, seeks theoretical preference another. 31 Taxation theoretically incommensurate, preferred, based former cannot sustained. Peck, 342 382, 384, 72 309, 310, 96 427 (1952). justification, preference. fictionalized sometimes invoked avoid ownership, talismanic concepts situs" automatically renders applicable intangibles issue. maxim mobilia sequuntur personam, fictions based, "states disclosing reasons it." 241, 680. recognized longer obtains" taxpayer's respect involve relations Curry McCanless, 307 367, 59 900, 906, 83 1339 (1939). Even taxes, unknown. 335-336, 275-276; Adams Express Ohio Auditor, 166 185, 222, 604, 606, 965 (1897). upholding distinguished situations prevails. 212, 778. 32 carry force enjoys law stock holdings, jurisdiction 240-241, 679-680. now presume hypothetical assume, purposes, lay stock. situation, These 33 said far fully dispose Relying last Term (1979), sources allocated even not. By accepting eschews broad proposition presses narrower that, abroad, home. reasoning tracks is, inaccuracy duplication. tolerable solely said, gross overreaching. inaccuracy, intolerable added powerless control. alleviating overlapping adopt rule. 34 unpersuasive context reasons. admitting full, forgoes duplication proscribed. Thus, dimension familiar home produces significantly greater burdens allocation. Once perspective, presence diminishes importance. 35 position advanced accepted, commissions face difficulties attempting source. 36 excessive pitch battle. detectable corrigible standard identifying impermissible discrimination differ instances. 37 Finally, own admission, give extent Unless indulge speculation volunteer become haven multinational enterprises, suspect less vigorous whole like share. Line strikes forced. ad valorem directly noted, favoring immediate applicability focused problems level, different sphere confronted remedied adoption already explained, similarly impelled. 39 policy lend weight statutes treaties cites, 38-43, concern level simply germane framed. Concurrent course, well-established norm. Absent explicit directive Congress, infer treatment mandates identical attested Congress debated, enacted, legislation designed regulate H.R.Rep.No. 1480, 88th Cong., 2d Sess. (1964); 565, 89th 1st (1965); 952, Hearings Subcommittee Senate Committee Finance, 93d (1973); 434 456, n.4, 799, 804, 54 Legislative proposals provoked closely controversy. Bar Assn. Section Taxation, Proposals Improvement Bills (H.R. 1538 S. 317), Lawyer 433 (1971). future fit enact requiring uniform date, done so. IV sum, sound basis, establishing presented, not, decide constituent elements be. hold, precluded ordered. STEWART MARSHALL took consideration 44 STEVENS, dissenting. today decides substantive procedural questions. way resolves issues, extremely narrow. carefully "confined method." Ante, 434-435.1 answered negative, unexceptional. 46 rests assumed premises (1) inseparable parts (2) accurately rest world—assuming validity holds—as I opinion—that "offered evidence" challenging premise,2 expressly second.3 47 disagree holdings. am persuaded demonstrates concept developed cases; include kinds arbitrary way. explain my position, recall purpose case, then quite formulations finally show using formulation. believe Mobile waive entitlement, inadequate contentions. 48 fundamental State.4 out-of-state operates examination impossibility allocating specifically processes borders." 47, 165. An imperfect, nevertheless acceptable, measuring earnings "It owes existence earning manufacturing another, precise—or logical determination impossible." 286, 2351, (POWELL, J., dissenting). 49 prescribe rules source, construed Constitution allowing wide latitude selection formulas. id., 278-280, 2347-2348. Thus allocate location tangible assets, Typewriter, sales. Moorman, or—as typical today—by averaging properties. 505, 703, 991. explained: 50 "We say property, pay roll, inappropriate ingredients California properly deemed 'the contribution states income,' And showing unconnected formula." 509, 705. justification measure inapplicable obvious commentators5 opinions.6 proves clear cogent " 'out . State,' 2345, assessment stand. 