Document: 490 U.S. 66 109 S.Ct. 1617 104 L.Ed.2d 58 AMERADA HESS CORPORATION, et al., Appellantsv.DIRECTOR, DIVISION OF TAXATION, NEW JERSEY DEPARTMENT THE TREASURY. TEXACO, INC. and Tenneco Oil Company, Appellants v. DIRECTOR, Nos. 87-453, 87-464. Argued Nov. 29, 1988. Decided April 3, 1989. Syllabus Appellant oil companies do business in New Jersey are subject to that State's Corporation Business Tax. They also the federal windfall profit tax on their crude-oil product on, which does not occur Jersey. each sought a deduction for calculating "entire net income" 1980 1981 state returns, but appellee, Director of Division Taxation, assessed deficiencies ground "add-back" provision statute prohibited corporations from deducting is "on or measured by profits income." The State Tax Court affirmed assessments, Appellate Superior reversed. Supreme turn reversed reinstated Court's judgment, holding "profits purposes add-back that, as so construed, did violate Commerce Clause Fourteenth Amendment Federal Constitution. Held: 1. satisfies all four elements test set forth Complete Auto Transit, Inc. Brady, 430 274, 97 1076, 51 326, therefore passes scrutiny even though denies appellants deductions payments. Pp. 72-79. (a) has "substantial nexus" with activities generate appellants' income," including production occurring entirely outside State, since appellant's operations part an integrated "unitary business" includes production. P. 73. (b) fairly apportioned, be taxed determined according standard three-factor apportionment formula this expressly approved. See, e.g., Container Corp. America Franchise Board, 463 159, 170, 103 2933, 2943, 77 545. use applied invalid exclusively out-of-state expense, costs unitary cannot deemed confined locality they incurred. Id., at 182, 2949. 73-75. (c) discriminate against interstate commerce. facially discriminatory, there no explicit discriminatory design tax. Nor apply localized industry, it generally excludes any income profits," nationwide Moreover, concede motive underlies provision, held exert pressure conduct more its 75-79. (d) "fairly related" benefits provides appellants, police fire protection, trained work force, advantages civilized society. 79. 2. Amendment. 79-80. 107 N.J. 307, 526 A.2d 1029 (1987), affirmed. BLACKMUN, J., delivered opinion Court, REHNQUIST, C.J., BRENNAN, WHITE, MARSHALL, STEVENS, KENNEDY, JJ., joined. SCALIA, filed concurring post, p. 80. O'CONNOR, took consideration decision cases. Mark L. Evans, appellants. Mary R. Hamill, Trenton, N.J., appellees. Justice BLACKMUN Court. 1 litigation 13 major Jersey's imposed producers crude oil. None takes place 2 Each appellant deduct Under applicable statute, however, corporation may ruled question before us whether, runs afoul United States 3 * A. 4 In conjunction decontrol prices, Congress enacted Crude Windfall Profit Act 1980, Pub.L. 96-223, Tit. I, 94 Stat. 230, now codified 26 U.S.C. §§ 4986-4998 (Act).1 imposes "windfall profit" producer receives produces. barrel essentially difference between deregulated price (that is, actual sales price)2 regulated would have had taken place.3 5 One significant Act, known "net limitation," places cap amount producer's year: "The shall exceed 90 percent attributable such barrel." § 4988(b)(1). taxable derived removed particular property given year divided number barrels into account year. 4988(b)(2).4 6 specifically provided purposes, deductible. 164(a)(4) (1982 ed., Supp. V). Although assumed "the deductible under taxes," see H.R.Rep. No. 96-304, 9 (1979), U.S.Code Cong. & Admin.News 595, require imposing tax, allow deduction. B 7 N.J.Stat.Ann. 54:10A-1 seq. (West 1986), portion "for privilege doing business, employing owning capital property, maintaining office State." 54:10A-2. For both within Jersey, concerning receipts, payroll. calls average three ratios: in-state total property; receipts; wages, salaries, other forms employee compensation. 54:10A-6. Cf. Moorman Mfg. Co. Bair, 437 267, 98 2340, 57 197 (1978). 