Mobil Oil Corp. v. Commissioner of TaxesAnnotate this Case
445 U.S. 425 (1980)
U.S. Supreme Court
Mobil Oil Corp. v. Commissioner of Taxes, 445 U.S. 425 (1980)
Mobil Oil Corp. v. Commissioner of Taxes of Vermont
Argued November 7, 1979
Decided March 19, 1980
445 U.S. 425
APPEAL FROM THE SUPREME COURT OF VERMONT
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.
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. 445 U. S. 436-442.
2. Nor does the tax violate the Commerce Clause. Pp. 445 U. S. 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. 445 U. S. 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. 445 U. S. 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. 445 U. S. 449. STEWART and MARSHALL, JJ., took no part in the consideration or decision of the case.
MR. JUSTICE BLACKMUN delivered the opinion of the Court.
In this case, we are called upon to consider constitutional limits on a nondomiciliary State's taxation of income received by a domestic corporation in the form of dividends from subsidiaries and affiliates doing business abroad. The State of Vermont imposed a tax, calculated by means of an apportionment formula, upon appellant's so-called "foreign source" dividend income for the taxable years 1970, 1971, and 1972. The Supreme Court of Vermont sustained that tax.
Appellant Mobil Oil Corporation is a corporation organized under the laws of the State of New York. It has its principal place of business and its "commercial domicile" in New York City. It is authorized to do business in Vermont.
Mobil engages in an integrated petroleum business, ranging from exploration for petroleum reserves to production, refining, transportation, and distribution and sale of petroleum and petroleum products. It also engages in related chemical and mining enterprises. It does business in over 40 of our States and in the District of Columbia, as well as in a number of foreign countries.
Much of appellant's business abroad is conducted through wholly and partly owned subsidiaries and affiliates. Many of these are corporations organized under the laws of foreign nations; a number, however, are domestically incorporated in States other than Vermont. [Footnote 1] None of appellant's subsidiaries or affiliates conducts business in Vermont, and appellant's shareholdings in those corporations are controlled and managed elsewhere, presumably from the headquarters in New York City.
In Vermont, appellant's business activities are confined to wholesale and retail marketing of petroleum and related products. Mobil has no oil or gas production or refineries within the State. Although appellant's business activity in Vermont is by no means insignificant, it forms but a small part of the corporation's worldwide enterprise. According to the Vermont corporate income tax returns Mobil filed for the three taxable years in issue, appellant's Vermont sales were $8,554,200, $9,175,931, and $9,589,447, respectively; its payroll in the State was $236,553, $244,577, and $254,938, respectively; and the
value of its property in Vermont was $3,930,100, $6,707,534, and $8,236,792, respectively. App. 35-36, 49-50, 63-64. Substantial as these figures are, they, too, represent only tiny portions of the corporation's total sales, payroll, and property. [Footnote 2]
Vermont imposes an annual net income tax on every corporation doing business within the State. Under its scheme, net income is defined as the taxable income of the taxpayer "under the laws of the United States." Vt.Stat.Ann., Tit. 32, § 5811(18) (1970 and Supp. 1978). [Footnote 3] If a taxpayer corporation does business both within and without Vermont, the State taxes only that portion of the net income attributable to it under a three-factor apportionment formula. In order to determine that portion, net income is multiplied by a fraction representing the arithmetic average of the ratios of sales, payroll, and property values within Vermont to those of the corporation as a whole. § 5833(a). [Footnote 4]
Appellant's net income for 1970, 1971, and 1972, as defined by the Federal Internal Revenue Code, included substantial amounts received as dividends from its subsidiaries and affiliates operating abroad. Mobil's federal income tax returns for the three years showed taxable income of approximately $220 million, $308 million, and $233 million, respectively, of which approximately $174 million, $283 million, and $280 million was net dividend income. [Footnote 5] On its Vermont returns for these years, however, appellant subtracted from federal taxable income items it regarded as "nonapportionable," including the net dividends. As a result of these subtractions, Mobil's Vermont returns showed a net income of approximately $23 million for 1970 and losses for the two succeeding years. After application of Vermont's apportionment formula, an aggregate tax liability of $1,871.90 to Vermont remained for the 3-year period; except for a minimum tax of $25 for each of 1971 and 1972, all of this was attributable to 1970. [Footnote 6]
