(Slip Opinion) OCTOBER TERM, 2007 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
MEADWESTVACO CORP., SUCCESSOR IN INTEREST TO
MEAD CORP. v. ILLINOIS DEPARTMENT OF
REVENUE ET AL.
CERTIORARI TO THE APPELLATE COURT OF ILLINOIS, FIRST
DISTRICT
No. 06–1413. Argued January 16, 2008—Decided April 15, 2008
A State may tax an apportioned share of the value generated by a
multistate enterprise’s intrastate and extrastate activities that form
part of a “ ‘unitary business.’ ” Hunt-Wesson, Inc. v. Franchise Tax
Bd. of Cal., 528 U. S. 458, 460. Illinois taxed a capital gain realized
by Mead, an Ohio corporation that is a wholly owned subsidiary of
petitioner, when Mead sold its Lexis business division. Mead paid
the tax and sued in state court. The trial court found that Lexis and
Mead were not unitary because they were not functionally integrated
or centrally managed and enjoyed no economies of scale. It neverthe-
less concluded that Illinois could tax an apportioned share of Mead’s
capital gain because Lexis served an operational purpose in Mead’s
business. Affirming, the State Appellate Court found that Lexis
served an operational function in Mead’s business and thus did not
address whether Mead and Lexis formed a unitary business.
Held:
1. The state courts erred in considering whether Lexis served an
“operational purpose” in Mead’s business after determining that
Lexis and Mead were not unitary. Pp. 6–13.
(a) The Commerce and Due Process Clauses impose distinct but
parallel limitations on a State’s power to tax out-of-state activities,
and each subsumes the “broad inquiry” “ ‘whether the taxing power
exerted by the state bears fiscal relation to protection, opportunities
and benefits given by the state,’ ” ASARCO Inc. v. Idaho Tax
Comm’n, 458 U. S. 307, 315. Because the taxpayer here did business
in the taxing State, the inquiry shifts from whether the State may
2 MEADWESTVACO CORP. v. ILLINOIS DEPT. OF
REVENUE
Syllabus
tax to what it may tax. Under the unitary business principle devel-
oped to answer that question, a State need not “isolate the intrastate
income-producing activities from the rest of the business” but “may
tax an apportioned sum of the corporation’s multistate business if the
business is unitary.” Allied-Signal, Inc. v. Director, Div. of Taxation,
504 U. S. 768, 772. Pp. 6–8.
(b) To address the problem arising from the emergence of multi-
state business enterprises such as railroad and telegraph compa-
nies—namely, that a State could not tax its fair share of such a busi-
ness’ value by simply taxing the capital within its borders—the
unitary business principle shifted the constitutional inquiry from the
niceties of geographic accounting to the determination of a taxpayer’s
business unit. 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 that business’ value instead of iso-
lating the value attributable to the intrastate operation. E.g., Exxon
Corp. v. Department of Revenue of Wis., 447 U. S. 207, 223. But if the
value derived from a “discrete business enterprise,” Mobil Oil Corp.
v. Commissioner of Taxes of Vt., 445 U. S. 425, 439, the State could
not tax even an apportioned share. E.g., Container Corp. of America
v. Franchise Tax Bd., 463 U. S. 159, 165–166. This principle was ex-
tended to a multistate business that lacked the “physical unity” of
wires or rails but exhibited the “same unity in the use of the entire
property for the specific purpose,” with “the same elements of value
arising from such use,” Adams Express Co. v. Ohio, 165 U. S. 194,
221; and it has justified apportioned taxation of net income, divi-
dends, capital gain, and other intangibles. Confronting the problem
of how to determine exactly when a business is unitary, this Court
found in Allied-Signal that the “principle is not so inflexible that as
new [finance] methods . . . and new [business] forms . . . evolve it
cannot be modified or supplemented where appropriate,” 504 U. S., at
786, and explained that situations could occur in which apportion-
ment might be constitutional even though “the payee and the payor
[were] not . . . engaged in the same unitary business,” id., at 787. In
that context, the Court observed that an asset could form part of a
taxpayer’s unitary business if it served an “operational rather than
an investment function” in the business, ibid.; and noted that Con-
tainer Corp., supra, at 180, n. 19, made the same point. Pp. 8–11.
(c) Thus, the “operational function” references in Container Corp.
and Allied-Signal were not intended to modify the unitary business
principle by adding a new apportionment ground. The operational
function concept simply recognizes that an asset can be a part of a
taxpayer’s unitary business even without a “unitary relationship” be-
tween the “payor and payee.” In Allied-Signal and in Corn Products
Cite as: 553 U. S. ____ (2008) 3
Syllabus
Co. v. Commissioner, 350 U. S. 46, the conclusion that an asset
served an operational function was merely instrumental to the con-
stitutionally relevant conclusion that the asset was a unitary part of
the business conducted in the taxing State rather than a discrete as-
set to which the State had no claim. Container Corp. and Allied-
Signal did not announce a new ground for constitutional apportion-
ment, and the Illinois Appellate Court erred in concluding otherwise.