52 Holmes wrote, Indiana express company: 53 obvious, notion organic unlawfully [of States], name enhanced good will, true meaning. line equal mileage justifiable. if, instance, railroad terminals road equalize mile. pretense." Fargo Hart, 193 490, 499-500, 498, 500, 761. "notion unity" far-flung making earnings. right treat compares properties stated, grossly unfair assign factors. evaluate consist Those huge ways. contends, exclude paid entities.7 seems done,8 regardless engaged Mobil,9 controlling corporations.10 encompassing indirectly assume definition justifies contend generally, Vermont's. consistently arguing entirely calculation, third shall briefly challenge. conception relevant business—the definitions posited—there Mobil. taxpaying entity's Such ignores raison d'etre modest incidental company's overall jurisdictions income.12 Clearly, improper lump quantities connection apportion income.13 reasoning; rather, disclaims theory.14 rely squarely defining assumes predicated motion single, interests other, 440-441.15 Theoretically, unquestionably acceptable.16 objections notwithstanding characterization record, readily apparent large minority significant seem whatsoever Vermont.17 disclose companies dividends.18 greatest importance, contains information payrolls, incorporate them computa tions.s connected denominator inevitably cause overstated.19 Either "petroleum enterprise," ante not; manner. indefensibly methodology artificially multiply perhaps tenfold.20 judgment, clearly here. 66 confront concludes waived them. narrowly constricting commendable, seriously erred posture "Vermont's apportionment." And, admittedly, confused variously main brief reply brief. assertions, nn. 3, disclaim merely generally contrast challenge Iowa's single-factor Moorman. 68 abstract multiplicand component carries product. inherent interdependence kind, me assessment. disclaimer style interpreted concession makes appeal project convincingly palpably 70 liability, courses open it: managing factor; undertake risky task trying consolidated statement defined. permissible summarizes earnings, takes account. employed alternatives, overstates reverse following table listing (more 50% owned) nonsubsidiary which, December year, 5% capital stock: 1972 Sbubsidiary Corporations 203 208 216 Nonsubsidiary 185 189 Domestic 82. reported $3,577,148,701, $3,889,353,228, $4,049,824,161, $380,818,887, $400,087,593, $428,900,681, valued $2,871,922,965, $2,995,950,125 $3,291,757,721, 35, 49, 63. unrepresentative, "everywhere" .24%, .06% .25%, 63, 64. pertinent part: 'Vermont income' means, year taxpayer, excluding exempt states." 5833 Supp.1978) provides "(a) trade, state, equitable multiplying "(1) (A) (B) end expressed percentage state; "(2) wages, salaries, personal service compensation employees "(3) charges performed, state." taken returns, copies attached. 33-73. major (Mobil Marine Transportation, Ltd.; Iraq Limited Liability; Pegasus Overseas, Ltd.) affiliate Delaware (Arabian American (ARAMCO)) 10% 75-78. original calculations follows: Year Taxable Income $220,035,244.23 Less: Nonapportionable Dividends $174,211,073.60 Interest 10,520,792.51 12,221,476.88 Total 196,953,342.99 Apportionable $23,081,901.24 Net Allocable 30,361.11 $1,821.67 $308,253,570.02 Less $282,817,008.65 12,609,826.23 34,659,576.05 330,086,410.93 ($21,832,840.91) 0.00 (minimum tax) $25.00 $232,825,728.27 $280,623,403.93 3,905,208.04 38,260,249.40 322,788,861.37 ($89,963,133.20) 37, 34; 51, 48; 65, 62. $19,078.56; $31,955.52; $25,384.69. 1a. provides: "If provisions section petition for, commissioner require, reasonable: Separate accounting; factors; "(4) employment effectuate income." amendment effected Vt.Laws, 73, 16, words "any all" subsection replaced "either both." reaching decision, followed F. W. Woolworth Taxes, 130 544, 839 (1972), Gulf Morrison, 120 324, 141 671 (1958). 