Document: 128 S. Ct. 1498 (2008) MEADWESTVACO CORP., successor in interest to Mead Corporation, Petitioner. v. ILLINOIS DEPARTMENT OF REVENUE et al. No. 06-1413. Supreme Court of United States. Argued January 16, 2008. Decided April 15, *1501 Beth Brinkmann, Washington, DC, for Brian F. Barov, Chicago, IL, Respondents. Lisa Madigan, Attorney General Illinois, Michael A. Scodro, Solicitor General, Jane Elinor Notz, Deputy *1502 Barova, Assistant R. Matsui, Nicole D. Devero, Morrison & Foerster LLP, Paul H. Frankel, Craig B. Fields, Roberta Moseley Nero, New York, NY, Justice ALITO delivered the opinion Court. The Due Process and Commerce Clauses forbid States tax "`extraterritorial values.'" Container Corp. America Franchise Tax Bd., 463 U.S. 159, 164, 103 2933, 77 L. Ed. 2d 545 (1983); see also Allied-Signal, Inc. Director, Div. Taxation, 504 768, 777, 112 2251, 119 533 (1992); Mobil Oil Commissioner Taxes Vt., 445 425, 441-442, 100 1223, 63 510 (1980). A State may, however, an apportioned share value generated by intrastate extrastate activities a multistate enterprise if those form part "`unitary business.'" Hunt-Wesson, Bd. Cal., 528 458, 460, 120 1022, 145 974 (2000); Corp., supra, at 438, 1223. We have been asked this case decide whether Illinois constitutionally taxed capital gain realized out-of-state corporation on sale one its business divisions. Appellate upheld affirmed judgment State's favor. Because we conclude that state courts misapprehended principles developed determining is unitary, vacate decision Illinois. I Corporation (Mead), Ohio corporation, predecessor wholly owned subsidiary petitioner MeadWestvaco Corporation. From founding 1846, has producing selling paper, packaging, school office supplies.[1] In 1968, paid $6 million acquire company called Data which inkjet printing technology full-text information retrieval system, latter had originally Air Force. was interested because it would complemented Mead's paper business, but system proved be more valuable asset. Over course many years, asset into electronic research service now known as Lexis/Nexis (Lexis). 1994, sold Lexis third party approximately $1.5 billion, realizing just over $1 billion gain, used repurchase stock, retire debt, pay taxes. did not report any income returns 1994. It took position qualified nonbusiness should allocated domiciliary State, Ohio, under Illinois' Income Act (ITA). See Ill. Comp. Stat., ch. 35, § 5/303(a) (West 1994). audited issued notice deficiency. *1503 According ITA required treat subject apportionment Illinois.[2] assessed with $4 additional penalties. amount protest then filed lawsuit court. tried bench. Although court admitted expert testimony, reports, other exhibits evidence, App. D Pet. Cert. 29a-34a, parties' stipulations supplied most evidence record regarding relationship Lexis, 9-20. summarize here. B launched 1973. For first few years lost money, keep afloat contributions. By late 1970's, attorneys began use finally turned profit. That profit quickly became substantial. Between 1988 1993, made than $800 $3.8 reported. accounted $680 $4.5 expense deductions claimed from during period. oversight, manage day-to-day affairs. headquartered while separate management team ran out headquarters two businesses maintained manufacturing, sales, distribution facilities, well accounting, legal, human resources, credit collections, purchasing, marketing departments. involvement generally limited approving Lexis' annual plan significant corporate transactions (such expenditures, financings, mergers acquisitions, or joint ventures) wished undertake. least case, procured new equipment purchasing own account leasing Lexis. managed free cash, swept nightly bank accounts Mead. cash reinvested decided how invest it. Neither purchase goods services other. example, supply Mead, indeed purchased suppliers. received discount other, neither customer *1504 incorporated subsidiaries until 1980, when merged engineered merger so could offset net operating loss carryforwards. separately reincorporated 1985 before being back 1993. Once again, considerations motivated each transaction. treated unitary consolidated through though insistence only avoid litigation. listed "business segment[s]" some reports regulatory filings. described itself filings "engaged publishing business" touted "developer world's leading law, patents, finance, news information." Id., 93, 59; 38a. C Based stipulated facts testimony Circuit Cook County concluded constitute business. trial reasoned they were functionally integrated centrally enjoyed no economies scale. 35a-36a, 39a. nevertheless served "operational purpose" business: "Lexis/Nexis considered strategic planning particularly allocation resources. operational purpose allowed limit growth ability expand contract control investment." 