Here, where the asset is another business, a unitary relationship’s
“hallmarks” are functional integration, centralized management, and
economies of scale. See Mobil Oil Corp., supra, at 438. The trial
court found each hallmark lacking in finding that Lexis was not a
unitary part of Mead’s business. However, the appellate court made
no such determination. Relying on its operational function test, it re-
served the unitary business question, which it may take up on re-
mand. Pp. 11–13.
2. Because the alternative ground for affirmance urged by the
State and its amici—that the record amply demonstrates that Lexis
did substantial business in Illinois and that Lexis’ own contacts with
the State suffice to justify the apportionment of Mead’s capital gain—
was neither raised nor passed upon in the state courts, it will not be
addressed here. The case for restraint is particularly compelling
here, since the question may impact other jurisdictions’ laws.
Pp. 13–14.
371 Ill. App. 3d 108, 861 N. E. 2d 1131, vacated and remanded.
ALITO, J., delivered the opinion for a unanimous Court. THOMAS, J.,
filed a concurring opinion.
Cite as: 553 U. S. ____ (2008) 1
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash
ington, D. C. 20543, of any typographical or other formal errors, in order
that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
_________________
No. 06–1413
_________________
MEADWESTVACO CORPORATION, SUCCESSOR IN IN-
TEREST TO THE MEAD CORPORATION, PETITIONER
v. ILLINOIS DEPARTMENT OF REVENUE ET AL.
ON WRIT OF CERTIORARI TO THE APPELLATE COURT OF
ILLINOIS, FIRST DISTRICT
[April 15, 2008]
JUSTICE ALITO delivered the opinion of the Court.
The Due Process and Commerce Clauses forbid the
States to tax “ ‘extraterritorial values.’ ” Container Corp. of
America v. Franchise Tax Bd., 463 U. S. 159, 164 (1983);
see also Allied-Signal, Inc. v. Director, Div. of Taxation,
504 U. S. 768, 777 (1992); Mobil Oil Corp. v. Commissioner
of Taxes of Vt., 445 U. S. 425, 441–442 (1980). A State
may, however, tax an apportioned share of the value
generated by the intrastate and extrastate activities of a
multistate enterprise if those activities form part of a
“ ‘unitary business.’ ” Hunt-Wesson, Inc. v. Franchise Tax
Bd. of Cal., 528 U. S. 458, 460 (2000); Mobil Oil Corp.,
supra, at 438. We have been asked in this case to decide
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 divi
sions. The Appellate Court of Illinois upheld the tax and
affirmed a judgment in the State’s favor. Because we
conclude that the state courts misapprehended the princi
ples that we have developed for determining whether a
2 MEADWESTVACO CORP. v. ILLINOIS DEPT. OF
REVENUE
Opinion of the Court
multistate business is unitary, we vacate the decision of
the Appellate Court of Illinois.
I
A
Mead Corporation (Mead), an Ohio corporation, is the
predecessor in interest and a wholly owned subsidiary of
petitioner MeadWestvaco Corporation. From its founding
in 1846, Mead has been in the business of producing and
selling paper, packaging, and school and office supplies.1
In 1968, Mead paid $6 million to acquire a company called
Data Corporation, which owned an inkjet printing tech
nology and a full-text information retrieval system, the
latter of which had originally been developed for the U. S.
Air Force. Mead was interested in the inkjet printing
technology because it would have complemented Mead’s
paper business, but the information retrieval system
proved to be the more valuable asset. Over the course of
many years, Mead developed that asset into the electronic
research service now known as Lexis/Nexis (Lexis). In
1994, it sold Lexis to a third party for approximately
$1.5 billion, realizing just over $1 billion in capital gain,
which Mead used to repurchase stock, retire debt, and pay
taxes.
Mead did not report any of this gain as business income
on its Illinois tax returns for 1994. It took the position
that the gain qualified as nonbusiness income that should
be allocated to Mead’s domiciliary State, Ohio, under
Illinois’ Income Tax Act (ITA). See Ill. Comp. Stat., ch. 35,
§5/303(a) (West 1994). The State audited Mead’s returns
and issued a notice of deficiency. According to the State,
the ITA required Mead to treat the capital gain as busi
——————
1 SeeProspectus of MeadWestvaco Corporation 3 (Mar. 19,
2003), online at http://www.sec.gov/Archives/edgar/data/1159297/
000119312503085265/d424b5.htm (as visited Apr. 1, 2008, and avail
able in Clerk of Court’s case file); App. 9.
