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Hunt-Wesson, Inc. Petitioner, v. Franchise Tax Board, Respondent – friend-of-the-court brief filed by Tax Executives Institute with the U.S. Supreme Court filed July 22, 1999

Hunt-Wesson, Inc. Petitioner, v. Franchise Tax Board, Respondent – friend-of-the-court brief filed by Tax Executives Institute with the U.S. Supreme Court filed July 22, 1999 – Brief Article

IN THE SUPREME COURT OF THE UNITED STATES No. 98-2043

On a Petition for a Writ of Certiorari to the Court of Appeal of California for the First Appellate District

BRIEF OF TAX EXECUTIVES INSTITUTE, INC. AS AMICUS CURIAE IN SUPPORT OF PETITIONER

On July 22, 1999, Tax Executives Institute filed the following brief amicus curiae with the Supreme Court of the United States in a case involving the constitutionality of California’s interest-offset rule. The brief was prepared under the aegis of TEI’s State and Local Tax Committee whose chair is Amy J. Eisenstadt of General Electric Company.

INTEREST OF AMICUS CURIAE

Pursuant to Rule 37 of the Rules of the Supreme Court, Tax Executives Institute, Inc. respectfully submits this brief as amicus curiae in support of Petitioner.(1) Tax Executives Institute (hereinafter “TEI’ or “the Institute’) is a voluntary, nonprofit association of corporate and other business executives, managers, and administrators who are responsible for the tax affairs of their employers. The Institute was organized in 1944 and currently has approximately 5,000 members who represent nearly 2,800 of the leading businesses in the United States and Canada, nearly all of which are engaged in interstate commerce.

The members of the Institute represent a cross-section of the business community in North America. The Institute is dedicated to promoting the uniform and equitable enforcement of the tax laws throughout the Nation, to reducing the costs and burdens of administration and compliance to the benefit of both the government and taxpayers, and to vindicating the due process and Commerce Clause rights of business taxpayers.

Tax Executives Institute’s members have a vital interest in the resolution of this case, which involves the unconstitutional effect of the so-called interest-offset rule in section 24344 of the California Revenue and Taxation Code. Many of the companies represented by TEI are directly and adversely affected by the interest-off-set rule, which reduces a company’s interest expense deduction for each dollar of dividends received from nonunitary subsidiaries. Even those TEI members whose companies are not doing business in California are, almost without exception, engaged in interstate commerce. Consequently, they benefit from, and are entitled to, the positive business environment ensured by the Commerce Clause and Due Process Clause of the United States Constitution.

Because TEI members and the businesses by which they are employed will be materially affected by the Court’s decision whether to review this case, the Institute has a special interest in the outcome of this case.(2)

SUMMARY OF ARGUMENT

The question presented in this case is whether the State of California’s system of taxation for out-of-state companies violates the Commerce Clause and Due Process Clause of the Constitution. It is well settled that a State may not tax value outside its borders. Such taxation is proscribed because the “fundamental purpose of the [Commerce] Clause is to assure that there be free trade among the several States,” Boston Stock Exchange v. State Tax Comm’n, 429 U.S. 318,335 (1977), and because extraterritorial taxation offends fundamental notions of due process and constitutes an “unreasonable clog on the mobility of commerce,” Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 527 (1935).

Like many states, California imposes a corporate franchise tax for the privilege of doing business in the State, using an apportionment formula in respect of corporations with income from sources within and without the State. In calculating a taxpayer’s net taxable income, business interest expense is generally deducted from business income. Under section 24344 of the California Revenue and Taxation Code, however, taxpayers must offset their business interest expense — on a dollar-for-dollar basis — with non-business income not allocable to the State. Thus, out-of-state corporations (such as Petitioner Hunt-Wesson) are compelled to reduce their interest deduction by the amount of their nontaxable income, without regard to whether the interest expense is related to the nontaxable income. It is this statute that is at issue here.

In this case, the trial court concluded that section 24344 violates the Due Process, Commerce, and Equal Protection Clauses of the Constitution. This latter decision was reversed by the Court of Appeal, First Appellate District, largely on the force of the Supreme Court of California’s 1972 decision in Pacific Tel. & Tel. Co. v. Franchise Tax Board, 7 Cal. 3d 544 (1972). Subsequent decisions of this Court, however, unequivocally demonstrate that the State’s 1972 decision cannot stand. South Central Bell Tel. Co. v. Alabama, 119 S. Ct. 1180 (1999); Fulton Corp. v. Faulkner, 516 U.S. 325 (1996); Oregon Waste Systems, Inc. v. Department of Environmental Quality, 511 U.S. 93 (1994).

