Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U.S. 768, 2 (1992)

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Cite as: 504 U. S. 768 (1992)


1. The unitary business principle remains an appropriate device for ascertaining whether a State has transgressed constitutional limitations in taxing a nondomiciliary corporation. Pp. 777-788. (a) The principle that a State may not tax value earned outside its borders rests on both Due Process and Commerce Clause requirements. The unitary business rule is a recognition of the States' wide authority to devise formulae for an accurate assessment of a corporation's intrastate value or income and the necessary limit on the States' authority to tax value or income that cannot fairly be attributed to the taxpayer's activities within a State. The indicia of a unitary business are functional integration, centralization of management, and economies of scale. F. W. Woolworth Co. v. Taxation and Revenue Dept. of N. M., 458 U. S. 354, 364; Container Corp. of America v. Franchise Tax Bd., 463 U. S. 159, 179. Pp. 777-783. (b) New Jersey and several amici have not persuaded this Court to depart from the doctrine of stare decisis by overruling the cases that announce and follow the unitary business standard. New Jersey's sweeping theory—that all income of a corporation doing any business in a State is, by virtue of common ownership, part of the corporation's unitary business and apportionable—cannot be reconciled with the concept that the Constitution places limits on a State's power to tax value earned outside its borders, and is far removed from the latitude that is granted to States to fashion formulae for apportionment. This Court's precedents are workable in practice. Any divergent results in applying the unitary business principle exist because the variations in the unitary theme are logically consistent with the underlying principles motivating the approach and because the constitutional test is quite fact sensitive. In contrast, New Jersey's proposal would disrupt settled expectations in an area of the law in which the demands of the national economy require stability. Pp. 783-786. (c) The argument by other amici that the constitutional test for determining apportionment should turn on whether the income arises from transactions and activity in the regular course of the taxpayer's trade or business, with such income including income from tangible and intangible property if the acquisition, management, and disposition of the property constitute integral parts of the taxpayer's regular trade or business operations, does not benefit the State here. While the payor and payee need not be engaged in the same unitary business, the capital transaction must serve an operational rather than an investment function. Container Corp., supra, at 180, n. 19. The existence of a unitary relation between the payor and the payee is but one justification for apportionment. Pp. 786-788.



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