MeadWestvaco Corp. v. Illinois Dept. of Revenue, 553 U.S. 16 (2008)
Primary Holding
The Due Process and Commerce Clauses prohibit states from taxing "extraterritorial values," but a state may tax an apportioned share of the value generated by the intrastate and extrastate activities of a multistate enterprise if those activities constitute a "unitary business.
In the case of MeadWestvaco Corp. v. Illinois Dept. of Revenue, the Supreme Court decided that states cannot tax profits made from business activities outside their borders unless those activities are part of a larger, connected business operation. This is important because it helps prevent states from unfairly taxing companies for income they earn elsewhere, which can ultimately affect prices and services for consumers. This ruling is relevant if you’re dealing with a company that operates in multiple states and you want to understand how taxes might impact the prices you pay for products or services.
AI-generated plain-language summary to help you understand this case
In MeadWestvaco Corp. v. Illinois Dept. of Revenue, the underlying dispute arose from the Illinois Department of Revenue's assessment of taxes on a capital gain realized by Mead Corporation, a wholly owned subsidiary of MeadWestvaco Corporation. Mead had acquired Data Corporation in 1968, which included valuable inkjet printing technology and an information retrieval system that eventually evolved into the electronic research service known as Lexis/Nexis. In 1994, Mead sold Lexis for approximately $1.5 billion, resulting in a capital gain of over $1 billion. Mead did not report this gain as business income on its Illinois tax returns, arguing that it should be classified as nonbusiness income allocated to its home state of Ohio. The State of Illinois, however, contended that the gain constituted business income subject to apportionment under Illinois law, leading to an assessment of around $4 million in additional taxes and penalties. The procedural history began when Mead paid the assessed amount under protest and subsequently filed a lawsuit in state court challenging the tax assessment. The trial court heard the case, during which expert testimony and various exhibits were presented, but much of the evidence was based on stipulations regarding Mead's relationship with Lexis. The Appellate Court of Illinois upheld the tax assessment, prompting MeadWestvaco to seek further review from the Supreme Court of the United States. The relevant background context includes the legal principles surrounding state taxation of multistate businesses, particularly the distinction between business and nonbusiness income. The Supreme Court has established that states cannot tax extraterritorial values and can only tax an apportioned share of income generated by a unitary business. The case raised significant questions about the application of these principles to Mead's capital gain from the sale of Lexis and whether the Illinois courts had correctly interpreted the nature of Mead's business activities in relation to the tax assessment.
Whether the State of Illinois constitutionally taxed an apportioned share of the capital gain realized by an out-of-state corporation on the sale of one of its business divisions, in light of the principles governing the taxation of multistate businesses under the Due Process and Commerce Clauses.
The judgment is reversed.
- Court
- Supreme Court
- Decision Date
- January 16, 2008
- Jurisdiction
- federal
- Case Type
- landmark
- Majority Author
- Alito
- Damages Awarded
- N/A
- Data Quality
- high
DaimlerChrysler Corp. v. Cuno, 547 U.S. 332 (2006)
Consumer LostTaxpayers do not have standing to challenge state tax benefits under the Commerce Clause when they claim that such benefits increase their tax burdens, as they cannot demonstrate a concrete and particularized injury that is fairly traceable to the challenged conduct.
Department of Revenue of Ky. v. Davis, 553 U.S. 328 (2008)
Consumer LostKentucky's differential tax scheme, which exempts interest on bonds issued by the state and its political subdivisions while taxing interest on bonds from other states, does not violate the Commerce Clause of the United States Constitution.
CSX Transp., Inc. v. Georgia State Bd. of Equalizatio, 552 U.S. 9 (2007)
Consumer WonRailroads may challenge both the methods used by a state to determine the value of railroad property for tax purposes and the application of those methods, as prohibited by the Railroad Revitalization and Regulatory Reform Act from imposing discriminatory taxation on railroad property.
Illinois Tool Works, Inc. v. Independent Ink, Inc., 547 U.S. 28 (2006)
Mixed OutcomeThe mere fact that a tying product is patented does not support a presumption of market power in antitrust law, as the presumption was eliminated by Congress in the Patent Act amendments of 1988.