In Pacific Telephone, the taxpayer challenged the California interest-offset statute as it applied to nondomiciliary corporations. In reviewing the rule, the California Supreme Court conceded that “when viewed in the light of a domiciliary corporation,” the rule “does not deprive the taxpayer of any of its interest deduction, but is merely an attempt to provide how the interest expense shall be allocated as between income from operations and income from investments.” 7 Cal. 3d at 551 (emphasis in original). The court also commented that the allocation of interest expense is “very favorable” to the domiciliary corporation. Id. As applied to out-of-state companies, however, the allocation is clearly not favorable. Hence, on its face, the rule violates the over-arching principle of the Commerce and Due Process Clauses that an apportionment formula must, first and foremost, be fair. Container Corp. v. Franchise Tax Board, 463 U.S. 159, 169 (1983).

Commerce Clause jurisprudence has evolved significantly since California’s decision in Pacific Telephone. Nowhere has this evolution been more profound than in respect of statutory schemes that facially discriminate against out-of-state commerce. Earlier this term, in South Central Bell, this Court invalidated Alabama’s franchise tax as facially discriminatory because it gave “domestic corporations the ability to reduce their franchise tax liability simply by reducing the par value of their stock, while it denies foreign corporations that same ability.” 119 S. Ct. at 1185. Five years ago, in Oregon Waste, the Court similarly struck down a surcharge on the disposal of waste generated out of state, holding that the taxing scheme was virtually per se invalid. Id. Accord Fulton Corp., 516 U.S. at 331.

By its very terms, the interest-offset rule at issue here violates the Commerce Clause. As the trial court observed, “No matter how one expresses the concept, the amount of tax on a foreign corporation under [the statute] will be higher than that of a domestic corporation …” (App. at 29a.)(3) Under extant Commerce Clause jurisprudence, the California statute must therefore fall.

The law must also fall under the Due Clause Process, which requires a minimal connection between the interstate activities and the taxing State, as well as a rational relationship between the income attributed to the taxing State and the intrastate value of the corporate business. Allied-Signal, Inc. v. Director, Division of Taxation, 504 U.S. 768, 772-73 (1992) (citations omitted). California does not contend that the non-business income at issue here bears any relation to Petitioner’s in-state activities. Rather, the State taxes the income indirectly by requiring a dollar-for-dollar offset of constitutionally protected income against interest expense.

Under Allied-Signal, a State may tax dividend income only where the payee and payor of the dividend are engaged in a unitary business or the capital transaction serves an operational — rather than an investment — function. 504 U.S. at 787. The dividend income sought to be taxed here bears no relationship to Petitioner’s in-state activities and thus California’s covert attempt to tax it should be rejected as violative of due process.

Moreover, the State’s semantics — that the interest-offset rule is not a “tax” and therefore the precedents of this Court are not controlling — cannot change the substance of the statute. It is clear that California could not tax Petitioner’s dividend income directly. It is also clear that a State may not, through sleight of hand, indirectly tax constitutionally protected income.

In Allied-Signal, the Court validated the “necessary limit on the States’ authority to tax value or income that cannot in fairness be attributed to the taxpayer’s activities within the State.” 504 U.S. at 780. The court below observed in this case, “If we were writing on a clean slate, these arguments [against the interest-offset rule] might appear persuasive.” (App. at 8a.) This Court can provide that clean slate by striking down the interest-offset rule because it violates the Due Process Clause of the Constitution.

For the foregoing reasons, the Court should grant the petition for a writ of certiorari and reverse the decision below.

ARGUMENT

I.

Under the Commerce and Due Process Clauses of the Constitution,(4) a State may not tax value outside its borders. E.g., Connecticut General Life Ins. Co. v. Johnson, 303 U.S. 77, 80-81 (1938). Such taxation is proscribed because the “fundamental purpose of the [Commerce] Clause is to assure that there be free trade among the several States,” Boston Stock Exchange v. State Tax Comm’n, 429 U.S. 318, 335 (1977), and because extraterritorial taxation offends fundamental notions of due process and constitutes an “unreasonable clog on the mobility of commerce,” Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 527 (1935).