Cite as: 553 U. S. ____ (2008) 3
Opinion of the Court
ness income subject to apportionment by Illinois.2 The
State assessed Mead with approximately $4 million in
additional tax and penalties. Mead paid that amount
under protest and then filed this lawsuit in state court.
The case was tried to the bench. Although the court
admitted expert testimony, reports, and other exhibits into
evidence, see App. D to Pet. for Cert. 29a–34a, the parties’
stipulations supplied most of the evidence of record re
garding Mead’s relationship with Lexis, see App. 9–20.
We summarize those stipulations here.
B
Lexis was launched in 1973. For the first few years it
was in business, it lost money, and Mead had to keep it
afloat with additional capital contributions. By the late
1970’s, as more attorneys began to use Lexis, the service
finally turned a profit. That profit quickly became sub
stantial. Between 1988 and 1993, Lexis made more than
$800 million of the $3.8 billion in Illinois income that
Mead reported. Lexis also accounted for $680 million of
the $4.5 billion in business expense deductions that Mead
——————
2 When the sale of Lexis occurred in 1994, the ITA defined “business
income” as “income arising from transactions and activity in the regu
lar course of the taxpayer’s trade or business,” as well as “income from
tangible and intangible property if the acquisition, management, and
disposition of the property constitute integral parts of the taxpayer’s
regular trade or business operations.” Ill. Comp. Stat., ch. 35,
§5/1501(a)(1) (West 1994). This language mirrors the definition of
“business income” in the Uniform Division of Income for Tax Purposes
Act (UDITPA). See UDITPA §1(a) (2002); see also §9 (subjecting “[a]ll
business income” to apportionment). In 2004, the Illinois General
Assembly amended the definition of “business income” to “all income
that may be treated as apportionable business income under the
Constitution of the United States.” Pub. Act 93–840, Art. 25, §25–5
(codified at Ill. Comp. Stat., ch. 35, §5/1501(a)(1) (West 2004)); cf.
Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U. S. 768, 786
(1992) (declining to adopt UDITPA’s “business income” test as the
constitutional standard for apportionment).
4 MEADWESTVACO CORP. v. ILLINOIS DEPT. OF
REVENUE
Opinion of the Court
claimed from Illinois during that period.
Lexis was subject to Mead’s oversight, but Mead did not
manage its day-to-day affairs. Mead was headquartered
in Ohio, while a separate management team ran Lexis out
of its headquarters in Illinois. The two businesses main
tained separate manufacturing, sales, and distribution
facilities, as well as separate accounting, legal, human
resources, credit and collections, purchasing, and market
ing departments. Mead’s involvement was generally
limited to approving Lexis’ annual business plan and any
significant corporate transactions (such as capital expen
ditures, financings, mergers and acquisitions, or joint
ventures) that Lexis wished to undertake. In at least one
case, Mead procured new equipment for Lexis by purchas
ing the equipment for its own account and then leasing it
to Lexis. Mead also managed Lexis’ free cash, which was
swept nightly from Lexis’ bank accounts into an account
maintained by Mead. The cash was reinvested in Lexis’
business, but Mead decided how to invest it.
Neither business was required to purchase goods or
services from the other. Lexis, for example, was not re
quired to purchase its paper supply from Mead, and in
deed Lexis purchased most of its paper from other suppli
ers. Neither received any discount on goods or services
purchased from the other, and neither was a significant
customer of the other.
Lexis was incorporated as one of Mead’s wholly owned
subsidiaries until 1980, when it was merged into Mead
and became one of Mead’s divisions. Mead engineered the
merger so that it could offset its income with Lexis’ net
operating loss carryforwards. Lexis was separately rein
corporated in 1985 before being merged back into Mead in
1993. Once again, tax considerations motivated each
transaction. Mead also treated Lexis as a unitary busi
ness in its consolidated Illinois returns for the years 1988
through 1994, though it did so at the State’s insistence
Cite as: 553 U. S. ____ (2008) 5
Opinion of the Court
and then only to avoid litigation.
Lexis was listed as one of Mead’s “business segment[s]”
in at least some of its annual reports and regulatory fil
ings. Mead described itself in those reports and filings as
“engaged in the electronic publishing business” and touted
itself as the “developer of the world’s leading electronic
information retrieval services for law, patents, accounting,
finance, news and business information.” Id., at 93, 59;
App. D to Pet. for Cert. 38a.
C
Based on the stipulated facts and the other exhibits and
expert testimony received into evidence, the Circuit Court
of Cook County concluded that Lexis and Mead did not
constitute a unitary business. The trial court reasoned
that Lexis and Mead could not be unitary because they
were not functionally integrated or centrally managed and
enjoyed no economies of scale. Id., at 35a–36a, 39a. The
court nevertheless concluded that the State could tax an
apportioned share of Mead’s capital gain because Lexis
served an “operational purpose” in Mead’s business:
“Lexis/Nexis was considered in the strategic planning
of Mead, particularly in the allocation of resources.