The Vermont Department of Taxes recalculated appellant's income by restoring the asserted nonapportionable items to the preapportionment tax base. It determined that Mobil's
aggregate tax liability for the three years was $76,418.77, and deficiencies plus interest were assessed accordingly. [Footnote 7] Appellant challenged the deficiency assessments before the Commissioner of Taxes. It argued, among other things, that taxation of the dividend receipts under Vermont's corporate income tax violated the Due Process Clause of the Fourteenth Amendment, as well as the Interstate and Foreign Commerce Clause, U.S.Const., Art. I, § 8, cl. 3. Appellant also argued that inclusion of the dividend income in its tax base was inconsistent with the terms of the Vermont tax statute, because it would not result in a "fair" and "equitable" apportionment, and it petitioned for modification of the apportionment. See Vt.Stat.Ann., Tit. 32, § 5833(b) (1970 and Supp. 1978). [Footnote 8] It is evident from the transcript of the hearing before the Commissioner that appellant's principal object was to achieve the subtraction of the asserted nonapportionable income from the preapportionment tax base; the alternative request for modification of the apportionment formula went largely undeveloped. See App. 18-31.
The Commissioner held that inclusion of dividend income
in the tax base was required by the Vermont statute, and he rejected appellant's Due Process Clause and Commerce Clause arguments. [Footnote 9]
Mobil sought review by the Superior Court of Washington County. That court reversed the Commissioner's ruling. It held that inclusion of dividend income in the tax base unconstitutionally subjected appellant to prohibitive multiple taxation because New York, the State of appellant's commercial domicile, had the authority to tax the dividends in their entirety. Since New York could tax without apportionment, the court concluded, Vermont's use of an apportionment formula would not be an adequate safeguard against multiple taxation. It agreed with appellant that subtraction of dividend income from the Vermont tax base was the only acceptable approach. App. to Juris.Statement 14a.
The Commissioner, in his turn, appealed to the Supreme Court of Vermont. That court reversed the judgment of the Superior Court. 136 Vt. 545, 394 A.2d 1147 (1978). The court noted that appellant's quarrel was with the calculation of the tax base, and not with the method or accuracy of the statutory apportionment formula. Id. at 547, 394 A.2d at 1148. It found a sufficient "nexus" between the corporation and the State to justify an apportioned tax on both appellant's
investment income and its operating income. [Footnote 10] The court rejected the "multiple taxation" theory that had prevailed in the Superior Court. In its view, appellant had failed to prove that multiple taxation would actually ensue. New York did not tax the dividend income during the taxable years in question, and,
"[i]n a conflict between Vermont's apportioned tax on Mobil's investment income and an attempt on New York's part to tax that same income without apportionment, New York might very well have to yield."
Id. at 552, 394 A.2d at 1151. Accordingly, the court held that no constitutional defect had been established. It remanded the case for reinstatement of the deficiency assessments.
The substantial federal question involved prompted us to note probable jurisdiction. 441 U.S. 941 (1979).
In keeping with its litigation strategy, appellant has disclaimed any dispute with the accuracy or fairness of Vermont's apportionment formula. See Juris.Statement 10; Brief for Appellant 11. Instead, it claims that dividends from a "foreign source," by their very nature, are not apportionable income. [Footnote 11] This election to attack the tax base, rather than the formula, substantially narrows the issues before us. In deciding this appeal, we do not consider whether application of Vermont's formula produced a fair attribution of appellant's dividend income to that State. Our inquiry is confined
to the question whether there is something about the character of income earned from investments in affiliates and subsidiaries operating abroad that precludes, as a constitutional matter, state taxation of that income by the apportionment method.