This Court has rightly observed that dividing income among the several States resembles “slicing a shadow.” Container Corp. v. Franchise Tax Board, 463 U.S. 159, 192 (1983).(5) Absolute consistency among taxing authorities “may just be too much to ask,” id., but there are constitutional limits on a State’s use of an apportionment formula, especially in respect of income derived from foreign commerce.(6) In other words, a balance must be struck between the State’s need for revenue and the taxpayer’s legitimate right to protection from overreaching taxing authorities. It is for this Court to ensure that the balance is a reasonable one. See Boston Stock Exchange, 429 U.S. at 329 (the Court has a duty “to make the delicate adjustment between the national interest in free and open trade and the legitimate interest of the individual States in exercising their taxing powers”). If the State has not “given anything for which it can ask return” in respect of the person, property, or transaction it seeks to tax, Wisconsin v. J.C. Penney Co., 311 U.S. 435, 444 (1940), the Commerce and Due Process Clauses operate as a constitutional brake upon the State’s raw power to tax.

The question presented here is whether the State of California’s system of taxation for out-of-state companies violates the Commerce Clause and Due Process Clause of the Constitution. Like many states, California imposes a corporate franchise tax for the privilege of doing business in the State, which is based on the net income derived from or attributable to sources within the State. CAL. REV. & TAX CODE [subsections] 23151 & 25101 (West 1992). Consistent with the constitutional requirements for corporations doing business both inside and outside the State, taxability of income turns first on the unitary business principle which allocates income to the State — i.e., on whether the out-of-state item sought to be taxed is “unitary” with, or functionally related to, the taxpayer’s in-state activities. The amount of operating income earned in California is then determined by calculating the net operating income of the unitary business and apportioning part of it to California by use of a formula.(7) California uses the apportionment formula set forth in the Uniform Division of Income for Tax Purposes Act (UDITPA), which compares (i) the taxpayer’s property, payroll, and sales (receipts) within the taxing State to (ii) the taxpayer’s total property, payroll, and sales. CAL. REV. & TAX CODE [sections] 25128 (West 1992) (App. at 7a); UDITPA, [subsections] 9-17. “Non-business income” — such as dividends derived from an unrelated business activity — is not allocated to the State (and thus is not apportioned to the State) unless the corporation is domiciled there. CAL. REV. & TAX Coos [sections] 25126 (West 1992) (App. at 37a).

In calculating a taxpayer’s net taxable income, business interest expense is generally deducted from business income. CAL. REV. & TAX Cove [sections] 24344(a) (West 1992) (App. at 35a). Under California law, however, taxpayers must offset their business interest expense — on a dollar-for-dollar basis — with non-business income not allocable to the State. CAL. REV. & TAX CODE [sections] 24344(b) (West 1992) (App. at 35a). Thus, out-of-state corporations (such as Petitioner Hunt-Wesson) are compelled to reduce their interest deduction by the amount of their nontaxable income, without regard to whether the interest expense is related to the nontaxable income. It is this statute — which increases Petitioner’s California tax liability — that is at issue here.

In this case, the trial court concluded on the merits that section 24344 violates the Due Process, Commerce, and Equal Protection Clauses of the Constitution. This latter decision was reversed by the Court of Appeal, First Appellate District, largely on the force of the Supreme Court of California’s 1972 decision in Pacific Tel. & Tel. Co. v. Franchise Tax Board, 7 Cal. 3d 544 (1972). As explained by the Court of Appeal:

Hunt-Wesson contends that the interest offset provision of section 24344

impermissibly taxes dividends which are constitutionally immune from

taxation by California, and therefore violates the federal Due Process

Clause. The Due Process Clause limits a state’s power to impose a tax on an

activity which is not connected with the taxing state. Thus, a state may

not constitutionally tax income [from] dividends which a nondomiciliary

corporation receives from subsidiary corporations having no other

connection with the state.

