By Julie E. McGuire and Thomas C. Welshonce
Julie McGuire graduated first in her class from Carnegie Mellon University (B.S. Management Science and Mathematics, 1980), and first in her class from the Duquesne Law School (J.D., 1985), where she was an Editor of the Duquesne Law Review. A highly-respected corporate tax lawyer with an international practice, she is also a Certified Public Accountant. Tom Welshonce, a 2004 Order of the Coif graduate of the University of Pittsburgh’s law school, was the Lead Articles Editor of The Journal of Law and Commerce. He focuses on multi-jurisdictional transactions, and assists with ADR in the U.S. and abroad. McGuire and Welshonce are lawyers with Hull McGuire PC.
This morning, January 16th, the United States Supreme Court will hear oral arguments in the case of Mead Corp. v. Illinois Dep’t of Revenue, 861 N.E.2d 1131 (Ill. App. Ct. 2007), appeal denied, 862 N.E.2d 235 (Ill. 2007), cert. granted sub nom. MeadWestvaco Corp. v. Illinois Dep’t of Revenue, 128 S. Ct. 29 (U.S. Sept. 25, 2007) (No. 06-1413). The Court has granted certiorari in only a handful of tax cases this term. In MeadWestvaco, it will revisit its long line of cases defining constitutional boundaries on the States’ power to tax corporate income. MeadWestvaco will be the first case since the Court’s 5-4 decision in Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U.S. 768 (1992) to mark and enforce the constitutional boundaries at stake.
The Boundaries: “Unitary Business” Or “Operational” Function
Businesses no longer operate from a single location in a single state; they now operate globally. Physical, geographical state borders no longer define where a state’s power to tax ends. The question: what part of a company’s global income may be taxed by (or “apportioned” to) a particular state, when most of the income is earned outside of the state’s traditional borders? The struggle has always had two sides: states want to tax a piece of all of a taxpayer’s income, and taxpayers want to pay tax only on income that can be attributed to benefits received by the taxing state. The need for neutral boundary-setting now is critical.
The Supreme Court has long held, under the due process clause and commerce clause of the Constitution, that the entire net income of