The operational purpose allowed Mead to limit the
growth of Lexis/Nexis if only to limit its ability to ex
pand or to contract through its control of its capital
investment.” Id., at 38a–39a.
The Appellate Court of Illinois affirmed. Mead Corp. v.
Department of Revenue, 371 Ill. App. 3d 108, 861 N. E. 2d
1131 (2007). The court cited several factors as evidence
that Lexis served an operational function in Mead’s busi
ness: (1) Lexis was wholly owned by Mead; (2) Mead had
exercised its control over Lexis in various ways, such as
manipulating its corporate form, approving significant
capital expenditures, and retaining tax benefits and con
6 MEADWESTVACO CORP. v. ILLINOIS DEPT. OF
REVENUE
Opinion of the Court
trol over Lexis’ free cash; and (3) Mead had described itself
in its annual reports and regulatory filings as engaged in
electronic publishing and as the developer of the world’s
leading information retrieval service. See id., at 111–112,
861 N. E. 2d, at 1135–1136. Because the court found that
Lexis served an operational function in Mead’s business, it
did not address the question whether Mead and Lexis
formed a unitary business. See id., at 117–118, 861
N. E. 2d, at 1140.
The Supreme Court of Illinois denied review in January
2007. Mead Corp. v. Illinois Dept. of Revenue, 222 Ill. 2d
609, 862 N. E. 2d 235 (Table). We granted certiorari. 551
U. S. ___ (2007).
II
Petitioner contends that the trial court properly found
that Lexis and Mead were not unitary and that the Appel
late Court of Illinois erred in concluding that Lexis served
an operational function in Mead’s business. According to
petitioner, the exception for apportionment of income from
nonunitary businesses serving an operational function is a
narrow one that does not reach a purely passive invest
ment such as Lexis. We perceive a more fundamental
error in the state courts’ reasoning. In our view, the state
courts erred in considering whether Lexis served an “op
erational purpose” in Mead’s business after determining
that Lexis and Mead were not unitary.
A
The Commerce Clause and the Due Process Clause
impose distinct but parallel limitations on a State’s power
to tax out-of-state activities. See Quill Corp. v. North
Dakota, 504 U. S. 298, 305–306 (1992); Mobil Oil Corp.,
445 U. S., at 451, n. 4 (STEVENS, J., dissenting); Norfolk &
Western R. Co. v. Missouri Tax Comm’n, 390 U. S. 317,
325, n. 5 (1968). The Due Process Clause demands that
Cite as: 553 U. S. ____ (2008) 7
Opinion of the Court
there exist “ ‘some definite link, some minimum connec
tion, between a state and the person, property or transac
tion it seeks to tax,’ ” as well as a rational relationship
between the tax and the “ ‘ “values connected with the
taxing State.” ’ ” Quill Corp., supra, at 306 (quoting Miller
Brothers Co. v. Maryland, 347 U. S. 340, 344–345 (1954),
and Moorman Mfg. Co. v. Bair, 437 U. S. 267, 273 (1978)).
The Commerce Clause forbids the States to levy taxes that
discriminate against interstate commerce or that burden
it by subjecting activities to multiple or unfairly appor
tioned taxation. See Container Corp., 463 U. S., at 170–
171; Armco Inc. v. Hardesty, 467 U. S. 638, 644 (1984).
The “broad inquiry” subsumed in both constitutional
requirements is “ ‘whether the taxing power exerted by the
state bears fiscal relation to protection, opportunities and
benefits given by the state’ ”—that is, “ ‘whether the state
has given anything for which it can ask return.’ ”
ASARCO Inc. v. Idaho Tax Comm’n, 458 U. S. 307, 315
(1982) (quoting Wisconsin v. J. C. Penney Co., 311 U. S.
435, 444 (1940)).
Where, as here, there is no dispute that the taxpayer
has done some business in the taxing State, the inquiry
shifts from whether the State may tax to what it may tax.
Cf. Allied-Signal, 504 U. S., at 778 (distinguishing Quill
Corp., supra). To answer that question, we have devel
oped the unitary business principle. Under that principle,
a State need not “isolate the intrastate income-producing
activities from the rest of the business” but “may tax an
apportioned sum of the corporation’s multistate business if
the business is unitary.” Allied-Signal, supra, at 772;
accord, Hunt-Wesson, 528 U. S., at 460; Exxon Corp. v.
Department of Revenue of Wis., 447 U. S. 207, 224 (1980);
Mobil Oil Corp., supra, at 442; cf. 1 J. Hellerstein & W.