Hunt-Wesson argues that the interest offset provision of section 24344

constitutes an indirect tax on immune income, increasing a nondomiciliary

corporation’s tax liability solely because it receives non-taxable

dividends. Hunt-Wesson also argues that the interest offset [rule] is

overbroad, because it fails to apportion interest expense, but creates a

dollar-for-dollar offset. If we were writing on a clean slate, these

arguments might appear persuasive. In Pacific Telephone, however, the

California Supreme Court explicitly held that inclusion of nontaxable

dividends in the statutory offset computation under section 24344 does not

constitute taxation of the dividends themselves.

(App. at 7a-8a (citations omitted).) The Court of Appeal reached a similar conclusion in respect of Petitioner’s argument that the interest-offset rule violates the Commerce Clause; the court essentially held that the Pacific Telephone decision compelled it to sustain the statute. (App. at 9a-10a.) The California Supreme Court subsequently refused to review the case. (App. at 43a.)

The Court of Appeal’s decision flows from the principle of stare decision — reliance on the Pacific Telephone decision. Subsequent decisions of this Court, however, unequivocally demonstrate that the 1972 decision of the California Supreme Court cannot stand. South Central Bell Tel. Co. v. Alabama, 119 S. Ct. 1180 (1999); Fulton Corp. v. Faulkner, 516 U.S. 325 (1996); Oregon Waste Systems, Inc. v. Department of Environmental Quality, 511 U.S. 93 (1994).

II.

The Commerce Clause of the Constitution provides that “Congress shall have Power … [t]o regulate Commerce … among the several States …” U.S. CONST. art. I, [sections] 8, cl. 3. The clause not only provides Congress with broad regulatory powers, but also embodies a negative command forbidding States from discriminating against interstate commerce. Oregon Waste, 511 U.S. at 98. Its fundamental purpose “is to assure that there be free trade among the several States.” Boston Stock Exchange, 429 U.S. at 335. To effectuate this purpose, a state taxing scheme will be invalidated if it imposes a higher tax burden on foreign corporations than on domestic corporations engaged in comparable activity. Id. at 329 (“[p]ermitting the individual States to enact laws that favor local enterprises at the expense of out-of-state businesses `would invite a multiplication of preferential trade areas destructive’ of the free trade which the Clause protects” [citations omitted]); see Maryland v. Louisiana, 451 U.S. 725, 754 (1981); Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 72-74 (1963). Justifications for discriminatory restrictions on commerce must pass the strictest scrutiny. Oregon Waste, 511 U.S. at 101.

In this case, the Court of Appeal felt bound by a 1972 decision of the California Supreme Court upholding the interest-offset provision. (App. at la.) In Pacific Telephone, the taxpayer challenged the California interest-offset statute as it applied to nondomiciliary corporations. In reviewing the rule, the California Supreme Court acknowledged its discriminatory effect on non-residents. Specifically, the State court conceded that “when viewed in the light of a domiciliary corporation,” the rule “does not deprive the taxpayer of any of its interest deduction but is merely an attempt to provide how the interest expense shall be allocated as between income from operations and income from investments.” 7 Cal. 3d at 551 (emphasis in original). The court also commented that the allocation of interest expense is “very favorable” to the domiciliary corporation. Id. As applied to out-of-state companies, however, the allocation is clearly not favorable — a fact known to the State when the interest-offset rule was enacted. Id. at 554 (citing a letter by the Franchise Tax Board to the Governor that the rule will “increase taxes on foreign corporations while reducing those of domestic corporations’).(8) Hence, on its face, the rule violates the overarching principle of the Commerce and Due Process Clauses that an apportionment formula must, first and foremost, be fair. Container Corp., 463 U.S. at 169.

Commerce Clause jurisprudence has evolved significantly since California’s decision in Pacific Telephone. Nowhere has this evolution been more profound than in respect of statutory schemes that facially discriminate against out-of-state commerce. Earlier this term, in South Central Bell, this Court invalidated Alabama’s franchise tax as facially discriminatory because it gave “domestic corporations the ability to reduce their franchise tax liability simply by reducing the par value of their stock, while it denies foreign corporations that same ability.” 119 S. Ct. at 1185. Five years ago, in Oregon Waste, the Court similarly struck down a surcharge on the disposal of waste generated out of state, holding that it impermissibly discriminated against interstate commerce because it provided “differential treatment of instate and out-of-state economic interests that benefits the former and burdens the latter.” 511 U.S. at 99. Indeed, the Court held that such a scheme was virtually per se invalid. Id. Accord Fulton Corp., 516 U.S. at 331 (quoting the “virtually per se invalid” language of Oregon Waste in striking down an intangibles tax that was discriminatory on its face).(9)

By its very terms, therefore, the rule violates the Commerce Clause. As the trial court observed in its principled decision, “[T]he offset provisions treat two corporations in an identical business transaction differently based solely on their state of domicile, which difference results in increased taxes for foreign corporations.” (App. at 28a-29a.) Under extant Commerce Clause jurisprudence, the California statute must fall.