In addressing this question, moreover, it is necessary to bear in mind that Mobil's "foreign source" dividend income is of two distinct types. The first consists of dividends from domestic corporations, organized under the laws of States other than Vermont, that conduct all their operations, and hence earn their income, outside the United States. [Footnote 12] The second type consists of dividends from corporations both organized and operating abroad. The record in this case fails to supply much detail concerning the activities of the corporations whose dividends allegedly fall into these two categories, but it is apparent, from perusal of such documents in the record as appellant's corporate reports for the years in question, that many of these subsidiaries and affiliates, including the principal contributors to appellant's dividend income, engage in business activities that form part of Mobil's integrated petroleum enterprise. Indeed, although appellant is unwilling to concede the legal conclusion that these activities form part of a "unitary business," see Reply Brief for Appellant 2, n. 1, it has offered no evidence that would undermine the conclusion that most, if not all, of its subsidiaries and affiliates contribute to appellant's worldwide petroleum enterprise.
To justify exclusion of the dividends from income subject to apportionment in Vermont, Mobil offers three principal arguments. First, it argues that the dividends may not be taxed in Vermont, because there is no "nexus" between that State and either appellant's management of its investments or the business activities of the payor corporations. Second, it argues that taxation of the dividends in Vermont would create an unconstitutional burden of multiple taxation, because the dividends would be taxable in full in New York, the State of commercial domicile. In this context, appellant relies on the traditional rule that dividends are taxable at their "business situs," a rule which, it suggests, is of constitutional dimension. Third, Mobil argues that the "foreign source" of the dividends precludes state income taxation in this country, at least in States other than the commercial domicile, because of the risk of multiple taxation at the international level. In a related argument, appellant contends that local taxation of the sort undertaken in Vermont prevents the Nation from speaking with a single voice in foreign commercial affairs. We consider each of these arguments in turn.
It long has been established that the income of a business operating in interstate commerce is not immune from fairly apportioned state taxation. Northwestern States Portland Cement Co. v. Minnesota,358 U. S. 450, 358 U. S. 458-462 (1959); Underwood Typewriter Co. v. Chamberlain,254 U. S. 113, 254 U. S. 120 (1920); United States Glue Co. v. Oak Creek,247 U. S. 321, 247 U. S. 328-329 (1918).
"[T]he entire net income of a corporation, generated by interstate as well as intrastate activities, may be fairly apportioned among the States for tax purposes by formulas utilizing in-state aspects of interstate affairs."
Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. at 358 U. S. 460. For a State to tax income generated in interstate commerce, the Due Process Clause of the Fourteenth Amendment imposes two requirements: a "minimal connection" between
the interstate activities and the taxing State, and a rational relationship between the income attributed to the State and the intrastate values of the enterprise. Moorman Mfg. Co. v. Bair,437 U. S. 267, 437 U. S. 272-273 (1978); see National Bellas Hess, Inc. v. Department of Revenue,386 U. S. 753, 386 U. S. 756 (1967); Norfolk Western R. Co. v. Missouri Tax Comm'n,390 U. S. 317, 390 U. S. 325 (1968). The requisite "nexus" is supplied if the corporation avails itself of the "substantial privilege of carrying on business" within the State; and
"[t]he fact that a tax is contingent upon events brought to pass without a state does not destroy the nexus between such a tax and transactions within a state for which the tax is an exaction."
We do not understand appellant to contest these general principles. Indeed, in its Vermont tax returns for the years in question, Mobil included all its operating income in apportionable net income, without regard to the locality in which it was earned. Nor has appellant undertaken to prove that the amount of its tax liability as determined by Vermont is "out of all appropriate proportion to the business transacted by the appellant in that State." Hans Rees' Sons v. North Carolina ex rel. Maxwell,283 U. S. 123, 283 U. S. 135 (1931). [Footnote 13] What appellant does seek to establish, in the due process phase of its argument, is that its dividend income must be excepted from the general principle of apportionability because it lacks a satisfactory nexus with appellant's business activities in Vermont. To carve that out as an exception, appellant must demonstrate something about the nature of this income that distinguishes it from operating income, a
proper portion of which the State concededly may tax. From appellant's argument, we discern two potential differentiating factors: the "foreign source" of the income, and the fact that it is received in the form of dividends from subsidiaries and affiliates.