Hellerstein, State Taxation ¶8.07[1], p. 8–61 (3d ed. 2001–
2005) (hereinafter Hellerstein & Hellerstein). The court
must determine whether “intrastate and extrastate activi
8 MEADWESTVACO CORP. v. ILLINOIS DEPT. OF
REVENUE
Opinion of the Court
ties formed part of a single unitary business,” Mobil Oil
Corp., supra, at 438–439, or whether the out-of-state
values that the State seeks to tax “ ‘derive[d] from “unre
lated business activity” which constitutes a “discrete
business enterprise.” ’ ” Allied-Signal, supra, at 773 (quot
ing Exxon Corp., supra, at 224, in turn quoting Mobil Oil
Corp., supra, at 439 (alteration in original)). We traced
the history of this venerable principle in Allied-Signal,
supra, at 778–783, and, because it figures prominently in
this case, we retrace it briefly here.
B
With the coming of the Industrial Revolution in the 19th
century, the United States witnessed the emergence of its
first truly multistate business enterprises. These railroad,
telegraph, and express companies presented state taxing
authorities with a novel problem: A State often cannot tax
its fair share of the value of a multistate business by
simply taxing the capital within its borders. The whole of
the enterprise is generally more valuable than the sum of
its parts; were it not, its owners would simply liquidate it
and sell it off in pieces. As we observed in 1876, “[t]he
track of the road is but one track from one end of it to the
other, and, except in its use as one track, is of little value.”
State Railroad Tax Cases, 92 U. S. 575, 608.
The unitary business principle addressed this problem
by shifting the constitutional inquiry from the niceties of
geographic accounting to the determination of the tax
payer’s business unit. 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. E.g., Exxon Corp., supra, at 223 (citing
Moorman Mfg. Co., supra, at 273). Conversely, if the
value the State wished to tax derived from a “discrete
Cite as: 553 U. S. ____ (2008) 9
Opinion of the Court
business enterprise,” Mobil Oil Corp., 445 U. S., at 439,
then the State could not tax even an apportioned share of
that value. E.g., Container Corp., supra, at 165–166.
We recognized as early as 1876 that the Due Process
Clause did not require the States to assess trackage “in
each county where it lies according to its value there.”
State Railroad Tax Cases, 92 U. S., at 608. We went so far
as to opine that “[i]t may well be doubted whether any
better mode of determining the value of that portion of the
track within any one county has been devised than to
ascertain the value of the whole road, and apportion the
value within the county by its relative length to the
whole.” Ibid. We generalized the rule of the State Rail-
road Tax Cases in Adams Express Co. v. Ohio, State Audi-
tor, 165 U. S. 194 (1897). There we held that apportion
ment could permissibly be applied to a multistate business
lacking the “physical unity” of wires or rails but exhibiting
the “same unity in the use of the entire property for the
specific purpose,” with “the same elements of value arising
from such use.” Id., at 221. We extended the reach of the
unitary business principle further still in later cases, when
we relied on it to justify the taxation by apportionment of
net income, dividends, capital gain, and other intangibles.
See Underwood Typewriter Co. v. Chamberlain, 254 U. S.
113, 117, 120–121 (1920) (net income tax); Bass, Ratcliff &
Gretton, Ltd. v. State Tax Comm’n, 266 U. S. 271, 277,
280, 282–283 (1924) (franchise tax); J. C. Penney Co.,
supra, at 443–445 (tax on the “privilege of declaring divi
dends”); cf. Allied-Signal, supra, at 780 (“[F]or constitu
tional purposes capital gains should be treated as no
different from dividends”); see also 1 Hellerstein & Heller-
stein ¶8.07[1] (summarizing this history).
As the unitary business principle has evolved in step
with American enterprise, courts have sometimes found it
difficult to identify exactly when a business is unitary. We
confronted this problem most recently in Allied-Signal.
10 MEADWESTVACO CORP. v. ILLINOIS DEPT. OF
REVENUE
Opinion of the Court
The taxpayer there, a multistate enterprise, had realized
capital gain on the disposition of its minority investment
in another business. The parties’ stipulation left little
doubt that the taxpayer and its investee were not unitary.
See 504 U. S., at 774 (observing that “the question
whether the business can be called ‘unitary’ . . . is all but
controlled by the terms of a stipulation”). The record
revealed, however, that the taxpayer had used the pro
ceeds from the liquidated investment in an ultimately
unsuccessful bid to purchase a new asset that would have
been used in its unitary business. See id., at 776–777.
