Cite as: 528 U. S. 458 (2000)
Opinion of the Court
§§ 25128, 25129, 25132, 25134 (West 1979). Finally, it multiplies total income by the combined ratio. The result is "California's share," to which California then applies its corporate income tax. If, for example, an Illinois tin can manufacturer, doing business in California and elsewhere, earns $10 million from its total nationwide tin can sales, and if California's formula determines that the manufacturer does 10% of its business in California, then California will impose its income tax upon 10% of the corporation's tin can income, $1 million.
The income of which California taxes a percentage is constitutionally limited to a corporation's "unitary" income. Unitary income normally includes all income from a corporation's business activities, but excludes income that "derive[s] from unrelated business activity which constitutes a discrete business enterprise," Allied-Signal, 504 U. S., at 773 (internal quotation marks omitted). As we have said, this latter "nonunitary" income normally is not taxable by any State except the corporation's State of domicile (and the States in which the "discrete enterprise" carries out its business). Ibid.
Any income tax system must have rules for determining the amount of net income to be taxed. California's system, like others, basically does so by asking the corporation to add up its gross income and then deduct costs. One of the costs that California permits the corporation to deduct is interest expense. The statutory language that authorizes that deduction—the language here at issue—contains an important limitation. It says that the amount of "interest deductible" shall be the amount by which "interest expense exceeds interest and dividend income . . . not subject to allocation by formula," i. e., the amount by which the interest expense exceeds the interest and dividends that the nondomiciliary corporation has received from nonunitary businessor investment. Cal. Rev. & Tax Code Ann. § 24344 (West 1979) (emphasis added); Appendix, infra. Suppose the Illi-
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