38a-39a. affirmed. Department Revenue, 371 Ill.App.3d 108, 308 Dec. 566, 861 N.E.2d 1131 (2007). cited several factors function (1) Mead; (2) exercised various ways, such manipulating form, retaining benefits cash; (3) engaged developer service. id., 111-112, N.E.2d, 1135-1136. found address question formed 117-118, 1140. denied review 2007. Dept. 222 609, 637, 862 235 (Table). granted certiorari. 551 ___, 29, 168 806 II Petitioner contends properly erred concluding petitioner, exception nonunitary serving narrow does reach purely passive investment *1505 perceive fundamental error courts' reasoning. our view, considering after unitary. Clause impose distinct parallel limitations power activities. Quill North Dakota, 298, 305-306, 1904, 91 U.S., 451, n. 4, 1223 (STEVENS, J., dissenting); Norfolk Western Co. Missouri Comm'n, 390 317, 325, 5, 88 995, 19 1201 (1968). demands there exist "`some definite link, minimum connection, between person, property transaction seeks tax,'" rational "`"values connected taxing State."'" 306, 1904 (quoting Miller Brothers Maryland, 347 340, 344-345, 74 535, 98 744 (1954), Moorman Mfg. Bair, 437 267, 273, 2340, 57 197 (1978)). forbids levy taxes discriminate against interstate commerce burden subjecting multiple unfairly taxation. 170-171, 2933; Armco Hardesty, 467 638, 644, 104 2620, 81 540 (1984). "broad inquiry" subsumed both constitutional requirements "`whether exerted bears fiscal relation protection, opportunities given state'"that is, anything can ask return.'" ASARCO Idaho 458 307, 315, 102 3103 (1982) Wisconsin J.C. Penney Co., 311 435, 444, 61 246, 85 267 (1940)). Where, here, dispute taxpayer done inquiry shifts may what tax. Cf. 778, 2251 (distinguishing supra). To answer question, principle. Under principle, need "isolate income-producing rest "may sum corporation's unitary." 772, 2251; accord, 1022; Exxon Revenue Wis., 447 207, 224, 2109, 65 66 (1980); 442, 1223; cf. 1 J. Hellerstein W. Hellerstein, Taxation ¶ 8.07[1], p. 8-61 (3d ed.2001-2005) (hereinafter Hellerstein). must determine "intrastate single business," 438-439, values "`derive[d] "unrelated activity" constitutes "discrete enterprise."'" 773, turn quoting 439, (alteration original)). traced history venerable principle 778-783, and, figures prominently retrace briefly *1506 With coming Industrial Revolution 19th century, witnessed emergence truly enterprises. These railroad, telegraph, express companies presented authorities novel problem: often cannot fair simply within borders. whole parts; not, owners liquidate sell off pieces. As observed 1876, "[t]he track road end except track, little value." Railroad Cases, 92 575, 608, 23 663. addressed problem shifting niceties geographic accounting determination taxpayer's unit. If derived "unitary operated without instead isolating attributable operation State. E.g., 223, 2109 (citing 2340). Conversely, enterprise," even value. 165-166, 2933. recognized early 1876 require assess trackage "in county where lies according there." went far opine "[i]t doubted better mode portion devised ascertain road, apportion relative length whole." Ibid. generalized rule Cases Adams Express Auditor, 165 194, 17 305, 41 683 (1897). There held permissibly applied lacking "physical unity" wires rails exhibiting "same unity entire specific purpose," "the same elements arising use." 221, 305. extended further still later cases, relied justify taxation income, dividends, intangibles. Underwood Typewriter Chamberlain, 254 113, 117, 120-121, 45, (1920) (net tax); Bass, Ratcliff Gretton, Ltd. 266 271, 277, 280, 282-283, 45 82, 69 282 (1924) (franchise 443-445, 246 (tax "privilege declaring dividends"); 780, ("[F]or purposes gains different 8.07[1] (summarizing history). evolved step American enterprise, sometimes difficult identify exactly confronted recently Allied-Signal. there, disposition minority *1507 another stipulation left doubt investee 774, (observing `unitary' . all controlled terms stipulation"). revealed, proceeds liquidated ultimately unsuccessful bid 776-777, 2251. wrinkle record, Jersey represented nothing temporary working awaiting deployment Bendix 125 N.J. 20, 37, 592 A.2d 536, (1991). further. argued that, "no logical distinction short-term capital, concede apportionable, investments," outdated jettisoned. 784, rejected contentions. inflexible methods finance forms evolve modified supplemented appropriate." 786, 785, ("If lower reached divergent results applying factual circumstances, because, said, number variations theme `are logically consistent underlying motivating approach'" 167, 2933)).[3] explained situations occur might payee payor [were] business." 787, context rather function" "Hence, include apportionable nondomiciliary earned deposits located notwithstanding absence bank." 787-788, point noted "capital serve either function." 180, 19, Corn Products Refining Commissioner, 350 46, 50, 76 29 (1955) (concluding corn futures contracts hands refiner seeking hedge increases prices are assets), foregoing confirms, references *1508 Allied-Signal intended modify adding ground apportionment. concept recognizes term relationship" "payor payee." 