From that wrinkle in the record, the New Jersey Supreme
Court concluded that the taxpayer’s minority interest had
represented nothing more than a temporary investment of
working capital awaiting deployment in the taxpayer’s
unitary business. See Bendix Corp. v. Director, Div. of
Taxation, 125 N. J. 20, 37, 592 A. 2d 536, 545 (1991). The
State went even further. It argued that, because there
could be “no logical distinction between short-term in
vestment of working capital, which all concede is appor
tionable, . . . and all other investments,” the unitary busi
ness principle was outdated and should be jettisoned. 504
U. S., at 784.
We rejected both contentions. We concluded that “the
unitary business principle is not so inflexible that as new
methods of finance and new forms of business evolve it
cannot be modified or supplemented where appropriate.”
Id., at 786; see also id., at 785 (“If lower courts have
reached divergent results in applying the unitary business
principle to different factual circumstances, that is be
cause, as we have said, any number of variations on the
unitary business theme ‘are logically consistent with the
underlying principles motivating the approach’ ” (quoting
Container Corp., 463 U. S., at 167)).3 We explained that
——————
3 The dissent agreed that the unitary business principle remained
Cite as: 553 U. S. ____ (2008) 11
Opinion of the Court
situations could occur in which apportionment might be
constitutional even though “the payee and the payor
[were] not . . . engaged in the same unitary business.” 504
U. S., at 787. It was in that context that we observed that
an asset could form part of a taxpayer’s unitary business if
it served an “operational rather than an investment func
tion” in that business. Ibid. “Hence, for example, a State
may include within the apportionable income of a non-
domiciliary corporation the interest earned on short-term
deposits in a bank located in another State if that income
forms part of the working capital of the corporation’s
unitary business, notwithstanding the absence of a uni
tary relationship between the corporation and the bank.”
Id., at 787–788. We observed that we had made the same
point in Container Corp., where we noted that “capital
transactions can serve either an investment function or an
operational function.” 463 U. S., at 180, n. 19; cf. Corn
Products Refining Co. v. Commissioner, 350 U. S. 46, 50
(1955) (concluding that corn futures contracts in the hands
of a corn refiner seeking to hedge itself against increases
in corn prices are operational rather than capital assets),
cited in Container Corp., supra, at 180, n. 19.
C
As the foregoing history confirms, our references to
“operational function” in Container Corp. and Allied-
Signal were not intended to modify the unitary business
principle by adding a new ground for apportionment. The
concept of operational function simply recognizes that an
asset can be a part of a taxpayer’s unitary business even if
——————
sound, 504 U. S., at 790 (opinion of O’Connor, J.), but found merit in
New Jersey’s premise (and the New Jersey Supreme Court’s conclusion)
that no logical distinction could be drawn between short- or long-term
investments for purposes of unitary analysis, id., at 793 (“Any distinc
tion between short-term and long-term investments cannot be of
constitutional dimension”). We need not revisit that question here.
12 MEADWESTVACO CORP. v. ILLINOIS DEPT. OF
REVENUE
Opinion of the Court
what we may term a “unitary relationship” does not exist
between the “payor and payee.” See Allied-Signal, supra,
at 791–792 (O’Connor, J., dissenting); Hellerstein, State
Taxation of Corporate Income from Intangibles: Allied-
Signal and Beyond, 48 Tax L. Rev. 739, 790 (1993) (here
inafter Hellerstein). In the example given in Allied-
Signal, the taxpayer was not unitary with its banker, but
the taxpayer’s deposits (which represented working capital
and thus operational assets) were clearly unitary with the
taxpayer’s business. In Corn Products, the taxpayer was
not unitary with the counterparty to its hedge, but the
taxpayer’s futures contracts (which served to hedge
against the risk of an increase in the price of a key cost
input) were likewise clearly unitary with the taxpayer’s
business. In each case, the “payor” was not a unitary part
of the taxpayer’s business, but the relevant asset was.
The conclusion that the asset served an operational func
tion was merely instrumental to the constitutionally rele
vant conclusion that the asset was a unitary part of the
business being conducted in the taxing State rather than a
discrete asset to which the State had no claim. Our deci
sions in Container Corp. and Allied-Signal did not an
nounce a new ground for the constitutional apportionment
of extrastate values in the absence of a unitary business.
Because the Appellate Court of Illinois interpreted those
decisions to the contrary, it erred.
Where, as here, the asset in question is another busi
ness, we have described the “hallmarks” of a unitary
relationship as functional integration, centralized man
agement, and economies of scale. See Mobil Oil Corp., 445
U. S., at 438 (citing Butler Brothers v. McColgan, 315 U. S.
501, 506–508 (1942)); see also Allied-Signal, supra, at 783
(same); Container Corp., supra, at 179 (same); F. W.
Woolworth Co. v. Taxation and Revenue Dept. of N. M.,
458 U. S. 354, 364 (1982) (same). The trial court found
each of these hallmarks lacking and concluded that Lexis
Cite as: 553 U. S. ____ (2008) 13
Opinion of the Court
was not a unitary part of Mead’s business. The appellate
court, however, made no such determination. Relying on
its operational function test, it reserved judgment on
whether Mead and Lexis formed a unitary business. The
appellate court may take up that question on remand, and
we express no opinion on it now.