The argument that the source of the income precludes its taxability runs contrary to precedent. In the past, apportionability often has been challenged by the contention that income earned in one State may not be taxed in another if the source of the income may be ascertained by separate geographical accounting. The Court has rejected that contention so long as the intrastate and extrastate activities formed part of a single unitary business. See Butler Bros. v. McColgan,315 U. S. 501, 315 U. S. 506-508 (1942); Ford Motor Co. v. Beauchamp,308 U. S. 331, 308 U. S. 336 (1939); cf. Moorman Mfg. Co. v. Bair, 437 U.S. at 437 U. S. 272. In these circumstances, the Court has noted that separate accounting, while it purports to isolate portions of income received in various States, may fail to account for contributions to income resulting from functional integration, centralization of management, and economies of scale. Butler Bros. v. McColgan, 315 U.S. at 315 U. S. 508-509. Because these factors of profitability arise from the operation of the business as a whole, it becomes misleading to characterize the income of the business as having a single identifiable "source." Although separate geographical accounting may be useful for internal auditing, for purposes of state taxation, it is not constitutionally required.
The Court has applied the same rationale to businesses operating both here and abroad. Bass, Ratclif & Gretton, Ltd. v. State Tax Comm'n,266 U. S. 271 (1924), is the leading example. A British corporation manufactured ale in Great Britain and sold some of it in New York. The corporation objected on due process grounds to New York's imposition of an apportioned franchise tax on the corporation's net income. The Court sustained the tax on the strength of its earlier decision in Underwood Typewriter Co. v. Chamberlain, supra,
where it had upheld a similar tax as applied to a business operating in several of our States. It ruled that the brewer carried on a unitary business, involving "a series of transactions beginning with the manufacture in England and ending in sales in New York and other places," and that "the State was justified in attributing to New York a just proportion of the profits earned by the Company from such unitary business." 266 U.S. at 266 U. S. 282.
As these cases indicate, the linchpin of apportionability in the field of state income taxation is the unitary business principle. [Footnote 14] In accord with this principle, what appellant must show, in order to establish that its dividend income is not subject to an apportioned tax in Vermont, is that the income was earned in the course of activities unrelated to the sale of petroleum products in that State. Bass, Ratcliff & Gretton forecloses the contention that the foreign source of the dividend income alone suffices for this purpose. Moreover, appellant has made no effort to demonstrate that the foreign operations of its subsidiaries and affiliates are distinct in any business or economic sense from its petroleum sales activities in Vermont. Indeed, all indications in the record are to the contrary, since it appears that these foreign activities are part of appellant's integrated petroleum enterprise. In the absence of any proof of discrete business enterprise, Vermont was entitled to conclude that the dividend income's
foreign source did not destroy the requisite nexus with in-state activities.
It remains to be considered whether the form in which the income was received serves to drive a wedge between Mobil's foreign enterprise and its activities in Vermont. In support of the contention that dividend income ought to be excluded from apportionment, Mobil has attempted to characterize its ownership and management of subsidiaries and affiliates as a business distinct from its sale of petroleum products in this country. Various amici also have suggested that the division between parent and subsidiary should be treated as a break in the scope of unitary business, and that the receipt of dividends is a discrete "taxable event" bearing no relation to Vermont.
At the outset, we reject the suggestion that anything is to be gained by characterizing receipt of the dividends as a separate "taxable event." In Wisconsin v. J. C. Penney Co., supra, the Court observed that "tags" of this kind "are not instruments of adjudication but statements of result," and that they add little to analysis. 311 U.S. at 311 U. S. 444. Mobil's business entails numerous "taxable events" that occur outside Vermont. That fact alone does not prevent the State from including income earned from those events in the preapportionment tax base.