6a-7a, 9a-11a. He rejected, lack proof, formula: "Any diversion strong case." 11a. allow "gross-up" manner 133 93, 328 402 (1974). observed, 547-548, contentions came down after re Goodyear Tire Rubber 132, 335 310 (1975); dissent raises de novo stockholdings post, 455-457, 460-461. encompassed questions presented 2-3. falling category part. geared law, excludes 85% owns 80% stock, 100% 243 Code 1954, amended, U.S.C. 243; Supp.1978). Application resulted percentages income: 0.146032% 0.173647% 0.182151% 36, 50, 473-474, 25, 26, 813, scholarly discussions G. Altman Keesling, Allocation 97-102 (2d ed. 1950); Intangibles Multistate-Multinational Corporations, Vand.L.Rev. 401 (1976); Recent Developments Apportionment Circumscription Unitary Business, Nat.Tax 487, 496 (1968); Keesling Warren, Concept Income, Hastings L.J. (1960); Rudolph, Business: Business Affiliated Corporate Groups, L.Rev. 171 (1970). brief, submits new failure require "combined apportionment" eliminate transfers, calculation. concomitant subsidiaries' affiliates' 1-6. result, presumably, advantageous appellant, virtually "Vermont" numerators factors, increases denominators, diminution fraction. afterthought surely proposal, impact implications. Appellant, reiterate, assumption fair. juncture facts, combined event, latter-day advocacy concedes sources, amendable today. "readily apparent" [Mobil] Vermont." Post, 460 (emphasis added). assertion list names payments 11, supra. Furthermore, repeating speculates, 460-461, cuts favor cause. particular, flurry implications intangibles. Qualls Montgomery Ward Ark. 207, 585 S.W.2d (1979); Smelting Refining Idaho 924, 592 P.2d docketed sub nom. ASARCO 78-1839; Grace 378 Mass. 577, 393 N.E.2d 330 Montana 173 Mont. 316, 567 901 (1977), dism'd, 1042, 884, 793 few sentences n.15, ante, emphatically repeats decided states: "Appellant, amenable today." 435. 441-442: [113], [41 47]. nonapportionability." "In 'foreign source' 434. 197: "The places restrictions imposed, unless minimal 756 [87 1390, 505]. requirement plainly satisfied rationally 'values State.' 325 [88 1001, 1201]." 171, 181 (1970) (hereinafter Taxation): basic can stated: concerned, arising state. Or, put differently, effect." still particular entity alternatively inside rate higher comparable, violates 42, (1960): applying foregoing definitions, kept instances given constitute segregated divided businesses. classification used." Bros., pointed "income formula," noted: 'Interest, dividends, rents, royalties (less expenses) state.' Iowa 422.33(1)(a ) [(1977)]. describing section, stated 'certain easily identifiable, N.W.2d 737, 739. example, rental located. operated base." 269, n.1, 2343, n.1. 185. definition, computes million. .146%, attributes remaining 99.854% locations. Using figures, $30,000, 6%, rate, $1,821.67. way, factor, effectively above .146% figure. obviously excessive, probably somewhat $30,000 computed. 1148 business: Baltimore Gas Electric Development N. Cincinnati Connecticut Power Canner's Steam Company, Continental Asphalt Dallas Light Dayton Duke Duquesne Florida Royalties Utilities Hartford Houston Lighting Illinois Monongahela Northern Public Service Pacific Rochester San Diego Southern Edison Texas Union Illuminating West Penn Atlantic City Brooklyn Detroit Iowa-Illinois Michigan Philadelphia Colorado Incorporated 77-78. listed footnote 9. $115 Arabian Company. base, comprised computed $19,078.56. correlation levels intended sure compared comparable example Warren article, 52-53 "Example California, located, system railway lines throughout western Over accumulated invested most stocks bonds companies, derives interest. headquarters' office controlled. Some individuals devote time whereas others, officers, operations. "Although commonly managed, common personnel facilities, experienced segregating expenses wrong Notwithstanding elements, income-producing follows identified being thereto, owner, take separately assigned California. likewise transactions, constituting (Footnote omitted.) No maintain wealthy resident station station. n.2, "Had receives." clear, strictly comes determining, formulary apportionment—in multistate business—involve states. starting point computing "Obviously, payrolls fractions. Bass [Ratcliff 282]. ." 205. 9, how variables. Nothing says passed stockholders. partnership. depending finances, conceivably exceed interest, control n.16, produce increase

Category: 7