Mobil Oil Corp. v. Commissioner of Taxes, 445 U.S. 425 (1980)

Mobil Oil Corp. v. Commissioner of Taxes of Vermont

No. 78-1201

Argued November 7, 1979
Decided March 19, 1980
445 U.S. 425

APPEAL FROM THE SUPREME COURT OF VERMONT

Syllabus

Appellant is a corporation organized under the laws of New York, where it has its principal place of business and its "commercial domicile." It does business in many States, including Vermont, where it engages in the wholesale and retail marketing of petroleum products. Vermont imposed a corporate income tax, calculated by means of an apportionment formula, upon "foreign source" dividend income received by appellant from its subsidiaries and affiliates doing business abroad. Appellant challenged the tax on the grounds, inter alia, that it violated the Due Process Clause of the Fourteenth Amendment and the Commerce Clause, but the tax ultimately was upheld by the Vermont Supreme Court.

Held:

1. The tax does not violate the Due Process Clause. There is a sufficient "nexus" between Vermont and appellant to justify the tax, and neither the "foreign source" of the income in question nor the fact that it was received in the form of dividends from subsidiaries and affiliates precludes its taxability. Appellant failed to establish that its subsidiaries and affiliates engage in business activities unrelated to its sale of petroleum products in Vermont, and accordingly it has failed to sustain its burden of proving that its "foreign source" dividends are exempt, as a matter of due process, from fairly apportioned income taxation by Vermont. Pp. 436-442.

2. Nor does the tax violate the Commerce Clause. Pp. 442-449.

(a) The tax does not impose a burden on interstate commerce by virtue of its effect relative to appellant’s income tax liability in other States. Assuming that New York, the State of "commercial domicile," has the authority to impose some tax on appellant’s dividend income, there is no reason why that power should be exclusive when the dividends reflect income from a unitary business, part of which is conducted in other States. The income bears relation to benefits and privileges conferred by several States, and, in these circumstances, apportionment, rather than allocation, is ordinarily the accepted method of taxation. Vermont’s interest in taxing a proportionate share of appellant’s dividend income thus is not overridden by any interest of the State of "commercial domicile." Pp. 443-446.

(b) Nor does the tax impose a burden on foreign commerce. Appellant’s argument that the risk of multiple taxation abroad requires allocation of "foreign source" income to a single situs at home, is without merit in the present context. That argument attempts to focus attention on the effect of foreign taxation when the effect of domestic taxation is the only real issue; its logic is not limited to dividend income, but would apply to any income arguably earned from foreign commerce, so that acceptance of the argument would make it difficult for state taxing authorities to determine whether income does or does not have a foreign source; the argument underestimates this Court’s power to correct discriminatory taxation of foreign commerce that results from multiple state taxation; and its acceptance would not guarantee a lesser domestic tax burden on dividend income from foreign sources. Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434, which concerned property taxation of instrumentalities of foreign commerce, does not provide an analogy for this case. Pp. 446-449.

136 Vt. 545, 394 A.2d 1147, affirmed.

BLACKMUN, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, WHITE, POWELL, and REHNQUIST, JJ., joined. STEVENS, J., filed a dissenting opinion, post, p. 449. STEWART and MARSHALL, JJ., took no part in the consideration or decision of the case.