Nor do we find particularly persuasive Mobil's attempt to identify a separate business in its holding company function. So long as dividends from subsidiaries and affiliates reflect profits derived from a functionally integrated enterprise, those dividends are income to the parent earned in a unitary business. One must look principally at the underlying activity, not at the form of investment, to determine the propriety of apportionability.
Superficially, intercorporate division might appear to be a more attractive basis for limiting apportionability. But the form of business organization may have nothing to do with the underlying unity or diversity of business enterprise. Had
appellant chosen to operate its foreign subsidiaries as separate divisions of a legally as well as a functionally integrated enterprise, there is little doubt that the income derived from those divisions would meet due process requirements for apportionability. Cf. General Motors Corp. v. Washington,377 U. S. 436, 377 U. S. 441 (1964). Transforming the same income into dividends from legally separate entities works no change in the underlying economic realities of a unitary business, and accordingly it ought not to affect the apportionability of income the parent receives. [Footnote 15]
We do not mean to suggest that all dividend income received by corporations operating in interstate commerce is necessarily taxable in each State where that corporation does
business. Where the business activities of the dividend payor have nothing to do with the activities of the recipient in the taxing State, due process considerations might well preclude apportionability, because there would be no underlying unitary business. We need not decide, however, whether Vermont's tax statute would reach extraterritorial values in an instance of that kind. Cf. Underwood Typewriter Co. v. Chamberlain, 254 U.S. at 254 U. S. 121. Mobil has failed to sustain its burden of proving any unrelated business activity on the part of its subsidiaries and affiliates that would raise the question of nonapportionability. See Norton Co. v. Department of Revenue,340 U. S. 534, 340 U. S. 537 (1951); Butler Bros. v. McColgan, 315 U.S. at 315 U. S. 507. [Footnote 16] We therefore hold that its foreign-source dividends have not been shown to be exempt, as a matter of due process, from apportionment for state income taxation by the State of Vermont.
In addition to its due process challenge, appellant contends that Vermont's tax imposes a burden on interstate and foreign commerce by subjecting appellant's dividend income to a substantial risk of multiple taxation. We approach this argument in two steps. First, we consider whether there was a burden on interstate commerce by virtue of the effect of the Vermont tax relative to appellant's income tax liability in
other States. Next, we determine whether constitutional protections for foreign commerce pose additional considerations that alter the result.
The effect of the Commerce Clause on state taxation of interstate commerce is a frequently litigated subject that appears to be undergoing a revival of sorts. [Footnote 17] In several recent cases, this Court has addressed the issue and has attempted to clarify the apparently conflicting precedents it has spawned. See, e.g., Moorman Mfg. Co. v. Bair, 437 U.S. at 437 U. S. 276-281; Washington Revenue Dept. v. Association of Wash. Stevedoring Cos.,435 U. S. 734, 435 U. S. 743-751 (1978); Complete Auto Transit, Inc. v. Brady,430 U. S. 274 (1977). In an endeavor to establish a consistent and rational method of inquiry, we have examined the practical effect of a challenged tax to determine whether it
"is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State."
Id. at 430 U. S. 279.
Appellant asserts that Vermont's tax is discriminatory because it subjects interstate business to a burden of duplicative taxation that an intrastate taxpayer would not bear. Mobil does not base this claim on a comparison of Vermont's apportionment formula with those used in other States where appellant pays income taxes. Cf. Moorman Mf. Co. v. Bair, supra; Western live Stock v. Bureau of Revenue,303 U. S. 250, 303 U. S. 255-256 (1938). Rather, it contends that any apportioned
tax on its dividends will place an undue burden on that specific source of income, because New York, the State of commercial domicile, has the power to tax dividend income without apportionment. For the latter proposition, appellant cites property tax cases that hold that intangible property is to be taxed either by the State of commercial domicile or by the State where the property has a "business situs." See, e.g., First Bank Stock Corp. v. Minnesota,301 U. S. 234, 301 U. S. 237 (1937); Wheeling Steel Corp. v. Fox,298 U. S. 193, 298 U. S. 208-210 (1936); Louisville & Jeffersonville Ferry Co. v. Kentucky,188 U. S. 385, 188 U. S. 396 (1903); cf. New York ex rel. Whitney v. Graves,299 U. S. 366, 299 U. S. 372-373 (1937).