III
The State and its amici argue that vacatur is not re
quired because the judgment of the Appellate Court of
Illinois may be affirmed on an alternative ground. They
contend that the record amply demonstrates that Lexis
did substantial business in Illinois and that Lexis’ own
contacts with the State suffice to justify the apportion
ment of Mead’s capital gain. See Br. for Respondents 18–
25, 46–49; Brief for Multistate Tax Commission as Amicus
Curiae 19–29. The State and its amici invite us to recog
nize a new ground for the constitutional apportionment of
intangibles based on the taxing State’s contacts with the
capital asset rather than the taxpayer.
We decline this invitation because the question that the
State and its amici call upon us to answer was neither
raised nor passed upon in the state courts. It also was not
addressed in the State’s brief in opposition to the petition.
We typically will not address a question under these cir
cumstances even if the answer would afford an alternative
ground for affirmance. See Glover v. United States, 531
U. S. 198, 205 (2001) (citing Taylor v. Freeland & Kronz,
503 U. S. 638, 646 (1992)); Lorillard Tobacco Co. v. Reilly,
533 U. S. 525, 578 (2001) (THOMAS, J., concurring in part
and concurring in judgment).
The case for restraint is particularly compelling here,
since the question may impact the law of other jurisdic
tions. The States of Ohio and New York, for example,
have both adopted the rationale for apportionment that
respondents urge us to recognize today. See Ohio Rev.
14 MEADWESTVACO CORP. v. ILLINOIS DEPT. OF
REVENUE
Opinion of the Court
Code Ann. §§5733.051(E)–(F) (West 2007 Supp. Pam
phlet); N. Y. Tax Law Ann. §210(3)(b) (West Supp. 2008);
see also Allied-Signal Inc. v. Department of Taxation &
Finance, 229 App. Div. 2d 759, 762, 645 N. Y. S. 2d 895,
898 (3d Dept. 1996) (finding that a “sufficient nexus ex
isted between New York and the dividend and capital gain
income” of the nondomiciliary parent because “the corpo
rations generating the income taxed . . . each have their
own connection with the taxing jurisdiction”); 1 Heller-
stein & Hellerstein ¶9.11[2][a]. Neither Ohio nor New
York has appeared as an amicus in this case, and neither
was on notice that the constitutionality of its tax scheme
was at issue, the question having been raised for the first
time in the State’s brief on the merits. So postured, the
question is best left for another day.4
——————
4 Resolving this question now probably would not spare the State a
remand. The State calculated petitioner’s tax liability by applying the
State’s tax rate to Mead’s apportioned business income, which in turn
was calculated by applying Mead’s apportionment percentage to its
apportionable business income. See App. 28; Ill. Comp. Stat., ch. 35,
§5/304(a) (West 1994). But if a constitutionally sufficient link between
the State and the value it wishes to tax is founded on the State’s
contacts with Lexis rather than Mead, then presumably the appor
tioned tax base should be determined by applying the State’s four-
factor apportionment formula not to Mead but to Lexis. Naturally,
applying the formula to Lexis rather than Mead would yield a different
apportionment percentage. See Brief for Multistate Tax Commission as
Amicus Curiae 18–19, and n. 9; see also Hellerstein 802–803.
The Multistate Tax Commission seems to argue that the difference
would not affect the result because application of the formula to Lexis
would have yielded a higher apportionment percentage. See Brief for
Multistate Tax Commission 18–19. Amicus argues, in other words,
that petitioner has no cause to complain because it caught a break in
the incorrect application of a lower apportionment percentage. Amicus’
argument assumes what we are in no position to decide: that Lexis’ own
apportioned tax base was properly calculated. Had petitioner been on
notice that Lexis, rather than Mead, would supply the relevant appor
tionment percentage, it might have persuaded the state courts that
Lexis’ apportionment percentage should have been even lower than
Cite as: 553 U. S. ____ (2008) 15
Opinion of the Court
IV
The judgment of the Appellate Court of Illinois is va
cated, and this case is remanded for further proceedings
not inconsistent with this opinion.
It is so ordered.
——————
Mead’s. The State’s untimely resort to an alternative ground for
affirmance may have denied petitioner a fair opportunity to make that
argument.
Cite as: 553 U. S. ____ (2008) 1
THOMAS, J., concurring
SUPREME COURT OF THE UNITED STATES
_________________
No. 06–1413
_________________
MEADWESTVACO CORPORATION, SUCCESSOR IN IN-
TEREST TO THE MEAD CORPORATION, PETITIONER
v. ILLINOIS DEPARTMENT OF REVENUE ET AL.
