Asarco Inc. v. Idaho State Tax Comm’n, 458 U.S. 307 (1982)

Asarco Inc. v. Idaho State Tax Commission

No. 80-2015

Argued April 19, 1982
Decided June 29, 1982
458 U.S. 307

APPEAL FROM THE SUPREME COURT OF IDAHO

Syllabus

Held: The State of Idaho may not constitutionally include within the taxable income of appellant nondomiciliary parent corporation doing some business (primarily silver mining) in the State a portion of intangible income (dividends, interest payments, and capital gains from the sale of stock) that appellant received from subsidiary corporations having no other connection with the State. Pp. 315-330.

(a) As a general principle, a State may not tax value earned outside its borders. "[T]he linchpin of apportionability in the field of state income taxation is the unitary business principle." Mobil Oil Corp. v. Commissioner of Taxes of Vermont, 445 U.S. 425, 439; Exxon Corp. v. Wisconsin Dept. of Revenue, 447 U.S. 207, 223. Pp. 315-320.

(b) Here, based on the findings in the state trial court and the undisputed facts, appellant succeeded in proving that no unitary business relationship existed between appellant and its subsidiaries. Pp. 320-324.

(c) To have, as Idaho proposes, corporate purpose define unitary business -- i.e., to consider intangible income as part of a unitary business if the intangible property (shares of stock) is "acquired, managed or disposed of for purposes relating or contributing to the taxpayer’s business" -- would destroy the concept of unitary business. Such a definition, which would permit nondomiciliary States to apportion and tax dividends "[w]here the business activities of the dividend payor have nothing to do with the activities of the recipient in the taxing State," Mobil Oil Corp., supra, at 442, cannot be accepted consistently with recognized due process standards. While the dividend-paying subsidiaries in this case "ad[d] to the riches" of appellant, Wallace v. Hines, 253 U.S. 66, 70 (1920), they are "discrete business enterprise[s]" that, in "any business or economic sense," have "nothing to do with the activities" of appellant in Idaho. Mobil Oil Corp., supra, at 439-442. Therefore, there is no "rational relationship between [appellant’s dividend] income attributed to the State and the intrastate values of the enterprise." Mobil Oil Corp., supra, at 437. The Due Process Clause bars Idaho’s effort to levy upon income that is not properly within the reach of its taxing power. Pp. 325-329.

(d) Under the same unitary business standard applied to the dividend income in question, Idaho’s attempt to tax the interest and capital gains income derived from its subsidiaries also violates the Due Process Clause. Pp. 329-330.

102 Idaho 38, 624 P.2d 946, reversed.

POWELL, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, WHITE, MARSHALL, and STEVENS, JJ., joined. BURGER, C.J., filed a concurring opinion, post, p. 331. O’CONNOR, J., filed a dissenting opinion, in which BLACKMUN and REHNQUIST, JJ., joined, post, p. 331.