III.

The Constitution sets a limit on the power of a single State to tax the multistate income of a nondomiciliary corporation. A minimal connection between the interstate activities and the taxing State is required, as is a rational relationship between the income attributed to the taxing State and the intrastate value of the corporate business. Allied-Signal, Inc. v. Director, Division of Taxation, 504 U.S. 768, 772-73 (1992) (citations omitted); ASARCO Inc. v. Idaho State Tax Comm’n, 458 U.S. 307, 328 (1982). The Due Process Clause requires that “there must be a connection to the activity itself, rather than a connection only to the actor the State seeks to tax.” Allied-Signal, 504 U.S. at 778. In other words, “[o]ne may not be subjected to greater burdens upon his taxable property solely because he owns some that is free.” National Life Ins. Co. v. United States, 277 U.S. 508, 519 (1928).

California does not contend that the non-business income at issue here bears any relation to Petitioner’s instate activities. (App. at 16a.) Rather, the State taxes the income indirectly by requiring a dollar-for-dollar offset of constitutionally protected income against interest expense. See Willamette Indus., Inc. v. Franchise Tax Board, 39 Cal. Rptr. 2d 757, 760-61 (Ct. App. 1995) (the tax is “exactly the same amount” whether nontaxable dividends are treated as taxable income or are applied against interest expense). Such a taxing scheme cannot withstand scrutiny.

Under Allied-Signal, a State may tax dividend income only where the payee and payor of the dividend are engaged in a unitary business or the capital transaction serves an operational — rather than an investment — function. 504 U.S. at 787. Here, the State seeks to rationalize its taxation of dividend income by claiming it is merely closing a so-called loophole, i.e., that a foreign corporation should not be permitted to borrow money and build up its interest expense deduction and then receive tax-exempt dividends on the basis of investments made with the borrowed money. Pacific Telephone, 7 Cal. 3d at 554. A suspiciously similar argument was advanced by the State of New Jersey in the Allied-Signal case. There, in seeking the repudiation of the unitary business principle, the State argued that multistate corporations regard all their holdings as asset pools and therefore any distinction between operational and investment assets is artificial and should be ignored. 504 U.S. at 784-85. The Court wisely rejected this strained contention, noting instead that the relevant inquiry must focus on “the objective characteristics of the asset’s use and its relation to the taxpayer and its activities within the taxing State.” Id. at 785. The dividend income sought to be taxed here bears no relationship to Petitioner’s in-state activities and thus California’s covert attempt to tax it should be rejected as violative of due process.

Moreover, the State’s semantics — that the interest-offset rule is not a “tax” and therefore the precedents of this Court are not controlling — cannot change the substance of the statute. It is clear that California could not tax Petitioner’s dividend income directly. ASARCO, 458 U.S. at 327- 29. It is also clear that a State may not, through sleight of hand, indirectly tax constitutionally protected income. Westinghouse Electric Corp. v. Tully, 466 U.S. 388, 404-05 (1984) (it is irrelevant that a State discriminates against business carried on outside the State by disallowing a tax credit rather than by imposing a higher tax); National Life Ins. Co., 277 U.S. at 520 (“What remains after subtracting all allowances is the thing really taxed.”). “The fact that a tax ostensibly laid upon a taxable subject is to be measured by the value of a non-taxable subject at once suggests the probability that it was the latter rather than the former that the law-maker sought to reach.” The Macallen Co. v. Massachusetts, 279 U.S. 620, 629 (1929). Formal distinctions lacking in economic substance have no constitutional significance. Westinghouse Electric Corp., 466 U.S. at 405. In other words, “[al tax on sleeping measured by the number of pairs of shoes you have in your closet is a tax on shoes.” Trinova Corp. v. Michigan Dep’t of Treasury, 498 U.S. 358, 374 (1991) (citation omitted). Cf. Bass, Ratcliff & Gretton, Ltd. v. State Tax Corem’n, 266 U.S. 271, 282-83 (1924) (States’ efforts to tax income from non-unitary entities is “a mere effort to reach profits earned elsewhere under the guise of legitimate taxation”).