ON WRIT OF CERTIORARI TO THE APPELLATE COURT OF
ILLINOIS, FIRST DISTRICT
[April 15, 2008]
JUSTICE THOMAS, concurring.
Although I join the Court’s opinion, I write separately to
express my serious doubt that the Constitution permits us
to adjudicate cases in this area. Despite the Court’s re-
peated holdings that “[t]he Due Process and Commerce
Clauses forbid the States to tax ‘extraterritorial values,’ ”
ante, at 1 (quoting Container Corp. of America v. Fran-
chise Tax Bd., 463 U. S. 159, 164 (1983)), I am not fully
convinced of that proposition.
To the extent that our decisions addressing state taxa-
tion of multistate enterprises rely on the negative Com-
merce Clause, I would overrule them. As I have previ-
ously explained, this Court’s negative Commerce Clause
jurisprudence “has no basis in the Constitution and has
proved unworkable in practice.” United Haulers Assn.,
Inc. v. Oneida-Herkimer Solid Waste Management Author-
ity, 550 U. S. ___, ___ (2007) (THOMAS, J., concurring in
judgment) (slip op., at 1)).
The Court’s cases in this area have not, however, rested
solely on the Commerce Clause. The Court has long rec-
ognized that the Due Process Clause of the Fourteenth
Amendment may also limit States’ authority to tax multi-
state businesses. See Adams Express Co. v. Ohio State
Auditor, 165 U. S. 194, 226 (1897) (concluding that be-
2 MEADWESTVACO CORP. v. ILLINOIS DEPT. OF
REVENUE
THOMAS, J., concurring
cause “[t]he property taxed has its actual situs in the State
and is, therefore, subject to the jurisdiction, and . . . regu-
lation by the state legislature,” the tax at issue did not
“amoun[t] to a taking of property without due process of
law”). I agree that the Due Process Clause requires a
jurisdictional nexus or, as this Court has stated, “some
definite link, some minimum connection, between a state
and the person, property or transaction it seeks to tax.”
Miller Brothers Co. v. Maryland, 347 U. S. 340, 344–345
(1954); see ante, at 7. But apart from that requirement, I
am concerned that further constraints—particularly those
limiting the degree to which a State may tax a multistate
enterprise—require us to read into the Due Process Clause
yet another unenumerated, substantive right. Cf. Troxel
v. Granville, 530 U. S. 57, 80 (2000) (THOMAS, J., concur-
ring in judgment) (leaving open the question whether “our
substantive due process cases were wrongly decided and
. . . the original understanding of the Due Process Clause
precludes judicial enforcement of unenumerated rights”).
Today the Court applies the additional requirement that
there exist “a rational relationship between the tax and
the values connected with the taxing State.” Ante, at 7
(internal quotation marks omitted); see also Moorman
Mfg. Co. v. Bair, 437 U. S. 267, 273 (1978) (requiring that
“the income attributed to the State for tax purposes . . . be
rationally related to ‘values connected with the taxing
State’ ” (quoting Norfolk & Western R. Co. v. Missouri Tax
Comm’n, 390 U. S. 317, 325 (1968))). In my view, how-
ever, it is difficult to characterize this requirement as
providing an exclusively procedural safeguard against the
deprivation of property. Scrutinizing the amount of multi-
state income a State may apportion for tax purposes comes
perilously close to evaluating the excessiveness of the
State’s taxing scheme—a question the Fourteenth
Amendment does not grant us the authority to adjudicate.
See, e.g., Stewart Dry Goods Co. v. Lewis, 294 U. S. 550,
Cite as: 553 U. S. ____ (2008) 3
THOMAS, J., concurring
562 (1935) (“To condemn a levy on the sole ground that it
is excessive would be to usurp a power vested not in the
courts but in the legislature, and to exercise the usurped
power arbitrarily by substituting our conceptions of public
policy for those of the legislative body”). Indeed, divining
from the Fourteenth Amendment a right against dispro-
portionate taxation bears a striking resemblance to our
long-rejected Lochner-era precedents. See, e.g., Lochner v.
New York, 198 U. S. 45, 56–58 (1905) (invalidating a state
statute as an “unreasonable, unnecessary and arbitrary
interference with the right of the individual . . . to enter
into those contracts . . . which may seem to him appropri-
ate or necessary”). Moreover, the Court’s involvement in
this area is wholly unnecessary given Congress’ undis-
puted authority to resolve income apportionment issues by
virtue of its power to regulate commerce “among the sev-
eral States.” See U. S. Const., Art. I, §8, cl. 3.
Although I believe that the Court should reconsider its
constitutional authority to adjudicate these kinds of cases,
neither party has asked us to do so here, and the Court’s
decision today faithfully applies our precedents. I there-
fore concur.