8 corporation's presumptively same "before operating loss special deductions." 54:10A-4(k). provides: "Entire without exclusion, deduction, credit . [t]axes paid accrued Ibid. Legislature adopted 1958, long 1980. 1958 Laws, ch. 63. See 313, 1029, 1032 (1987). C reporting 1981, "add back" effect, then, claimed As result, deficiencies.5 then brought suit appellee Jersey.6 contended, first, was "tax meaning and, second, contrary construction contravene 10 rejected these contentions deficiency assessments. (1984). A consolidated motion reconsideration denied. 275 (1985). reversed, income, therefore, could deducted entire income. 208 N.J.Super. 201, 505 186 (1986). 11 turn, judgment. five participating justices unanimous provision. court first observed obviously legislative intent point, fact predated over 20 years. A.2d, 1032. Lacking evidence intent, went reason "income" "profits" matter ordinary usage "economic sense." 324, 331, 1038, 1042. noted terms, limited "that increment [an producer's] representing excess uncontrolled controlled price." 1040. Also, because limitation concluded per 328, 1041. reasons, found appropriate classify profits. 12 Having constitutional challenge. "Because denial [windfall tax] based nature [appellants'] businesses burden companies, consumers, transactions while favoring activities, disallowance commerce." 338, 1046. press claims After seeking views Solicitor General States, 484 941, 108 325, 353 we probable jurisdiction. 486 1004, 1726, 100 191 (1988). II 14 326 (1977), sustained "against challenge when activity substantial nexus taxing commerce, related services We repeatedly principle subsequent cases, most recently Term Goldberg Sweet, 488 252, 582, 102 607 (1989). id., 260, n. 12, S.Ct., 588, (citing applications principle). dispute soundness propriety application here. Brief 21. Rather, argue Tax, denying them payments, fails prongs test. disagree. 15 There can doubt "a State. business," Reply 3. Consequently, exists "clear sufficient [each] Exxon Wisconsin Dept. Revenue, 447 207, 225, 2109, 2121, 65 (1980). That change conclusion. Denying cost associated alter connection oil-producing activity, virtue determination conducted business. 16 upon unfairly apportioned employs averages percentages Part I-B, supra. approved past. 2942, 545 (1983). Indeed, "has become something benchmark formulas judged." 17 simply contend otherwise, asserting expense causes than fair share business' 4, 15. 18 Appellants, underestimate inappropriate consider expense. just revenue—as business—is single Corp., U.S., 226, 2121; too producing revenue nature. 2949 (the incurred). Thus, resulting figure still one, legitimately decide apportion formula.7 19 It results somewhat "imperfect" measure component 183, 2950. But alone render unlawful. Constitution 'invalidat[e] whenever result taxation some source State.' " 169-170, quoting 272, 2344 (emphasis added Corp.). On contrary, said repeatedly, order show unfair apportionment, taxpayer "must demonstrate rational relationship attributed intrastate values enterprise" (internal quotation marks omitted). 180, 2948. Given coupled formula, met burden.8 Even if Westinghouse Electric Tully, 466 388, 398-399, 1856, 1862-1863, 80 388 our precedents show, effect unduly burdening Smith, Discriminations Interstate Commerce, 74 Calif.L.Rev. 1203, 1239 example, considered York shipping products rather States. credit, face, [was] designed economic effects" thus Clause. 406-407, 1867-1868. 21 Of course, need Tully sense Bacchus Imports, Ltd. Dias, 468 263, 3049, 82 200 (1984), Hawaii exempted liquor brandy distilled root shrub igenous Hawaii. Because local product, exemption drafted explicitly along lines design. 22 Imports involved fruit wine. general specify indigenous promote pineapple-wine industry. 270-271, 3054-3055. motivated confer benefit industry granted invalid. 