791-792, (O'Connor, Corporate Intangibles: Beyond, 48 L.Rev. 739, 790 (1993) example banker, (which thus assets) clearly Products, counterparty hedge, risk increase price key cost input) likewise "payor" relevant was. conclusion merely instrumental conducted discrete claim. Our decisions announce interpreted contrary, erred. "hallmarks" functional integration, centralized management, Butler McColgan, 315 501, 506-508, 62 701, 86 991 (1942)); 783, (same); 179, 2933 F.W. Woolworth N.M., 354, 364, 3128, 73 819 (same). these hallmarks appellate court, determination. Relying test, reserved take up remand, now. III amici argue vacatur alternative ground. They contend amply demonstrates substantial contacts suffice gain. Br. Respondents 18-25, 46-49; Brief Multistate Commission Amicus Curiae 19-29. invite us recognize intangibles based taxpayer. decline invitation call upon raised nor passed courts. brief opposition petition. typically will circumstances *1509 afford affirmance. Glover States, 531 198, 205, 121 696, 148 604 (2001) Taylor Freeland Kronz, 503 646, 1644, 118 280 (1992)); Lorillard Tobacco Reilly, 525, 578, 2404, 150 532 (THOMAS, concurring judgment). restraint compelling since impact law jurisdictions. adopted rationale respondents urge today. Rev.Code Ann. §§ 5733.051(E)-(F) 2007 Supp. Pamphlet); N.Y. Law 210(3)(b) Supp.2008); Finance, 229 A.D.2d 759, 762, 645 N.Y.S.2d 895, 898 Dept.1996) (finding "sufficient nexus existed York dividend income" parent corporations generating their connection jurisdiction"); 9.11[2][a]. appeared amicus constitutionality scheme issue, having time merits. So postured, best day.[4] IV vacated, remanded proceedings inconsistent opinion. ordered. THOMAS, concurring. join Court's opinion, write my serious Constitution permits adjudicate cases area. Despite repeated holdings `extraterritorial values,'" ante, 1502 *1510 (1983)), am fully convinced proposition. extent addressing enterprises rely negative Clause, overrule them. previously explained, jurisprudence "has basis unworkable practice." Haulers Assn., Oneida-Herkimer Solid Waste Management Authority, 550 127 1786, 1799, 167 655 (2007) area rested solely Clause. long Fourteenth Amendment States' authority businesses. 226, (1897) actual situs therefore, jurisdiction, regulation legislature," issue "amoun[t] taking due process law"). agree requires jurisdictional or, stated, "some tax." (1954); 1504-1505. But apart requirement, concerned constraintsparticularly limiting degree enterpriserequire read yet unenumerated, substantive right. Troxel Granville, 530 57, 80, 2054, 147 49 (2000) judgment) (leaving open "our wrongly original understanding precludes judicial enforcement unenumerated rights"). Today applies requirement "a State." Ante, 1504-1505 (internal quotation marks omitted); (1978) (requiring attributed rationally related `values State'" (1968))). characterize providing exclusively procedural safeguard deprivation property. Scrutinizing multi-state comes perilously close evaluating excessiveness schemea grant adjudicate. See, e.g., Stewart Dry Goods Lewis, 294 550, 562, 55 79 1054 (1935) ("To condemn sole excessive usurp vested legislature, exercise usurped arbitrarily substituting conceptions public policy legislative body"). Indeed, divining right disproportionate striking resemblance long-rejected Lochner-era precedents. Lochner 198 56-58, 25 539, 937 (1905) (invalidating statute "unreasonable, unnecessary arbitrary interference *1511 individual enter seem him appropriate necessary"). Moreover, Congress' undisputed resolve issues virtue regulate "among States." Const., Art. I, 8, cl. 3. believe reconsider kinds do today faithfully therefore concur. NOTES [1] Prospectus 3 (Mar. 2003), online http://www.sec.gov/Archives/edgar/data/1159297/ XXXXXXXXXXXXXXXXXX/d424b5.htm (as visited Apr. 1, 2008, available Clerk file); 9. [2] When occurred defined "income activity regular trade tangible intangible acquisition, integral parts operations." 5/1501(a)(1) This language mirrors definition Uniform Division Purposes (UDITPA). UDITPA 1(a) (2002); 9 (subjecting "[a]ll apportionment). 2004, Assembly amended "all Pub. 93-840, 25, 25-5 (codified 2004)); (1992) (declining adopt UDITPA's test standard [3] dissent agreed remained sound, 790, (opinion O'Connor, J.), merit Jersey's premise (and conclusion) drawn short- long-term investments analysis, 793, ("Any dimension"). revisit [4] Resolving probably spare remand. calculated petitioner's liability rate percentage income. 28; 5/304(a) sufficient link wishes founded presumably base determined four-factor formula Naturally, yield percentage. 18-19, 9; 802-803. seems difference affect result application yielded higher 18-19. argues, words, cause complain caught break incorrect Amicus' argument assumes decide: calculated. Had percentage, persuaded Mead's. untimely resort affirmance opportunity make argument.

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