In Allied-Signal, the Court validated the “necessary limit on the States’ authority to tax value or income that cannot in fairness be attributed to the taxpayer’s activities within the State.” 504 U.S. at 780. This Court “act[s] as a defense against state taxes which, whether by design or inadvertence, … attempt to capture tax revenues that, under the theory of the tax, belong of right to other jurisdictions.” Trinova Corp., 498 U.S. at 386. California’s attempt to reach Petitioner’s nontaxable income by reducing its interest expense has the same effect as a direct tax on that income and cannot in fairness be sustained. The Court of Appeal observed, “If we were writing on a clean slate, these arguments might appear persuasive.” (App. at 8a.) This Court can provide that clean slate by striking down the interest-offset rule because it violates the Due Process Clause of the Constitution.

CONCLUSION

For the foregoing reasons, the Court should grant the petition for a writ of certiorari and reverse the decision below.

Respectfully submitted,

Timothy J. McCormally *Mary L. Fahey Jeffery P. Rasmussen Tax Executives Institute, Inc. 1200 G Street, N.W., Suite 300 Washington, D.C. 20005-3814 (202) 638-5601 Counsel for Amicus Curiae Tax Executives Institute, Inc. * Counsel of Record

July 22, 1999

(1) Pursuant to Rule 37.6, amicus TEI states that no counsel for a party has written this brief in whole or in part and that no person or entity, other than amicus, its members, or its counsel, has made a monetary contribution to the preparation or submission of this brief. Tax Executives Institute has received the written consents of Petitioner and Respondent to the filing of this brief; those consents have been filed with the Clerk of the Court.

(2) If the Court determines that review of this case is proper, amicus TEI submits it should also grant a writ of certiorari in F.W. Woolworth Co. and Kinney Shoe Corporation v. Franchise Tax Board, Supreme Court Docket No. 98-1967 (petition filed on June 7, 1999), which involves the same statute and raises identical issues. (The Woolworth case also involves the application of the Equal Protection Clause to the interest-offset rule. U.S. CONST. amend. XIV, [sections] 1.)

(3) “App.” references are to the various appendices bound with the Petitioner’s Petition for a Writ of Certiorari to the Court of Appeal of California for the First Appellate District in Hunt-Wesson, Inc. v. Franchise Tax Board, No. 98-2043 (filed June 21, 1999).

(4) U.S. CONST. art. I, [sections] 8, cl. 3 (Commerce Clause); U.S. CONST. amend. XIV, [sections] 1 (Due Process Clause).

(5) The unitary business principle calculates the local tax base by first defining the scope of the unitary business of which the taxed enterprise’s activities in the taxing jurisdiction form one part, and then apportioning the total income of the unitary business between the taxing jurisdiction and the rest of the world based on a formula “taking into account objective measures of the corporation’s activities within and without the jurisdiction.” Container Corp., 463 U.S. at 165. Although the terms “allocation” and “apportionment” are often used interchangeably in respect of the division of income among various jurisdictions, “allocation’ properly refers to the “attribution of a particular type of income to a designated state, [and] `apportionment’ refers to the division of the tax base by formula.” JEROME R. HELLERSTEIN & WALTER HELLERSTEIN, STATE TAXATION I: CORPORATE INCOME AND FRANCHISE TAXES [paragraph] 9.01 (3d ed. 1998).

(6) In evaluating challenges to state taxing schemes, the Court examines 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.” Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977).

(7) The formulary apportionment of income by a State has been recognized by this Court as a valid means of taxation. Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 460 (1959) (“the 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”).

(8) The constitutional aspects of the statute were apparently not challenged in Pacific Telephone.

(9) Several other decisions of this Court since Pacific Telephone also undermine that decision’s continuing vitality. See Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S. 564 (1997) (reduction of state property tax exemption for charities operated principally for the benefit of nonresidents is facially discriminatory and thus invalid); Philadelphia v. New Jersey, 437 U.S. 617 (1978) (New Jersey law banning waste imported from other States violates the Commerce Clause).3

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