23 Finally, American Trucking Assns., Scheiner, 483 266, 2829, 226 concerned, among things, unapportioned Pennsylvania axle highways trucks 26,000 pounds. "flat" trucks, nonetheless exerting "an inexorable hydraulic ply trade 'among several States,' 287, 2842, Const., Art. 8, cl. Halliburton Well Reily, 373 64, 72, 83 1201, 1205, 202 (1963) (Louisiana greater goods were manufactured Louisiana thereby creating incentive locate manufacturing process State). 24 principles articulated sense, Imports. Instead, applies profits." well tax.9 corporate throughout Nation. what provision: discriminates basis geographic location. 271, 3055. 25 seems us, miss essential point. argue: here whether out burdens form only jurisdictions." 44. presented litigation. denial, impermissibly Tr. Oral Arg. payments create reserves where none exist move attributes difficult how unconstitutionally 27 claim who market favor independent retailers produce whatever disadvantage might impose constitute discrimination operate Similarly, nonproducing Whatever different two categories solely differences businesses, location activities. Governor Maryland, 117, 125-129, 2207, 2213-2216, 91 (1978) (prohibiting retailing Maryland commerce compete purely retailers). respect, agree analysis 337-338, 1046.10 28 conclude D 29 "which include 'the society.' 228, 2123, Japan Line, County Los Angeles, 441 434, 445, 99 1813, 1819, 60 336 (1979). acknowledge, must, reasonable p rtion "does [appellants] aid business." D.H. Holmes McNamara, 24, 32, 1619, 1624, 30 sum, test, considering III 31 violates Due Process Equal Protection Clauses light foregoing discussion, contention plainly meritless. First, recognize encompasses due standards. 21; J. Hellerstein, Taxation ¶ 4.8, 123 Accordingly, having process. 32 Second, although pose problem, Metropolitan Life Ins. Ward, 470 869, 881, 105 1676, 1683, 84 751 (1985), them. contrast classification underlying unquestionably refusal IV 33 being infirmity authoritatively construed judgment 34 ordered. 35 O'CONNOR 36 37 I ante, 76-77. Since am view conclusion suffices Clause, 304, 2851, (1987) (SCALIA, dissenting), refrain applying, remainder 279, 1079, (1977). To extent, pertains requirements 'minimal connection' enterprise," Mobil Commissioner Taxes Vermont, 445 425, 436-437, 1223, 1231-1232, 63 510 (1980) (citation omitted), those been met. reasons opinion, case Joint Committee Explanation (Jt.Comm. Print 1981), 96th Cong., 2d Sess., 1981); S.Rep. 96-394, (1979); pp. 410, 417, 591. If converted refined sold, premises assigned "constructive price," 4988(c)(3), representative [field] conversion transportation." CFR 1.613-3(a) defines removal sum of—(1) adjusted base barrel, (2) severance adjustment respect section 4996(c)." 4988(a). "adjusted price" 1979, inflation. 4989. "severance adjustment" exceeds valued price. 4996(c). annual reference 613(a) Internal Revenue Code 1954, 613(a). 4988(b)(3)(A). At issue cases taxes Appellee deferred action pending final outcome separate complaints raising identical issues. N.J.Tax. 51, 53 Thirteen fourteen original plaintiffs remain parties contends "site-specific" depend location: calculation "removal (which constructed far site ground); inflation-adjustment factor; limitation. 26-33. merits contentions, think unnecessary reach fair-apportionment relevant be. note, too, every denied applying equivalent company's words, "no multiple result" one following lead. 260-265, 589, (1989) (discussing applied). "comparable" 35. certainly find treatment profits" irrational arbitrary. respects, similar oil, intended decontrol. 594. precisely assure above-cost receipts. 438. itself characterizes "excise tax," 4986(a), Service states tax's "structure computation bear resemblance tax." IRS Manual Supplement—Windfall Program, 42 RDD-57 (Rev. 3) 2.01 (Aug. 28, 1987), reprinted CCH Manual—Audit, 7567 believes resembles surely relating suggested give shift production, Amicus Curiae 18. caused non-oil-producing larger creates absence directed occurs (as ), relates performed

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