Inasmuch as New York does not presently tax the dividends in question, actual multiple taxation is not demonstrated on this record. The Vermont courts placed some reliance on this fact, see, e.g., 136 Vt. at 548, 394 A.2d at 1149, and much of the debate in this Court has aired the question whether an actual burden need be shown. Compare Standard Pressed Steel Co. v. Department of Revenue,419 U. S. 560, 419 U. S. 563-564 (1975), and Freeman v. Hewit,329 U. S. 249, 329 U. S. 256 (1946), with Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. at 462-463, and Northwest Airlines, Inc. v. Minnesota,322 U. S. 292 (1944). See also Japan Line, Ltd. v. County of Los Angeles,441 U. S. 434, 441 U. S. 452, n. 17 (1979). We agree with Mobil that the constitutionality of a Vermont tax should not depend on the vagaries of New York tax policy. But the absence of any existing duplicative tax does alter the nature of appellant's claim. Instead of seeking relief from a present tax burden, appellant seeks to establish a theoretical constitutional preference for one method of taxation over another. In appellant's view, the Commerce Clause requires allocation of dividend income to a single situs, rather than apportionment among the States.
Taxation by apportionment and taxation by allocation to a single situs are theoretically incommensurate, and if the latter method is constitutionally preferred, a tax based on the former
cannot be sustained. See Standard Oil Co. v. Peck,342 U. S. 382, 342 U. S. 384 (1952). We find no adequate justification, however, for such a preference. Although a fictonalized situs for intangible property sometimes has been invoked to avoid multiple taxation of ownership, there is nothing talismanic about the concepts of "business situs" or "commercial domicile" that automatically renders those concepts applicable when taxation of income from intangibles is at issue. The Court has observed that the maxim mobilia sequuntur personam, upon which these fictions of situs are based, "states a rule without disclosing the reasons for it." First Bank Stock Corp. v. Minnesota, 301 U.S. at 301 U. S. 241. The Court also has recognized that "the reason for a single place of taxation no longer obtains" when the taxpayer's activities with respect to the intangible property involve relations with more than one jurisdiction. Curry v. McCanless,307 U. S. 357, 307 U. S. 367 (1939). Even for property or franchise taxes, apportionment of intangible values is not unknown. See Ford Motor Co. v. Beauchamp, 308 U.S. at 308 U. S. 335-336; Adams Express Co. v. Ohio State Auditor,166 U. S. 185, 166 U. S. 222 (1897). Moreover, cases upholding allocation to a single situs for property tax purposes have distinguished income tax situations where the apportionment principle prevails. See Wheeling Steel Corp. v. Fox, 298 U.S. at 298 U. S. 212.
The reasons for allocation to a single situs that often apply in the case of property taxation carry little force in the present context. Mobil no doubt enjoys privileges and protections conferred by New York law with respect to ownership of its stock holdings, and its activities in that State no doubt supply some nexus for jurisdiction to tax. Cf. First Bank Stock Corp. v. Minnesota, 301 U.S. at 301 U. S. 240-241. Although we do not now presume to pass on the constitutionality of a hypothetical New York tax, we may assume, for present purposes, that the State of commercial domicile has the authority to lay some tax on appellant's dividend income, as well as on the value of its stock. But there is no reason in theory why
that power should be exclusive when the dividends reflect income from a unitary business, part of which is conducted in other States. In that situation, the income bears relation to benefits and privileges conferred by several States. These are the circumstances in which apportionment is ordinarily the accepted method. Since Vermont seeks to tax income, not ownership, we hold that its interest in taxing a proportionate share of appellant's dividend income is not overridden by any interest of the State of commercial domicile.
