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Law School Case Brief

Allied-Signal, Inc. v. Dir., Div. of Taxation - 504 U.S. 768, 112 S. Ct. 2251 (1992)


Among the limitations the Constitution sets on the power of a single state to tax the multistate income of a nondomiciliary corporation are these: There must be a minimal connection between the interstate activities and the taxing state, and there must be a rational relation between the income attributed to the taxing state and the intrastate value of the corporate business. A state need not attempt to isolate the intrastate income-producing activities from the rest of the business; it may tax an apportioned sum of the corporation's multistate business if the business is unitary. A state may not tax a nondomiciliary corporation's income, however, if it is derived from unrelated business activity which constitutes a discrete business enterprise.


Petitioner, a corporate taxpayer, incorporated in Delaware and having headquarters in Michigan, sold some stock in a mining company headquartered in New York and realized a gain of $211.5 million. The state of New Jersey, where the taxpayer built aerospace products, collected income tax on an apportioned share of that amount. The corporate taxpayer sued the state of New Jersey seeking a refund of state corporate income tax that it had paid. The trial court found that New Jersey could apportion for tax purposes the gain the taxpayer realized on a sale of stock in another company, which the Supreme Court of New Jersey upheld the judgment in favor of Respondent taxation director. Petitioner sought certiorari review. 


Was the State correct when it taxed the nondomiciliary corporation's income even if it is derived from unrelated business activity that constituted a discrete business enterprise?




The United States Supreme Court found that, under the agreed-upon facts, New Jersey was not permitted to include the gain realized on the sale of the stock in the taxpayer's apportionable tax base because the two companies were not part of one unitary business. The Court found that the taxpayer and the mining company had no functional integration, no centralization of management, and no economies of scale; instead, the purchase and sale of the stock represented only an investment function, not an operational function, and there was no connection between the activity and the taxing state.

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