Last week’s U.S. Supreme Court decision in MeadWestvaco Corp. v. Illinois Dep’t of Revenue, 553 U.S. ___, No. 06″“1413 (April 15, 2008) was a victory for business taxpayers–especially for corporations operating in several U.S. states. As WAC? pointed out in a January 16 post on the day of oral arguments, the Illinois Appellate Court went well beyond the clearly established constitutional limits in allowing Illinois to tax part of a capital gain resulting from a $1.5 billion sale by Mead in 1994 of Lexis/Nexis. See background and facts here. The Court took a similar view.
In MeadWestvaco, a unanimous decision written by Justice Alito, the Court upheld its long line of cases holding that the “unitary business principle” sets limitations on a state’s ability to tax:
If the value the State wished to tax derived from a “unitary business” operated within and without the State, the State could tax an apportioned share of the value of that business instead of isolating the value attributable to the operation of the business within the State. Conversely, if the value the State wished to tax derived from a “discrete business enterprise,” then the State could not tax even an apportioned share of that value.
Slip op. at 8-9 (citations omitted).