What has been said thus far does not fully dispose of appellant's additional contention that the Vermont tax imposes a burden on foreign commerce. Relying upon the Court's decision last Term in Japan Line, Ltd. v. County of Los Angeles,441 U. S. 434 (1979), Mobil suggests that dividends from foreign sources must be allocated to the State of commercial domicile, even if dividends from subsidiaries and affiliates operating domestically are not. By accepting the power of the State of commercial domicile to tax foreign-source dividend income, appellant eschews the broad proposition that foreign-source dividends are immune from state taxation. It presses the narrower contention that, because of the risk of multiple taxation abroad, allocation of foreign source income to a single situs is required at home. Appellant's reasoning tracks the rationale of Japan Line, that is, that allocation is required because apportionment necessarily entails some inaccuracy and duplication. This inaccuracy may be tolerable for businesses operating solely within the United States, it is said, because this Court has power to correct any gross overreaching. The same inaccuracy, however, becomes intolerable when it is added to the risk of duplicative taxation abroad, which this Court is powerless to control. Accordingly, the only means of alleviating the burden of overlapping taxes is to adopt an allocation rule.
This argument is unpersuasive in the present context for
several reasons: first, it attempts to focus attention on the effect of foreign taxation when the effect of domestic taxation is the only real issue. By admitting the power of the State of commercial domicile to tax foreign-source dividends in full, Mobil necessarily forgoes any contention that local duplication of foreign taxes is proscribed. Thus, the only inquiry of constitutional dimension is the familiar question whether taxation by apportionment at home produces significantly greater tax burdens than taxation by allocation. Once appellant's argument is placed in this perspective, the presence or absence of taxation abroad diminishes in importance.
Second, nothing about the logic of Mobil's position is limited to dividend income. The same contention could be advanced about any income arguably earned from foreign commerce. If appellant's argument were accepted, state taxing commissions would face substantial difficulties in attempting to determine what income does or does not have a foreign source.
Third, appellant's argument underestimates the power of this Court to correct excessive taxation on the field where appellant has chosen to pitch its battle. A discriminatory effect on foreign commerce as a result of multiple state taxation is just as detectable and corrigible as a similar effect on commerce among the States. Accordingly, we see no reason why the standard for identifying impermissible discrimination should differ in the two instances.
Finally, acceptance of appellant's argument would provide no guarantee that allocation will result in a lesser domestic tax burden on dividend income from foreign sources. By appellant's own admission, allocation would give the State of commercial domicile the power to tax that income in full, without regard to the extent of taxation abroad. Unless we indulge in the speculation that a State will volunteer to become a tax haven for multinational enterprises, there is no reason to suspect that a State of commercial domicile will be any less vigorous in taxing the whole of the dividend income
than a State like Vermont will be in taxing a proportionate share.
Appellant's attempted analogy between this case and Japan Line strikes us as forced. That case involved ad valorem property taxes assessed directly upon instrumentalities of foreign commerce. As has been noted, the factors favoring use of the allocation method in property taxation have no immediate applicability to an income tax. Japan Line, moreover, focused on problems of duplicative taxation at the international level, while appellant here has confined its argument to the wholly different sphere of multiple taxation among our States. Finally, in Japan Line, the Court was confronted with actual multiple taxation that could be remedied only by adoption of an allocation approach. As has already been explained, in the present case, we are not similarly impelled.
Nor does federal tax policy lend additional weight to appellant's arguments. The federal statutes and treaties that Mobil cites, Brief for Appellant 38-43, concern problems of multiple taxation at the international level, and simply are not germane to the issue of multiple state taxation that appellant has framed. Concurrent federal and state taxation of income, of course, is a well established norm. Absent some explicit directive from Congress, we cannot infer that treatment of foreign income at the federal level mandates identical treatment by the States. The absence of any explicit directive to that effect is attested by the fact that Congress has long debated, but has not enacted, legislation designed to regulate state taxation of income. See H.R.Rep. No. 1480, 88th Cong., 2d Sess. (1964); H.R.Rep. No. 565, 89th Cong., 1st Sess. (1965); H.R.Rep. No. 952, 89th Cong., 1st Sess. (1965); Hearings on State Taxation of Interstate Commerce before the Subcommittee on State Taxation of Interstate Commerce of the Senate Committee on Finance, 93d Cong., 1st Sess. (1973); cf. United States Steel Corp. v. Multistate Tax Comm'n,434 U. S. 452, 434 U. S. 456, n. 4 (1978). Legislative proposals have provoked debate over issues closely related to the
present controversy. See, e.g., New York State Bar Assn. Tax Section Committee on Interstate Taxation, Proposals for Improvement of Interstate Taxation Bills (H.R. 1538 and S. 317), 25 Tax Lawyer 433 (1971). Congress in the future may see fit to enact legislation requiring a uniform method for state taxation of foreign dividends. To date, however, it has not done so.
