Container Corp. of Am. v. Franchise Tax Bd.

Container Corp. of Am. v. Franchise Tax Bd.

Opinion

 [*162]  [***551]  [**2939]    JUSTICE BRENNAN delivered the opinion of the Court.

 This is another appeal claiming that the application of a state taxing scheme violates the Due Process and Commerce Clauses of the Federal Constitution. California imposes a corporate franchise tax geared to income. In common with a large number of other States, it employs the "unitary business"  [*163]  principle and formula apportionment in applying that tax to corporations doing business both inside and outside the State. Appellant is a Delaware corporation headquartered in Illinois and doing business in California and elsewhere. It also has a number of overseas subsidiaries incorporated in the countries in which they operate. Appellee is the California  [***552]  authority charged with administering the State's franchise tax. This appeal presents three questions for review: (1) Was it improper for [****8]  appellee and the state courts to find that appellant and its overseas subsidiaries constituted a "unitary business" for purposes of the state tax? (2) Even if the unitary business finding was proper, do certain salient differences among national economies render the standard three-factor apportionment formula used by California so inaccurate as applied to the multinational enterprise consisting of appellant and its subsidiaries as to violate the constitutional requirement of "fair apportionment"? (3) In any event, did California have an obligation under the Foreign Commerce Clause, U.S. Const., Art. I, § 8, cl. 3, to employ the "arm's-length" analysis used by the Federal Government and most foreign nations in evaluating the tax consequences of intercorporate relationships?

Various aspects of state tax systems based on the "unitary business" principle and formula apportionment have provoked  [*164]  repeated constitutional litigation in this Court.  See, e. g., ASARCO Inc. v. Idaho State Tax Comm'n, 458 U.S. 307 (1982); F. W. Woolworth Co. v. Taxation & Revenue Dept., 458 U.S. 354 (1982); Exxon Corp. v. Wisconsin Dept. of Revenue, 447 U.S. 207 (1980);  [****9]  Mobil Oil Corp. v. Commissioner of Taxes, 445 U.S. 425 (1980); Moorman Mfg. Co. v. Bair, 437 U.S. 267 (1978); General Motors Corp. v. Washington, 377 U.S. 436 (1964); Butler Bros. v. McColgan, 315 U.S. 501 (1942); Bass, Ratcliff & Gretton, Ltd. v. State Tax Comm'n, 266 U.S. 271 (1924); Underwood Typewriter Co. v. Chamberlain, 254 U.S. 113 (1920).

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