In sum, appellant has failed to demonstrate any sound basis, under either the Due Process Clause or the Commerce Clause, for establishing a constitutional preference for allocation of its foreign-source dividend income to the State of commercial domicile. Because the issue has not been presented, we need not, and do not, decide what the constituent elements of a fair apportionment formula applicable to such income would be. We do hold, however, that Vermont is not precluded from taxing its proportionate share.
The judgment of the Supreme Court of Vermont is affirmed.
It is so ordered.
MR. JUSTICE STEWART and MR. JUSTICE MARSHALL took no part in the consideration or decision of this case.
Appellant has supplied the following table listing the number of foreign subsidiary (more than 50% owned) and nonsubsidiary corporations, as well as domestic nonsubsidiary corporations, of which on December 31 of the taxable year, it owned, directly or indirectly, 5% or more of the capital stock:
1970 1971 1972
Foreign Subsidiary Corporations 203 208 216
Foreign Nonsubsidiary Corporations 185 189 197
Domestic Nonsubsidiary Corporations 26 27 27
For the same taxable years, appellant reported aggregate sales of $3,577,148,701, $3,889,353,228, and $4,049,84,161, respectively; total payroll of $380,818,887, $400,087,593, and $428,900,681, respectively; and property valued in the aggregate at $2,871,922,965, $2,995,950,125 and $3,291,757,721, respectively. Id. at 35, 49, 63. For 1972, which is not unrepresentative, the ratios of appellant's Vermont sales, payroll, and property to its sales, payroll, and property "everywhere" were approximately .24%, .06% and .25%, respectively. Id. at 63, 64.
Section 5811 (18) states in pertinent part:
"'Vermont net income' means, for any taxable year and for any corporate taxpayer, the taxable income of the taxpayer for that taxable year under the laws of the United States, excluding income which under the laws of the United States is exempt from taxation by the states."
Section 5833 (1970 and Supp. 1978) provides in pertinent part:
"(a) . . . If the income of a taxable corporation is derived from any trade, business, or activity conducted both within and without this state, the amount of the corporation's Vermont net income which shall be apportioned to this state, so as to allocate to this state a fair and equitable portion of that income, shall be determined by multiplying that Vermont net income by the arithmetic average of the following factors:"
"(1) The average of the value of all the real and tangible property within this state (A) at the beginning of the taxable year and (b) at the end of the taxable year . . . expressed as a percentage of all such property both within and without this state;"
"(2) The total wages, salaries, and other personal service compensation paid during the taxable year to employees within this state, expressed as a percentage of all such compensation paid whether within or without this state;"
"(3) The gross sales, or charges for services performed, within this state, expressed as a percentage of such sales or charges whether within or without this state."
This information is taken from appellant's Vermont income tax returns, to which copies of its federal returns were attached. App. 33-73.
It appears that the major share of appellant's dividend income for the three years was received from three wholly owned subsidiaries incorporated abroad (Mobil Marine Transportation, Ltd.; Mobil Oil Iraq with Limited Liability; and Pegasus Overseas, Ltd.) and from one affiliate incorporated in Delaware (Arabian American Oil Co. (ARAMCO)) of which appellant owned 10% of the capital stock. Id. at 778.
Appellant subtracted amounts representing interest and foreign taxes, as well as dividends. It no longer presses its claim that interest and taxes should have been excluded from Vermont's preapportionment tax